This article was featured in our 2023 Construction Arbitration Report, which is part of a series of industry-focused arbitration reports edited by Jus Connect and Jus Mundi.
This issue explores the construction industry and presents a goldmine of information based on data available on Jus Mundi and Jus Connect as of May 2023. Discover updated insights into construction arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on construction projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel.
THE AUTHORS:
Dean O’Leary, Partner, El-Khoury & Partners Legal Counsel
Scott Hutton, Partner, El-Khoury & Partners Legal Counsel
Karim Haidar, Associate, El-Khoury & Partners Legal Counsel
Construction is one of the key industry sectors in the GCC; notably in Saudi Arabia and the United Arab Emirates (“UAE”). The construction sector contributes around US$ 45.5 billion and US$ 36.8 billion to Saudi Arabia and UAE’s GDP respectively. In addition, Qatar has seen significant activity with the infrastructure developments required to host the 2022 World Cup.
In 2017, Saudi launched the future city of NEOM, a megaproject with an estimated cost of US$ 500 billion. In October 2018 the Saudi Public Transport Authority signed a memorandum of understanding with China Civil Engineering Construction Corporation regarding project ‘Land
Bridge’, which is a US$ 27 billion railway linking the east and west sides of Saudi Arabia. Multiple other mega projects have also been announced or commenced including Red Sea Global, Diriyah, AlUla, King Salman Energy Park, to name a few.
Similarly, the UAE has seen huge developments in recent years and this looks likely to continue. The development of ‘Wynn Resort’ located in ‘Al Marjan Island’ in the emirate of Ras Al Khaimah is expected to open its doors to visitors in 2027, with an estimated cost of US$ 3.9 billion. Similarly, Caesar’s Palace has opened on Bluewaters Island, Dubai, home to the troubled Ain Dubai, the World’s largest observation wheel. MGM has announced that it is bringing two of its historic Las Vegas brands to Dubai in the MGM and Ballagio hotels. The US$ 30 billion Barakah nuclear power plant in Abu Dhabi is a milestone achievement for the UAE, since it is the first nuclear power plant on the Arabian Peninsula. The Etihad Rail announced an agreement to extend the network into Oman. In addition, Altantis – The Royal Residence and One Za’abeel projects are nearing completion; activity on the World Islands is ramping up; Nakheel has hinted at new plans for Palm Jebel Ali; and an extension is planned to the Mohammed bin Rashid Solar Park purportedly making it the largest in the world.
The above is a clear reflection of the region’s remarkable growth and the continued upward trajectory of the construction industry in both countries. In parallel, however, the increasing development of this sector requires updates to the laws and arbitration institutes that can accommodate any contractual difficulties arising from the dealings between parties. Both Saudi Arabia and the UAE have taken giant strides to adapt their legal systems to cater for modern challenges.
Saudi Arabia
In 2012, Saudi Arabia introduced the new Arbitration Law (“New Law”) amending the 1983 version. Based on the 1985 UNCITRAL Model Law, albeit with some reservations, the New Law is applicable to any arbitration seated in Saudi Arabia. While this may not represent a terribly recent development, we are now seeing the development of the legal and judicial system to support the arbitration process generally.
The New Law addresses some of the lacunas in the former arbitration regime, such as embedding the principle of party autonomy by allowing disputants to select their preferred choice of the procedural law and the procedural aspects of the dispute, i.e., institutional rules, number of arbitrators and language of the proceedings. Additionally, the New Law limits the power of Courts to intervene throughout proceedings.
However, disputants and tribunals must still be vigilant as any award must be compatible with Sharia Law, otherwise, by virtue of Article 50 (2) of the New Law, the Court of Appeal may nullify an award should it be in conflict with Sharia or public policy. Public policy is often given a broad interpretation in the Region.
Encouragingly, recent statistics issued in 2022 by the Saudi Center for Commercial Arbitration (“SCCA”) on annulment proceedings indicate that there has been no instance of a foreign arbitral award being annulled as a result of violation of Sharia or public policy during the first nine months of 2022.
The New Law was complimented by Royal decree No. M/53 issued in March 2013 which enacted the New Enforcement Law (“NEL”) and Executive Regulations issued in 2017 that clarified some elements of the New Law. The NEL introduced an Enforcement Judge thereby departing from the traditional enforcement route before the Board of Grievances (“BOG”). Currently, an award crauthor can seek enforcement of the award directly before the Enforcement Judge, and a high level view currently shows a Court system recognising, supporting and enforcing arbitral awards.
In a bid to nurture the use of arbitration as a means for dispute resolution, Saudi Arabia has encouraged governmental and quasi-governmental entities to adopt arbitration as a means of dispute resolution, through numerous laws, including:
- the Government Tenders and Procurement Law 2019.
- Franchising Law 2019 enacted by Royal Decree No. M/22.
- Article 10 (2) of the New Law.
- Royal Decree No.280004.
Furthermore, on April 8, 2020 Saudi Arabia introduced the new Commercial Courts Law (“CCL”). The CCL introduced a number of important changes to the law including:
- A limitation period of five years in relation to commercial claims (subject to exceptions). Under Sharia, it is often said that a just claim never dies so this is a major change.
- Encouraging the use of mediation.
- Making payment orders and class actions available to litigants.
On November 5, 2020, Saudi Arabia adopted the 2019 United Nations Convention on International Settlement Agreements Resulting from Mediation (“Singapore Convention”) albeit with a reservation that: “The Singapore Convention shall not apply to settlement agreements to which the Kingdom of Saudi Arabia or any of its governmental agencies is a party, or any person acting on behalf of those governmental agencies”.
The Kingdom is promoting the use of alternative dispute resolution which should be welcomed, especially by international entities entering the market.
In 2021, Saudi Arabia announced that it is in the process of improving the legislative environment by issuing several new laws, among them a Civil Transactions Law (“CTL”). The CTL will mark a milestone for Saudi Arabia’s legislation since it would provide a codified law which will be particularly helpful to parties not familiar with Sharia.
Established in 2014 and operational since 2016, the SCCA is considered a newcomer to institutional arbitration. Nevertheless, and due to its proactivity, the SCCA has witnessed a spike in the number of cases
administered by it from less than 10 cases a year to a current total of 220 cases valued at US$ 1.3 billion. It has also now opened an office in the DIFC, Dubai which is a very interesting move given the recent closing of the DIFC-LCIA centre.
The first edition of the SCCA Arbitration Rules was released in 2016 (“2016 Rules”) and were based on the UNCITRAL Arbitration Rules. On October 15, 2018, the SCCA added Appendices II, III, and IV to the 2016 Rules which introduced expedited procedures, emergency arbitration procedure, and an online dispute resolution procedure.
The SCCA Rules were further amended on 1 May 2023 (“2023 Rules”). Amongst other things, the 2023 Rules establish the SCCA Court, an independent body to the SCCA composed of 15 well known and respected arbitration practitioners, current and retired judges, and academics from varied backgrounds.
United Arab Emirates
The UAE has developed as a popular center for international dispute resolution in the region offering a choice of multiple jurisdictions and forums of dispute. For example, as an alternative to local courts that apply civil law principles, parties may be able to refer disputes to the English common law courts of the Dubai International Financial Centre (“DIFC”) or Abu Dhabi Global Markets (“ADGM”). Along with a developed arbitration landscape, this allows parties a very real freedom of choice in selecting their dispute resolution forum.
The UAE is home to several prominent arbitration centers but Decree 34 of 2021 recently abolished both the DIFC – LCIA Centre and the Emirates Maritime Arbitration Centre (“EMAC”) and transferred ownership of all assets to DIAC. Consequently, all arbitration agreements referring to the DIFC – LCIA or EMAC are now, by default, referred to DIAC with DIFC being the default seat. DIAC became the sole arbitration institute in Dubai until November 2022 when the SCCA opened its first regional office outside Saudi Arabia. It is worth mentioning that other arbitration
institutions are spread across the UAE, for example, ADGM hosts an office for the International Chamber of Commerce (“ICC”) and the Abu Dhabi Commercial Conciliation and Arbitration Centre (“ADCCAC”) has been in operation for almost 30 years. The UAE has become the regional leader in promoting arbitration as a means of dispute resolution.
In 2023, DIAC amended its 2007 Rules (“New Rules”) which became effective on 21 March and apply to any arbitration filed on or after this date. The New Rules represent an evolution to the 2007 Rules and generally adopt international best practice.
In 2019, Abu Dhabi enacted Law No. 2 of 2019 Regulating Partnerships between Public and Private Sectors (“PPL”) to encourage long term investment of the private sector in major infrastructure projects. Similarly, Dubai promulgated Law No. 12 of 2020 on Contracts and Warehouse
Management in Dubai Government (“CWMD”) creating a framework and regulations for procurement by Dubai government entities.
In both the UAE and KSA, the Fédération Internationale des In-
génieurs-Conseils (“FIDIC”) form contracts are widely used with a general preference for the 1999 Red Book edition (“1999 Edition”). The 2017 edition of the Red Book (“2017 Edition”) has gained minimal traction in the region. Other forms of FIDIC contract such as the Yellow, Green and White Books are also used, albeit less commonly. The Silver Book (EPC/ Turnkey Projects) is often used in Public-Private Partnership contracts (“PPP”) but UAE government entities generally prefer their own form of contract for use in PPPs.
The FIDIC 1999 Edition includes an adjudication clause (unless agreed otherwise) for the resolution of disputes by a Dispute Adjudication Board (“DAB”). DAB can be constituted of either one or three members in the form of a standing board or an ad hoc board. The difference is that a standing board is appointed upfront, i.e., before a claim arises, unlike an ad hoc board where it is appointed once a claim is raised. The 2017 Edition changed DAB to Dispute Adjudication/Avoidance Boards (“DAAB”). Both editions provide that a DAB or DAAB is required to issue their decision within 84 days after receiving reference and any decision is binding on both parties. The concept of dispute boards seems to have particular merit on large projects as the board is acquainted with the project and can determine disputes while the project progresses. Such boards could, for example, prove useful on some of the Saudi mega projects that are now under construction.
Effective from January 2023, the UAE introduced some substantial amendments to its Civil Procedures Law. Of particular note is the option for English language proceedings in local courts subject to certain requirements. This could be particularly helpful in construction disputes which might otherwise require the translation of thousands of pages of contract documents. Furthermore, the Court of Appeal is now empowered to ‘filter’ applications to appeal, thereby potentially, restricting what has generally been considered an automatic right of appeal.
Finally, it is worth noting that Dubai Courts declared the bankruptcy of Arabtec Holding Company and various of its subsidiaries in October 2022. The Company entered proceedings in January 2021, but the declaration has now been issued. Trustees have been appointed to liquidate the assets of the Company and the market will monitor the process with interest, particularly its creditors.
Conclusion
In conclusion, the UAE and the Kingdom of Saudi Arabia, in particular, are leading the charge in construction works and are developing their legal processes and dispute resolution options to suit. Dubai has for some time been considered as a regional heavyweight in terms of its support for arbitration and it continues to develop this position. Saudi Arabia is a relatively new entrant onto the international arbitration stage but has taken large strides in a short period of time to display its support for arbitration and we expect this trend to continue over the coming years.
ABOUT THE AUTHORS
Dean O’Leary is a Partner at El-Khoury & Partners Legal Counsel, boasting over 15 years of expertise in handling construction and engineering disputes across the Middle East. Specializing in the resolution of construction and engineering matters, he also navigates upstream and midstream oil and gas, along with other energy-related disputes. Dean actively engages in both domestic and international arbitrations, representing clients in dispute adjudication board matters, mediations, expert determinations, and local courts—including the DIFC and ADGM Courts.
Scott Hutton, also a Partner at El-Khoury & Partners Legal Counsel, brings nearly fifteen years of experience within the Middle East region to the firm. His practice focuses on construction and development, encompassing both contentious and non-contentious matters. Scott possesses extensive knowledge of the commercial property and construction markets.
Karim Haidar, an Associate at El-Khoury & Partners Legal Counsel, serves as counsel before various arbitral institutions such as ICC, LCIA, DIFC-LCIA, and DIAC, handling disputes arising from Construction, Oil & Gas, Real Estate Purchase Agreements, and Commercial Transactions. He holds expertise in dispute resolution matters within the UAE.
Find more data-backed insights in our 2023 Construction Arbitration Report
