When do construction disputes typically arise and what are the different types of claims?
Construction disputes predominantly arise from issues involving design and engineering defects, delays and cost overruns, among others. Contractual disputes in relation to delays leading to extension of time, disruptions, variations and breach of contract are highly prevalent.1 These disputes can involve multiple complex legal issues such as contractual breaches, insolvency and bankruptcy, concurrent delays, performance bonds, suspension of works, limitation of liability, warranties, restrictions on termination and force majeure. Often in such construction disputes, principles of good faith, time-barring and rules on limitation of responsibility are at play.
One of the most common types of claims in construction disputes involves delays. Therefore, delay claims can arise from both sides – employer and the contractor/sub-contractor. Delays can have a cascading effect on a project, impacting timelines, costs, and resources. These claims can arise from various sources, such as unexpected site conditions, changes in project scope, or issues related to permits and approvals.
Another claim by an employer is a defective works claim which revolves around the quality of the work performed by the contractors or sub-contractors if it does not meet the specified standards.
Contractors and subcontractors may allege that they haven’t received the compensation they are owed for the work they have completed and request for payment claims. This can involve disputes over unpaid invoices, change orders, or extra work.
It is commonly observed that construction projects evolve from their original plans due to unforeseen conditions or client-requested changes. These changes can lead to variation claims when parties disagree on the scope of work and associated costs.
Sometimes, employers may terminate a contract due to perceived breaches by the contractor. Contractors may then respond with claims for wrongful termination or unpaid work, adding another layer of complexity to the dispute.
During natural disasters or government actions, contractors may seek relief from contractual obligations or request additional compensation for the impact on the project’s timeline or costs. These are commonly termed as force majeure claims.
Effective contract management, thorough documentation, and clear dispute-resolution mechanisms are key to addressing and potentially resolving these claims in a fair and efficient manner.
What are the advantages of choosing arbitration over litigation?
The UAE has specific laws that govern arbitration which is based on the UNCITRAL model law on international commercial arbitration.2 Arbitration in the UAE provides an effective means of resolving disputes. The process is flexible, allowing the parties to tailor the proceedings to their specific needs, and the final award is generally enforceable both within the UAE and internationally.
One of the difficulties faced by the parties involved in litigation is that the local court proceedings are conducted in Arabic3 and there are limitations on the rights of the audience before them. Secondly, cases usually take almost 12 months to reach the first judgment stage and are likely to be subject to an appeal.
Seeing the complexity of the construction disputes, parties tend to elect to have their disputes resolved through arbitration instead of the local courts.
Even though adjudication of disputes is more cost effective in the local courts, parties are now electing for arbitration. A few advantages of arbitration over litigation in construction disputes is that arbitration is a more private process than the local courts; technical disputes benefit from arbitration since it allows the parties to select a tribunal that has the required specialist knowledge to consider the issues and arbitration is a faster process than litigation.
UAE arbitration law gives the tribunals power to render interim and partial awards and provides that interim awards are enforceable before the UAE courts.4 It is also now common for parties to agree to contractual expert determination and contractual dispute adjudication even when these procedures were not agreed in the contract.
The UAE hosts a number of well-established arbitration centres, including the DIAC5 and the ADCCAC6, which, along with the ICC7, have been the preferred choice of arbitration institutes. The ADGM Courts are also a common choice in Abu Dhabi seated cases. Parties have also increasingly elected to seat their arbitrations in the DIFC8 to benefit from the modern and comprehensive procedural law that applies there.
The UAE government’s efforts, including actively modernising and revamping agendas and updating laws and regulations, are certain to attract more commercial parties involved in construction disputes to arbitration.
What are the challenges in resolving construction disputes with an international dimension?
Resolving construction arbitration disputes with an international dimension is a complex mechanism that involves various challenges and considerations.
Parties involved in international construction disputes often hail from different countries, each with its own legal system and cultural nuances. The challenge lies in determining the appropriate jurisdiction, applicable laws, and venue for arbitration. This decision can greatly impact the proceedings, timelines, and costs. The choice of arbitration rules and
venue is another consideration. Parties must agree on the governing arbitration rules and the venue for the proceedings. This decision can have an impact on the arbitration process, including the rules that govern it and the associated costs.
The enforceability of awards can vary significantly between jurisdictions, making it essential to consider the potential challenges in enforcing an award. Interim measures, such as obtaining injunctions or asset freezes, may be necessary to protect rights or assets during arbitration. However, the availability and enforceability of these measures can vary by jurisdiction.
Parties must carefully manage costs, including arbitrators’ fees, legal expenses, and other associated costs, and have realistic expectations regarding the duration of the proceedings. Local regulations and permits can further complicate matters, as disputes may arise over compliance with these requirements, adding another layer of complexity to the arbitration.
In light of these challenges, parties should engage experienced legal counsel with expertise in international arbitration, draft clear and comprehensive agreements, and remain open to ADR methods.
Notes
1Articles 872 to 896 of the UAE Civil Code.
2 Federal Law No. 6 of 2018 on Arbitration issued on 3 May 2018.
3 Federal Law No. 11 on Civil Procedures Law issued on 24 February 1992.
4 Article 39 of the Federal Law No. 6 of 2018 on Arbitration issued on 3 May 2018.
5 DIAC Arbitration Rules 2022 dated 21 March 2022.
6 ADCCAC Rules 2013.
7 ICC Rules of Arbitration dated 1 January 2021.
8 DIFC Law No. 1 of 2008 on Arbitration Law.