Formal dispute resolution procedures in Gulf still regarded with caution, says Norton Rose

A wide range of key players were interviewed, mainly within the Middle East construction sector, during May 2009.

An extensive list of employers, developers, contractors, consultants and bankers were asked a series of questions relating to market sentiment and established business practice.

Henry Quinlan, disputes lawyer at the Dubai office of International law practice Norton Rose (Middle East) LLP, explains the survey findings and it's implications on disputes in the construction industry in the coming months:

- Whilst the survey confirmed that companies in the region remain generally averse to formal dispute resolution procedures, attitudes are changing.
- The overwhelming preference is still to resolve matters through informal negotiation behind closed doors. Although 72% of respondents said that their contracts provide for arbitration, over a half of them confirmed that they were presently seeking to resolve differences by informal means rather than resorting to arbitration.
- The survey confirmed that few contractors are willing to damage their reputation by taking on an influential developer or client in arbitration or court proceedings and many are wary of what are still regarded by some as untested or unpredictable dispute resolution mechanisms and procedures in the Middle East.
- However, while the traditional tendency towards informal discussions and negotiations may have sufficed during the construction boom, there is a general feeling amongst respondents that this cannot continue and that the culture may be changing by necessity, particularly in view of the pressures created by the present economic climate.

Growth in disputes

- The number of disputes in the region, and in Dubai in particular, rose quite dramatically in the first quarter of 2009. In particular, there have been clear increases in arbitrations in the region. The Dubai International Arbitration Centre (DIAC) alone reports that it received nearly 160 requests for arbitration in the first half of this calendar year and is continuing to receive more.

- The LCIA and the ICC have both reported seeing arbitrations involving parties from the Middle East, or concerning Middle Eastern subject matter, increase dramatically in comparison with previous years.

DIFC-LCIA

- In February 2008, the DIFC entered into an agreement with the LCIA to establish an arbitration centre (the DIFC-LCIA), seeking to make its Arbitration Law user-friendly and easily comprehensible.

- The DIFC-LCIA is looking to promote more effective resolution of international business disputes through arbitration and mediation worldwide. As the DIFC is ideally located between the major western economies of the US and Europe, and the rising powers of India and China in the East, it is an ideal neutral venue for the resolution of international disputes between parties from these nations.

Henry Quinlan, says:

"Dubai has taken great strides in developing its legal institutions and frameworks. Those institutions are now facing a key test as the wave of construction disputes in the region come before them. The legal institutions will be under close scrutiny to see if they can deliver, both in respect of the speed and efficiency of the dispute resolution processes being offered in the region, and in respect of the effectiveness and enforceability of the judgments or arbitral awards obtained as a result of those processes."

"The DIAC in particular has a unique opportunity to demonstrate that arbitration under its rules is an effective alternative to regional courts or arbitration outside the region," he added.

"The DIFC-LCIA is ideally located and possesses tried and tested arbitration rules administered by a world-class arbitral institution. It has been established in a common law jurisdiction which possesses a world-class supervisory court with an internationally recognised arbitration law, so it is not only in a position to deal effectively with arbitrations within the region, but is also well-placed to service international disputes. We are seeing that many contracting parties are already proposing and accepting the inclusion of DIFC-LCIA arbitration clauses in their new agreements, and choosing the DIFC as the seat of arbitration," he concluded.