Introduction
The main focus of this talk relates to the use of dispute escalation clauses in construction and
engineering contracts that are becoming more wide spread in the UAE. This provides an opportunity
to consider dispute resolution processes that are operating in the Middle East, and how those
processes are being combined in, for example, Engineer Procure and Construct (EPC) contracts, and
the differences that you find within the region.
Many construction engineering contracts in the Middle East have traditionally not contained dispute
resolution clauses. The local courts have dealt with disputes. Arbitration has become more widely
accepted, and also the introduction of standard form of contracts, such as FIDIC, has meant that the
ICC’s dispute resolution procedure is used as well as rules provided by regional centres, such as the
Dubai International Arbitration Centre.
The use of expert determination in EPC contracts has been quite popular in the Middle East,
especially in the Kingdom of Saudi Arabia. Adjudication revisions are also found in the Middle East,
once again in EPC projects for independent water plants or independent power plants. The use of
adjudication is encountered not just in the Kingdom of Saudi Arabia but in other countries, such as
Oman and Qatar.
Finally then, the use of a process such as expert determination followed by arbitration might not
be uncommon in more complex or higher value contracts. The use of three layers to a dispute
escalation clause is also not uncommon. For example, the holding of negotiations between senior
managers or senior decision makers of the parties to the contract before then considering expert
determination or adjudication and then referring matters finally to International Arbitration.
This paper considers the range of technics, and the institutions that one might come across, and
some of the issues and problems that can be encountered with these more complex clauses.
Escalation or multi-tier dispute resolution
Multi-tiered dispute resolution clauses have been defined as clauses which:
“… [provide] for distinct stages, involving separate procedures, for dealing with and seeking to resolve
disputes”. 1
The mechanisms chosen can include negotiation, mediation, adjudication (including DABs or DRBs)
expert determination and/or arbitration, which will be considered in detail below. Examples of
multi-tiered dispute resolution procedures are found in FIDIC Red, Yellow and Silver books, and are
also common in bespoke contracts for large scale projects. Prestigious projects that have used such
techniques include the Channel Tunnel and Hong Kong Airport.
1. CM.Pryles, “Multi-tiered Dispute Resolution
Clauses”, Journal of International
Arbitration, 2001, 18 (2: pages 159-176);
and Tanya Melnyk “The Enforceability of
Multi-tiered Dispute Resolution Clauses:
The English Law Position” Journal of
International Arbitration or Review, 2002, 5
(4), 113-138.2
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In large scale projects, the potential risks disputes bring with them are much larger. By providing
for a tiered system of dispute resolution techniques, it is hoped that disputes will be dealt with as
soon as they arise, and that the majority of disputes will be filtered out, or at least reduced in scale,
as early on in the dispute resolution process as possible. This should serve to limit any damage to a
commercial relationship which can occur due to litigation.
For the construction of Hong Kong’s airport, three different dispute resolution processes were
provided for, depending on the type of contract involved. The three types of contracts were for
infrastructure projects, the new airport and construction projects. For the infrastructure projects,
any disputes between the Hong Kong Government and the contractor were firstly referring the
matter to an engineer.
The next step was referring the matter to mediation, and finally the matter would be referred to
adjudication. For the construction of the new underground line, the process began by referring
dispute to the engineer. This step was followed by mediation and/or arbitration. Finally, for the
airport itself, the dispute first went to an engineer, following which the parties could appeal to the
project director. If the parties were still dissatisfied then they had 10 days within which to consult
the DRB. The final step in the process was arbitration.
Keith Brandt observed there were very few referrals to the DRB.
“The DRB made six binding decisions, with only one case being taken to arbitration. A relatively low
number of referrals suggests that the existence of the DRB deterred the referral of disputes and it
may be that it encouraged a settlement of matters between the parties without further third party
intervention” 2
The London Olympics 2012 has also opted for a multi-tiered dispute resolution system. The ODA has
set up an Independent Dispute Avoidance Panel (“IDAP”) of ten construction professionals under the
chairmanship of Dr Martin Barnes. Those disputes not resolved by the IDAP will then be referred to
an Adjudication Panel, comprising eleven adjudicators under the chairmanship of Peter Chapman.3
The courts will enforce multi-tiered dispute resolution provisions. In The Channel Tunnel Rail Group
Limited v Balfour,4 Lord Mustill emphasised that:
“having made this choice I believe that those who make agreements for the resolution of disputes
must show good reasons for departing from them… that having promised to take their complaints
to the experts and go if necessary to the Arbitrators, that is where the Appellants should go.”
The courts will also enforce agreements to mediate where they are part of such a procedure. In Cable
& Wireless Plc v IBM United Kingdom Limited 5, the court was asked to award a stay of proceedings while
the parties undertook the ADR processes provided for within that contract. The ADR provisions were
held to have binding effect.
The ADR clause was a sufficiently defined mutual obligation upon the parties to go through the
process of initiating mediation, selecting a mediator and at least presenting the mediator with its
case and documents. Since the clause described the means by which such an attempt should be
made the engagement required not merely an attempt in good faith to achieve resolution of the
dispute, but also the participation of the parties in the procedure specified. That procedure was for
sufficient certainty for a court to readily ascertain whether it should have been compiled with.
However, a note of caution has been sounded in the recent case of Balfour Beatty Construction
Northern Limited v Modus Corovest (Blackpool) Ltd.6 In this case the mediation agreement was
characterised as nothing more than an “agreement to agree”. Unlike the mediation agreement in
Cable & Wireless case, it was held to be too uncertain to be enforced by the court. The judge went on
to say that he would only stay a claim and counterclaim for mediation if he concluded that:
a) the party making the Claim and or Counterclaim was not entitled to summary Judgment on that
2. Keith Brandt “For Use and Development
of Mediation Technique in the UK &
International Construction Projects” a
paper given at the Chartered Institute of
Arbitrators Conference East greets West:
New Opportunities for Dispute Resolution
in Hong Kong on 2 February 2002, pages
10 and 11.
3. Ellis Baker “Is it all necessary? Who
benefits? Provision for multi-tried dispute
resolution in international construction
projects. A paper presented to a joint
meeting of the Society of Construction
Law and the Society of Construction
Arbitrators.” January 2009, 154, page 22.
4. The Channel Tunnel Rail Group Limited v
Balfour Beatty Construction Limited [1993]
61BLR1, HL
5. [2002] EWHC 2059.
6. Balfour Beatty Construction Limited v Modus
Corovest (Blackpool) Limited [2008] EWHC
3029 (TCC); and Construction Industry
Law letter, February 2009 page 2661. 3
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Claim and/or Counterclaim, i.e. that there was an arguable defence on which the other party had a
realistic prospect of success; and
b) the best way of resolving that dispute was a reference to mediation.”
International arbitration
Arbitration is a process, subject to statutory controls, whereby formal disputes are determined by a
private tribunal of the parties’ choosing. According to Stephenson, Lord Justice Sir Robert Raymond
provided a definition some 250 years ago which is still considered valid today:7
“An arbitrator is a private extraordinary judge between party and party, chosen by their mutual
consent to determine controversies between them, and arbitrators are so called because they have
an arbitrary power; for if they observe the submission and keep within due bounds, their sentences
are definite from which there lies no appeal.”
Providing arbitrators stay within the law, there is generally no appeal from the Arbitrator’s award, and
the award may be enforced by the courts, if necessary.
Arbitration is essentially a process which is available as an alternative to litigation. The parties must
agree to submit their dispute to arbitration and a distinction is often drawn between existing and
future disputes. The distinction is of historical importance because some jurisdictions, notably
France, would not until comparatively recently recognise agreements to refer future disputes to
arbitration.
The advantages of arbitration are well rehearsed and include; flexibility, economy, expedition,
privacy, freedom of choice of Arbitrator, and finality. On the other hand, the disadvantages of
arbitration appear to have been on the increase. In comparison to litigation, where the judge and
court facilities are provided at public expense, the parties to an arbitration will ultimately have to
bear the costs of the arbitrator and the facilities. Where, as is often the case in construction, more
than two parties are involved in a dispute, there is relatively little statutory power to consolidate
the actions in one arbitration. Some forms of contract, such as the JCT and the FCEC form of subcontract, provide for consolidation in limited circumstances.
Dispute resolution in the region and in Dubai has provided some challenges. The local courts have
been unfamiliar with complex construction contracts, and local employers have not always been
keen to agree to use international arbitration. International arbitration is, of course, widely used
throughout the world for substantial projects involving suppliers and contractors from countries
other than the one where the work takes place. Nonetheless, Dubai has a regional arbitration centre
in the form of the Dubai International Arbitration Centre (DIAC) and also the Dubai International
Financial Centre (DIFC). Egypt has for some time had an arbitration centre in Cairo, and now Qatar
also has the Qatar International Centre for Conciliation and Arbitration (QICCA).
DIAC and DIFC
The DIFC is an example of a “jurisdiction within a jurisdiction”, a regime used in several Middle Eastern
countries with the objective of providing certainty and familiarity to international business to attract
investment.
DIFC is a ‘financial free zone’, located in the Emirate of Dubai and for this reason is commonly referred
to as “offshore” Dubai, whilst the jurisdiction of the Emirate of Dubai itself is referred to as “onshore”
Dubai.
DIFC is an autonomous common law jurisdiction (despite the Emirate of Dubai being a civil law
jurisdiction) empowered under UAE law to enact its own legal and regulatory framework for all civil
and commercial matters.
7. EStephenson D. A. (1998)4
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The supervisory court, which deals with all civil and commercial matters, not just arbitration, is the
DIFC Court. The language of the DIFC Court is English.8
DIFC also has its own arbitration law and institution. The DIFC Arbitration law is modelled on the
UNCITRAL model law, as amended in 2006, and came into force in 2008.
Pursuant to this law, there is no requirement for the parties to have any connection with DIFC (or
to be based in Dubai or the UAE generally) in order to provide for an arbitration to be seated within
the jurisdiction.9
In February 2008, the DIFC inaugurated the DIFC-LCIA Arbitration Centre, which is a joint venture
between the London Court of International Arbitration, known as the LCIA, and DIFC.
The DIFC-LCIA Arbitration Rules are closely modelled on the LCIA Arbitration Rules. The DIFC-LICIA
Arbitration Centre functions with the assistance of the LCIA Secretariat and has full access to its
expertise and general systems.
The DIFC-LCIA Arbitration Centre gives parties who refer disputes under its auspices access to
the LCIA’s extensive database of arbitrators, although arbitrators may be appointed from off the
database as well.
As with all international arbitration rules, the parties are free to nominate their own arbitrators, in
which case the nominees will be appointed by the LCIA Court (the Court which forms part of the
structure of the LCIA).
The DIFC-LCIA Registrar is responsible for the day to day conduct of a DIFC arbitration and assists with
the procedure. Under the Rules, a sole arbitrator will be appointed unless specified otherwise by the
parties, or unless the DIFC-LCIA Registrar determines that a three member tribunal is appropriate in
the circumstances.
Unlike under the ICC Rules, the LCIA Court is not made responsible for scrutiny of the award. This
means there is no “quality control” on the awards, although it also results in the procedure being less
costly than the ICC.
As with most arbitral rules, including DIAC, the parties are largely free to agree on the procedure to
be followed by the tribunal. Where the parties have not agreed on the procedure to be followed,
then the tribunal has the discretion to discharge its duties in order to conduct the arbitration in a
fair, efficient and expeditious manner.
Arbitration proceedings are commenced when the DIFC-LCIA Registrar receives the request for the
dispute to be referred to arbitration.
The DIFC-LCIA Arbitration Rules also set out provisions that govern the response, submission of
statements of case, witness statements, experts (appointed by the tribunal), the type of hearing (oral
or written), and powers to order interim measures. The Rules provide for proceedings to continue
even where the Respondent fails to file a response, or if either party fails to attend a hearing or to
produce evidence.
The DIFC-LCIA Arbitration Rules also provide for an expedited procedure for the formation of the
arbitral tribunal in matters of exceptional urgency.
Arbitral awards under the DIFC-LCIA Arbitration Rules are final and binding and the parties
irrevocably waive any right to appeal. However, requests for the correction of errors in an award of
a typographical, computational or clerical nature can be made to the DIFC-LCIA Registrar within a
period of 30 days from the receipt of the award.
The DIFC-LCIA Arbitration Centre charges a registration fee of AED 9750. Time spent by the Registrar,
Deputy Registrar or Counsel is charged at AED 1,300 per hour with other Secretariat personnel being
8. The DIFC Court was established under Dubai
Law No.9 of 2004 in respect of the Dubai
International Financial Centre and Dubai
Law No.12 of 2004 in respect of the Judicial
Authorities Dubai International Financial
Centre
9. DIFC Arbitration Law (DIFC Law No.1 of
2008) (repealed DIFC Law No.8 of 2004).5
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charged at AED 650 per hour. Time spent by the LCIA Court, will be charged at hourly rates advised
by the LCIA Court and a sum equivalent to 5% of the total fees of the tribunal (excluding expenses)
will be charged in respect of the general overhead of the DIFC-LCIA Arbitration Centre.
The tribunal’s fees depend on the circumstances of the case, including its complexity and any
special qualification of the arbitrators, but will ordinarily fall within the range of AED 1085 to AED
2525 per hour.
If the parties provide not only that the DIFC-LCIA Arbitration Rules apply to their disputes, but that
the governing law or ‘seat’ of the arbitration is DIFC, then once a final award is issued, a party may
apply to the DIFC Court for an order recognising the award.10
Until October 2011 the process by which arbitral awards ratified in this way by the DIFC Courts
would then be enforced in ‘onshore’ Dubai was set out in a 2009 Protocol of Enforcement between
Dubai Courts and the DIFC Courts (the “Protocol”).
The Protocol provided for the mutual recognition and enforcement of judgments, awards and/or
Orders between the two courts, whereby, for example, provided a Decision was final, had been
translated into Arabic and was “appropriate for enforcement”, arbitral awards ratified by the DIFC
Courts could be enforced ‘onshore’ in the Dubai Courts (and vice-versa) without any further review
by the Dubai Courts.
These provisions have recently been codified into Law No. 16, the effect of which is to enshrine the
provisions of the Protocol in formal legislation (Article 7 of Law No. 16).
This means that a DIFC award (once recognised by the DIFC Courts and supported by a Dubai Court
Judgment) should, in theory, be enforceable in:
• Dubai and/or the other Emirates in the UAE;
• any of the six GCC countries as a result of The Protocol on Enforcement of Judgments, Letters
Rogatory and Judicial Notices used by the Courts of the Member States of the Arab Gulf Cooperation Council (1995) (the “GCC Protocol”); and
• any of the 12 countries in the Middle East which are signatory to the Riyadh Arab Agreement
for Judicial Co-operation (1983) (the “Riyadh Convention”).
Given that the UAE is also a signatory to the New York Convention on the Recognition and Enforcement
of Foreign Arbitral Awards, a DIFC award should also be enforceable internationally.
It should be noted that it is important that the place of the arbitration must be expressly stated to be
DIFC. It is not enough to specify the DIFC-LCIA Arbitration Rules apply to the arbitration. As Michael
Hwang (a DIFC Judge) summarised in the recent case of Amarjeet Singh Dhir v Waterfront Property
Investments Limited and Linarus FZE: 11
“the moral of this case is that, if the parties want DIFC Arbitration Law to apply and the DIFC Court
have jurisdiction over an arbitration, they should expressly select the DIFC jurisdiction in their
arbitration agreement.”
If the parties select the DIFC Arbitration Rules, but do not provide for DIFC jurisdiction within
their arbitration agreement, providing instead for the seat to be Dubai, then the Dubai “onshore”
courts will have jurisdiction of any issues which arise in connection with the arbitration, including
recognition of the final award for purposes of enforcement.
As regards to DIAC Arbitration, the current DIAC Arbitration Rules came into effect in May 2007.
They brought the DIAC Rules into line with other major arbitration centres around the globe. For
example, the DIAC Rules now provide that on the application of one of the parties, the tribunal has
the power to order interim measures (Article 31) and that the proceedings of all awards, evidence
and documents produced or disclosed in the arbitration are confidential (Article 41).
10. Article 43 of the DIFC Arbitration Rules.
11. Claim number CFI011-2009 8 July 2009.6
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DIAC is an autonomous, permanent and non-profit institution and is financially and administratively
autonomous. It is based in “onshore” Dubai, and, therefore, assuming that the seat of the arbitration
is Dubai, the supervisory court will be the Dubai courts rather than the DIFC Courts (although it
would, theoretically, be possible to provide for an arbitration which is subject to the DIAC Arbitration
Rules with a seat in the DIFC).
DIAC is currently facing stiff competition from the DIFC-LCIA Arbitration Centre, especially given the
new legislation passed on 31 October 2011, which should make enforcement of DIFC arbitration
awards more straight forward.
The DIAC Board of Trustees, which comprises 21 members with expertise in the field of arbitration,
including legal consultants, lawyers, academics and other specialised professionals both inside the
Emirates and abroad, set down the DIAC Arbitration Rules.
The parties to a contract may agree that the DIAC Rules apply to their dispute or they may elect the
DIAC Rules to apply once a dispute has risen.
Under the DIAC Rules, the parties are free to choose the law applicable to the dispute. If they do not
do this, the tribunal applies the law(s) it considers most appropriate.
The proceedings are conducted in the language of the agreement, unless the parties specify
otherwise. The DIAC Rules also allow the parties to appoint an arbitrator of their choice. The
appointment of arbitrator is then formalised by the DIAC, who must determine their suitability to
act.
The tribunal can adopt either an adversarial role (the common law approach) or an inquisitorial role
(the civil law approach) with arbitrators reserving the right, after consultation with the parties, to call
in their own experts to deal with technical matters.
The parties may request hearing for presentation of oral witness evidence. If they do not request
this, the tribunal can decide whether to hold such a hearing or to conduct the proceedings on the
basis of written documentation alone.
The DIAC Rules place a strict timeframe on arbitral proceedings. Generally an award has to be
made within six months of the arbitrators receiving an instruction to decide the case, although this
period (as with the equivalent requirement under the ICC Rules) can be extended by the tribunal or
further extended with a request to the Executive Committee. (In our experience, this period is very
frequently extended).
A party may apply to DIAC to request expedited formation of the tribunal. The tribunal is empowered
to order interim measures on application of one of the parties.
The DIAC charges a one off, non-refundable fixed registration fee for commencing an arbitration.
Administration fees and fees of the arbitrators are determined as a percentage of the amount of the
dispute with the maximum and minimum limit according to the circumstances and complexity of
the case, according to a scale established by a committee of the DIAC.
The parties may refer the award back for review by the arbitrators if there is an issue or concern that
there has been an oversight. This does not invalidate the award. Insofar as permitted by the law of
the proceedings, the parties waive the right to appeal against awards rendered by DIAC.
It has been our experience (and this is supported by views expressed to us by other) that the
quality of the administration services provided by the DIAC is sometimes not as good as one would
hope, and that the quality of some of the arbitrators on DIAC’s list (where the DIAC is to make an
appointment rather than the parties) is also not uniformly high. 7
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Assuming that the seat of the arbitration was Dubai, then under Article 215 of the UAE Code of Civil
Procedure, a DIAC award must be recognised by the local court with the effect of converting it to
a Court Judgment. This is in contrast to the DIFC system which permits the DIFC Court to provide
this recognition.
Unfortunately, there is no consistent barometer of the Dubai Courts’ attitude to domestic awards.
In the widely reported case of Bechtel v The Department of Civil Aviation of the Government of Dubai
in 1994, the Dubai Court of Cassation refused to enforce a US$25 million award in favour of the
claimant on the grounds that the arbitration had failed to require the witnesses to swear an oath in
the manner prescribed by the UAE Civil Procedure Code.
Since that date, matters have improved somewhat and arbitration practitioners in the region have
developed a list of dos and don’ts in an effort to minimise the risk of annulment. For example,
arbitrators are required to sign every page of the award and not doing so can cause problems.
However, generally speaking, given the DIAC’s large case load, enforcement problems seem to be
relatively rare. Indeed, we recently obtained a favourable award for one of our clients which was
subsequently enforced in the Dubai Courts without difficulty. The only word of caution we would
add is that the enforcement process appears to be much slower than it is in other jurisdictions such
as the United Kingdom or France.
Adjudication
Adjudication is now a dispute resolution process that most in the UK construction industry are
familiar with. The process was introduced by the Housing Grants, Construction and Regeneration
Act 1996, which became effective from May 1998. We have therefore lived with it for almost 15 years.
Adjudication is included in all of the standard form contracts, but in any event will be implied, as
we all now know, into any contract that meets with the definition of “construction contract” under
the Act.
Other common law countries have followed suit. All of the states in Australia now have security of
payment legislation, which introduces a right to adjudication. New Zealand is the same. Singapore
also introduced a Security of Payment Act which provides for adjudication. Malaysia introduced a
similar act providing for adjudication in June 2013, and it is due to be in force soon. Other countries
have considered similar legislation. The mechanics of the legislation varies between countries and
states, but they all share the desire to provide a rapid binding dispute resolution procedure.
The situation in the Middle East is somewhat different. There has been considerable construction
work in that region for many years. The wealth created by oil has lead to increasing levels of
development throughout the region. Dubai is perhaps the best known for its substantive impressive
developments such as The Palm and The Burj Khalifa Tower. Despite a slow down of construction
activity four years ago, as a result of the economic crisis, Dubai has continued to grow. The Dubai
Theme Park is now underway, along with many other substantial developments.
It is then, perhaps, unfortunate that adjudication has not been introduced by local legislation within
the Middle East. However, that would require a cultural understanding not just of the locals from
the Middle East, but also the international contractors and consultants that work there. Both have
a different perspective on how differences and disputes are resolved. Why should the international
community impose upon the Middle East a rapid dispute resolution procedure, which in commercial
terms is quite new to the business community even by international standards? Perhaps it is
something that will be considered and debated over time.
On the other hand, dispute boards have been used in the region in some instances. They are not
necessarily the norm, but through use of FIDIC dispute adjudication boards and dispute review
boards have been encountered.
The use of the term “Dispute Boards” or occasionally “Disputes Boards” (collectively DBs) is a relatively
new term. It is used to describe a dispute resolution procedure which is normally established at 8
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the outset of a project and remains in place throughout the project’s duration. It may comprise
one or three members who become acquainted with the contract, the project and the individuals
involved with the project in order to provide informal assistance, provide recommendations about
how disputes should be resolved and provide binding decisions. The one person or three person
DBs are remunerated throughout the project, most usually by way of a monthly retainer, which is
then supplemented with a daily fee for travelling to the site, attending site visits and dealing with
issues that arise between the parties by way of reading documents and attending hearings and
producing written recommendations or decisions if and as appropriate.
The term has more recently come into use because of the increased globalisation of adjudication
during the course of projects, coupled with the increased use of Dispute Review Boards (“DRBs”),
which originally developed in the domestic USA major projects market. DRBs were apparently first
used in the USA in 1975 on the Eisenhower Tunnel. The use of DRBs has steadily grown in the USA,
but they have also been used internationally. However, DRBs predominantly remain the providence
of domestic USA construction projects. As adjudication developed, the World Bank and FIDIC
opted for a binding dispute resolution process during the course of projects, and so the Dispute
Adjudication Board (“DAB”) was borne from the DRB system; the DRB provides a recommendation
that is not binding on the parties.
Therefore, the important distinction between DRBs and DABs is that the function of a DRB is to make
a recommendation which the parties voluntarily accept (or reject), while the function of a DAB is
to issue written decisions that bind the parties and must be implemented immediately during the
course of the project. The DRB process is said to assist in developing amicable settlement procedures
between the parties, such that the parties can accept or reject the DRB’s recommendation.
The term has more recently come into use because of the increased globalisation of adjudication
during the course of projects, coupled with the increased use of Dispute Review Boards (“DRBs”),
which originally developed in the domestic USA major projects market. DRBs were apparently first
used in the USA in 1975 on the Eisenhower Tunnel. The use of DRBs has steadily grown in the USA,
but they have also been used internationally. However, DRBs predominantly remain the providence
of domestic USA construction projects. As adjudication developed, the World Bank and FIDIC
opted for a binding dispute resolution process during the course of projects, and so the Dispute
Adjudication Board (“DAB”) was borne from the DRB system; the DRB provides a recommendation
that is not binding on the parties.
The important distinction then between DRBs and DABs is that the function of a DRB is to make a
recommendation which the parties voluntarily accept (or reject), while the function of a DAB is to
issue written decisions that bind the parties and must be implemented immediately during the
course of the project. The DRB process is said to assist in developing amicable settlement procedures
between the parties, such that the parties can accept or reject the DRB’s recommendation. Building
upon this distinction, the International Chamber of Commerce (ICC) has developed three new
alternative approaches:
1. Dispute Review Board – the DRB issues recommendations in line with the traditional
approach of DRBs. An apparently consensual approach is adopted. However, if neither
party expresses dissatisfaction with the written recommendation within the stipulated
period, then the parties agree to comply with the recommendation. The recommendation
therefore becomes binding if the parties do not reject it.
2. Dispute Adjudication Board - DRB’s decision is to be implemented immediately.
3. (Combined Dispute Board (“CDB”) – this attempts to mix both processes. The ICC CDB
rules require the CDB to issue a recommendation in respect of any dispute, but it may
instead issue a binding decision if either the employer or contractor requests, and the
other party does not object. If there is an objection, the CDB will decide whether to issue
a recommendation or a decision.
According to the ICC, the essential difference is that the parties are required to comply with a decision
immediately, whereas the parties must comply with a recommendation but only if the employer
and contractor express no dissatisfaction within the time limit. The combined procedure seems, at 9
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first glance, to be a somewhat cumbersome approach attempting to build upon the benefits of the
DRB and DAB, without following a clear pathway. Nonetheless, it may prove useful for those parties
that cannot decide whether they need a DRB or a DAB.
At the other end of the spectrum a DB could be considered as a flexible and informal advisory
panel. In other words, before issuing a recommendation, the DB might be asked for general advice
on any particular matter. The DB will then look at documents and/or visit the site as appropriate
and, most usually, provide an informal oral recommendation which the parties may choose then to
adopt. If the parties were not satisfied, the DB would proceed to the issue of a formal, albeit nonbinding, written recommendation after following the formal procedure of exchange of documents
and a hearing. Perhaps this amicable approach will suit the Middle East more than a rapid binding
adjudication process.
Negotiation
According to the Concise Oxford Dictionary,12 “to negotiate” means to “confer with others in order
to reach a compromise or agreement.” Negotiation is merely the name given to that process.
Goldberg et al, described negotiation as “communication for the purpose of persuasion; the preeminent mode of dispute resolution.” 13 Nonetheless negotiation should not be considered as merely
a dispute resolution process. Negotiation in its broadest form may be considered as the process
by which individuals communicate in order to arrange their business affairs and private lives by
establishing agreement and reconciling areas of disagreement.
In its most basic form direct negotiation provides a simple party based problem solving technique.
A further dimension is added when either party introduces advisers. Nonetheless, the essential
feature of this process is that control of the outcome remains with the parties. Litigation and
arbitration require the parties to submit their dispute to another who will impose a legally binding
decision. Negotiation is a “process of working out an agreement by direct communication. It is
voluntary and non-binding.” The process may be bilateral (between two parties) or it could be multilateral (many parties). Each party may utilise any form of external expertise it considers necessary,
and this is often described as “supported negotiating”.
Negotiation clearly involves some form of communication leading to joint decisions. Do these
negotiations always maintain a processual shape with identifiable features regardless of the
individuals involved or the conditions under which the negotiation takes place? Gulliver maintains
that negotiation is essentially a developmental process with eight distinct but often overlapping
phases.14
Phase 1: The Search for an Arena
Phase 2: Agenda and Definition
Phase 3: Exploring the Field (emphasis on differences)
Phase 4: Narrowing the differences
Phase 5: Preliminaries to final bargain
Phase 6: Final bargain
Phase 7: Ritualising the outcome
Phase 8: Execution of outcome
Mediation
To mediate means to act as a peacemaker between disputants. It is essentially an informal process in
which the parties are assisted by one or more neutral third parties in their efforts towards settlement.
Mediators do not judge or arbitrate the dispute. They advise and consult impartially with the parties
to assist in bringing about a mutually agreeable solution to the problem. Some definitions in
circulation include:
“Mediation is negotiation carried out with the assistance of a third party. The mediator, in
12. Concise Oxford Dictionary (1995)
13. Goldberg S. B. (1992) Dispute Resolution:
Negotiation and Meditation and Other
Processes, 2nd edn
Little Brown, Boston
14. Gulliver, P H. (1979) Dispute and
Negotiations: A cross Cultural Perspective,
Academic Press, London
15. Goldberg, S. B. et al, (1992). p10310
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contrast to the arbitrator or judge, has no power to impose an outcome on disputing parties.” 15
“Mediation is a facilitative process in which disputing parties engage the assistance of a neutral
third party who acts as a mediator in their dispute.” 16
“Where two or more people or companies are unable to resolve a particular problem they
invite a neutral person to help them arrive at a solution. The neutral person, or mediator, will
work hard with each side and help them to understand better their own and the other person’s
position, and explore alternative solutions” 17
“Mediation consists of the effort of an individual, or several individuals, to assist the parties in
reaching the settlement of a controversy or claim by direct negotiations between or among
themselves. The mediator participates impartially in the negotiations, advising and consulting
the various parties involved.” 18
There are two common threads. Firstly, the form of the third party intervention. The primary role of
the third party is to facilitate other people’s decision making. The process builds on negotiation, and
the mediator fundamentally sustains and reviews the situation with the parties. Secondly, the third
party should be independent of the parties in dispute. The essence of mediation that the mediator
is impartial. The trust which develops during the process allows the mediator to perform “a bridging
role” between the parties.
Confusingly, the term ‘conciliation’ is often used interchangeably with mediation. In the UK
conciliation is usually taken to mean a more interventionist or evaluative style of mediation.
However, there is no internationally agreed norm. The conciliation of labour disputes by ACAS is
generally considered to be more evaluative, as is ICE conciliation. If the parties fail to settle under
the ICE procedure, the conciliator will make a recommendation. However, the terms mediation and
conciliation are often used interchangeably.
During a facilitative mediation, the mediator is trying to re-open communication between the
parties and explore the options for settlement. The mediator does not openly express his/or her
opinions on the issues. If, on the other hand, the mediator is called upon to state his opinion on any
particular issue then he/she is clearly making an evaluation of that issue.
Table 1: facilitative and evaluative processes
Mediation or Conciliation
Facilitative
The mediator/conciliator aids the negotiation
process, but does not make recommendations
Evaluative
The mediator/conciliator makes a
recommendation as to the outcome
In practice a mediation that starts off in a purely facilitative way may become evaluative in order
to try and reach a settlement. This may occur intentionally, at the request of the parties or with
forethought on the part of the mediator, or unintentionally by the words or actions of the mediator.
The boundary is clear in theory, but not necessarily in practice. Nonetheless, at a basic level a
distinction can be made between “settlement” processes and “decision” imposing processes. Control
of the outcome, or the power to settle rest with the parties during negotiation, mediation and
conciliation. By contrast, “adjudicative” or “umpiring” processes, such as litigation, arbitration and
adjudication, rely on the judge, arbitrator or adjudicator having the power to impose a decision.
16. Brown, H. and Mariott, A. (1992) ADR
Principles and Practice, Sweet and
Maxwell, London. p108
17. British Academy of Experts (1992)
18. American Arbitration Association, (1992)11
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Table 2: Settlements and decisions
Control of the outcome rests with the parties Decisions are imposed
Negotiation
Mediation
Conciliation
Litigation
Arbitration
Adjudication
Expert determination
Expert determination
Expert determination is a process by which the parties to a dispute instruct a third party to decide a
particular issue. The third party is selected because of his or her particular expertise in relation to the
issues between the parties. According to Kendal:
“There is nothing very new about expert determination. It has been a feature of English
commercial and legal practice for at least 250 years. What is new about it is that it is being
called in to help with the current crisis in commercial dispute resolution. Expert determination
is a simple procedure by which valuation and technical issues are referred to a suitably qualified
professional to determine “acting as an expert and not as an Arbitrator” ... Unlike alternative
dispute resolution (ADR), expert determination guarantees a result which is final and binding.” 19
Expert determination is essentially a creature of contract. The parties to a contract agree that some
third party will decide a technical or valuation issue between the parties. Expert determination has
traditionally been used in rent reviews. According to Kendal, approximately half of all commercial
leases contain a provision for rent review by a surveyor acting as an expert, whilst the other half
state that the surveyor is to act as an arbitrator. Nonetheless, expert determination is not restricted
to mere land valuations.
The technique lends itself to valuation and complex technical issues. In this respect, expert
determination may be found in a wide variety of circumstances: valuing shares in private companies,
certifying profits or losses of a company during sale and purchase, valuing pension rights on transfer,
determining market values in long term agreements. Further, the use of expert determination may
be used as part of a multi stage dispute resolution procedure. In this instance, some technical
matter may be referred to an expert leaving the other issues in dispute to arbitration or litigation.
A typical expert determination clause should ensure that specific items are clearly dealt with. First,
the issue or issues to be determined should be clearly and precisely expressed. Lack of clarity in
relation to the issue to be determined may provide an opportunity to argue subsequently about
the jurisdiction of the expert. Second, it is important to state that the expert is to act as an expert
and not as an arbitrator. Much of the case law in the area of expert determination focuses on this
point. If the third party is acting as an expert, then his or her opinion as to the value or opinion of the
correct decision in relation to the issue in dispute is not capable of being challenged. On the other
hand, if the third party is acting as an arbitrator, then the formalities of an adjudicative procedure
must be adhered to.
Third, a further essential feature of expert determination is that the decision should be final and
binding. On the other hand adjudication and decisions of dispute review boards are often expressed
as final unless challenged by a subsequent arbitration.
Finality is a common feature of expert determination. Finally, the contractual machinery should
provide some mechanism for appointment of an appropriate expert. This would usually provide for
appointment by agreement between the parties or in default by some appointing authority stated
in the contract. The default procedure will ensure that an expert is appointed regardless of the
strategies associated with the other party. In addition, it is beneficial to include express provisions
19. Kendal, J. (1996) Dispute Resolution:
Expert Determination, 2nd edition,
Longman, Harlow12
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in relation to the expert’s qualifications and state how the expert is to be paid. These are usually
split equally between the parties with a further provision allowing the expert to decide otherwise.
The leading case in this area is Jones -v- Sherwood Computer Services Plc.20 This case involved a sale
and purchase agreement where part of the consideration was to be deferred. The valuation of
this deferred consideration depended upon the acquired company’s sales figures exceeding a
certain level. If the vendor and purchaser’s accountants were unable to agree this figure then a third
accountant was to determine the figure as expert. The vendor’s and purchaser’s accountants could
not agree on the categories of transactions which should be included as sales.
Coopers & Lybrand were appointed as the expert firm who determined that the sales amounted
to £2,527,135. The vendor was not satisfied and wished to challenge the reasoning behind the
determination. The Court of Appeal stated that the expert had been asked to determine the level of
sales and that is exactly what they had done. On the other hand, if the expert departed from their
instructions - for example, by valuing shares in the wrong company - then that would be sufficient
to upset an expert’s decision. Jones -v- Sherwood suggests then that an expert would need to make
some manifest mistake in relation to its jurisdiction before the Court would intervene.
Nikko Hotels (UK) Limited -v- NEPC Plc 21 2 EG 86 considers the expert’s jurisdiction in relation to points
of law . If the expert had answered the wrong question, then his decision would be a nullity. On the
other hand, if the expert had answered the right question but in the wrong way the decision would
still be binding.
More recently the House of Lords considered expert determination in the case of Mercury
Communications Limited v Director General of Telecommunications and Another.22 In that case two
companies, BT and Mercury were granted licences to run telecommunication systems under Section
7 of the Telecommunications Act 1984. Clause 29 of the Agreement provided for a review of the Terms
of the Agreement after five years. If either party was unable to agree to any fundamental changes
of the Terms then a reference was to be made to the Director General of Telecommunications for
the determination of any particular issue. An issue in relation to pricing was referred to the Director
General. Mercury challenged the Director General’s decision on the basis that he had misinterpreted
the costs to be taken into account when setting the price.
Initially, the Director General applied to strike the action out on the basis that the action was an
abuse of process. The Director General argued that as the Agreement was formed under the
Telecommunications Act 1984 any determinations of the Director General were in the domain of
public law and should therefore be subject to judicial review and not a private action. The House of
Lords held that as the dispute related to a contractual matter (albeit by way of a statutory power) then
an action in private law was appropriate. In relation to the exercise of that decision making function
the House of Lords decided that they ultimately had jurisdiction to interpret the construction of the
clause. They went on to say that provided the expert does not depart from his/her instructions then
the decision cannot be challenged unless there is some allegation of fraud.
Enforcement of awards in Saudi Arabia & UAE
In March 2013 a new Enforcement Law came into effect in Saudi Arabia, replacing the relevant
provisions of the 1989 Rules of Civil procedure before the Board of Grievances. With a particular
impact on the enforcement of arbitral awards, whether domestic or international, this new
Enforcement Law also contains provisions that affect aspects of domestic and foreign judgements
and is a welcomed change.
Prior to the new Enforcement Law, parties were required to bring applications for the enforcement
of foreign judgements and arbitration awards before the Board of Grievances. This was a lengthy
and rigid procedure as the Board of Grievances would undertake a full review on the merits of
each award, ensuring that the award was compliant with Shariah law. It also required all relevant
documents from the arbitration to be submitted to the Board in Arabic to allow for the review.
20. [1992] 1 WLR 277
21. [1991] 2 EG 86.
22. [1996] 1 AER 575.13
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An illustration of the old system is seen in an ICC case, Jadawel International (Saudi Arabia) v. Emaar
Property PJSC (UAE). In 2006 Jadawel commenced arbitration before a three-member tribunal seated
in Saudi Arabia claiming damages of US$1.2 billion based on a breach of contract by Emaar on a
construction project. The lengthy arbitration took two years but was finally dismissed with Jadawel
being ordered to pay legal costs. The award was then submitted to the Board of Grievances for
enforcement. In its review, the Board proceeded to re-examine the merits and not only did it decline
to enforce the award, but it reversed the award and ordered Emaar to pay damages to Jadawel.
Abandoning the old system of enforcement proceedings before the Board of Grievances, the new
Enforcement Law introduces an Enforcement Judge to deal with all enforcement issues.
The Enforcement Judge is required to follow Shariah principles, unless the law stipulates otherwise,
and Article 9 of the new Enforcement provides for compulsory enforcement upon the presentation
of an executive deed, including a final arbitral award.
Also notably, appeals of the Enforcement Judge’s decisions suspend enforcement. This goes against
domestic law trends seen in other parts of the law such as France.
The Enforcement Judge may enforce foreign arbitral awards only on the basis of the principles
of reciprocity, refusing to enforce arbitral awards from jurisdictions that would not enforce Saudi
judgments or awards, and if the party seeking enforcement can ensure that:
• Saudi courts do not have jurisdiction with regards to the dispute;
• The award was rendered in compliance with due process requirements;
• The award is in final form in the law of the seat of the arbitration;
• The award does not contradict a judgment or order issued on the same subject by a
judicial authority in the Kingdom of Saudi Arabia; and
• The award does not contain anything contradictory to Saudi public policy.
The new Enforcement judge will be specialised in enforcement of awards and judgments should
be more expedient.
A similar situation was seen in the Courts of UAE as there are a number of technicalities which are
peculiar to UAE law. Such technicalities include requirements that:
• a UAE award must be physically signed within the UAE;
• the legal representative of each party possesses a valid power of attorney to act in the
proceedings; and
• witnesses should not be present in the evidentiary hearing except when they are giving
evidence (however, it is worth noting that this is often relaxed by the agreement of the
parties).
In the past, awards have been overturned by the courts for apparently insignificant errors such
as the tribunal’s failure to sign each page of the award in full, instead simply initialing each page.
The Bechtel case23, as mentioned above, is an example of this, where the Dubai Court of Cassation
overturned an arbitration award because the oath used to swear in witnesses during the arbitration
did not follow the formula prescribed for UAE court hearings.
Notably, the Paris Court of Appeal, upheld the award in favour of Bechtel, setting aside the Dubai
Court of Cassation’s decision. The Paris Court of Appeal ruled that the arbitral award satisfied the
requirement
However, despite the history of technicalities, there are also positive developments in the UAE
courts. There appears to be a general trend by the UAE courts, away from overturning arbitration
awards on purely technical reasons. Although there are still exceptions to this trend, there seems to
be a more arbitration-friendly climate in the UAE and the developments are positive.
23. Direction Générale de I’Aviation Civile de
I’Émirat de Dubai v International Bechtel
Co.14
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The new Enforcement Law in Saudi Arabia is a positive step in the right direction. It should guarantee
that the merit of the dispute is no longer revisited: however, it is yet to be determined what effect
the provisions have in practice. The new Enforcement Law does not protect parties or foreign awards
which are unfamiliar to Saudi law or Shariah law concepts.
Conclusion
Dispute resolution procedures have become more sophisticated in the Middle East by virtue of the
use of more complex construction and engineering contracts. A range of technics are available,
although these mediation and dispute boards is not particularly common. Face to face negotiations
still hold strong, with the use of an expert or the appointment of one adjudicator to resolve disputes
before then using International Arbitration as a final dispute resolution process. None of these
processes escape the need for enforcement, and this will, of course, raise separate questions about
where assets might be placed, and local courts attitude towards the dispute resolution procedure
and any decision made by a contractual dispute decision maker, or the enforceability of an arbitration
award.
Nicholas Gould
Fenwick Elliott LLP
Aldwych House
71-91 Aldwych
London
WC2B 4HN
T: +44 (0) 20 7421 1986
ngould@fenwickelliott.com
August 201415
ngould@fenwickelliott.com
Partner
Nicholas Gould
Nicholas conducts a mix of contract drafting, strategic project advice and dispute resolution
work. He acts in a wide range of construction sectors in the UK and internationally, including
general construction, transport, communications, industrial, process plant, petrochemical,
and energy. A solicitor advocate and chartered surveyor, his dual qualifications provide a
layer of expertise that adds a practical level to his work.
Noted by Chambers and Partners UK as “very well known in the field”, his industry
background reassures clients that he has a “good grasp of the issues.”; he has also been
praised for his “ability to pre-empt potential problems and provide advice in a clear
manner that maintains the individual needs of clients.” Legal 500 UK 2012 lists Nicholas in
three sections: Construction (highly recommended), International Arbitration (esteemed
practitioner) and as Mediator. According to the IBA’s Who’s Who Legal Construction he
is “revered for his ‘excellent mind’”. The IBA’s International Who’s Who of Business Lawyers
Today listed Nicholas as one of the ten most highly regarded individuals internationally
for construction law.
Nicholas has considerable experience dealing with contracts of various forms including
FIDIC, ICE, NEC, JCT, PPC, IChemE, M/F, GC/Works, BPF/ACA, ACE, RIBA, and various EPC,
EPCM and PFI/PPP contracts. Nicholas also deal with subcontracts such as NEC, Dom 1
and 2, ECA, FCEC Blue Form, JCT. Procedural rules; DIAC, CEDR, ICC, UNCITRAL, ICE, SIAC,
CIMAR, LCIA, FIDIC, CIArb, TeCSA, CIC, and the Scheme. He led the drafting of CEDR’s
Project Mediation Procedural Rules.
Specialist expertise
Nicholas is an expert in dispute resolution where his experience spans litigation, arbitration
(domestic and international), adjudication, DAB/DRB, mediation, early neutral evaluation
and expert determination. He has also conducted Government funded research
into construction dispute resolution. He regularly acts as a mediator in construction,
engineering and commercial disputes, and sits as adjudicator on international Dispute
Adjudication Boards and as arbitrator.
Examples of Nicholas’ expertise include:
• advising an EPC contractor in respect of the largest gas combined cycle power plant
completed in Europe in 2012. See Alstom Power Ltd v Somi Impianti SRL [2012] EWHC
2644 (TCC);
• providing contractual and claims advice in respect of a JV agreement and EPC turnkey
agreement for a 900 MW oil fired steam power plant and desalination plant. Project
cost US$1.8 billion, with claims circa US$ 300million;
• acting for one of the world’s largest specialist power station contractors in respect
of a substantial extension of time and prolongation claim under a bespoke EPC
contract. Advice in respect of the dispute resolution provision comprising mediation,
contractual adjudication and High Court litigation;
• advising an airport owner regarding a £4.2 billion airport development in respect of 16
• claims under bespoke NEC based partnering packages for the building management
system and related claims;
• advising a government’s transport ministry in respect of a new metro system;
• acting for a joint venture contractor in relation to a potential high value (circa £150
million) dispute arising from a UK off shore wind farm project. Advising on various
contractual issues, entitlement to extensions of time and associated additional costs
as a result of variations and developing overall strategy;
• acting for the National Energy Authority of a Government to advise on and defend an
ICC arbitration for the construction of a hydroelectric dam in Asia.
Other activities
Nicholas is a Senior Visiting Lecturer and an Executive Committee Member, at the
Centre of Construction Law, King’s College, London, and an assessor for the Commercial
Management MSc at UMIST. Nicholas regularly lectures at King’s College London, for
ICC, DRBF, IBC at their summer school at Cambridge University, ICE, RICS, UMIST, CEDR
together with a variety of in-house and ad hoc lectures. Video includes: Einstein Network;
Mediationfirst; and a live radio appearance on BBC Southern Radio. Nicholas chaired IBC
First Construction Law Web Congress.
He has published widely in the area of construction law and dispute resolution, and won
a Silver Award at the CIOB Literary Awards in 2000 for his book Dispute Resolution in the
Construction Industry published by Thomas Telford. The Rt. Hon Sir Philip Otton described
the book as “the most fascinating publication to come across [his] desk for many a year.”
Nicholas was also lead author of ‘Mediating Construction Disputes: An Evaluation of Existing
Practice’ (2010) which received a CEDR award for excellence. The Rt Hon Lord Woolf
commented in the House of Lords in January 2010 that: “Mediation is no longer a novelty
in the UK. … Commendably, a solicitor, Nicholas Gould, has now with the assistance of a
team of supporters completed research for King’s College London … As I would expect,
the survey showed that the process led to a saving of time and cost in a significant number
of cases. I warmly congratulate Mr Gould and his team on the empirical data that they
have assembled.”
Nicholas’ memberships/positions include:
• chairman of the ICC’s International Expertise Sub-committee;
• member of the Dispute Resolution Board Foundation (DRBF) and President of Region
2 of the DRBF;
• past chairman of and current case editor for the Adjudication Society;
• fellow of the Royal Institute for Chartered Surveyors (RICS) and the Chartered Institute
of Arbitrators (CIArb);
• member of King’s College Construction Law Association (KCCLA);
• member of International Chamber of Commerce (ICC);
• member of the London Court of International Arbitration (LCIA);
• member of the International Bar Association;
• member of The Technology and Construction Solicitors Association (TeCSA);
• publicity Officer of the CCG;
• former Chairman of the Society of Construction Law;
• freeman of the Worshipful Company of Arbitrators;
• accredited arbitrator for DIFC-LCIA Arbitration Centre, Dubai.
