Managing Construction Disputes in the United Arab Emirates: A Quick Guide

We briefly outline the frameworks, methods, and considerations for managing construction disputes in the UAE.

The United Arab Emirates (UAE) has experienced remarkable growth in construction over recent decades, driven by ambitious urban projects and global investment appeal. However, with this growth, construction disputes have become an inevitable challenge, necessitating robust mechanisms for effective resolution. Here, we outline the frameworks, methods, and considerations for managing construction disputes in the UAE, addressing the unique aspects of onshore and offshore jurisdictions, the roles of various dispute resolution boards, mediation and arbitration practices, and legal nuances that affect foreign and domestic construction stakeholders.

Courts and tribunals

In the UAE, both onshore (mainland) and offshore jurisdictions exist, each providing distinct dispute resolution avenues. Onshore, local UAE courts do not have a dedicated division for construction disputes. Instead, the courts often appoint experts or panels to advise on technical matters within construction disputes. However, the UAE courts are equipped with the authority to establish specific committees for certain disputes. For example, in 2019, a decree from the Ruler’s Court temporarily halted lawsuits against a prominent developer and led to the formation of a specialized judicial committee to address these cases.

Offshore jurisdictions like the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) offer alternatives for dispute resolution, although only the DIFC has a specialized unit. Established in 2017, the Technology and Construction Division (TCD) within DIFC Courts was specifically designed for complex construction and technology disputes, and its framework mirrors the UK’s Technology and Construction Court, providing a reliable option for parties seeking specialized expertise.

Dispute review boards

While Dispute Review Boards (DRBs) and Dispute Adjudication Boards (DABs) are common in other jurisdictions, their usage in the UAE has traditionally been limited. This is partly due to the regional preference for arbitration. However, DRBs are gaining traction, especially with the influence of the International Federation of Consulting Engineers (FIDIC) suite of contracts, which encouraged their adoption in the UAE market.

The UAE does not currently enforce DRB/DAB decisions directly, and parties still typically rely on arbitration to enforce any DRB or DAB outcome. Notably, the FIDIC Red Book 2017 allows parties to refer any non-compliance with a DAB decision to arbitration, enabling enforceability through arbitration. This contractual flexibility means that parties can streamline DRB or DAB decisions into enforceable outcomes if correctly embedded in their contracts.

Mediation practices and the rise of structured mediation

Though relatively underutilized in construction contracts, mediation is promoted in the UAE as a voluntary dispute resolution method. Federal courts have established conciliation committees, such as Dubai’s Centre of Amicable Settlement of Disputes, to oversee and facilitate resolutions without court intervention. Offshore jurisdictions like DIFC and ADGM further encourage mediation as a standard alternative dispute resolution (ADR) method. The DIFC Court Rules actively prompt parties to consider mediation, while ADGM provides court-annexed mediation and expects parties to explore mediation before court proceedings.

The enactment of Federal Law No. 40 of 2023 on Mediation and Conciliation in Civil and Commercial Disputes (Mediation Law) has provided a structured mediation framework, promoting a clear path for dispute mediation in civil and commercial matters. The law also empowers the Federal Judicial Council to establish Mediation and Conciliation Centers within courts of first instance, including digital platforms, allowing parties to resolve disputes online. This move is anticipated to increase the UAE’s adoption of mediation and facilitate cross-border mediations, especially with the UAE’s anticipated accession to the Singapore Convention on Mediation.

Confidentiality in mediation

One concern for parties considering mediation in the UAE has traditionally been confidentiality. The Mediation Law now addresses this, stating that mediation proceedings and materials presented are confidential, prohibiting their use in court unless agreed otherwise by the parties or mandated by law. Rules from mediation centers, such as the ADGM Court-Annexed Mediation and the Dubai International Arbitration Centre (DIAC) Mediation Rules, reinforce this confidentiality aspect. This legal backing helps protect sensitive information, allowing parties to discuss matters openly and transparently during mediation without fear of repercussions in formal proceedings.

Arbitration: The preferred route for construction disputes

Arbitration has become the favored choice for resolving construction disputes in the UAE. Parties are drawn to arbitration due to its flexibility, confidentiality, and the ability to appoint technically skilled arbitrators. The UAE’s Federal Arbitration Law, further reinforced by recent amendments under Federal Law No. 15 of 2023, establishes the legal framework for arbitration within the UAE. This framework supports the recognition and enforcement of arbitral awards, governed locally by the Federal Arbitration Law and internationally through the UAE’s accession to the New York Convention in 2006.

For international disputes, arbitration providers like the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) are popular choices. The ADGM, which has hosted an ICC representative office since 2021, offers parties a neutral venue with arbitration regulations based on the UNCITRAL Model Law, which enhances trust for foreign contractors entering UAE projects.

Arbitration with government entities

When dealing with government entities, the process of arbitration in the UAE entails additional steps and compliance with specific regulations. At the federal level, government contracts are reviewed by the Ministry of Justice (MOJ), and approval from the MOJ is required before entering into arbitration agreements with government entities. Furthermore, Dubai Law No. 12 of 2020 provides that government contracts, while eligible for arbitration, must be conducted in Dubai and comply with Dubai’s laws and regulations.

This nuanced approach to government arbitration is critical for parties considering construction projects involving public entities. Ensuring that all procedural requirements are met is essential to avoid invalidation of the arbitration agreement.

Enforcement of arbitral awards

The UAE’s acceptance of the New York Convention, alongside participation in regional conventions like the Riyadh Arab Agreement and the GCC Convention, facilitates the recognition and enforcement of foreign arbitral awards in the UAE. Under Federal Decree-Law No. 42 of 2022, enforcement of foreign arbitral awards is subject to conditions, such as verifying that the award aligns with UAE public order and was issued by a jurisdiction with enforcement reciprocity. UAE courts also verify that the award respects both local morality and the rights of all involved parties.

Limitation periods for construction disputes

The UAE Civil Code stipulates clear limitation periods for claims, generally allowing up to 15 years for non-commercial contracts and five years for commercial contracts. For construction disputes, the principle of decennial liability is critical, imposing a 10-year liability period on contractors and consultants if a building collapses or suffers a defect compromising stability or safety. However, liability can be limited for design consultants whose work is restricted to planning only. Claims related to decennial liability must be filed within three years from the date of the collapse or discovery of the defect.

Conclusion

The UAE’s construction sector requires a multifaceted approach to dispute resolution, from expert-backed court committees and specialized tribunals in offshore jurisdictions to DRBs, mediation, and arbitration. The recent establishment of clear frameworks under the Mediation Law, the Federal Arbitration Law, and related amendments further enhance the UAE’s appeal as a hub for construction investment. Parties entering construction contracts in the UAE should carefully consider dispute resolution clauses, and where possible, incorporate mechanisms to streamline enforcement of decisions and awards. With the ongoing development of legal structures and adherence to international conventions, the UAE is poised to facilitate fair and efficient resolution of construction disputes, reinforcing its position as a reliable destination for high-stakes construction projects.

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