UNITED ARAB EMIRATES: An Overview of Construction: Dispute Resolution

Construction: Dispute Resolution (United Arab Emirates) 

Geography 

The United Arab Emirates (‘UAE’) sits on the Arabian Peninsula in the Middle East. It comprises seven Emirates (Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain). Each Emirate is ruled by a ruling family and the head of each family sits on the Federal Supreme Council.

Local Arabic culture is part of every-day life and its customs and practices are still acknowledged by parties in everyday business transactions.

Population 

The estimated population of the UAE is 10 million, 88% of which are estimated to be expatriates.

Language 

The first language of the UAE is Arabic, although English is widely spoken, particularly when conducting business.

Economy 

The UAE remains heavily reliant on the production, sale and export of oil. However, it has made concerted efforts to diversify its economy and is now ranked as one of the easiest places to do business. This, along with a policy of tax free income, has created a fertile environment for entrepreneurs and investors alike.

However, retail and tourism now make up a healthy portion of the GDP with visitor numbers now exceeding pre-pandemic levels.

The UAE is the first Gulf state to set a ‘net zero’ emissions target, enshrined by the NetZero 2050 strategy.

The Construction Industry 

The construction industry plays a key role in the UAE’s economy and it is predicted to expand by 4.6% in 2024. Much of this growth is focused on large scale urbanisation with developments such as Dubai Creek Tower, the Urban Tech District and a desire to create a new ‘cultural hub’.

Showcase projects continue to emerge, demonstrating a commitment to innovation, ambition and capability, attracting international attention and investment. Many of these projects seek to implement the initiatives and regulations to promote sustainable construction, such as the Estidama Pearl Rating System in Abu Dhabi (promoting water, energy and waste minimisation and the use of local materials and supply chains).

There is also now a greater prominence, driven by government investment, of major infrastructure projects, including: proposals to extend the Dubai Metro and improve the road network, a clear focus on green projects including Agri Hub, Dubai Reefs and sustainable solar farms, and a shift back to residential communities.

Whilst construction in a desert environment presents unique challenges, developers and designers are embracing the use of advanced technology including Building Information Modelling (BIM), drones and the use of advanced materials. These technologies are improving efficiency, safety, and cost-effectiveness in construction projects.

Notwithstanding that the construction industry is the largest employment sector in the UAE, employing approximately 20% of the workforce, this use of advanced technology is driving a skills shortage.

However, despite the growth and development, the construction industry in the UAE faces several challenges. Payment delays and disputes continue to impact the supply chain and, whilst common in the wider construction industry, these issues present a particular issue in the UAE. The UAE government has taken steps to address this, such as introducing the UAE Construction Trust Fund, but stakeholders must continue to improve processes to avoid disputes.

Innovation and Technology 

The UAE is keen to promote innovation and the use of technology to drive both local and global development. The National Innovation Strategy was first launched in 2015 to help generate creative ideas and introduce new products and services that would improve the overall quality of life.

Since then, the UAE has incorporated the desire to bolster innovation in its long term vision. The Dubai 2040 Urban Master Plan prioritises sustainable development and, alongside the Dubai Smart City Initiative, there are plans to develop a ‘smart city’.

Doing Business 

Companies and sole traders have the option of establishing themselves on the ‘mainland’ or in one of the 40 freezones which currently exist. A freezone is a specially designated area, usually established for a particular type of trade or business activity, which is regulated and governed by a Freezone Authority.

Freezones have their own jurisdictions (and in some cases, Court structures – see below - and laws) and regulations which must be complied with and are generally favoured for their ease of doing business and tax exemptions (including corporation tax, customs tax and repatriation tax). There are, however, restrictions in trading with the ‘mainland’.

The UAE has also made considerable efforts to improve its anti-bribery and money laundering regulations with a view to making the UAE a trusted, reliable place to do business.

Legal System 

The legal system in the UAE is based on a combination of civil law, with influence drawn from the Egyptian system, and the traditional Islamic Sharia law, although the latter is only now really used to fill ‘gaps’ in the civil law.

The Federal laws are applicable in each of the Emirates and take supremacy. However, each Emirate is empowered to enact such other legislation as it deems fit, providing always that it is consistent with the Federal law.

Judiciary 

The judicial structure comprises both Federal and local Courts (although only Abu Dhabi, Dubai and Ras Al Khaimah currently have a local judicial system). In general, the local Courts have jurisdiction over all matters which are not vested with the Federal judiciary by virtue of the Constitution.

All proceedings in the local and Federal courts are conducted in Arabic and any document which is not natively in Arabic must be translated.

At both a Federal and local level the Court hierarchy comprises the Court of First Instance (‘CFI’), the Court of Appeal and the Court of Cassation (although at a Federal level it is referred to as the Federal Supreme Court).

Certain special courts have also been established to efficiently address disputes arising from employment, real estate, family and commercial transactions.

Offshore Courts 

In parallel with the ‘onshore’ judicial system, the UAE operates an ‘offshore’ system. There are currently two offshore Courts; in the Dubai International Financial Centre (‘DIFC’) and the Abu Dhabi Global Market (‘ADGM’). Both operate an English common law system and the primary language of each is English. These offshore jurisdictions have a set of Rules and are independent of the onshore judicial system.

Both Dubai and Abu Dhabi are parties to a reciprocal agreement between their respective onshore and offshore Courts although it is important to consider the relevant jurisdiction when creating legally binding relations.

Beyond the boundaries of the offshore Courts, parties to a contract can voluntarily agree to submit to the jurisdiction of the offshore Courts. This is typically addressed in the contract.

Arbitration 

Arbitration is a popular form of dispute resolute in the UAE. There are several prominent and active arbitration institutions in the UAE including the Dubai International Arbitration Centre (‘DIAC’), the ADGM Arbitration Centre and ArbitrateAD (formerly the Abu Dhabi Commercial Conciliation and Arbitration Centre or ‘ADCCAC’)). Others also exist.

Arbitration awards can be enforced both onshore and offshore and the process for doing so is becoming increasingly streamlined with the UAE’s appetite to cement itself as a global hub for dispute resolution. The UAE is a signatory party to the New York Convention making enforcement of foreign awards in the UAE possible.

When disputes arise, particularly on construction projects, arbitration is a commonly used method for resolving them, primarily due to its flexibility and efficiency.

The arbitration institutions have evolved over the years to meet the changing needs of the construction industry, including offering specialised rules for construction disputes and expedited procedures for relevant matters.

However, with projects advancing apace, parties have been slow to take up and explore fast, efficient and cost-effective means of resolving disputes such as mediation and adjudication, though with an increased appetite for foreign direct investors to get involved, the shift towards Alternative Dispute Resolution (‘ADR’) is likely to come.

Summary 

There remains ample opportunity in the UAE for business to thrive. However, the unique environment of talent, ambition and innovation will inevitably give rise to disputes.

Given the varying options for jurisdiction, and noting that not all business is conducted on the ‘mainland’, it is important for parties to consider these issues with a view to identifying in their contract precisely what their intentions are when it comes to which law is to apply, which entity shall have jurisdiction and how disputes will be resolved.