UK: UAE Construction Arbitration: Time for a Revolution?

Last Updated: 8 April 2008
Article by Richard Harding

First published in ‘The Brief (UAE)’ in March 2008.

Almost every construction contract in the UAE contains an arbitration agreement. This is a result of a lack of faith in the court system. However the industry does not have much more belief that arbitration can resolve its disputes in a rapid, reliable and cost-effective manner. It is not unknown for construction arbitrations in the region to take years to resolve, with costs of many millions of Dirhams being borne by the losing party. Is there a better way?

Negotiation

As a result of the deficiencies in the dispute resolution mechanisms currently available in the region, the vast majority of claims are dealt with by negotiation. However, the claiming party is in a very weak position if he cannot demonstrate a credible intention to obtain an arbitration award. All too often a contractor will accept a deal which involves him simply dropping his claims in return for the employer not deducting liquidated damages. If the employer has in fact caused the delay, the contractor is simply giving up his entitlement, no doubt in the hope that he will recover his losses on the next project.

Even for employers, such a deal is only of short-term benefit. In a booming construction market there is strong competition for the few contractors who have the resources and expertise to deliver a high quality result on time. Employers do not want to alienate such contractors, and will want to be perceived as treating them fairly. However this is not easy where claims are traditionally inflated in anticipation of a horse trade.

Mediation

Mediation is promoted as being quick and cheap. However, it is rarely successful in the Middle East. The primary difficulties here are: first, many parties in the region want a binding decision, rather than the responsibility of agreeing a settlement; and secondly, there is little belief that the party claiming money will take the dispute to court or arbitration, so that there is no ultimate obligation to pay a substantial sum.

Alternatives

One solution to this dilemma is to look to developments in dispute resolution outside the region, where sweeping reforms have taken place over the last 10 years. The main developments are:

  • Adjudication
  • Practice in the Technology and Construction Court in England
  • ICC paper on saving time and cost in arbitration
  • IBA Rules of Evidence
  • 100 day arbitration

Adjudication

Adjudication was introduced in the UK in 19981 and is now the principal means of resolving disputes in the construction industry. It involves referring a dispute to an adjudicator, who must issue a decision within 28 days, subject to any agreed extension. The adjudicator’s decision is then binding on the parties, and the English courts will enforce compliance, with no right of appeal on fact or law. However, either party retains the right to have the dispute re-heard in court or arbitration, as appropriate. In fact, the vast majority of parties to adjudication are satisfied that the adjudicator’s decision is just and do not pursue the matter further.

In order to operate successfully, adjudication requires both a statutory framework, giving a right to adjudicate, and the cooperation of the courts to enforce adjudicators’ decisions with the minimum of interference. However, it seems that there is currently little governmental support in the region for adjudication and therefore little prospect of it being introduced, at least for the foreseeable future. If it were to be brought in, the lack of experience of the courts in matters of this nature would then provide a further formidable obstacle.

There are, however, lessons that arbitration can learn from the experience of adjudication in UK (and elsewhere). First and foremost is that parties are generally happier with a short-form procedure than with a full examination of every issue. Secondly, it is possible for disputes to be dealt with fairly, in a much shorter period than had previously been believed possible. Thirdly, the techniques which have been developed in adjudication, such as lists of issues and questions prepared by the adjudicator, could also be applied to save time and cost in arbitration.

Technology and Construction Court

The UK construction industry is fortunate in that it can call on the services of a specialist court to resolve its disputes, namely the Technology and Construction Court ("TCC"). The judges of this court are all highly experienced and respected specialists in the construction field, with the judge in charge having been an engineer, leading Queen’s Counsel and international arbitrator.

English court procedure still suffers from the poor reputation it gained before Lord Woolf’s reforms in 1998. However, the Technology and Construction Court Guide2 can now be viewed by both judges and arbitrators as setting out best practice in many areas of complex adversarial dispute resolution. Clear guidance is given on such matters as dealing with expert evidence, when to order preliminary issues, preparing trial bundles, chessclock hearing timetables, opening and closing submissions, and the use of transcript writers.

It is also worth noting that the TCC can hear international matters, and in appropriate cases the judges of the TCC are available to sit as arbitrators3.

ICC paper on saving time and cost in arbitration

In the spring of 2007 the Commission on Arbitration of the International Chamber of Commerce issued a publication entitled ‘Techniques for Controlling Time and Cost in Arbitration’4. It sets out what amounts to internationally recognized good practice in relation to the management of arbitration proceedings. There are many who consider that the paper could have gone further, but it contains sound, basic guidance.

Two of the most important recommendations in the paper are that in order to save time and cost, parties should engage lawyers with experience of conducting arbitrations, and they should appoint experienced arbitrators with strong case management skills. In fact, appointing a single suitable arbitrator is often better than having three who are less able. The hourly rate of appropriate lawyers and arbitrators may be higher, but the overall savings are invariably considerable.

IBA Rules of Evidence

It is not uncommon for arbitrations, which are conducted by inexperienced lawyers before inexperienced arbitrators, to become bogged down in procedural issues regarding how evidence is to be dealt with. However, such arguments can be avoided by considered use of the International Bar Association’s ‘Rules on the Taking of Evidence in International Commercial Arbitration’5. These are commonly adopted in international arbitrations, and set out detailed guidance on such matters as the disclosure of documents, the service of experts reports, and oral and written witness testimony. Considerable time and cost can be saved by simply adopting these rules (amended as necessary).

100 day arbitration

It is obvious that the longer the proceedings, the more they are likely to cost. If arbitrations can fairly be completed in a shorter period, the parties will get their result sooner, and the cost burden and risk will be reduced. ‘100 day arbitration’ is the name given to a procedure which sets a short timetable, starting from the service of the defence (or defence to counterclaim, if there is one). This gives both parties a fair initial opportunity to present their case.

Example directions for a ‘100 day’ arbitration have been published by the Society of Construction Arbitrators6. These include provision for a hearing lasting no more than 10 days, 7 days for closing submissions and 28 days for the award. If a period of more or less than 100 days is required, then this could be agreed by the parties (or by the arbitrator, if given the power to do so). However, the fundamental point is that substantial and complex arbitrations can be dealt with far more quickly and efficiently than has traditionally been the case.

It should be noted that by the time a dispute has arisen, one of the parties will have a vested interested in resisting any short-form arbitration procedure. Such requirements will therefore have to be included in the dispute resolution provisions of the contract.

Conclusions

There is no quick fix for arbitration in the Gulf. However, since the fair resolution of disputes is a necessity for both the construction industry and the wider economy, the development of techniques such as 100 day arbitration must be seen as the way forward.

Footnotes

1. Housing Grants, Construction and Regeneration Act 1996, Part II

2. http://www.hmcourts-service.gov.uk/docs/tcc_guide.htm

3. See Section 18 of the TCC Guide.

4. http://www.iccwbo.org/uploadedFiles/TimeCost_E.pdf

5. http://www.ibanet.org/legalpractice/Arbitration.cfm

6. http://www.keatingchambers.co.uk/resources/publications/2004/100day_arb_procedure.aspx

The articles and papers published by Keating Chambers are for the purpose of raising general awareness of issues and stimulating discussion. The contents must not be relied upon or applied in any given situation. There is no substitute for taking appropriate professional advice.

For further information on how our members can assist you, please contact the Senior Clerks, John Munton and Nick Child, in the first instance, on +44 (0) 20 7544 2600. They and their teams of Clerks will be pleased to advise you on the member of Keating Chambers appropriate to your requirements.

© KEATING CHAMBERS

http://www.keatingchambers.com

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