The UAE is in the midst of a spectacular construction boom. There is inevitably speculation that the boom will generate a significant number of construction arbitrations over the coming months. This is primarily driven by recent and substantial increases in the cost of labour and the price of key building materials (for example, UAE steel prices rose by approximately 15% in the first ten days of July this year alone). Many contractors working under fixed price construction contracts which do not contain price escalation clauses are therefore suffering substantial losses.
Construction contracts in the UAE typically contain arbitration clauses. The most established arbitration institutions in the UAE, the Dubai International Arbitration Centre (DIAC) and Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC), are therefore likely to be administering an ever increasing number of construction disputes over the coming months and years. If you find yourself in a UAE arbitration, what can you expect?
DIAC's new arbitration rules came into force in May 2007. They are comprehensive and modern and reflect international best practice as derived from the rules of highly respected international arbitration institutions (for example, the ICC, LCIA and UNCITRAL rules). The new DIAC rules therefore provide a robust system for dispute resolution. However, a number of ongoing projects were awarded on contracts which expressly refer to the old DIAC arbitration rules only. This may have important implications for the conduct of the dispute resolution proceedings. For example, the old rules do not empower arbitrators to issue interim awards (such as awards preventing dissipation of assets or requiring the preservation of evidence). If you can use the new rules, do so.
The ADCCAC's arbitration rules are less heavily based on the rules of the long-established international arbitration institutions than the new DIAC Rules. However, the ADCCAC is a highly regarded arbitration centre and is familiar with construction disputes. Since early 2007, construction contracts let by the Abu Dhabi Government have provided for disputes to be referred first to an ad hoc dispute adjudication board and then to ADCCAC arbitration. In many cases, this is reflected in the sub-contracts let below the main contract. Therefore, the ADCCAC is likely to become the focal point for disputes arising out of the substantial number of construction and infrastructure projects in the Emirate.
Finally, it remains to be seen what effect the proposed new UAE arbitration law will have on the number of disputes referred to the DIAC and the ADCCAC. The new arbitration law, which is closely based on the UNCITRAL Model Law on International Commercial Arbitration, will cover both international and domestic arbitrations and will resolve inconsistencies between the UAE's current arbitration law (contained in the Civil Procedures Code, as amended) and its obligations under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It is expected to come into force later in 2008.
In short, although there will be differences in the conduct of DIAC and ADCCAC arbitrations, both institutions are familiar with construction disputes and are well placed to deal with them economically and effectively.