UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Archive for May 25, 2010

Enforcement on Losing Party’s Assets of an Arbitral Award Resolving A Construction Dispute

 

In the UAE, an arbitral award needs authentication at the Court of First Instance in order to be enforceable against the defendant’s assets.  An application must be made to the Court of First Instance, the judgment of which is appealable within 30 days before the Court of Appeal.  The Court of Appeal judgment can then be appealed within 30 days before the Court of Cassation, which issues the final judgment.  During this process, the Court cannot consider the merits of the award, only the procedure.  

Challenge of the arbitration award is only available for procedural issues:

 Article 217 of the Civil Procedure Law states:

  1. “The judgments of the arbitrators shall not be subject to challenge in any manner.
  2. However, a judgment that confirms or cancels the decision of the arbitrators may be challenged by any appropriate method.
  3. As an exception to the provision of the preceding paragraph, a judgment shall not be subject to appeal if the arbitrators are authorized to make the reconciliation, if the parties to the dispute have expressly waived their right of appeal, or if the value of the dispute does not exceed 10,000.00 AED.”

 

Grounds for challenge may be found in Article 216 of the Civil Procedure Law, Federal Law No. 11 of 1992 (“Civil Procedure Law”):

Article 216 of the Civil Procedure Law states:

1. “The parties to the litigation may apply for the invalidation of the arbitrator’s judgment when the court hears its ratification in the following cases:

a.)  If it is given without an arbitration deed or on the basis of a void document or if it becomes non-suited by lapse of time or if it is ultra vires.

b.)  If the judgment is given by arbitrators who have not been appointed according to the law, if it is given by some arbitrators who are not authorized to pass judgment in the absence of others, if it is given on the basis of an arbitration deed in which the subject of dispute has not been determined or if it is given by a person who is not qualified to agree on the arbitration or by an arbitrator who does not satisfy the legal conditions.

c.)   If the judgment is invalid or if the procedures are rendered invalid in a manner that affects the judgment.

2. The acceptance of an invalidation shall not be prevented by the party who waives his right therein prior to the arbitrator’s judgment.”

“It was held in many reported cases e.g. Cassation Petition 40 of 2004 that the validity of an arbitration award may only be challenged on the grounds which are exclusively stated in Article 216 of the Code of Civil Procedure.” (Omer Eltom, The Emirates Law In Practice, p. 386)

If there is an arbitration clause in the construction agreement, the claiming party may still file a litigation case in the UAE courts.  If the defendant does not challenge the arbitration clause in the first hearing, then the arbitration clause shall be considered void and the matter may proceed through to the courts.  However, if the defendant party challenges the jurisdiction of the courts due to the arbitration clause, the court may direct the proceeding to arbitration as per the agreement.  (Articles 203 of the Civil Procedure Law)

Article 203 of the Civil Procedure Law states:

“(1) The contracting parties may, in the main contractor in a subsequent agreement, generally refer any dispute that may arise between them in the execution of a particular contract to one arbitrator or more, and arbitration may be agreed upon in a certain dispute under special conditions.

(2) Agreement on the arbitration shall only be proved in writing;

(3) The subject of the dispute shall be indicated in the document of arbitration or during the case hearing even if the arbitrators are authorized to reconcile, otherwise, the arbitration shall be void.

(4) Arbitration of irreconcilable issues is inadmissible, and agreement on the arbitration shall only be valid if made by a person having competence to dispose of the right in dispute.

(5) If the parties to a lawsuit have agreed to refer a dispute to arbitration, no action in respect thereof may be brought before the court; nevertheless, if either party submits an action in disregard of the arbitration clause and the other party has not objected to this in the first session, the case shall be heard and the arbitration clause shall be considered void.”

In the construction contract itself, it is best to just cross out the DAB procedure if using FIDIC as a model and state that the Dubai Courts or an arbitration center located in the Emirates has jurisdiction to hear disputes.  In fact, in the UAE, it is best just not to use FIDIC at all and tailor the construction contract according to the provisions of UAE law allocated for construction – and specifically for public projects.  The Dubai Government Law for Contracting in fact specifically prohibits the use of FIDIC and states that only the Dubai courts have jurisdiction to hear and settle disputes. 

Law No. 6 of 1997 On Contracts of Government Departments in Dubai Emirate, Article 83 states:

“Without prejudice to the Instructions issued on 2/7/1992 regarding Government Lawsuits, the courts of Dubai Emirate shall have the jurisdiction to look into any disputes arising between any department and parties who enter in contracts therewith with regard to contracts made according to the provisions of this law.”

Article 36 states:

“No contract where Dubai Government or any of its departments is a party shall contain a provision for arbitration outside Dubai courts, or that any dispute regarding arbitration outside Dubai Courts, or that any dispute regarding arbitration or its procedures shall be subject to any laws or rules other than the laws, rules and regulations prevailing in Dubai Emirate, and any text to the contrary shall be considered as invalid and not binding.  As an exemption where public interest requires, the Government or any of its departments, establishments and authorities may exempted from conforming to said provision.”

Article 37 states:

“The contract shall not provide for adherence to the conditions of the International Contract (FIDIC) or any of said conditions whether only by reference thereto or by appending it to the contract, except for exceptional reasons provided that a prior written approval is obtained from the Ruler.”

Statute of Limitations and Time Bars for Construction Dispute Resolution Under UAE Law

In the UAE, the parties to a construction contract are regarded as ‘traders’ according to Article 95 of the Commercial Transactions Law.  Therefore, it appears that construction disputes have a statute of limitations of ten years as set out in the Commercial Transactions Law.  However, depending on the issue at stake, the time-bar may constitute immediate notification or a three-year period.

Article 95 of the Commercial Transactions Law, Federal Law No. 8 of 1993 states:

“Upon denial and absence of legal excuse, the claims related to the liabilities of the traders towards each other in connection with their commercial activities shall not be heard if ten years have elapsed since the time for payment of the liability has become due; unless the law provides for a shorter period.”

A more stringent time bar exists in the form of Article 886 of the Civil Transactions Law.  In order for a contractor to claim the monetary value for additional works, the contractor is required to inform the client immediately detailing the expected increase in price.  If the contractor fails to do this, the contractor loses his or right to claim for this amount through litigation or arbitration.

Article 886 The Civil Transactions Law, Federal Law No. 5 of 1985:

  1. “If a contract is concluded according to a unit based measurement and in the course of the work it appears that for execution of the layout agreed upon, it will be necessary to exceed the estimated measurement substantially, the contractor must immediately inform the client of this expressing the expected increase in the price; and if he fails to do so, his right to recover the differential cost of the excess in the measurement shall be extinguished.
  2. However, if the excess required for performance of the layout is substantial, the client may dissolve the contract and suspend the execution without delay and pay to the contractor the value of the work completed by him as estimated according to the conditions of the contract.”

 

To complicate things even more, the employer has a three year time limit to initiate litigation or arbitration from the date the defect was discovered.  This provision actually in effect negates the decennial joint-liability period of contractor’s and architects found in Article 880 of the Civil Transactions Law.  If the lawsuit or arbitration proceeding is not initiated within three years from the discovery of the major defect, the claim is time-barred under UAE law. 

Article 883 The Civil Transactions Law, Federal Law No. 5 of 1985:

 “The lawsuit for damages shall not be heard after the lapse of three years of the occurrence of dilapidation or discovery of a fault.”

Article 880 The Civil Transactions Law, Federal Law No. 5 of 1985:

  1. “If a job contract is for construction of buildings or other fixed installations designed by an engineer and executed by the contractor under his supervision, they shall be jointly liable to indemnify the client for any total or partial dilapidation that occurs, within ten years, in the buildings or installations constructed or erected by them, and for any defect that threatens the strength and safety of the structure if no longer period is fixed in the contract, unless the two contracting parties want the installation to survive for a period of less than ten years.
  2. The liability for said indemnity shall remain even if the fault or dilapidation arises from a defect in the land itself, or if the client agrees to the construction of the defective buildings or installations.
  3. The ten years period shall start from the time of delivery of the work.”
UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance