Arbitration a tool to stimulate investment in the construction industry

Bonelli Erede’s local partner for Dubai Lorenzo Melchionda outlines how international arbitration can address legal conflicts in the Middle East.

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Arbitral awards can be challenged only on limited grounds and are relatively straightforward to enforce in many countries worldwide.
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Arbitral awards can be challenged only on limited grounds and are relatively straightforward to enforce in many countries worldwide.

Arbitration – as a means of resolving contractual disputes – is gaining prominence globally as well as in the Gulf.

The benefits of international arbitration are no secret to members of the global business community, particularly when compared to litigation before domestic courts.

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Arbitration is deemed more neutral, given that the seat of the arbitration is often fixed in a location unrelated to the parties to the dispute and the members of the arbitral tribunal are generally immune to political pressure.

Arbitration is also more efficient, with arbitral awards being issued faster as opposed to court judgments, on average, an arbitral award is issued within 18-24 months from the filing of the request for arbitration.

Although the costs of arbitration are normally higher than those incurred in litigation, the former provides for the appointment of a more specialised decision maker because the arbitral tribunal is often composed of practitioners with experience in the industry in which the controversy has arisen (eg construction).

Another important advantage is confidentiality: arbitral proceedings are generally not published absent consent by the parties.

Finally, arbitral awards can be challenged only on limited grounds and are relatively straightforward to enforce in many countries worldwide.     

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Taking into account these clear advantages, States in the Gulf region – which have traditionally been somewhat sceptical of arbitration and have hesitated to promote a more arbitral-friendly legal framework – have recently amended their legislations (inspired by the UNCITRAL Model Law) to make them more attractive for investments in the area.

This new attitude coupled with the establishment in the Gulf of prominent arbitration institutions – which have recently amended and updated their arbitration rules – suggests that the tide is changing.

The newfound willingness by Gulf States to embrace international arbitration comes as no surprise.

Arbitration is frequently invoked to resolve disputes involving construction, a sector in which Gulf States are heavily invested in.

Arbitration is one of several safeguards foreign investors can rely on when contracting with state-owned employers.

While employers may exert contractual leverage to impose unfavourable terms on a contractor (such as designating the domestic law as the applicable law to the contract), many construction contracts are based on standard form contracts which are complete and leave little gaps to be filled by the applicable state law.

The New York Convention is arguably the most effective treaty to facilitate the enforcement of arbitral awards.

Similarly, the Washington Convention, coupled with the several Bilateral Investment Treaties entered into by the Gulf States, ensure the protection of the foreign investments and encourage foreign investors to explore new markets, new rules, new laws, and new horizons, all of which are beneficial to the regional construction industry.

For the latest MEP news from the UAE, Gulf, and around the world, follow us on Twitter and LinkedIn.

Lorenzo Melchionda is Bonelli Erede’s local partner for Dubai.

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