The UAE construction sector is on the rise. Over the past few years, the shift from real estate projects to public infrastructure has driven high-profile projects, from towering skyscrapers to innovative infrastructure developments. As of Q1 2024, the value of the pipeline across the Middle East and North Africa stands at $3.9 trillion, and in the UAE, this value is estimated at 15%, or $590 billion. However, all this growth is exciting but not without complexities.

When multiple stakeholders—developers, contractors, and suppliers—work together, even small contractual issues can escalate to big disputes, leading to significant disruptions.

Rapid and efficient dispute resolution is necessary for anyone involved in UAE construction projects with higher stakes to keep those projects on track, protect relationships, and ensure sound finances.

The article introduces major dispute resolution methods applicable to UAE construction: arbitration, mediation, and litigation. Knowing the options lets construction professionals better navigate possible conflicts and protect themselves in that competitive market.

What Are Some of The Causes of Disputes in UAE Construction

Disputes in the UAE construction project cause time delays, which, with heavy stakes in the industry, can cost millions of dollars. Before we present the various means to deal with the disputes in the construction project, let us understand what disputes are usually about. Some common sources of conflicts are:

1. Contract drafting issues: Inadequate contract drafting with vague and inconsistent language concerning the project scope, time, and payment terms can cause misunderstandings.
2. Quality and defects: Faulty, substandard materials used instead of what was agreed upon by parties, and poor workmanship can lead to faults and defects. There may be a conflict about sharing the responsibility for addressing defects and the cost of rectification.
3. Project delays and time changes. Most delays due to supply chain issues, labor shortages, weather, or bureaucratic red tape become conflicts when contracts do not allow extensions of time and liabilities to delay-related costs.
4. Payment disputes: Late, under, and non-payment may disrupt the workflow mainly because parties can’t agree on the value of the work done.
5. Design and specifications: Changes in mid-project or when the original design isn’t reflected in the execution process lead to conflicts between contractors and clients.
6. Regulatory and permitting: Various authorities handle construction activities in the UAE, which may delay obtaining permits and cause frustration and collaboration issues.
7. Labor employment and labor problems: Late labor payment to the contractors, working conditions, safety, overtime, etc., can damage the timeline and the project’s reputation.
8. Insurance and indemnity: Responsibilities of liability and indemnity among parties participating in the project may sometimes lead to a conflict of interest in accidents, property damages, and building faults.

Several procedures and measures ensure that parties find a quick resolution in case of any disputes during UAE construction. These approaches are a mix of conventional and non-conventional approaches shaped by local and worldwide practices. 

Here are three foremost ways to manage disputes:

• The Preferred Method in UAE Construction – Arbitration

Arbitration is a common dispute resolution method in UAE construction. It has quickly gained more preference over the other methods as it is:

1. Faster: Litigation can take years, while arbitration is a quicker alternative dispute resolution approach that ensures minimal disruption to ongoing projects.

1. More flexible: Parties can tailor the arbitration process by choosing the arbitration language, location, and appointment of experts.
2. More confidential: Disputes are resolved behind closed doors, protecting sensitive business information from public exposure, which can damage a reputation.

The parties can mutually agree for arbitration as their dispute resolution process, even if their contract doesn’t include an arbitration clause. Once the arbitration agreement is in place, the parties choose an arbitrator or a panel of arbitrators, the neutral third party in charge of deciding to resolve the dispute. These arbitrators are often well-versed in construction law and understand the intricacies of the project, making them capable of delivering fair and binding outcomes.

Arbitration is governed by Federal Law No. 6 of 2018, modeled after the UNCITRAL Model Law. It provides a comprehensive structure for:

• Conduction of the proceedings 
• Appointment of an arbitrator
• Enforcement of results

Plus, since the UAE is a signatory to the New York Convention, 160 countries recognize the enforcement of arbitration awards, offering a significant advantage to the globalized construction sector.

Leading arbitration institutions, such as the Dubai International Arbitration Centre (DIAC), Abu Dhabi Global Market (ADGM), and ArbitrateAD, offer neutral venues for resolving construction disputes. Their own arbitration laws are partly based on the UNCITRAL Model Law.

The decision made through arbitration is legally binding and cannot be appealed in court. Under Article 8(1), UAE courts will dismiss claims brought before them if the defendant invokes the arbitration agreement before raising any substantive defense. 

However, there is a notable exception: When a case involves multiple defendants, some of whom are not bound by the arbitration agreement, UAE courts may still assume jurisdiction over the entire case.

For example, in Dubai Court of Cassation Case No. 1270/2020, the court ruled that all defendants, including those with valid arbitration clauses, could be brought under its jurisdiction due to their joint liability for construction-related damages. The court’s justification was to ensure unified proceedings, which it viewed as essential for administering justice.

Note: The arbitration structure accommodates local interim and partial awards, giving parties more control over the dispute resolution process​. For example, in the FIDIC Red Book 2017, the arbitration tribunal can enforce the decision if a party does not comply with a Dispute Avoidance or Adjudication Board (DAB) decision (Clause 21.7). This process is adaptable because it lets parties use arbitration to enforce compliance and, if necessary, turn to local courts or arbitration depending on the jurisdiction.

• A Collaborative Approach to Dispute Resolution – Mediation

Mediation is another dispute resolution method in UAE construction. It focuses on relationship preservation by collaborating to settle upon a mutually beneficial, voluntary, non-binding solution. 

Mediation is an encouraged approach to dispute resolution in the UAE, as several federal courts in the United Arab Emirates include conciliation and reconciliation committees with the authority to manage specific types of conflicts. Take, for example, the Centre of Amicable Settlement of Disputes, a part of Dubai Court. Dubai International Financial Centre (DIFC) and ADMG also expressly encourage mediation over other methods, as seen in DIFC Court Rules Part 27.

While mediation is rarely accommodated in construction contracts, it can help harmonious dispute resolution as high-stakes projects, like UAE construction, rely on long-term partnerships. 

Federal Law No. 40 of 2023 provides a clear structure for mediation and conciliation in civil and commercial disputes. It mandates confidentiality throughout the process to protect sensitive information from being used in arbitration or litigation. 

Arbitrators make a binding decision in arbitration and judicial authority in litigation. So, who conducts mediation? Well, the answer isn’t straightforward. Mediators facilitate mediation. However, unlike arbitrators and judicial authority, they don’t make any decisions. They help the disputing parties explore different solutions, negotiate, and come to an agreement to settle. 

As a result, mediation offers the most ownership of dispute resolution in all three approaches, encouraging sustainable and creative outcomes. The main difference between mediation and arbitration or litigation is that the former offers a solution that isn’t legally binding, while the latter’s decisions are final and binding.

• A Last Resort for Complex Cases – Court Proceedings

While arbitration is the popular option and mediation is an amicable one, litigation remains a viable option for complex cases needing judicial intervention. We like to call it the “last resort,” given how time-consuming and costly it can be. Still, it is often a necessary choice when the dispute is beyond mediation and arbitration fails or is deemed unsuitable. 

Here are the instances when court proceedings become unavoidable:

1. Unarbitrable issues: If there are any issues related to public policy, government contracts, or criminal aspects, they can’t be resolved with arbitration. In such cases, the matter goes into the court. 
2. Failed alternative dispute resolution: If all the dispute resolution methods fail to provide a solution or a party refuses to comply with an arbitration award, the court must intervene to enforce the judgment. 
3. Legal questions: Disputes involving complex legal aspects and contract ambiguities benefit from the judicial oversight of litigation. It may offer a more authoritative interpretation of the law. 

Specialized onshore courts (Dubai Courts, Abu Dhabi Courts) and offshore courts (DIFC, ADGM) handle UAE construction disputes separately. The dual system means the proceedings may depend on the jurisdiction of the court conducted as: 

1. The onshore courts handle proceedings in Arabic and apply local laws influenced by the sharia, which include the UAE Civil Code and UAE Civil Procedures Laws. 
2. The offshore courts rule by international standards and are often conducted under English common law and procedures.

The courts may appoint an expert or panel of experts to assess technical issues, such as defects or project delays. For example, in 2019, an exclusive judicial committee was formed to consider the claims and litigation of a certain developer by a Decree, as announced by the Dubai Courts. The main difference between litigation and arbitration is the role of the experts. Experts in litigation provide evidence to the court, but the final decision may or may not be in line with their findings. 

Litigation in the UAE can be resource-consuming. It’s often expensive and may take time to resolve, especially if there are appeals. This means the projects get delayed, and all parties pay a significant price. Additionally, given the public nature of court proceedings, sensitive business details go public when disputes are exposed, which can cause significant reputational harm. 

How Construction Lawyer Help

Whether through arbitration, mediation, or litigation, expert construction legal counsel becomes essential in achieving favorable results during UAE construction dispute resolution. When you work with the best lawyers in Dubai, they can help with:

• Drafting the arbitration clause in contracts to avoid pitfalls. 
• Ensuring smooth proceedings by facilitating the appointment of an arbitrator and representing clients before arbitration tribunals.
• Drafting clear mediation agreements, ensuring confidentiality, and guiding clients toward favorable settlements.
• Navigating procedural complexities in litigation, ensuring compliance with UAE laws, and securing enforceable judgments.

How to Choose the Right Dispute Resolution Method

Get Proactive Dispute Management for Construction Success

Effective dispute resolution ensures project success in the UAE’s fast-paced construction sector. Arbitration offers confidentiality and flexibility, making it a preferred method for complex, high-value disputes. Conversely, mediation fosters collaboration and helps preserve business relationships by encouraging amicable settlements without formal proceedings. When neither of these options is viable, litigation serves as a last resort, providing judicial oversight and definitive rulings for unarbitrable or high-stakes matters.

Each method has its merits, but navigating these options requires specialized legal expertise at every stage. From drafting solid contracts with clear dispute resolution clauses to representing clients in arbitration or court, legal professionals ensure that the process runs smoothly and clients’ interests are protected​. 

Consulting with experienced legal professionals like Economic Law Partners early in the project lifecycle is essential for managing risks and preventing disputes before they arise. Let us help you protect your investments and secure your project’s success. Contact us today for a consultation and to learn more about how we can assist with dispute prevention and management strategies.