The number of large-scale infrastructure investment projects and upcoming international events such as Qatar’s 2022 World Cup and the 2020 Dubai World Expo evidence the magnitude of the construction industry in the Middle East. Unsurprisingly, disputes are a common feature of this industry and this is one of many reasons why states in the region are keen to establish a comprehensive arbitration framework.
A brief history of arbitration in the Middle East
Traditionally, Islamic law encourages the use of arbitration (or certainly conciliation) to settle disputes. One well known story of the Prophet Mohammad’s early life involved him being chosen by feuding tribes, who could not agree on a vital element of the reconstruction of the Ka’aba and the Prophet bridged the gaps between the quarrelling parties by suggesting an original solution that was essentially a win-win for all.
In the Middle East, countries are resorting to arbitration laws in line with international best practice. This is evidenced by the fact that countries including Qatar in 2002 and the United Arab Emirates in 2006 have adopted the New York Convention (“Convention”). Middle East states are increasingly also adopting the United Nations Model Law on International Commercial Arbitration (the “Model Law”) in arbitration centres throughout the region.
The nature of construction disputes
The nature of construction disputes tends to be technical and complex a
nd generally requires an expert to determine the issues in question. Construction disputes typically arise over time, cost, scope of work or quality issues. Construction contracts, particularly those based on standard forms such as International Federation of Consulting Engineers, are generally voluminous and there are often issues arising from the interpretation of the various documents forming part of the contract. Disputes often arise over the scope of work between employer and contractor and between a contractor and subcontractor, and whether work was completed in accordance with the agreed specification and expected quality are also common.
The importance of arbitration to resolve construction disputes
Where construction disputes occur, parties are increasingly turning to arbitration for resolution. The flexibility and efficiency of arbitration, as well as its speed, efficiency and confidentiality has made it an attractive method of dispute resolution. Construction work is predominantly procured by the government from global contractors and engineering companies who prefer international governing law and arbitration clauses in their contracts. Typically, the preferred arbitration centres for global contractors are London, Paris, Hong Kong and Singapore due to their reputation and recognition for an established formal legal infrastructure and track record for enforcing agreements to arbitrate and arbitral awards. Conversely, the employer (often the government) will generally prefer or be restricted (for example under local procurement laws) to using its local court system or domestic arbitration to resolve disputes.
Arbitration Centres
As the enthusiasm for Middle East countries as a platform for international trade increases, arbitration centres have been growing in line with international standards. The Middle East now offers wide range of options for arbitration:
UAE
Arbitration is governed by Articles 203 to 218 of the Civil Procedure Law. Under the Civil Procedure Law contracting parties are permitted to refer any dispute concerning the implementation of a specified contract to one or more arbitrators. The UAE increasingly favours arbitration as a suitable mechanism for Alternative Dispute Resolution (“ADR”) and is home to the following arbitration centres:
ADCCAC
The Abu Dhabi Commercial, Conciliation and Arbitration centre (“ADCCAC”) oversees a number of construction disputes for Abu Dhabi-based parties. Since early 2007, construction contracts by the Abu Dhabi Government have provided for disputes to be referred first to an ad hoc dispute adjudication board, in line with International Federation of Consulting Engineers (FIDIC) forms, and then to ADCCAC arbitration. In October 2013, the ADCCAC implemented new procedural regulations for the conduct of arbitration. The new ADCCAC Regulations introduced good modern arbitration practice to the ADCCAC arbitration process in an effort to encourage more parties to consider the ADCCAC has a forum for ADR”.
DIAC
Dubai International Arbitration Centre (“DIAC”) has in place its own Arbitration Rules acting as an appointed authority under the UNCITRAL Arbitration Rules and is now one of the busiest arbitration centres in the Middle East for construction disputes.
DIFC-LCIA
DIFC-LCIA is a branch of London Commercial Arbitration Centre (“LCIA”) and it follows the LCIA rules very closely. As at 6 December 2015, the DIFC-LCIA had around 30 open arbitrations or other ADR proceedings.
Qatar
The adoption of arbitration as a forum for resolving construction disputes is also growing in Qatar. Nonetheless, Qatar is yet to implement a comprehensive arbitration law. A draft law has been in circulation for over a year and is expected to come into force in the coming months (the “Draft Qatari Law”). The Draft Qatari Law is based largely on the Model Law and is meant to replace the existing provisions under Articles 190-210 of the Civil and Commercial Procedure Law No. 13 of 1990 (the “Civil and Commercial Procedure Law”) which currently govern arbitration in Qatar.
Qatar International Centre for Conciliation and Arbitration (QICCA)
QICCA was established in May 2012 and is now more frequently adopted as a forum for the resolution of disputes arising from construction contracts.
Enforcement of construction arbitration awards
Critical to the choice of the appropriate arbitration centre for any construction contract should be the consideration of the enforceability of any arbitration award sought. The Convention mainly establishes the principle that a properly made arbitration award in one member country must be binding and enforceable in another member country, unless the award can be rejected on the basis of certain grounds for refusal of enforcement such as the recognition or enforcement of the award would be contrary to the public policy of that country.
The parameters of what a country regards as “public policy” can be wide and is often a challenge. In the UAE, Articles 235 and 236 of the Civil Procedures Law confirm that arbitral awards can be enforced in the UAE, provided a number of conditions are met including procedural issues such as the proper notification and representation of the parties before the arbitral tribunal that issues the decision in the foreign country and procedural irregularities. In 2004, the UAE’s Court of Cassation overturned an arbitration award in the Bechtel[1] case, on the grounds that the witnesses had not been properly sworn. UAE courts may also refuse the enforcement of a foreign arbitral award if it contradicts a previous judgment already issued by a UAE court (Article 235 (e) of the Civil Procedures Law) or if it includes elements that contradict public policy or morals. Article 3 of the UAE Civil Code, Federal Law No. (5) of 1985 provides that public policy considerations should include “rules relating to personal status such as marriage, inheritance, descent, and rules concerning governance, freedom of commerce, trading in wealth, rules of personal property and provisions and foundations on which the society is based in a way that do not violate final decisions and major principles of Islamic Shari’a“.
In 2012, Qatar’s Court of Cassation ruled on the necessity for arbitral awards to be rendered in the name of His Highness The Emir of Qatar. This ruling set aside an arbitral award by the QICCA based on several legal texts including Article 63 of the Qatari Constitution which states that “Judicial Authority shall be vested in the Courts in the manner prescribed in this Constitution and Judgments sh
Reforms
Arbitration developments continue to take place across the region due to the evolving role of arbitration in the Middle East. In Qatar, the Draft Qatari Law is expected to introduce numerous positive changes and new concepts to the existing arbitration provisions. The current Draft Qatari Law unambiguously states that the decision to submit disputes to arbitration is solely that of the parties and the agreement to arbitrate may be documented in a separate stand-alone agreement or a clause contained in the contract. The Draft Qatari Law also suggests that the arbitration agreement could be evidenced through correspondence in paper or electronic form. This should put an end to any arguments that an arbitration clause in a contract is not sufficiently clear to satisfy the requirements of Article 190 of the Civil and Commercial Procedure Law and that an agreement for arbitration should be a separate signed agreement. It may also eventually open up the possibility for parties to opt in, by agreement, to using arbitration as a method to resolve construction disputes where it was not envisaged when the contract was originally entered into. Where there is a valid arbitration agreement, the local courts are obligated not to accept jurisdiction over a dispute which the parties previously agreed should be resolved by arbitration. It is clear, however, that the Draft Qatari Law grants the court controlling power of the legitimacy and enforceability of such arbitration agreements but the courts are limited to this review because if the agreement is valid, the courts must honour it. Nevertheless, if such a claim was raised before a national court, this would not stop the arbitration proceedings from being commenced or continued.
There is also a draft UAE Federal Arbitration Law (“UAE Draft Law”) which intends to replace Articles 203 to 218 of the Civil Procedure Code and introduce a modern legislative framework for arbitration in the UAE, in line with the UNCITRAL Model law. The UAE Draft Law includes an intention to provide that no arbitration order is issued without verifying that it is not “in conflict with a ruling on subject of dispute passed by any UAE court of law”. Construed broadly, it may be interpreted to mean that an arbitration award may be prevented from being issued in a construction dispute where the nature of that dispute has already been tested by any UAE court of law. However, construed narrowly, it may only apply when dealing with the same cause of action between the same parties.
Conclusion
Arbitration centres in the Middle East are growing in significance and are being used increasingly in construction disputes. This is reflective of the developments in legislation setting the framework for arbitrations and enforcement of awards and encouraging government bodies in the Middle East to use arbitration. Global companies are getting more comfortable dealing with disputes in the region as the arbitration centres embed international standards. This is a positive step, contributing to developing market confidence of the international business community and encourages foreign direct investment critical for countries in the Middle East to diversify their economies.
With contributions from Aditya Gaur (UAE) and Al-Anoud Mosleh (Qatar).
[1] Int’l Bechtel v Dep’t of Civil Aviation of the Gov’t of Dubai, Dubai Court of Cassation, petition No. 503/2003, ruling dated May 15, 2003