Construction Arbitration In The MENA Region

MENA stands for Middle East and Northern Africa. In this region Islamic Shariah Law predominantly forms the basis for legislation.

The French civil code has heavily influenced the civil codes of many MENA countries, including Egypt, which is in turn viewed as the source and model on the basis of which many Arab countries have shaped their laws.

Over the past two decades, the MENA region has rapidly progressed and developed in the construction industry and infrastructure projects. Construction disputes are currently one of the main forms of dispute brought to arbitration in the MENA region.

The construction industry is dispute rich and claims orientated; therefore disputes usually revolve around time, costs, variations, liability or quality issues. Construction disputes also involve multiple parties (employers, contractors, subcontractors, supplies, insurers, funders, etc.)

Legal principles in the MENA region

Good Faith

Good faith is a sacrosanct principle of law recognised throughout the MENA region and a prevailing principle in the laws of the Arab States. For example, article 246 of UAE Civil Code states:

1. "The contract must be performed in accordance with its contents and in a manner consistent with the requirements of good faith.
2. The contract shall not be restricted to an obligation upon the contracting party to do that which is expressly contained in it, but shall also embrace that which is appurtenant to it by virtue of the law, custom and the nature of the transaction."

Additionally, Article 172 of the Qatar Civil Code states:

1. "A contract shall be performed in accordance with its provisions and in such manner consistent with the requirements of good faith.
2. A contract shall not be limited only to binding a party to its provisions but shall also cover whatever is required by law, customary practice and justice in accordance with the nature of the obligations contained in the contract."

The importance of the principle of good faith lies in the consequences of the breach, where a party's liability is usually aggravated whenever it is established that its act or omissions were not undertaken in good faith. or were proven to be undertaken in bad faith.

Good faith is generally not limited to the performance of contracts, but extends to the pre-contractual negotiations. The duty of negotiation in good faith has several aspects, including an obligation to negotiate transparently, as well as an obligation not unilaterally to revoke what has been agreed between the parties.

A person is presumed to be acting in good faith unless proven otherwise, hence the rebuttable presumption of innocence and good faith performance. Nevertheless, establishing gross fault or negligence is sufficient to evidence bad faith and shift the burden of proof to the party claiming good faith performance.

Liquidated Damages and Equitable Compensation

Liquidated damages is a topic within the MENA region where common law and civil law principles collide, and where administrative law principles intervene to distinguish penalties from delay damages.

Generally, in civil law contracts, a party may avoid damages, providing at least one of the following factors apply:

• It committed no breach;
• The breach is attributable to an alien cause or the other party's acts or omissions;
• The inexistence of a causal link; and
• No loss or harm was suffered or sustained by the aggrieved party.

Addressing damages or harm in general, some legislation in the MENA region empowers courts and tribunals to quantify compensation available:

Following the above legislation, the courts have the power to intervene for the equitable compensation and liquidated damages applied in relation to construction contracts.

Arbitration in Arab Countries

The UAE Federal Arbitration Law (No.6 of 2018) ("the Act") was issued on 3 May 2018 and came into effect on 15 June 2018.

This repeals Articles 203 to 218 of the UAE Civil Procedure Code (No. 11 of 1992).

It is largely based on the UNICIRAL Model of law with some departures. This has had a significant impact on the conduct of arbitrations in the UAE, implementing measures to improve efficiency and efficacy of arbitration procedures, including interim and provisional powers granted to tribunals (Articles 2(1)-(3) of the Act). In line with other regions, the Act has incorporated remote access, thereby increasing access to justice, with the ability for hearings and arbitrations to take place via 'modern communication technologies' (Articles 28(2) and 33(3) of the Act). The Act also recognises the complexity of arbitrations and their importance as a means of alternative dispute resolution, as the UAE Court of Appeal now serves as the primary court responsible for arbitration matters conducted in this region.

MENA Arbitration Institutions

The International Chamber of Commerce ("ICC") and the London Court of International Arbitration ("LCIA") remain the leading arbitral institutions that administer large scale construction disputes and arbitrations in the MENA region.

There are however a number of arbitration institutions in the MENA region:

• Dubai International Financial Centre-London Court of International Arbitration ("DIFC-LCIA")
• Dubai International Arbitration Centre ("DIAC")
• Abu Dhabi Commercial Conciliation and Arbitration Centre ("ADCCAC")
• Qatar International Centre for Conciliation and Arbitration ("QICCA")
• Saudi Centre for Commercial Arbitration ("SCCA")
• Bahrain Chamber for Dispute Resolution ("BCDR")
• Cairo Regional Centre for International Commercial Arbitration ("CRCICA")

Enforcement in the MENA Region

Generally speaking, the process of enforcing foreign arbitration awards in the Middle East has improved considerably over the past few years. Recent changes in legislation have simplified the procedure for recognition and enforcement in the region.

Enforcement in UAE courts is governed under the Civil Procedure Code (Federal Law No.11 of 1992) and the Cabinet Decision No.57 of 2018, which provides for specific articles relating to the enforcement of foreign judgements, orders and awards.

The UAE became a signatory of the New York Convention in November 2016, which was ratified without reservation. The Convention requires courts of contracting states to give effect to private agreements to arbitrate, and to recognise and enforce arbitration awards made in other contracting states. Conditions of the New York Convention take precedent over the Cabinet Decision No.57 of 2018.

Enforcement in DIFC courts is governed by Articles 42 to 44 of the DIFC Arbitration Law 2008. Where foreign arbitral awards are enforced in the DIFC courts they will also be subject to the provisions of the New York Convention.

The Kingdom of Saudi Araia has been a signatory to the Riyadh Convention since 1983, and to the New York Convention since 1994. The Saudi Arabia Enforcement Law came into force on 27 February 2021 and Article 6 provides that all decisions taken by the Enforcement Judge are final.

This topic was discussed in our webinar 'Construction Arbitration in the MENA Region & Pet Peeves of Counsel and Arbitrators' with Yonsoo Kim and Richard Wilmot-Smith QC in July 2021. Click here to view the webinar and presentation.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.