Construction Disputes in the UAE: An Overview

Construction projects in the United Arab Emirates (UAE) contribute significantly to economic growth and development, drawing both domestic and foreign investment. However, with the complexity and scale of these projects comes the potential for disputes to arise, often involving multiple parties, complex contracts, and differing interpretations of laws and regulations. Resolving construction disputes in UAE necessitates a thorough understanding of the legal framework, which includes local laws, regulations, and judicial processes. 

Common Causes of Construction Disputes 

Construction disputes might arise at any stage of a project and for a variety of reasons. Some of the most common causes are: 

Contractual Issues

Contractual issues are a common source of disputes in construction projects in the UAE, often stemming from ambiguities or disagreements in contract terms. These issues can include disputes over the scope of work, payment schedules, variations, and completion deadlines. 

One of the primary areas of contention is scope creep, where the agreed-upon scope of work evolves or expands beyond initial expectations, resulting in disagreements about additional costs and delays. Payment disputes are another significant issue, with delays in payments, underpayments, or disputes over milestone payments causing conflict between parties. 

Furthermore, disputes can occur as a result of conflicting interpretations of contract clauses relating to quality standards, specifications, or performance measures. Provisions for variations and change orders can also become challenging if not accurately stated in the contract. 

Quality and Defects 

Quality and defects are critical considerations in construction projects in the UAE, where adherence to high standards is essential for safety, longevity, and compliance. Disputes can arise when completed work fails to satisfy specified quality standards or when problems are discovered after completion. Substandard materials, faulty craftsmanship, design defects, and variations from approved specifications are all examples of quality-related problems. 

Resolving quality-related disputes often involves detailed investigations, expert assessments, and negotiations to determine liability and appropriate remedies. Contractual terms relating to warranties, guarantees, and dispute resolution methods are critical in managing quality issues. 

Payment conflicts 

Payment disputes are prevalent issues in construction are common in construction projects in the UAE, posing significant challenges to project progress and relationships between parties. Delays in payments, underpayment, or disputes over milestone payments can disrupt cash flow, leading to financial strain on contractors, subcontractors, and suppliers. 

Delays in payments often stem from administrative issues, financing difficulties, or disputes over completed work or deliverables. Underpayment disputes may arise from disagreements over the valuation of work performed or variations in agreed-upon rates. Disputes regarding milestone payments can occur when parties differ on the completion of specific project stages or milestones. 

Resolving payment disputes requires careful examination of contract terms, invoices, and project documentation to determine the validity of claims and obligations. Effective communication, mediation, or arbitration may be necessary to facilitate prompt payment and prevent disruptions to project timelines. 

Design and Specification  

Varied interpretations of design and specification requirements can arise due to unclear or ambiguous contract language, leading to disputes over responsibilities, performance standards, and project outcomes. 

Differences in interpretation might result in disputes about the quality of work, the scope of services, materials used, or adherence to regulatory standards. Resolving these disputes requires clear communication, documentation, and collaboration among project stakeholders, including architects, engineers, contractors, and clients. 

Employment and Labour conflicts  

These disputes can involve issues such as wage disputes, working conditions, overtime payments, safety concerns, or contractual obligations. 

Labor disputes can interrupt project timelines, causing delays and increased costs. They may also damage the reputation of construction companies and impact overall productivity and employee satisfaction. 

Resolving employment and labour disputes necessitates a full knowledge of UAE labour laws and regulations. Construction companies must adhere to labour standards, which include fair employment practices and health and safety requirements. 

Regulatory and Permitting Issues  

Delays or disputes related to regulatory compliance, permits, and approvals may hinder project progress and incur financial consequences. 

Challenges often arise due to complex regulatory frameworks, evolving legal requirements, and the need to navigate multiple authorities at the federal, local, and municipal levels. Common issues include delays in obtaining permits, inconsistencies in regulatory interpretations, and unexpected compliance requirements. 

Comprehensive understanding of local laws and regulations, clear communication with relevant authorities, and early identification of potential compliance issues can streamline the permitting process and minimize disruptions to construction activities. 

Insurance and Indemnity

Issues can arise over insurance coverage, liability for damages or losses, and indemnity obligations between project stakeholders. 

Liability disputes can emerge when determining responsibility for accidents, property damage, or construction defects. Indemnity disputes often involve claims for compensation or reimbursement between parties. 

Legal Framework for Construction Disputes in the UAE 

The legal framework for construction disputes in the United Arab Emirates (UAE) is robust and multifaceted, encompassing federal laws, local regulations, and principles of Sharia law. This framework provides a structured approach to resolving disputes that may arise during the course of construction projects in the UAE. Additionally, the UAE’s legal framework for construction incorporates international best practices, including the use of standardized contracts like those created by the International Federation of Consulting Engineers (FIDIC). Key legal instruments and laws applicable to construction disputes include: 

UAE Civil Code  

The UAE Civil Code (Federal Law No. 5 of 1985) forms a fundamental basis for resolving construction disputes in the United Arab Emirates (UAE). This comprehensive legislation governs contractual relationships, obligations, liabilities, and compensation for damages arising from construction projects. 

The Civil Code outlines the essential elements of contracts, including offer and acceptance, parties’ consent, and contractual capacity. Disputes related to contract formation, interpretation, and performance are adjudicated based on these provisions. The Civil Code imposes liability on contractors and consultants for defects in construction work, ensuring that parties adhere to agreed-upon quality standards. 

In cases of contract breach, the Civil Code provides remedies such as specific performance, termination of the contract, or compensation for damages.   The Civil Code sets time limits for initiating legal actions related to construction disputes, ensuring timely resolution of claims. 

UAE Federal Law No. 6 of 2018 (Arbitration Law) 

This law modernizes and strengthens the arbitration framework, providing a structured and efficient mechanism for resolving disputes outside of traditional litigation. The law recognizes the liberty of parties to agree on arbitration as a method of dispute resolution. Construction contracts often include arbitration clauses specifying the rules and procedures for arbitration. 

The law sets out clear procedures for appointing arbitrators, ensuring impartiality and expertise in construction matters. The law establishes guidelines for conducting arbitral proceedings, including evidence submission, witness testimony, and issuance of awards. Arbitral awards rendered in construction disputes are enforceable in the UAE courts, providing a streamlined process for enforcing decisions. 

The Arbitration Law promotes efficiency, confidentiality, and flexibility in resolving construction disputes, making arbitration a preferred method of dispute resolution for construction stakeholders in the UAE. 

UAE Federal Law No. 11 of 1992 (Civil Procedure Law)  

This law governs civil court proceedings in the UAE, including litigation related to construction disputes. It outlines evidence and initiating legal actions, presenting evidence, and enforcing court judgments. 

The law specifies which courts have jurisdiction over construction disputes based on factors such as location of the project or parties involved. Procedures for initiating legal actions, including filing statements of claim, submitting evidence, and serving court documents to parties. 

The law establishes rules for presenting evidence, including witness testimony and expert reports, to support claims in construction disputes. Guidelines for conducting court hearings, including scheduling of sessions, examination of witnesses, and legal arguments presented by parties. 

Dubai Building Code 

The Dubai Building Code establishes comprehensive regulations governing construction practices, safety standards, and zoning restrictions within the emirate of Dubai. These regulations are crucial for ensuring the safety, quality, and sustainability of construction projects. Compliance with the Dubai Building Code is mandatory for obtaining permits and approvals necessary to commence and complete construction activities in Dubai. 

The code covers a wide range of aspects, including structural design requirements, fire safety measures, accessibility standards, energy efficiency guidelines, and environmental considerations. Adherence to these regulations not only ensures legal compliance but also contributes to the overall resilience and reliability of buildings and infrastructure in Dubai. 

Sharia law 

Sharia law principles, derived from Islamic jurisprudence, also influence the legal framework for construction disputes in the UAE, particularly in matters related to contracts and obligations. While the UAE legal system is predominantly civil law-based, Sharia principles may be invoked in certain contractual disputes, especially those involving parties of Islamic faith. 

FIDIC Contracts 

FIDIC contracts, such as the FIDIC Red Book (Conditions of Contract for Construction), are widely used in construction projects in the UAE. These contracts provide a standardized framework for governing contractual relationships, rights, and obligations between parties involved in construction projects. 

Dispute Resolution Mechanisms 

Construction dispute resolution mechanisms in the UAE encompass various approaches designed to efficiently resolve disputes that may arise during the  course of construction projects. These mechanisms include both traditional and alternative methods, each offering distinct advantages based on the nature and complexity of the dispute: 

Negotiation and Mediation 

Negotiation involves direct discussions between parties to reach a mutual agreement on disputed issues, often facilitated by legal representatives or experts. Mediation involves a neutral third-party mediator who assists in facilitating discussions and negotiations between parties to help them reach a mutually acceptable resolution. 

Negotiation and mediation are voluntary, confidential, and cost-effective methods for resolving construction disputes, emphasizing cooperation and preserving business relationships. 

Arbitration 

Arbitration is a popular Alternative Dispute Resolution (ADR) mechanism, offering a private and structured process where parties present their case to one or more arbitrators who render a binding decision. Arbitration proceedings are typically faster and more flexible than litigation, with parties having greater control over the selection of arbitrators and procedural rules. The UAE Arbitration Law (Federal Law No. 6 of 2018) governs arbitration proceedings, ensuring enforceability of arbitral awards domestically and internationally. 

Litigation 

Litigation involves resolving disputes through the formal court system in the UAE, where parties present their case before a judge who renders a judgment based on applicable laws and evidence. Construction disputes may be litigated in specialized courts, such as the Dubai Courts or Abu Dhabi Courts, with procedures governed by the UAE Civil Procedure Law (Federal Law No. 11 of 1992). Litigation may be necessary for complex disputes requiring judicial intervention, and court judgments are enforceable through legal mechanisms. 

Dispute Adjudication Boards (DAB)  

DABs are commonly used in construction contracts governed by FIDIC (International Federation of Consulting Engineers) standard forms. DABs consist of independent experts appointed to resolve disputes arising during the construction process through informal hearings and recommendations. Parties must comply with DAB decisions, which can prevent disputes from escalating into formal arbitration or litigation. 

Expert Determination 

Expert determination involves appointing an independent expert to assess technical or factual matters in dispute and provide a binding decision. This method is suitable for resolving specific issues requiring specialized knowledge, such as design or engineering disputes. 

The choice of dispute resolution mechanism often depends on factors such as the complexity of the dispute, contractual provisions, and preferences of the parties involved. Alternative dispute resolution (ADR) methods like mediation and arbitration are favoured in the UAE for their efficiency and effectiveness in resolving construction disputes outside of formal court proceedings. 

Unique dispute resolution mechanisms  

Construction disputes in the UAE present unique challenges that require a thorough understanding of local laws, regulations, and cultural considerations. By leveraging effective dispute resolution mechanisms and engaging experienced legal counsel, parties involved in construction projects can effectively manage and resolve disputes, ensuring the successful completion of projects and fostering continued growth in the UAE’s vibrant construction sector.

About ATB Legal

ATB Legal is a full-service legal consultancy in the UAE providing services in dispute resolution (DIFC Courts, ADGM Courts, mainland litigation management and Arbitrations), corporate and commercial matters, IP, business set up and UAE taxation. We also have a personal law department providing advice on marriage, divorce and wills & estate planning for expats. Please feel free to reach out to us at office@atblegal.com for a non-obligatory initial consultation.

by Lakshmi Omanakuttan Leela

Lakshmi is a legal consultant with the Dispute Resolution department of ATB Legal and writes about legal matters in related domains. She is a law graduate from Calicut University and is enrolled with the Bar Council of Kerala.

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