Adjudication in The Middle East

By Nicolos Gould
Adjudication is now a dispute resolution process that most in the UK construction industry are familiar with. The process was introduced by the Housing Grants, Construction and Regeneration Act 1996, which became effective from May 1998. We have therefore lived with it for almost 15 years. Adjudication is included in all of the standard form contracts, but in any event will be implied, as we all now know, into any contract that meets with the definition of “construction contract” under the Act.

Other common law countries have followed suit. All of the states in Australia now have security of payment legislation, which introduces a right to adjudication. New Zealand is the same. Singapore also introduced a Security of Payment Act which provides for adjudication. Malaysia introduced a similar Act providing for adjudication in June 2013, and it is due to be in force soon. Other countries have considered similar legislation. The mechanics of the legislation varies between countries and states, but they all share the desire to provide a rapid, binding dispute resolution procedure.

The situation in the Middle East is somewhat different. There has been considerable construction work in that region for many years. The wealth created by oil has led to increasing levels of development throughout the region. Dubai is perhaps the best known for its substantive impressive developments such as The Palm and The Burj Khalifa Tower. Despite a slowdown of construction activity 4 years ago, as a result of the economic crisis, Dubai has continued to grow. The Dubai Theme Park is now under way, along with many other substantial developments.

Dispute resolution in the region and in Dubai has provided some challenges. The local courts have been unfamiliar with complex construction contracts, and local employers have not always been keen to agree to use international arbitration. International arbitration is of course widely used throughout the world for substantial projects involving suppliers and contractors from countries other than the one where the work is taking place. Nonetheless, Dubai has a regional arbitration centre in the form of the Dubai International Arbitration Centre (DIAC) and also the Dubai International Financial Centre (DIFC). Egypt has for some time had an arbitration centre in Cairo, and now Qatar also has the Qatar International Centre for Conciliation and Arbitration (QICCA). However, international arbitration can be time-consuming and expensive.

It is perhaps then unfortunate that adjudication has not been introduced by local legislation within the Middle East. However, that would require a cultural understanding not just of the locals from the Middle East, but also the international contractors and consultants who work there. Both have a different perspective on how disputes are resolved. Why should the international community impose upon the Middle East a rapid dispute resolution procedure, which in commercial terms is quite new to the business community even by international standards? Perhaps it is something that will be considered and debated over time.

On the other hand, dispute boards have been used in the region in some instances. They are not necessarily the norm, but through the use of FIDIC, dispute adjudication boards and dispute review boards have been encountered.

The use of the term “Dispute Boards” or occasionally “Disputes Boards” (collectively DBs) is relatively new. It is used to describe a dispute resolution procedure which is normally established at the outset of a project and remains in place throughout the project’s duration. It may comprise one or three members who become acquainted with the contract, the project and the individuals involved with the project in order to provide informal assistance, provide recommendations about how disputes should be resolved and provide binding decisions. The one-person or three-person DBs are remunerated throughout the project, most usually by way of a monthly retainer, which is then supplemented with a daily fee for travelling to the site, attending site visits and dealing with issues that arise between the parties by way of reading documents and attending hearings, and producing written recommendations or decisions if and as appropriate.

The term has more recently come into use because of the increased globalisation of adjudication during the course of projects, coupled with the increased use of Dispute Review Boards (“DRBs”), which originally developed in the domestic USA major projects market. DRBs were apparently first used in the USA in 1975 on the Eisenhower Tunnel. The use of DRBs has steadily grown in the USA, but they have also been used internationally. However, DRBs predominantly remain the providence of domestic US construction projects. As adjudication developed, the World Bank and FIDIC opted for a binding dispute resolution process during the course of projects, and so the Dispute Adjudication Board (“DAB”) was born from the DRB system; the DRB provides a recommendation that is not binding on the parties.

The important distinction then between DRBs and DABs is that the function of a DRB is to make a recommendation which the parties voluntarily accept (or reject), while the function of a DAB is to issue written decisions that bind the parties and must be implemented immediately during the course of the project. The DRB process is said to assist in developing amicable settlement procedures between the parties, such that the parties can accept or reject the DRB’s recommendation. Building upon this distinction, the International Chamber of Commerce (ICC) has developed three new alternative approaches:

1. Dispute Review Board – the DRB issues recommendations in line with the traditional approach of DRBs. An apparently consensual approach is adopted. However, if neither party expresses dissatisfaction with the written recommendation within the stipulated period then the parties agree to comply with the recommendation. The recommendation therefore becomes binding if the parties
do not reject it.

2. Dispute Adjudication Board – DAB’s decision is to be implemented immediately.

3. Combined Dispute Board (“CDB”) – this attempts to mix both processes. The ICC CDB rules require the CDB to issue a recommendation in respect of any dispute, but it may instead issue a binding decision if either the employer or contractor requests, and the other party does not object. If there is
an objection, the CDB will decide whether to issue a recommendation or a decision.

According to the ICC the essential difference is that the parties are required to comply with a decision immediately, whereas the parties must comply with a recommendation but only if the employer and contractor express no dissatisfaction within the time limit. The combined procedure seems at first glance to be a somewhat cumbersome approach, attempting to build upon the benefits of the DRB and DAB, without following a clear pathway. Nonetheless, it may prove useful for those parties that cannot decide whether they need a DRB or a DAB.

At the other end of the spectrum a DB could be considered as a flexible and informal advisory panel. In other words, before issuing a recommendation, the DB might be asked for general advice on any particular matter. The DB will then look at documents and/or visit the site as appropriate and, most usually, provide an informal oral recommendation which the parties may then choose to adopt. If the parties were not satisfied, the DB would proceed to the issue of a formal, albeit non-binding, written recommendation after following the formal procedure of exchange of documents and a hearing. Perhaps this amicable approach will suit the Middle East more than a rapid, binding adjudication process.

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