Leveraging Pressure Points for Favourable Settlements in Construction Disputes
Real Estate & Construction and Hotels & Leisure Focus
Khushboo ShahdadpuriPartner, Dispute Resolution
Alia Koudsi Associate,Dispute Resolution
The construction sector in the Middle East continues to experience accelerated growth. In tandem with this development, the number of construction claims in the MENA region has shown an upward trend. The increasing costs of litigation or arbitration alone provide incentives that propel disputing parties towards negotiations for a robust settlement that serves each party’s practical and commercial objectives.
In light of this, being cognisant of pressure points at the outset of the dispute becomes intrinsic to advancing the prospects of a favourable settlement. In this article, we unpack essential tactics for preparing and presenting a construction claim before or during the litigation or arbitration phase to maximise the advantage of these pressure points.
Accepting Claims without Qualifications
During the execution of a project, the most important aspect is to ascertain the legal and/or contractual basis of a claim.
Documenting the extent to which a party’s claim has a legal and/or contractual basis will assist in supporting that claim or establishing the lack of any basis for that claim in the subsequent stages of the dispute.
On many occasions, parties in a construction project who are working on tight deadlines and in close proximity tend to make quick decisions from commercial and practical perspectives, in the interest of the project. This often results in claims being agreed despite them not having any legal and/or contractual basis. While this is not necessarily a disadvantage given the interests of the project, the extra-contractual nature of such accepted claims must be well-documented to avoid:
any potential arguments around the waiver of a party’s contractual and legal position; and
the implication of a new binding agreement.
For example, accepting an extension of time, even if minimal, may undermine the contractor's or the employer’s right to subsequently claim damages or losses arising from any additional delayed periods that are related to the underlying delayed activities from the accepted extension of time.
Conversely, retracting from a previously accepted claim that has no legal and/or contractual basis can have its own challenges.
In this context, promissory estoppel is a legal doctrine that prevents a party from reneging on a promise when another party has reasonably relied on that promise to their detriment. In essence, if one party makes a promise that induces another to change their position substantially, and the relying party suffers damage as a result, the promisor may be "estopped"—legally barred—from walking away from the promise, even if a formal contract does not exist.
For example, if a contractor accepts a variation claim from a subcontractor, this acceptance can be seen as a promise to pay the extra sum for the additional or changed work. The subcontractor, relying on this acceptance, may proceed to perform the extra work while incurring additional costs, expecting to be compensated as agreed. If the contractor later changes its mind, rejects the variation claim, and refuses to pay the extra sum after the subcontractor has already acted in reliance on the initial acceptance, promissory estoppel may come into play. If it is proven that the subcontractor reasonably relied on the contractor’s acceptance of the variation claim and incurred losses, such as additional costs or performing extra work without payment, the contractor may be denied the ability to retract its acceptance of the variation claim, even if this variation claim is not valid pursuant to the parties’ contract or later proves to be within the subcontractor’s original scope of work.
While originating from common law jurisprudence, promissory estoppel as a concept has been applied in civil law jurisdictions in the MENA region, through different mechanisms such as the civil code of some MENA jurisdictions and through the principle of good faith.
For example, in 2021 the Abu Dhabi Court of First Instance in the Abu Dhabi Commercial Court (“CFI”) relied on the doctrine of estoppel, to reject a challenge to the validity of an arbitration agreement, considering “that the application of this doctrine would prevent parties from relying on disingenuous arguments to avoid the application of the parties’ agreement to arbitrate.”[1] The CFI also cited a judgment rendered by the Egyptian Court of Cassation (Commercial and Economic Chamber, Appeal 18309 of Judicial Year 89 on 27/10/2020), in which the “Egyptian Court affirmed the doctrine of procedural estoppel and observed that there was no contradiction in applying this doctrine in its jurisprudence, which was not limited to only arbitration cases, but to all other transactions.”[2]
Legal commentators have also argued that promissory estoppel stems from the principle of good faith and that is why it is enshrined in the statutory provisions of the MENA civil codes, such as Article 70 of the UAE Civil Code. Similarly, under Article 71 of the Kuwaiti Civil Code, a party to a preliminary agreement can invoke promissory estoppel if the other party fails to finalise the agreement. Consequently, promissory estoppel has sufficient roots in the MENA region to enable its use in enforcing accepted extra-contractual claims during construction projects.
Rejecting ClaimsIf the claiming party provides no contractual basis for its claim, the receiving party should provide a clear commercial and practical explanation of why it may need to reject the claim to maintain an amicable setting for negotiation and to protect itself from appearing as a bad-faith actor in the relationship.
Meanwhile, if the claim has no contractual basis and there is a disagreement as to the quantum or valuation, the receiving party should make a thorough legal and commercial assessment before deciding to either:
accept the claim, while reserving its rights to any form of future loss or damage; or
reject the claim while clearly understanding the consequences of this rejection for the claiming party, the project and its position, if any legal proceedings are contemplated by this point.
The rejection of any claim should always be explained in a detailed and neutral manner. In addition, preserving all forms of communication records at this point between the parties is essential in the event of any potential legal proceedings or settlement discussions.
Attitude to Negotiation and Settlement
However fierce and capacious the differences between the disputing parties, it is important to demonstrate a genuine interest in engaging in settlement negotiations before formal proceedings are initiated. This can not only save parties costs to narrow down their differences, but it can also showcase their genuineness to avoid legal proceedings at a later stage, which is taken into account in cost considerations in any subsequent arbitration proceedings.
Without Prejudice CorrespondenceSettlement correspondence can also take place pursuant to Without Prejudice correspondence. This means that the negotiating parties can express their position during settlement negotiations with full transparency without fearing that their statements may be used against them in court or arbitration, since the rule prohibits the admission of statements from these settlement negotiations in legal proceedings.
While this principle stems from the common law jurisdiction, it has recently been recognised by the Dubai Court of Cassation in Case No. 486/2024, when it affirmed the decision of the Dubai Court of Appeal in Case No. 31/2024.[3] In this case, the claimant relied on WhatsApp messages exchanged during settlement negotiations during subsequent litigation proceedings, and the Dubai Court of Appeal ruled that these statements were inadmissible as they were made Without Prejudice, marking the first time that an onshore UAE court recognised that settlement communications are protected from admissibility in subsequent litigation.
Consequently, the application of this rule can foster an environment of straightforward negotiations where parties’ Without Prejudice Correspondence does not compromise their position in subsequent arbitration and litigation proceedings. This can and should be used tactically as a strategy to both induce settlement before formal legal proceedings are filed, as well as at appropriate junctures during the legal process.
Effective negotiation of settlements in construction contracts hinges on thorough preparation, a clear understanding of both parties’ positions, and a commitment to good faith bargaining.
When a party becomes certain that the dispute can only be resolved through formal legal proceedings, critical measures should be implemented in anticipation of such proceedings. While collating evidence at the onset of the dispute seems to be the focus for parties, the reality is that the process of securing evidence starts before the initiation of the project. It begins with establishing a document management system that allows the identification and disclosure of specific documents, potentially years after the project's completion. Furthermore, documents should already be organised in a way that allows for the production of evidence during disclosure.
The preservation of documents following a project’s completion is key, and parties should ideally have all project-related documents from the procurement stage until the post-completion and/or termination stages of the project.
Evidence preservation tactics can vary depending on the nature of the claim contemplated. Quality claims should be evidenced with media files, reports and early correspondence to the breaching party explaining the exact type of breach committed. Variation requests and instructions should be clearly documented, especially if received or followed up over instant communication methods such as WhatsApp.
When employers or contractors are considering bringing in additional workforce to carry out any repairs for damage caused by another contractor, clear evidence of documenting the damage and the repairs carried out (before and after images or videos) should also be maintained with digital integrity that retains the date of such media files, in addition to any contractual notices that should be sent to the defaulting party.
Loss and Damage QuantificationThe next stage following evidence preparation should focus on loss and damage quantification. The success of this stage also relies heavily on the reliability of the evidence used to quantify the loss and damage.
For a start, the claiming party should preserve raw data that helps it calculate its loss and damage in different ways depending on the nature and strength of its claim under the contract or the governing law.
For example, in the case of a delay, employers could hire additional contractors to help with the scope of work for their main contractor, who is the defaulting party with a delayed performance. The employer should preserve all invoices issued by any additional contractors hired to assist the original contractor and ensure that these invoices clearly stipulate the nature of the work being done and clearly specify it as being work from the defaulting party’s original scope of work done to speed up the process. This language should also be clearly stipulated in the formal and informal communication with all the defaulting party’s representatives. Consequently, claiming this additional cost that is clearly evidenced would be a much smoother process during the litigation and arbitration proceedings.
Appointing quantum, damage and/or delay experts at the early stages and using their input in submissions and pleadings to showcase the extent of losses and damages incurred in a clear and simple manner often places more pressure on the counterparty to revisit settlement options.
Effective negotiation of settlements in construction contracts hinges on thorough preparation, a clear understanding of both parties’ positions, and a commitment to good faith bargaining. By developing a well-supported claim document, anticipating the arguments and motivations of the opposing party, and realistically assessing the strengths and weaknesses of each side, parties can maintain control over the outcome and avoid the costly delays and uncertainties of litigation. The negotiation process should be approached with flexibility, patience, and a willingness to explore creative solutions that address the true interests of all involved.
[1] Essam Al Tamimi, ‘Abu Dhabi Court accepts estoppel claim in recognising the Parties’ Arbitration Agreement’, Al Tamimi & Company <https://www.tamimi.com/law-update-articles/abu-dhabi-court-accepts-estoppel-claim-in-recognising-the-parties-arbitration-agreement/> (accessed 6 May 2025).
[2] Ibid.
[3] Dubai Court of Cassation Judgment in Case No. 486/2024 (issued on 22 October 2024).
For further information,please contact Khushboo Shahdadpuri and Alia Koudsi.
Published in June 2025
