Dubai arbitration overview

The explosion of construction disputes in Dubai presents the Emirate’s legal institutions, and its arbitration centres in particular, with an ideal opportunity to demonstrate their effectiveness.

One of the key issues which foreign investors and companies investigate when deciding whether to invest or expand into a particular jurisdiction is access to a trusted mechanism for dispute resolution. The prevalence of infrastructure and other construction projects in Dubai, and the Middle East generally, has meant that many such risk assessments have been made by companies specialising in construction and project work, where the standard forms of contract (such as FIDIC) usually provide for arbitration as the formal dispute resolution mechanism.

In recognition of the importance of the availability of effective legal remedies to investors and contractors, most countries in the region have developed legal frameworks and institutions based on tried and tested international dispute resolution models. Steps include accession to international conventions (such as the New York and ICSID Conventions), the establishment of specialist commercial judiciaries (such as Abu Dhabi has recently announced) and the development of new arbitration legislation and institutions.

Dubai is at the cutting edge of such developments, and has reaped rich rewards as a result of the steps it has taken to encourage investment: Dubai last year received more foreign direct investment than any other city in the world. One only has to read the advertising boards around Dubai’s many construction sites to see that it has been successful in attracting project companies from across the globe.

Partly as a result of its own success, the global downturn has hit Dubai hard, though it remains to be seen how long the credit crunch can keep down what is still a fast-growing and ambitious city.

The downturn has, however, left a legacy of disputes, in particular involving companies in the construction sector, as falling property values and the lock-up in liquidity have put developers and contractors alike under pressure. The main beneficiary of the explosion in arbitration is the Dubai International Arbitration Centre (DIAC), which has reported having received upwards of 180 requests for arbitration so far this year (80 per cent of which are reported to be construction-related) involving claims totalling in the region of US$5 billion.  

This is just reward for the DIAC's revision of its arbitration rules and re-launch in 2007, which resulted in DIAC arbitration clauses being incorporated into a large number of projects involving both domestic and international parties.

While there will of course be initial difficulties in dealing with such a dramatic increase in caseload, the DIAC now has a unique opportunity to demonstrate in practice that arbitration within the region can be an effective alternative both to court proceedings and to arbitration in the traditional centres such as London and Paris, where both the London Court of International Arbitration (LCIA) and the International Chamber of Commerce (ICC) have reported an increase in Middle Eastern arbitrations this year. This suggests that a number of companies investing, or involved in projects, in the region are continuing to insist that any disputes arising from those investments or projects are resolved outside the region. Dubai’s arbitral institutions will hope to change this over time.

One disadvantage which the UAE presently faces over other arbitral venues is the lack of a comprehensive UAE arbitration law (though this may change during the course of 2009).

Although Dubai has taken great strides in developing its legal institutions and frameworks, those institutions are now facing a key test as the wave of construction disputes in the region come before them. Those institutions will need to deliver, both in respect of the speed and efficiency of the dispute resolution processes being offered in the region, and also in the effectiveness and enforceability of the judgments or arbitral awards obtained as a result of those processes, if Dubai is to fulfil its ambition of becoming a globally recognised centre for dispute resolution.