Focus on DIFC LCIA for resolving disputes

A number of contractors and clients are currently agreeing that they will write into their contracts a facility to resolve construction disputes through the DIFC LCIA procedures, said the vice-chairman of the Society of Construction Law (SCL) Gulf.

"A lot of attention is now focused towards the DIFC courts since they are English language courts and have more facilities to deal with major construction disputes. So you need to put into your construction contract that if you have a dispute, the matter can be dealt with the DIFC LCIA [London Court of International Arbitration] procedures, which have a set of rules that have been adopted by DIFC without amendment," said Peter Shaw of Denton Wilde Sapte & Company and Vice-Chairman of SCL Gulf.

The firm will hold a seminar today in Abu Dhabi to focus attention on the legal aspects of construction risk management.

The move will greatly improve the current situation in industry in terms of comfort, said Shaw. "The parties can take the award that they get from the DIFC LCIA and get it stamped at the DIFC court. The protocol between the DIFC and the Dubai court will allow the DIFC judgement to be enforced in the Dubai court against the assets of the non-paying party who has refused to pay the award. These procedures are now beginning to take place and there is a rise in contractors, consultants and even developers looking at such an option."

Shaw said there is a possibility that a contracting company, consultant or even a developer that has a DIFC licence can go to the DIFC court, even if it is not physically resident in DIFC.

"They could register that as a non-financial entity in DIFC and then could potentially use the DIFC court as a means of resolution. The two other possibilities are only if the dispute has risen in the DIFC or that the two parties have agreed in their contract that they will use the DIFC court or arbitration procedures," he said.

"If the contractor or consultant has an arbitration clause in their contract, then they have that option. But if they have not written it in their contract, they have to consider going to court, but that has its own difficulties in the region since the judges here are not equipped to deal with construction disputes and tend to use court experts. The other obstacle is that many construction contracts in this region are in English and there is a huge translation problem to render the large amount of construction documentation into Arabic." Hence arbitration, potentially mediation or the later forms of International Federation of Consulting Engineers (FIDIC) contracts would be the preferred options available to the disputing parties.

"A lot of projects are still using FIDIC 4, which is being overtaken by FIDIC 99, which has provisions for such disputes. But a lot of employers here, with their consultants, delete this in the contract from the client's side because they do not want a quick fix," said Shaw.

Most adjudication boards have three members in the UAE and are nominated by the disputing parties. "They include lawyers specialised in construction work, engineers and quantity surveyors and so on," said Shaw. "Though not the norm, it is a better recourse for problems on an interim basis."

Shaw said the SCL, which was established in 2006, is a non-profit making organisation (see box), which disseminates information to members on how to protect their legal rights, teaches them how contracts operate, and so on among other activities such as holding four to five events every year. "We have about 350 members, mostly from the UAE, and the centre is Dubai. We also have satellite centres in Doha and Muscat. We also have seminars in Abu Dhabi. The last seminar looked at terminations and cancellations of contracts. The next major issue is getting paid," he added.

One of the major worries in the industry, he agreed, is the time that it takes for arbitration, which makes many contractors shy away from the process. "If you take major projects, then arbitration could take longer than 18 months. Normally, they are meant to finish in six months, but that is not often the case," he added.

So what are the solutions when liquidity is doubtful?

"Some projects have been mothballed completely and some arrangements have been made to pay the consultants and contractors on a staged payments basis and probably with a negotiated reduction of 30 to 40 or even 50 per cent. They have been put in place and are being honoured by and large. Then you have those projects that have been frozen in 2008 but the employer has found the finance to restart them. They have to be renegotiated with a supplemental agreement dealing with the costs and the delays of the suspension. These are usually complicated in nature," said Shaw.

And then there are some projects that may be downscaled, particularly in Abu Dhabi, that have not been formally suspended. "But there has been an informal suspension to allow for value engineering and to see whether or not there can be cost savings and that has involved taking something out of the project that would not be absolutely essential to its final use," said Shaw.


Key forum

The Society of Construction Law (Gulf) was set up in 2006 with the aim to promote the study and understanding of construction law among all those involved in the construction industry in the UAE and the Gulf.

It is affiliated with the Society of Construction Law in the United Kingdom, which was founded in 1983. It is open to everyone with an interest in construction law and how it affects their work – not just lawyers. The society aims to act as a forum for the better understanding of construction law and its practical application in the industry in the Gulf.

Until October 1, 2008, the society was called the Society of Construction Law (UAE). The name was changed to reflect the fact that the society now has many members outside the UAE, and regularly holds events in other Gulf countries, said Peter Shaw.

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