Arbitration And Its Development In The UAE Construction .

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September 2009SLQS JOURNALArbitration and its Development in the UAEConstruction Industry - an OverviewE.A.Thusitha P. Edirisinghe, B Sc (Hons)QS, MCIArb, CCE, Pg Dip (Arb & Const. Law)is a quantity surveyor graduated from University of Moratuwa in 2000, currently studying for MSc. in Arbitration and Construction Law in the Robert Gordon University of Scotland, Dubai Campus.“The arbitration in the United Arab Emirates is stillyoung compared to most European countries. Still thereis no arbitration law implemented in the country. Most ofthe international investors are still reluctant to enter intothe country to invest due to the uncertainties existing inthe law and, specially, the lack of international standardsin dispute resolution methods ”AbstractUnited Arab Emirates is one of the emerging countriesin the region heading towards development. Currentlythere are massive construction projects being carried outincluding the world’s tallest tower, green cities, manmade islands and many experimental constructions.This has attracted different investing parties enteringinto the country including companies from domesticand international property developers, consultants andcontractors. Many of the projects are based on ‘fasttrack’ construction methods; therefore the constructionactivities have become critical when delivering a goodquality product on time to the clients. Eventually, thishas created many disputes among the parties involved inthe industry.Arbitration is the most preferred course of action toresolve the disputes in the industry. Almost every contractincludes an arbitration clause enabling the parties to refertheir disputes to the arbitration since arbitration has itsinherent advantages over litigation and other disputeresolution techniques.The purpose of this article is to investigate the developmentof the arbitration procedure in the United Arab Emiratesand to observe its role in the challenging economic boomexisting in the construction industry.50The introduction deals with defining the arbitration, therequirement to arbitrate and certain important aspectsin the arbitration mechanism. The article focuses onthe evolvement of the arbitration in the United ArabEmirates from its conception. It also focuses on certaininteresting features in arbitration in the country. Then thediscusses various institutional laws existing in the countryincluding a brief role in respect to the construction. Italso discusses key conventions/treaties ratified in relationto the arbitration in the country. Finally it concentrateson the future of the arbitration in the country.IntroductionThe arbitration in the United Arab Emirates is still youngcompared to most of the European countries. Most ofthe international investors are still reluctant to enter intothe country for the investments due to the uncertaintiesexisting in the law and, specially, the lack of internationalstandards in dispute resolution methods. This promotedme to write this article so as to find out the evolvementof arbitration in the United Arab Emirates and its role inconstruction industry in particular.There are attempts that have been taken by professionalsand experts in the field to investigate on the subject.This includes texts, seminars, discussion forums andconferences. However, more analytical and detailedinvestigations are required to the subject to understandthe demands from the various parties in the industry sothat the arbitral awards can be recognized and enforcedfairly simply and quickly.1.1 The Arbitration1.1.1 The DefinitionArbitration can be described as resolving of disputesarisen between the contractual parties. As the

September 2009SLQS JOURNALprocedure may vary from case to case, jurisdictionto jurisdiction and region to region, there is nocommon definition that can be given. This has beenpointed out by the authors of the book “Arbitrationof Commercial Disputes” as:“There is no universal definition of Arbitration eachjurisdiction may apply its own ‘spin’ in decidingwhat may and what may not be arbitrated, whomay arbitrate, and how the arbitral process beconducted1 ”Another attempt to define the arbitration has beenmade by a Scottish Author, Professor DM Walker:‘The adjudication of a dispute or controversy on factor law or both outside the ordinary civil courts, byone or more parties to whom the parties who are atissue refer the matter for a decision2”The main principle in arbitration is the “agreement”to arbitrate, a dispute, a third party reference (anarbitrator) and finding a resolution to the disputeby that third party. It is important to mentionthat arbitration does not itself directly provide thesolution to the dispute; they set out the procedure tobe followed in resolving it.1.1.2Reasons to ArbitrateThere are many advantages in arbitration. The keybenefits are discussed below. The court procedure takes its established timeframework. This cannot be changed by the parties.Also the fees for the lawyers/solicitors are very highand may have to be paid for several times. Therefore,the arbitration is considered cheaper and quicker thanlengthy litigation procedure.Arbitration is more flexible than litigation since theparties can decide where arbitration is held and whotheir arbitrators are. Also the parties may agree upontime limits so that it can be completed fairly quickly.Arbitration can be conducted in private premises.Therefore, the parties can keep their privacy. In mostoccasions, litigation is open to the public attendancethus no privacy is reserved in litigation.The skilled and knowledgeable input can be obtainedto resolve the disputes. The reason is that the courtjudges are not often the experts in the subject matters.This leads to the satisfaction of each parties and a fairdecision could be received. Arbitration is preferred by many parties especiallyin complex international commercial disputes. Thereason is that the parties outside the place of arbitrationare unfamiliar with jurisdiction and languages. Thereis a tendency towards being bias and unfair in certaincountries. Even the arbitration can be held outsidethe region where the dispute has taken place.Finally, the decision of the arbitrator is final andbinding and is enforceable in law similar to a decisionof the court.1.1.3 The Arbitration AwardThe arbitration award is a decision of the arbitratorgiven for that dispute after the proper submission bythe parties. Also the award can be an oral one or awritten one; however, oral awards are rare. On theother hand, mostly the parties prefer to have theirawards in writing in case it is so required by certainlegislations in the country. Also the party may haveto present it to the courts if there is a failure from theother party to comply with the arbitral award.Another purpose of an award is to record thearbitrator’s decision, which is final and binding, so thatthe parties are informed about the decision. An awardmay be a payment of money, order a rectification,order to do or refrain from doing something or aspecific performance.1.1.4Characteristics of Arbitration1.1.4.1 Agreement to arbitrateThere should be a valid agreement to arbitrate inorder to have a valid Arbitration between the parties.The absence of this causes the arbitration to fail. Thisis a fundamental requirement in arbitration. Thereason is that the arbitration agreement is consideredas another agreement. Similarly, the recognitionand enforcement of an arbitration award should beestablished in the concerned jurisdiction thoughcourts order, if applicable under the conventions3(when international parties are involved) wherethe arbitration takes place. Also an arbitrationagreement can form a part of a main contract or aseparate agreement. When it takes a role of a separateagreement, it is considered as an ‘ad-hoc’ agreement.51

September 2009SLQS JOURNAL1.1.4.2 The judicial nature of ArbitrationAn arbitrator has more freedom than a court judgedue to the flexibility in the arbitration procedure asdiscussed earlier. However, they (arbitrators) cannotdiscard the basic principles of justice. A party can,however, challenge a decision given by an arbitratorin the court in very limited provisions such as a biasor incompetent act to resolve the matter. It is worthmentioning that, challenging (appealing) an arbitraldecision could be more difficult than appealingagainst a court decision. Therefore, arbitration awardhas more power in enforcement than most of otheralternate dispute resolution methods.Unless the parties have agreed, there are no fixed rulesin the arbitration process. Arbitrators may implementcase base approach to arrive at a resolution based onthe submissions of the parties. The submissions are notusually disclosed unless otherwise required to do so.1.1.4.3 The Award is final and bindingAs mentioned in chapter 1.1.4.2, an Arbitral Award isusually final and binding. However, in some countries,it is questionable whether an Award is final and binding.For example, in United States, the use of non-bindingarbitration by the courts in domestic disputes is notuncommon4. However, this feature attracts manyparties to choose arbitration. Also, it is important tonote that, once the arbitration is commenced, partiescannot quit from the proceedings.2.1 The Development of Arbitration in theUAE Construction Industry2.1.1 IntroductionThe Emirates, specially Dubai and Abu Dhabi,have become the world‘s leaders in constructionrelated projects over the past 10 years. Most of theprojects are ‘fast track’, and the projects need to becompleted within a very short period of time withoutcompromising quality and cost. However, thisgoal has been challenged due to the complexity ofcommercial transactions made between internationalcompanies and local enterprises and it creates moredisputes among the parties. Main reasons for suchdisputes are; the sudden inflation in the region dueto the high demand for the supplies, major changesto the designs, delay in carrying out the projects andincrease of labor wages in line with the current globaleconomic recession.52In the recent past, foreign companies were reluctantto invest in this challenging industry as they areunfamiliar with the law and jurisdiction, specially theaccessibility and fairness of the UAE courts and, inparticular, the arbitration process. Currently there isno formal legislation in the Emirates exclusively forthe use of arbitration which is similar one to Englandand Wales5, thus it is at present governed by the UAECivil Procedure Code.2.1.2 Arbitration and the UAE Courts –some key features2.1.2.1 Arbitration AgreementThe courts in United Arab Emirates recognize adecision made by both the parties to refer theirdifferences (disputes) to the arbitration under theFederal Law No. (11) of 19926. No parties canrequest a court decision before the arbitration in theevent of a dispute if there is an agreement to refer toarbitration. Also the parties can refer their matters tothe arbitration any time during the litigation.The courts must certify all arbitration decisions in theemirate. Also the courts can invalidate any arbitraldecision based on the procedural considerationswhich will be discussed in detail later in the article.This provision allows the parties to appeal for thecertification which may prolong the award indefinitely.This is a disadvantage in the system and vitiates thepurpose of setting a limit for an arbitrator for his/heraward.2.1.2.2 The Arbitral TribunalIn the Emirates, the appointment of the arbitratorsis not generally restricted to the nationality, genderor religion. This is the case in most Arab countries inthe region as well as in other countries in the world.The only restriction in this regards is found in theArticle 206 of the Civil Procedure Law, which is; anarbitrator must not be a minor, under guardianship ordeprived of his civil rights7.The arbitral tribunal may be appointed by the partiesin the following manner. Each party may appointtheir arbitrators according to their own will, andthen the two arbitrators will jointly appoint the thirdarbitrator who acts as a panel judge. Otherwise, thearbitrators may be appointed in accordance withthe institutional rules provided that the partied have

SLQS JOURNALagreed. There are powers and restrictions granted bythe law for the tribunal, which is outside of the scopeof this article.Here, an interesting point is that, the law expresslyobliged the tribunal to comply with the arbitrationagreement made by the parties. This provision givesthe parties to appeal (challenge) against the award/tribunal on the grounds in addition to the otherprovisions such as the tribunal is being bias. Anotherpoint in the Emirates law regarding the arbitration isthat, any arbit6 months from the date of the first arbitration sessionsubject to the extension can be granted to this by anagreement by the parties or by a court order. If anarbitral award is not granted within the stipulatedtime, either party can refer to the dispute to thecourt.It is also important to ‘formally establish’ the extensionto the time limit. In one of the cases held in Abu DhabiSupreme Court in 2002, the main consideration ofthe courts was to find out whether or not there was avalid agreement to extend the time limit between theparties. It could have been more advantageous if theparties had formalized their agreement to extend thetime bar. Since there was no valid agreement, it washeld that the award was invalid. However, as previouslynoted, the main purpose of such a dead line is to pushthe parties to the arbitration. Otherwise there is adanger of parties delaying the proceedings and finallyappealing to invalidate the award based on the timebar. Also there are some critics about the time limitas to its sufficiency since more complex commercialdisputes need more time to arrive at a resolution.2.1.2.3 Enforcement of an Arbitral AwardPrior to the New York Convention, the enforcement offoreign arbitral awards was not certified automaticallyin the country. The parties, especially internationally,had many difficulties in relation to their desires to enterinto the country. Until the New York Convention(refer chapter 2.1.4.1), the enforcement of foreignarbitral awards were enforced by the provisions of theCivil Procedure Law as discussed earlier.Article 235 of the Civil Procedure Law sets out, inorder to enforce a foreign award, the Courts mustSeptember 2009ratify the awards. Once an award is made, the partiesneed to request from the Courts to ratify it. TheCourts will ratify it only where the followings aresatisfied:1. That the State courts do not have jurisdiction inthe dispute which the judgment/award has beengiven or the order made, and that the foreign courtswhich issued it have jurisdiction therein under theinternational rules for legal jurisdiction prescribed intheir law;2. That the judgment or order has been issued by a courthaving jurisdiction under the law of the country inwhich it was issued;3. That the opposing parties in the case in which theforeign judgment has been given have been summonedto appear and have duly been approved;4. That the judgment or order has acquired the force of afait accompli under the law of the court which issuedit;5. That it does not conflict with a judgment or orderpreviously issued by a court in the state and containsnothing in breach of public morals or order of thestate.2.1.3 Key Arbitration Institutes in theUnited Arab EmiratesThere are several institutes existing in the Emirateswhich provide sets of procedural arbitrationrules. Most of these rules are based on the UnitedNations Commission on International Trade Laws(UNCITRAL) or Civil Procedure Law of thecountry.The advantage of having arbitral institutes is thatthe parties can agree to refer by reference to theserules so that there will be a body which exercisesan administrative and supervisory functions moreefficiently. However, as there is no proper arbitrationlaw yet been developed and implemented, arbitrationprocedure exhibits somewhat complicated as pointedout earlier in chapter 2.1.22.1.3.1 Dubai International ArbitrationCentre (DIAC)In 1993, the Abu Dhabi Chamber of CommerceIndustry established the Abu Dhabi CommercialConciliation and Arbitration Centre to settlecommercial disputes through conciliation or53

September 2009SLQS JOURNALarbitration. However, the most popular establishmentis the Dubai Chamber of Commerce and IndustryConciliation and Arbitration Centre (known asDubai International Arbitration Centre or DIAC)established in 19948.DIAC was first established 1994 as a Centre forCommercial Conciliation and Arbitration. Theprimary objectives were to provide extensive facilitiesto conduct commercial arbitrations, promoting partiesto settle their disputes in arbitration and practicingarbitrators for international arbitration. In additionto the local experts and qualified lawyers, DIAC hasa connection with the network of international lawfirms in various countries so that they provide theirservices to the international parties.The Rules of Commercial Conciliation andArbitration of 19949 has been replaced by DIACArbitration Rules 2007 which are to be applied to alldisputes referred for arbitration since 199410 . Thesenew rules provide comprehensive set of procedures inconducting arbitration such as appointment of thetribunal, place and language of arbitration, defense,hearing, witness statement, and the enforcement ofthe award.2.1.3.2 Dubai International FinancialCentre (DIFC)Dubai International Financial Centre (DIFC) andLondon Court of International Arbitration (LCIA)have jointly established the new DIFC Arbitrationrules in September 2008. Although the objectiveof the establishment of DIFC arbitration law is toconduct dispute resolution in connection with DIFCAuthority11, the DIFC LCIA Arbitration Centre isopen to any parties who have agreed to have theirdeputes settled with the Centre. This is the secondarbitration centre established in Dubai after DubaiInternational Arbitration Centre.The new DIFC Arbitration rules are based on theUnited Nations Commission on InternationalTrade (UNCITRAL) Model Law on Internationalcommercial Arbitration. Since the DIFC Courtjudgments will be enforced through the Dubai Court,it is necessary to obtain DIFC Court judgment forthe DIFC Arbitration awards which is then enforcedthrough the Dubai Courts. Then the arbitration award54is enforceable in UAE and in the Gulf CooperationCouncil (GCC) under the 1983 Riyadh Convention.Further, DIFC Courts have been established based onCommon Law of system which gives more flexibilitywith comparing to United Arab Emirates’ civiljurisdiction.Compared to Dubai International Arbitration Centre(DIAC) rules which handle primarily constructionrelated disputes, DIFC has an advantage of attractinginternational commercial arbitrations with one orboth the parties being outside the UAE.The records of Dubai International ArbitrationCentre shows that there were 77 new arbitration casesreferred to the Centre in 2007 and 80% of them wererelated to the construction industry. In this year, so farin total 55 cases have been reported12.2.1.4 The Conventions/Treaties in theUnited Arab Emirates2.1.4.1 The New York ConventionThe UAE has become the 137th member of theUnited Nations Convention on the Recognitionand Enforcement of Foreign Arbitral Awards: TheNew York Convention has been ratified by the UAEFederal Decree no. 43 and the convention entered into force internationally for the UAE on 19thNovember 2006. (Foreign arbitral awards in the UAEhave been dealt with in the same manner as foreignjudgments under Articles 235 – 246 UAE FederalLaw 11 – Civil Procedure Code)Under this convention, any award made in any state,whether that state is a member of the convention ornot, will be recognized and enforced by any otherstate that was a party, so long as the award satisfiedthe basic conditions set out in the Convention.Article 1 of the Convention provides:“1. This convention shall apply to the recognition andenforcement of arbitral awards made in the territoryof a State other than the State where the recognitionand enforcement of such awards are sought, andarising out of differences between persons, whetherphysical or legal. It shall also apply to arbitral awardsnot considered as domestic awards in the State whererecognition and enforcement are sought.”

September 2009SLQS JOURNALArticle 2 requires the “Arbitration Agreement inwriting.” The term “agreement in writing” shallinclude an arbitral clause in a contract or an arbitrationagreement, signed by the parties or contained in anexchange of letter or telegrams13. Therefore, the needfor documentation of terms of contract is an importantstep in commercial transactions in the region.Article 3 of the Convention requires each Contractingparty to recognize the arbitral award as binding andwill be enforced in accordance with the rules of theterritory.Also the Convention provides the provision forthe refusal of enforcement under certain limitedconditions. The main provisions include; when thearbitration agreement is invalid, when the party wasnot given proper notice, where the dispute is not theone that an arbitrator was given, the appointmentof an arbitrator or arbitration procedure was not inaccordance with the agreement, and finally when theenforcement of the award would be contrary to thepublic policy if the country. It is difficult to refuse anarbitral enforcement condition other than the above.2.1.4.2 The Riyadh ConventionOn 17th June 1996, the Emirates ratified the RiyadhConvention. As of to date, Gulf countries haveratified the Convention. Article 37 deals with theenforcement of arbitral awards made between themember countries in relation to civil, commercial,administrative and personal status disputes. As inother occasions, the Convention takes precedenceover the country’s Civil Procedure Law.In Addition to the above, the United Arab Emirateshave signed up to two bilateral treaties with Franceand India in relation to the enforcement of foreignjudgments and awards.2.2 The Future of Arbitration inUnited Arab EmiratesAs mentioned earlier, no arbitration law has beenenforced in the Emirates. However, the Ministryof Economy and Commerce, in coordination withMinistry of Justice, has recently finalized a draftfederal legislation on arbitration14.More care has been taken to suit the law into the existingeconomic and trade rules while creating provisionsfor domestic and international arbitration. The newdraft law is based on the Model Law of the UnitedNations Commission on International Trade Laws(UNCITRAL). The new law will enforce the arbitralawards domestically and internationally in consistentwith various conventions/treaties including the NewYour Convention. It is also an objective of the newlaw to establish an arbitration office to monitor theinternational developments in arbitration and makerecommendations for improving the law further.3 ConclusionThe Arbitration has its inherent advantages over the otherdispute resolution methods. Especially in constructionarbitration, due to the complex nature of the disputes,most parties prefer the arbitration as a dispute resolutionmethod. The key advantages of arbitration are; the finaland binding nature of arbitral awards, flex ibility of theprocedure, more input expertise that can be used, andthat it is quick and cheaper than litigation.The Arbitration in the United Arab Emirates is still inthe initial stage. The requirement for an arbitration lawhas been identified by the government. As a result, adraft arbitration law has already been drafted and nowopens for the comments by the experts in the field. Thearbitration draft law will soon come into force. However,the absence of a proper arbitration law has caused somedrawbacks and international parties are reluctant to investin the country.There are several institutes operating in the United ArabEmirates to provide procedural arbitration rules for theparties in dispute. The advantage of having arbitralinstitutes is that the parties can agree to be referred bythese rules so that there will be a body which exercisesadministrative and supervisory functions more efficiently.The Dubai International Arbitration Centre andDubai International Financial Centre are the primarygovernmental bodies which provide procedural arbitrationrules.The United Arab Emirates had ratified significantconventions and treaties for recognizing and enforcingarbitration awards made locally and internationally. TheNew York Convention and the Riyadh Convention arethe important conventions ratified by the government.55

September 2009SLQS JOURNALCertainly, the future of arbitration in the country willbe very successful if the draft arbitration law is wellestablished.Specific references1234567891011121314Tweedale A, and Tweedale K, 2007, Arbitration of CommercialDisputes, Oxford, P34.Refer fn.1 above.A Convention or a treaty is a contract signed between governmentse.g. New York Convention-See chapter 2.1.4.1A federal court will have no jurisdiction to enforce an arbitrationaward where the parties have not consented in the agreement toallow the judgment to be entered upon award by the court. SeeThe US Arbitration Act, Chapter 1, s9. This rule applies only todomestic cases.The Arbitration Act 1996 (England).www.diac.aeRefer Article 206, Civil Procedure Law of UAE for more detailsMichelle N, Masons G, Dispute Resolution in the Middle East;Highlights of the Middle East Construction Industry, 2006, SCL.These are the rules that the Dubai Chamber of Commerce &Industry has established with the aim of settling commercialdisputes through conciliation and arbitration.The new rules have been issued by Decree No. (11) 2007 in theOfficial Gazette, no. 321 - year (41) on May 2007.DIFC Authority has been established by the Dubai Law No. 9 of2004 and DIFC Courts have been established to have exclusivejurisdiction in civil and commercial matters in DIFC.ALB legal e 2 – Para 1 – New York Convention.Refer http://www.uae.gov.ae/Ministries/moec.htm andwww.uae.gov.ae/moiaBibliography of other relevant materialsLegislationsFederal Decree no. 43, 2006, Regarding the UnitedArab Emirates Joining the Convention of New York onRecognition and Enforcement of Foreign Arbitral Award,Article I to XVI.The UAE Civil procedure Code, Federal Law No. (11) of1992, cp 3, article 203 to 218.Text BooksAct 1996, 4th edition, Blackwell, UK.Turner R, 2006, The Arbitration Awards: A PracticalApproach, Blackwell, UK.Tweedale A, and Tweedale K, 2007, Arbitration ofCommercial Disputes, Oxford, UK.ArticlesDewey & LeBoeuf,2008, ‘DIFC new Arbitration Law’,www.dl.com.Nelson M, Galadari M, 2006, ‘Dispute Resolution inThe Middle East’ International Conference 2006, Societyof Construction Law, Dubai, UAE.Subak. M,2008, ‘Managing Construction RelatedDisputes in the Middle East’, Viewpoint, US.UAE Construction Law and Dispute Resolution, AlTamimi & Company: Advocates and Legal Consultants,UAE.Internet SourcesAME Info, ‘UAE Ministry of Economy completes draftfederal law on arbitration’, http://www.ameinfo.com/cgi-bin/cms accessed on 17/11/2008.Dubai International Arbitration Centre, http://www.diac.ae accessed on 11/11/2008.International Chamber of Commerce, ‘New YorkConvention now in force in the United Arab Emirates’, 0accessed on 11/05/2008 accessed on 05/11/2008.Keeting Chambers, ‘An Introduction to Arbitration inthe Middle East’, tions/ accessed on 05/11/2008.Keeting Chambers, ‘UAE Construction Arbitration:Time for a Revolution?’, tions/ accessed on 05/11/2008.Society of Construction Law, ‘The DIFC Courtsjurisdiction and arbitration with specific reference tobanking and construction disputes’, http://www.scl-uae.org/news.php accessed on 06/11/2008.Harris B, Planterose R & Tecks J, 1996, The ArbitrationGillies Ramsay Diamond v PJW Enterprices Ltd (2003)A claim for professional negligence against Diamond, who had provided general consultancyservices in relation to a building project, was referred to adjudication.It was found that these services included arranging construction operations for others and/orcontract administration and therefore the matter could referred to adjudication, despite theabsence of an adjudication clause in the contract.56

arbitration by the courts in domestic disputes is not uncommon4. However, this feature attracts many parties to choose arbitration. Also, it is important to note that, once the arbitration is commenced, parties cannot quit from the proceedings. 2.1 The Development of Arbitration in the UAE

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