International arbitration for construction and real estate projects in the Middle East

There is no doubt that dispute resolution in the Middle East region has been problematic historically. Parties struggle frequently with the enforcement of their contractual and legal rights. The courts and arbitration systems can be unpredictable. Civil law systems based on codes around the region differ which means that there is a lack of uniformity. Precise interpretation of literal Arabic differs country to country. Even the applicable principles of Sharia law can also differ from country to country in terms of interpretation, implementation and standards of enforcement.

The region has yearned for dispute resolution procedures that are in line with international standards, model laws and best practice. Nowhere is that yearning more prevalent that in the projects, construction and real estate sectors. The position of international construction, engineering, development and real estate investment firms can often be one of frustration when seemingly the rules and procedures in region designed to protect them simply do not seem to work for them. In addition, we regularly see other contracting parties consistently failing to adhere to the rules knowing that what is required is a robust legal backbone to make them do so. The game that often plays out is therefore unduly long in terms of timescale and indeed procedure under localised arbitrations and local court litigation proceedings.

As a result the use of international arbitration in the Middle East has been pushed to the point where it now has a firm place as a viable means of dispute resolution in the region.

In the past few years we have seen a number of newly established institutions come into play across the region including those now in the United Arab Emirates, Bahrain and Egypt with other alternative dispute resolution establishments in the likes of Qatar.

The focus has been on:

• Establishing properly functioning and efficient institutions who can properly administer arbitrations; 
• Updating the arbitration laws of Middle East countries including most recently the United Arab Emirates, Bahrain and Saudi Arabia; and
• Using international legal and judicial training standards to ensure that the arbitration awards issued by arbitration tribunals out of these new institutions result in solid and reputable standards throughout the process from reference to enforcement.

These elements are what gives projects, construction, engineering and real estate development parties the legal, commercial and contractual confidence in region to commence international arbitrations here.

It is no secret that Middle East countries are focusing strongly on heavy programmes for large scale infrastructure and development in line with requirements to meet the Dubai Expo in 2020, the FIFA World Cup in Qatar in 2022, the GCC Rail Network and standalone country Visions for Bahrain, Oman and Saudi Arabia around for 2030. That makes the need for solid arbitration institutions and award enforceability important for the projects sector. It is particularly important where we see significant numbers of international contractors and other entities being encouraged to joint venture with their local Middle East counterparts for the purposes of securing high value and iconic project work.

Many will argue that international arbitration law is still in its early stages at present. Legal practitioners in region, both local and international, agree as a basic standard that further and, indeed, ongoing judicial training and development is still required. But the signs are positive. Use of model laws like UNCITRAL and the adoption of similar rules and procedures to those used by the likes of the British LCIA and the American AAA, demonstrate a focused effort to provide contracting parties in the projects sector with a suitable and reliable form of dispute resolution.

The reality at present is that international arbitration in the Middle East remains in its early stages. It will take time to grow and develop a true regional reputation. It will be ably assisted in that by other reputable, long standing institutions such as the ICC and a plethora of world renowned members of the international judicial community. In addition, the diverse range of international and local law firms working in region will continue to point clients in the right direction when it comes to use of international arbitration procedures across the Middle East region.

There will continue to be issues arising in terms of a number of key areas. In particular the following:

Choice of law and jurisdiction

Always a prevalent issue where international project and contracting firms continue to prefer the laws of, for example, England & Wales when working in other jurisdictions, to give them a legal comfort factor.

Battles will also continue as between parties who insist on running off to the local courts when their construction or development contracts clearly contain an arbitration clause. We will no doubt continue to see local judges accepting jurisdiction rightly or wrongly especially where we have issues as to precise interpretation of local laws.

Enforcement of arbitral awards

The role of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and sign up to throughout the region shows that there is a clear commitment to ensuring that Middle East arbitration awards are, most importantly, enforceable. A significant number of countries are signatories including UAE, Bahrain, Oman, Kuwait, Jordan, Saudi Arabia and Qatar.

That said we still see instances arising where international arbitration awards are deemed unenforceable or even nullified as a result of failures to adhere to specific local laws regarding how those awards are issued or the conduct of the proceedings themselves. Due care and attention will continue to be required in this regard for some time to come it seems. 

This being the region that it is, we will of course continue to see sporadic changes to the arbitration laws which may seem almost knee jerk or unexplained but which in fact are a matter of cultural response. Most recently for example, the UAE’s decision to enact a new penal law allowing for the imprisonment of biased arbitrators or Bahrain reaching a point where it now permits international lawyers to have rights of audience in arbitrations in the Kingdom similar to those of local lawyers, albeit the extent of any such rights still remains to be seen.

In the meantime the projects, construction and real estate sectors will continue to come into the Middle East ready to work on a diverse range of projects. International arbitration is available to them as a reliable method of dispute resolution. It will continue to be heralded and developed throughout the region generally and subject to ongoing change. 

This article was written by Paula Boast, partner. For more information please contact Paula on +973 171 33200 or paula.boast@crsblaw.com