In my February 2025 column, I looked at a Qatar Court of Cassation judgment which held that a pay-when-paid clause in a subcontract cannot operate to keep a subcontractor from its money indefinitely. The court made clear that such a clause grants only a temporary extension of the payment deadline; one that must be reasonable in the circumstances. 

The Abu Dhabi Court of Cassation has now also considered the enforceability of pay-when-paid and has published Judgment No. 386/2026 (Commercial Cassation) dated June 18, 2026. This is a similar payment dispute between a main contractor and a subcontractor but, in this case, the main contract had been terminated and in those circumstances, the court held, the pay-when-paid clause was unenforceable. The reasoning was interesting...

In both countries and across the Gulf, pay-when-paid is both a common contractual provision in construction subcontracts, and is permitted in law under general provisions supporting freedom of contract. Courts and arbitral tribunals across the Gulf have routinely upheld such provisions. This is in contrast to other developed market economies such as the UK and other common law countries in which such provisions are unlawful on public policy grounds and are, therefore, not enforceable. 

In the earlier Qatari ruling, the facts were straightforward: a subcontractor invoiced for works completed but the main contractor relied on a pay-when-paid clause and the fact that the employer had not yet settled the corresponding sum upstream. The lower courts upheld the clause but the Court of Cassation did not, holding that the clause was only a temporary mechanism: a short window during which the main contractor could pursue payment from the employer. And that window must be reasonable and not excessively long. 

As always, reasonableness brings questions: is there a fixed threshold period that is unreasonable? Is it fixed or does it depend on the length of the project schedule? Does it matter that the main contractor has or has not made efforts to get itself paid? Is it different if the main contractor has access to a quick Dispute Board ruling? Whatever the answers, the Qatar judgment was welcome, even if only to encourage main contractors to make more effort to get paid.    

The Abu Dhabi case involved a construction project in which the main contractor got into financial difficulties and the main contract was terminated by the employer. A subcontractor claimed payment but the main contractor denied an obligation to pay, by reason of the pay-when-paid clause.

Having gone through the lower courts, the Abu Dhabi Court of Cassation held that the termination of the main contract (in that specific situation) rendered the payment condition impossible to fulfil. Once impossibility was established, the court decided that the clause could no longer operate as a bar to the subcontractor’s claim. 

These two decisions are from different jurisdictions, neither of which operates a system of binding legal precedent but they are welcome nevertheless, as signals that a pay-when-paid clause cannot justify unreasonable delay or indefinite delay. And where the payment condition can never be met, the clause falls away and the subcontractor’s right to payment is relieved of the condition. 

We should note that the Abu Dhabi decision did not conclude simply that main contract termination disapplies a pay-when-paid clause automatically and immediately.  So the takeaway from this is not that all pay-when-paid situations involving termination of the main contract will lead to the same outcome, for two reasons.

First, there is no automatic connection between termination of the main contract and impossibility of the pay-when-paid condition ever being met. Termination does not usually extinguish pre-existing obligations and liabilities. A main contractor is usually expressly entitled to be paid for work up to the point of termination, which logically includes the subcontractor’s work. But the pay-when-paid condition is extinguished only at the point where it is apparent that the main contractor will never be paid. That point might be coincidental with termination (which it was on the specific facts before the Abu Dhabi Court of Cassation) but it would more often be later.  

Second, there is no standard clause. Conventional pay-when-paid language might be followed by a provision that the subcontractor will not be paid if the main contractor is never paid. In other words, this might really be a pay-if-paid provision.

Both decisions are examples of the ways in which Middle Eastern commercial codes (and the principles underlying them) can ameliorate the tougher aspects of Middle Eastern industry practice, by adjusting outcomes to achieve fairness. And since parties’ behaviour is taken into account, it is reasonable to conclude that the general duty of good faith will require that main contractors must, at least, pursue their main contract payment entitlements.

These decisions might increase the number of subcontractor claims coming to litigation or arbitration. Certainly they should be aware of their rights: some of the payment delays we see in the region are unconscionable. In light of this and to limit the room for dispute, parties might agree a longstop date on a pay-when-paid clause, acknowledging that any period short of that is reasonable. 

* Dubai-based Stuart Jordan is the Global Head of Construction for Baker Botts, a leading international law firm. He has extensive experience in the Middle East, Russia and the UK.