Real Estate, Construction and Hotels & Leisure Focus
Andrew Symms Partner, Head of Construction & Infrastructure
With the abolition of the DIFC-LCIA Arbitration Centre in Dubai, in September 2021, there has been some discussion about whether this might be the opportunity for Abu Dhabi to take centre stage for construction arbitration in the UAE. This article briefly addresses the background and potential of Abu Dhabi’s arbitration institutions, together with some recent relevant developments.
Traditionally, the Gulf has been a region where local parties have preferred to avoid formal proceedings of any type. However, as the economies have grown and a more diverse international business culture has been adopted, there has been a rise in the number of formal disputes. In particular, those international parties in the construction sector have increasingly dealt with disputes by arbitration and, more latterly, by other forms of ADR, all of which are used frequently in other parts of the world in relation to construction and real estate disputes.
In the early days of arbitration in the Gulf, it tended to be that arbitration clauses in construction contracts would require arbitration outside of the region. Typically, this would mean arbitration in one of the main European arbitration cities: London, Paris, Zurich or Stockholm. The typical rules and centres selected would be any one of, for example, the ICC, SCC or the LCIA.
Around 30+ years ago, various countries looked to establish their own arbitration centres. Abu Dhabi was one of these, at a similar time to Hong Kong, Singapore and, of course, Dubai. By the mid-1990s, the centres in these cities were, to a greater or lesser extent, competing with the more established centres for construction arbitrations arising in their home jurisdictions, as well as offering themselves as potentially neutral venues for disputes from other jurisdictions.
The Abu Dhabi Conciliation and Arbitration Centre (ADCCAC) was established in 1993 and the Dubai International Arbitration Centre (DIAC) was set up not long afterwards in 1994. It is fair to say that the DIAC probably had more success in terms of the volume of matters it dealt with and in terms of securing part of the international construction disputes market.
In parallel with these developments, both Dubai and Abu Dhabi set up free zones, each with their own courts systems and arbitration centres: the Dubai International Finance Centre (DIFC) in 2004, with the DIFC-LCIA Arbitration Centre in 2008; and the Abu Dhabi Global Market (ADGM) in 2013 and its arbitration centre shortly thereafter. It has probably been the DIFC-LCIA Arbitration Centre, which was the most successful, both in comparison with Abu Dhabi and with DIAC.
The real acceleration in the use of these arbitration centres was, firstly, the UAE becoming a signatory to the New York Convention in 2006 regarding enforcement and, secondly, the growing acceptance and use of the DIFC and its legal system separate from the local courts. It is in many ways slightly belated that the UAE updated its own arbitration law only in 2018: Federal Law No. 6 of 2018 created a new arbitration law for the UAE based on the UNCITRAL Model Law.
Much has been written regarding the potential impact of the abolition of the DIFC-LCIA Arbitration Centre. This has been in relation to both existing arbitrations and to contracts, which make reference to it, but where an arbitration has not yet started. The level of commentary was perhaps indicative of the concern that such a step might have on the reputation of the UAE as a centre for arbitration.
For the purposes of this article and Abu Dhabi, the key point is that any likelihood that the abolition the DIFC-LCIA Arbitration Centre would cause parties to be more likely to move towards selecting Abu Dhabi (whether ADCCAC or ADGM), seems remote. So far, the transition to DIAC appears to have been without significant problems. Most importantly perhaps, a new set of rules have been issued for DIAC and these came into force on 21 March 2022. The previous set of rules were from 2007 and were generally considered as a drawback to the use of DIAC. These new rules have been generally well-received and, though with some differences, are on a par with the 2015 regulations of the ADGM Arbitration Centre.
Aside from the issues around the structure of and the rules of the centres themselves, there are still some anomalies in the UAE which provide some obstacles to the development of arbitration.
A particular issue in the UAE, and perhaps more so in Abu Dhabi than Dubai, and a recurring trap for the unwary, is the absence of the requisite authority of the signatory to a construction contract to create a binding arbitration agreement. Frequently, powers of attorney do not expressly authorize the signatory to agree to arbitration. This is based on Article 58(2) of the Civil Procedure Law which provides that “[n]o admission or waiver of a right alleged or settlement or submission to arbitration etc. may be made without special authority.”
Unfortunately, this means that there is frequently the opportunity to challenge the validity of an arbitration agreement. In the Abu Dhabi Court of Cassation Case No. 922 of 2020, the Court held that, in summary:
It is for the court and not the tribunal to determine the validity of the clause;
an arbitration agreement is an “exceptional arrangement” because it is an agreement to restrict a party’s access to the courts; and
a general power of attorney is not sufficient, an express authorisation is required.
In this specific case, the conclusion of the Court was perhaps not that surprising, since the power of attorney expressly excluded Article 58 of the Civil Procedure Law. However, the message is clear: some courts in the UAE will continue to consider that an arbitration agreement is an exceptional arrangement. Consequently, powers of attorney must be properly drafted to avoid this issue.
All legal systems which recognise arbitration, will also accept that a party may waive its rights to arbitration, if it is prepared to engage through a court process instigated by the other party. In most legal systems, asserting a jurisdictional objection is not taken to be a step in the proceedings which might waive the rights to rely on an arbitration clause.
Issues can arise where a party, which wants to rely on an arbitration clause, asserts its jurisdictional challenge, but prematurely gets drawn into the substantive aspects of the case. This should not happen if the court deals with the jurisdictional issue first. However, UAE courts do not always determine the jurisdictional objections as a preliminary issue.
In a recent judgment by the Abu Dhabi Court of Cassation, the Court held that where a party engaged in disputing the merits, at the same time as maintaining its jurisdictional challenge, it was held to have waived its right to require arbitration.
Other forms of ADR in construction disputes, most notably mediation, but also various forms of expert determination, adjudication and dispute resolution boards, have gained support over the years in the Gulf and elsewhere. In some jurisdictions, notably the UK, mandatory adjudication in construction contracts has been a form of ADR, which has fundamentally shifted the balance of power in the construction industry away from employers who refused to pay. It may yet be that something similar might at some point be introduced in the UAE.
A key part to the success of construction ADR in the UK, has been the willingness of courts to enforce awards or settlements reached by these methods
Since their creation, both ADCCAC and ADGM have advocated and offered conciliation and mediation as part of their dispute resolution services. This less confrontational approach to disputes has generally been seen as more compatible with the region’s culture. This same trend has been a part of the approach of the UAE courts for some time. As early as 1999, Federal Law No 26 Concerning the Establishment of Conciliation and Arbitration Committees at Federal Courts established conciliation and reconciliation committees at the Federal Courts for facilitating the settlement of civil, commercial and labour disputes. More recently, on 29 April 2021, Federal Law No. 6 of 2021 was issues in respect of Mediation in Civil and Commercial Disputes.
A consequence of the rise of mediation in international construction disputes has been the need for awards arising from these to be recognised and enforced. A notable result is the Singapore Convention on Mediation entered into force in 2020. At an ADGM conference in March 2022, it was announced that the UAE will be ratifying this convention and will begin implementing a framework for the enforcement of settlement agreements resulting from mediations in international commercial disputes.
Arbitration administered in the region is still, by international standards, a relatively new creation. Not surprisingly, issues do arise, in particular in respect of how arbitration is perceived and the relationship between the jurisdiction of the courts and arbitration.
The position is constantly evolving. This may be at the level of major governmental decisions regarding the arbitration centres and the rules under which they operate; or at the level of long-standing approaches taken by local courts.
For further information, please contact Andrew Symms.
Published in July 2022
