United Arab Emirates: Arbitration Saga For Small And Medium-Sized Subcontractors In The Construction Industry

Last Updated: 15 August 2017
Article by Imad Kassir and Samer Abou Said

Small and medium-sized subcontractors often find themselves unable to recover monies owed to them by main contractors due to the high costs involved in legal proceedings. We explain below what steps you can take for a more positive outcome.

Introduction

Subcontractors, chiefly operating in the construction industry, frequently visit our firm with gloomy faces expressing their anger at main contractors who have failed to pay monies due upon completion of the project as per their clearly agreed contractual terms.

As our lawyers analyse the strengths of the client's case, we often find that they have honoured their obligations and that payment of their monies is unconditionally due. Reading through the contractual documents, we often further discover that the client has agreed to arbitration as a dispute resolution mechanism, which will cost them a substantial amount of the claimed amount, making it virtually unaffordable to pursue their claim. And here lies the problem.

This problem frequently belies small and medium-sized subcontractors who do not have access to good legal advice or to any legal advice at all, and to lesser extent large subcontractors whose legal advisers fail to anticipate the business costs of agreeing to such clauses. For this reason, parties adopt contract templates or resort to the copy/paste of contractual clauses that refer to arbitration without weighing the risks and merits to any potential dispute.

The Arbitration Saga

First, it is not our intention to suggest here in any way that arbitration should not be used as an alternative dispute resolution mechanism. Without doubt, arbitration has its advantages when it is appropriate and convenient for the underlying transaction at hand. However, we believe clients should consider the dispute resolution mechanism carefully after taking into consideration the circumstances of the transaction.

In the UAE, like many other jurisdictions worldwide, arbitration awards must be enforced through the courts. Article 215 et seq of the UAE Federal Civil Procedures Law govern the enforcement of arbitration awards in circumstances where the party that lost the arbitration does not comply voluntarily. Enforcement is effected through the issuance of a claim before the relevant court for an order to enforce the award. This claim, like any other claim, follows the ordinary course of litigation whereby the claim is served upon the defendant who then has the right to reply and to challenge the validity of the award and so on. Such claim may be litigated before the three levels of courts (first instance, appeal, and cassation).

Consequently, in addition to the duration of the arbitration proceedings which may range from one to four years on average depending on the complexity of the case, one must add the time spent to litigate the claim of enforcement of the award before UAE courts, which may range from nine months to two years on average. It is notable here that UAE courts are ranked among the most expeditious courts worldwide in settling claims submitted before them.

Furthermore, litigating the same case twice in arbitration and before the courts will obviously require the payment of double the litigation fees including arbitration and courts costs, expert fees, and attorney fees.

How Will You Know Whether Arbitration is Appropriate for Your Contract?

It is essential that you determine in consultation with your legal adviser the best dispute resolution mechanism to resolve any potential dispute that may arise in the future. For the sake of narrowing the potential scenarios, we shall presume that the transaction is between two private persons (companies and individuals) both based in the UAE.

Some would argue that the language of the contract and the language spoken by its administrators take precedence over any other factors. We beg to differ, although this is significant, particularly if the contract is worded in English and the contract administrators (such as the engineers or quantity surveyors handling the transaction) do not speak Arabic, which is the language of the proceedings before UAE mainland courts. There are capable Arabic-speaking litigation lawyers in the UAE whom clients can trust to handle the case professionally and serve their best interests.

It is submitted that one of the first things to consider should be the value of the contract and, more precisely, the amount that would be the subject of a claim if a potential dispute arises. This is important because arbitration costs and attorney fees for the same are usually much higher than court fees and attorney fees for litigating the case. Dubai courts (mainland courts) have a cap on their fees equivalent to AED 40,000 regardless of the value of the claim, while there is no cap for arbitration cases. By way of example, a claim with a value of AED 3 million before Dubai courts (mainland courts) would not involve more than AED 40,000 of court fees. However, the same-value arbitration would cost AED 130,000 before a single arbitrator, and three times this amount (roughly AED 350,000) if the contract provided for a three-arbitrator panel. Moreover, if you successfully obtained the award, you would have to pay an additional AED 40,000 by way of court fees to enforce the award.

Furthermore, the number of panel arbitrators should be carefully considered because the fees of an arbitration panel of three arbitrators will be three times that of a sole arbitrator. Recently, a client, an international supplier of building materials instructed our firm to commence proceedings against a main contractor to claim an outstanding balance. Upon review of the supply contract, we discovered the presence of a UNCITRAL arbitration clause whereby any dispute was to be resolved through a panel of three arbitrators. When informed of the estimate of arbitration and attorney fees, the client's representative refused vehemently to proceed down that route for economic reasons. In the words of the client's representative, the fees were "exorbitant". However, luckily, after the client submitted to us additional documents, we detected a loophole in the contract, which we used to avoid the arbitration agreement. Hence, the decision was taken to bring proceedings before the Dubai mainland court.

Conclusion

Our client was fortunate in that an exit was found to avoid the high fees of filing an arbitration claim, but this is not always the case. Several prospective clients approached us who were surprised to learn of the level of the fees that they would incur to claim their outstanding balance from main contractors, and they have changed their minds about commencing proceedings due to the relatively high value of the fees in comparison to the value of the claim and the risk of not being able to enforce the award in time.

Therefore, next time a transaction is looming on the horizon, consult your legal adviser and inquire specifically about the dispute resolution mechanism to reach the best decision as to whether there it is advisable to opt out of the court's jurisdiction or not.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.