UAE law: Fighting fair

In his recent article Dubai disputes: Arbitrary judgment, Tony Bingham encouraged arbitrators to shoulder the challenge of managing timescale and cost of arbitrations in order to improve the speed of dispute resolution in Dubai.

While laudable in its intent, Bingham fails to address some rather more fundamental challenges that face Dubai's dispute resolution processes and which must be overcome in order to deliver meaningful and effective mechanisms (not just in arbitration) for resolving disputes in the construction sector. Let us get a few facts straight first.

Currently, the primary concern of the vast majority of companies is getting paid. Across the board, liquidity and cash flow are the number one priority. Payment is still not flowing down from developers, both private and state-owned. “Pay when paid” is commonplace (and legal) and debtors fall into two categories - those who won't pay, and, more alarmingly, those who can't pay.

After an undefined process of “amicable settlement”, the majority of construction contracts in the region contain arbitration clauses. If not, then litigation is required, in the local courts before Arabic judges who are not construction experts.

While adjudication (via dispute adjudication boards) is now being included in local contract forms, it does not have statutory backing (as opposed to the UK's Housing Grants scheme) and it is entirely unfamiliar to the local courts.

There is undoubtedly an increase in potential and actual arbitration involving traditional claims for loss, expense and extension of time, and that dispute process is tried and tested for this type of construction dispute.

Enforcement of arbitration awards should be, in theory, a straightforward process involving the local courts making appropriate orders. However, in practice, enforcement is long, protracted and by no means guaranteed.

The final fact that influences the overall picture is the lack of any robust insolvency legislation. The local law does prescribe a process and remedy for insolvency but the timescale and uncertainty involved in it, renders its use ineffective.

So the picture is not quite as simple as Tony Bingham's approach suggests. However, he is certainly correct in identifying some parallels between the current situation and that prevailing in the UK's construction industry 20 years ago. That, as Bingham points out, led to 28 day adjudication, thereby releasing the cash log jam and ensuring payment flowed down from the top of the construction chain to the bottom.

So, rather than leaving it to the arbitrators as Bingham suggests, what else could be done to overcome the current difficulties? The answers are in the much more fundamental route of legal reform, including alternative dispute resolution processes.

Reform would need to come in several key areas: establishment of credible and enforceable alternative dispute resolution mechanisms, including a statutory/compulsory scheme for something akin to 28-day adjudication; construction courts presided over by specialist construction judges; an efficient and effective system of enforcement of court judgments, adjudication and arbitration awards; an effective insolvency regime. All well and good, in theory.

In reality, what is being done to bring forward legal reform and what are the hurdles that still have to be overcome?

Progress has been made. The New York Convention should aid enforcement of arbitration awards; the introduction of construction courts in Abu Dhabi is going ahead; the formation of an amicable settlement centre in Dubai may help resolve disputes at an earlier stage, as may the RICS dispute resolution service; the inclusion of DAB's in certain local contracts is required; the new DIFC courts and arbitration processes may be a more effective alternative in certain cases; the government is looking to actively reform the insolvency law. All these are good things and very positive going forwards.

However, the key immediate concern remains the current non-payment issues which will not be resolved so easily. Compulsory adjudication may have been a solution but that would have required new legislation to have already been created (in any event, not necessarily an option that would be considered by the legislative entities who also own the quasi-government developers, who in turn are at the top of the cash chain).

Furthermore, if there really is no money in certain cases, it is not viable to go down the insolvency route (whether existing or reformed) to recover even a proportion of what is owed.

So the problem for Dubai's construction community is that this may all be too little too late. The payment and cash flow issues are acute now and the existing legal systems and dispute resolution processes (including arbitration) are simply unable to deliver quick, but more importantly, effective remedies. The reality is that discounted 'cash deals' continue to be done because there is no other immediate prospect of a legal resolution in such difficult financial times and without an established set of effective legal processes having already been put in place.

Although progress has been made, and regardless of the skill of arbitrators in managing the matters in front of them, without legal reform, the inherent difficulties set out above will remain.