INTRODUCTION
The United Arab Emirates (UAE) has established itself as a global hub for construction and infrastructure development. With this growth comes an increasing need for efficient dispute resolution mechanisms, particularly in the complex field of construction law. This article examines the emerging trends in construction arbitration in the UAE, with a focus on the roles played by the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM). We will also explore the significance of FIDIC contracts in the UAE construction industry and analyse key legal concepts such as the prevention principle, prolongation costs, and time at large in relation to extensions of time.
THE RISE OF CONSTRUCTION ARBITRATION IN THE UAE
Construction arbitration has gained prominence in the UAE due to several factors:
- Rapid infrastructure development: The UAE’s ambitious construction projects have led to an increase in complex, high-value disputes.
- Preference for confidentiality: Arbitration offers a level of privacy that is often preferred in sensitive commercial matters.
- Flexibility: Arbitration allows parties to choose arbitrators with specific expertise in construction law.
- Enforceability: The UAE’s commitment to the New York Convention facilitates the enforcement of arbitral awards internationally.
COMMON CAUSES OF CONSTRUCTION DISPUTE
THE ROLE OF DIFC AND ADGM IN CONSTRUCTION ARBITRATION
The DIFC and ADGM, as financial free zones with their own legal systems based on common law principles, have become significant players in construction arbitration:
Dubai International Financial Centre (DIFC)
The DIFC-LCIA Arbitration Centre, established in 2008, has emerged as a preferred venue for construction arbitration. Key features include:
- Common law jurisdiction: Familiar to many international parties and arbitrators.
- Modern arbitration law: The DIFC Arbitration Law is based on the UNCITRAL Model Law.
- Enforcement: DIFC arbitral awards are enforceable in Dubai courts without review of the merits.
Abu Dhabi Global Market (ADGM)
The ADGM Arbitration Centre, launched in 2018, is gaining traction in construction disputes. Notable aspects include:
- State-of-the-art facilities: Purpose-built for arbitration proceedings.
- Flexible framework: Parties can choose between ADGM law or another law to govern the arbitration.
- Enforcement: Similar to DIFC, ADGM awards are readily enforceable in Abu Dhabi courts.
FIDIC CONTRACTS IN UAE CONSTRUCTION
FIDIC (Fe de ration Internationale des Inge nieurs-Conseils) contracts are widely used in the UAE construction industry. Their importance stems from:
- International recognition: FIDIC contracts are globally accepted and understood.
- Standardization: They provide a uniform approach to contract administration.
- Risk allocation: FIDIC contracts offer balanced risk distribution between parties.
- Dispute resolution mechanisms: They include tiered dispute resolution procedures, often culminating in arbitration.
Common FIDIC contracts used in the UAE include:
- Red Book: For construction works designed by the employer
- Yellow Book: For plant and design-build projects
- Silver Book: For EPC/turnkey projects
- Green Book: For smaller scale projects as it is less complex
KEY LEGAL CONCEPTS IN UAE CONSTRUCTION ARBITRATION
The Prevention Principle
The prevention principle is a legal maxim which provides that a party cannot take advantage of its own wrong in enforcing a contract. In construction contracts, in the absence of an appropriate EOT regime, the prevention principle can be enlivened so that a principal on a construction project cannot hold a contractor to a completion date if an act or omission of the principal makes that completion date difficult or impossible to comply with. The principal cannot recover liquidated damages where it itself caused or contributed to the delay.
In other words, The Employer cannot insist upon performance if he prevents the contractor performing.
In the context of construction:
- If the employer prevents the contractor from completing work on time, it cannot levy liquidated damages for delay.
- The principle may give rise to an implied obligation to grant an extension of time.
Case law:
In Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No 2) [2007] BLR 195, Coulson LJ identified that the prevention principle itself is not an overriding rule of public or legal policy. Instead, as in this case, it is open to the parties to agree that concurrent delays should operate to prevent an EoT, notwithstanding one of those delay events being an act of prevention. The court held that the prevention principle operated merely as an implied term, which could not contradict express terms of the contract.
Prolongation Costs
Prolongation costs refer to time-related costs incurred by a contractor due to project delays. In UAE construction arbitration:
- Contractors may claim prolongation costs when granted an extension of time.
- These costs typically include site overhead, equipment costs, and extended preliminaries.
- The burden of proof lies with the contractor to demonstrate the causal link between the delay and the costs incurred.
UAE courts and arbitral tribunals generally require detailed evidence to support prolongation cost claims, as seen in recent DIAC (Dubai International Arbitration Centre) awards.
Time at Large and Extension of Time
The concept of “time at large” arises when the contractual completion date becomes invalid due to acts of prevention by the employer, and there is no operable extension of time mechanism. In such cases:
- The contractor’s obligation becomes one of completing the works within a reasonable time.
- The employer loses the right to claim liquidated damages.
If time is at large, the contractor is only required to complete the works within a reasonable period of time. However, this does not mean that the contractor has as much time as he wants to complete the works. The question of what a reasonable time for completion will be a matter of fact to be decided at the time the question arises and in light of all the circumstances. While the extension of time provisions in the contract, which will by that time be defunct, may well serve as guidance, there will invariably be a dispute between the employer and the contractor as to what is a reasonable time for completion.
The modern jurisprudence on “time at large” commenced with Lord Denning’s judgment in Trollope & Colls Ltd v Northwest Metropolitan Regional Hospital Board, which was upheld in the House of Lords. In this case, it was held that:
“It is well settled that in building contracts – and in other contracts too – when there is a stipulation for work to be done in a limited time, if one party by his conduct – it may be quite legitimate conduct, such as ordering extra work – renders it impossible or impracticable for the other party to do his work within the stipulated time, then the one whose conduct caused the trouble can no longer insist upon strict adherence to the time stated. He cannot claim any penalties or liquidated damages for non-completion in that time.”
Extension of Time (EOT) clauses are crucial in preventing time from becoming at large. In UAE construction contracts:
- EOT clauses typically list specific events that may entitle the contractor to additional time.
- The contract administrator (often the engineer) assesses EOT claims.
- Proper administration of EOT claims is essential to maintain the enforceability of liquidated damages.
UAE courts and arbitral tribunals have shown a tendency to interpret EOT clauses strictly, emphasizing the importance of compliance with contractual notice requirements.
PROVISIONS GOVERNING CONSTRUCTION ARBITRATION
- Article 246 of the UAE Civil Code emphasizes good faith in contract performance.
- The construction contracts are governed under Article 872 to 896. Article 872 defines ‘Muqawala’ (construction) contracts and outlines basic obligations of contractors whereas the other articles deal with variations and additional words, termination of contracts and its consequences etc.
RECENT DEVELOPMENT AND TRENDS
- Increased use of expedited procedures for lower-value disputes.
- Growing emphasis on early dispute resolution through Dispute Adjudication Boards (DABs).
- Rise in multi-tiered dispute resolution clauses in construction contracts.
- Greater focus on expert evidence, particularly in delay and quantum analysis.
CONCLUSION
The landscape of construction arbitration in the UAE continues to evolve, driven by the country’s ambitious construction projects and its aspiration to be a global arbitration hub. The DIFC and ADGM have emerged as significant players, offering sophisticated arbitration frameworks that appeal to international parties. The widespread use of FIDIC contracts provides a standardized approach to construction projects and dispute resolution. However, the application of key legal concepts such as the prevention principle, prolongation costs, and time at large requires careful consideration of UAE law and practice. As the construction industry in the UAE continues to grow, so too will the complexity of disputes. This underscores the importance of well-drafted contracts, effective project management, and a thorough understanding of local legal principles and arbitration practices. The future of construction arbitration in the UAE looks set to be characterized by increased sophistication, efficiency, and alignment with international best practices.
