The construction industry is a leading economic sector in the Middle East, where a large number of infrastructure projects worth billions of dollars are commenced each year. Construction disputes are inevitable due to activity in the construction industry and arbitration is the preferred dispute resolution mechanism for such disputes, especially for foreign parties.
Construction disputes are typically complex and factually intense, requiring technical knowledge and expertise in the field. Commonly, as elsewhere in the world, construction disputes arise over time, payment, scope of work or quality issues. They frequently involve multiple parties and various stakeholders. With large infrastructure projects in place and significant global players involved, who often rely upon local contractors, the Middle East is no exception in making use of international arbitration to resolve disputes. When it comes to international arbitration, the term “international” gains its full meaning, as arbitration in the Middle East is typically an interesting interplay between local laws (typically preferred by the domestic Employer and local contractors), foreign laws, often English law (typically preferred by foreign parties), various procedural rules and the law of the seat of arbitration, frequently the law of large international arbitration centers such as London, Paris, Singapore or Hong Kong, which remain preferred seats chosen by foreign parties in order to minimize potential domestic court interference.
In the private sector, parties are typically free to choose any substantive law to govern their contract and to negotiate all aspects of it. In public work contracts, however, certain exceptions exist, such as, for instance, in Saudi Arabia, where in all public works contracts Government entity clients must use the Saudi Government’s standard form of contracts.
A trend in the Middle East noticeable over the past decade is that countries are working on modernizing their arbitration laws to adhere to international standards. This has been followed by the opening of a significant number of local and regional arbitration centers, which have managed to attract a significant number of cases over the past few years.
Common Legal Principles in Construction Contracts in the Middle East
Each country in the Middle East has its own distinct legal system; nevertheless, some commonalities exist. All legal systems are at least partially influenced by Islamic Sharia law. Islamic Sharia is the law of the Islamic religion which is derived from the Holy Quran and the Sunna, the traditions and practices of the Islamic prophet Muhammad. Islamic Sharia is particularly influential in Saudi Arabia, the birthplace of Islam, where Islamic Sharia law is heavily present in every aspect of society and represents the primary source of law (Basic Law of Governance, Article 1). Islamic Sharia is also a guiding principle embodied in the constitutions of other countries in the Middle East, for instance, in the UAE (UAE Constitution, Article 7), Bahrain (Bahrain Constitution, Article 2), Kuwait (Kuwait Constitution, Article 2), Qatar (Qatar Constitution, Article 1) and Oman (Oman Constitution, Article 2).
Moreover, legal systems of the civil law countries in the Middle East, such as the UAE, Bahrain, Kuwait, Oman and Qatar, are heavily influenced by Egyptian civil law, which was, in turn, modelled upon the French Civil Code. Therefore, certain general principles, which pertain to construction contracts and frequently arise in construction disputes, are common to all civil law countries in the Middle East. These general principles include:
- The principle of good faith;
- Implied terms;
- Abuse of rights;
- Liquidated damages;
- Exceptional circumstances (imprévision);
- Force majeure;
- Contractual liability;
- Decennial liability;
The Role of FIDIC Contracts in the Middle East
The FIDIC (“International Federation of Consulting Engineers”) forms of contract have been used in the Middle East since the 1970’s, most commonly the FIDIC Red Book form of contract. Historically, FIDIC conditions of contracts have been incorporated both in public and private sectors in the Gulf countries. For instance, Abu Dhabi has accepted FIDIC as a standard form for all Governmental contracts. The wide use of FIDIC contracts is especially relevant considering that most countries in the Middle East do not have a specific body of laws applicable to construction and engineering projects, rendering the interpretation and application of general principles of law even more significant.
There is, however, an inherent paradox in the widespread use of FIDIC forms of contract in the Middle East, considering that FIDIC conditions of contracts were drafted on the basis of English and common law legal principles, whereas most countries in the Middle East are based on the civil law and Islamic Sharia. This, naturally, leads to a certain tension between FIDIC-based conditions of contracts, and certain general principles enshrined in the local laws in the Middle East, requiring some adaptations to standard FIDIC forms, as practitioners with experience in the Middle East frequently note.
Arbitration Laws of the Countries in the Middle East
Almost all countries in the Middle East, with the exception of Kuwait, have adopted modern arbitration laws based on the UNCITRAL Model Law:
- United Arab Emirates (UAE) – Federal Law No. 6/2018 on Arbitration (see Arbitration Law in UAE);
- Saudi Arabia – Saudi Arabia Royal Decree No. M34/1433 Arbitration Law of 2012 (see Arbitration in Saudi Arabia), and its Implementing Regulations passed on 22 May 2017;
- Bahrain – Bahrain Law No. 9/2015 on the Issuance of the Arbitration Law, (see Arbitration in Bahrain)
- Qatar Financial Centre (QFC) – QFC Arbitration Regulations 2005;
- Dubai International Financial Centre (DIFC) – DIFC Law No. 1/2008 DIFC Arbitration Law;
- Abu Dhabi Global Market (ADGM) – ADGM Arbitration Regulation 2015;
- Qatar – Qatar Law 2 of 2017;
- Oman – Oman Sultani Decree No. 47/1997 on the Promulgation of the Law of Arbitration in Civil and Commercial Disputes (see Arbitration in Oman).
Kuwait is an exception, as arbitration in Kuwait is still governed by Kuwait Decree Law No. 38/1980, which does not conform with the UNCITRAL Model Law or international standards and certainly calls for a reform.
Arbitration Institutions and Procedural Rules
In Middle Eastern countries, parties are free to choose any arbitration institution or procedural rules they wish, or to opt for an ad hoc arbitration. Typically, international parties choose large international arbitration centers, such as the London Court of International Arbitration (the “LCIA”) or the International Chamber of Commerce (the “ICC”). The Dubai International Arbitration Center (“DIAC”), located in the DIFC, is also popular (see DIAC Arbitration Rules). Another notable centre in the region with an increasing caseload is the DIFC-LCIA Arbitration Center, established in 2008, with the aim of promoting and administering effective, efficient and flexible arbitration and other ADR proceedings for parties doing business throughout the Middle East. Another notable development was the opening of the ICC’s representative office in Abu Dhabi in 2017 located in the Abu Dhabi Global Market (ADGM), the first office of the ICC in the Middle East. In January 2021, the ICC International Court of Arbitration also opened its 5th case management office in Abu Dhabi, whose operations are set to commence in April this year, another welcome development which should help to establish Abu Dhabi as an international arbitration hub, in addition to Dubai. Regional arbitration centers include the:
- Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC);
- Ajman Commercial Conciliation Centre (ACCA);
- Bahrain Chamber for Dispute Resolution – American Arbitration Association (BCDR-AAA);
- DIFC-LCIA Arbitration Centre (DIFC-LCIA);
- Dubai International Arbitration Centre (DIAC);
- Emirates Maritime Arbitration Centre (EMAV);
- GCC Commercial Arbitration Centre, located in Bahrain;
- ICC-ADGM Arbitration Centre (ICC-ADGM);
- International Islamic Centre of Reconciliation and Arbitration, located in Dubai;
- Kuwait Commercial Arbitration Centre (KCAC);
- Qatar International Centre for Conciliation and Arbitration (QICCA);
- Ras Al Khaimah Centre for Reconciliation and Commercial Arbitration;
- Saudi Centre for Commercial Arbitration (SCCA), see Commercial Arbitration in Saudi Arabia: Saudi Center for Commercial Arbitration;
- Sharjah International Commercial Arbitration Centre (SICAC).
Recognition and Enforcement of Foreign Arbitral Awards in the Middle East
Almost all States in the Middle East have acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Kuwait became a contracting party in 1978, Bahrain in 1988, Saudi Arabia in 1994, Oman in 1999 and, more recently, Qatar in 2002 and the UAE in 2006. In practice, however, problems with the enforcement of foreign arbitral awards are not uncommon, especially in Saudi Arabia, where despite a modern Enforcement Law enacted in 2012, some arbitral awards rendered outside of Saudi Arabia cannot be enforced, most notably, on the basis of the “public policy exception”. Therefore, while international companies are increasingly gaining more trust with the Middle East as a forum for the resolution of construction disputes, there still remains room for improvement, especially in terms of the recognition and enforcement of arbitral awards.
 GAR, Construction Arbitration in the Middle East, April 2017.
 S. Brekoulakis; D. Brynmor Thomas, GAR, The Guide to Construction Arbitration, “The Nuts and Bolts of Construction Arbitration in MENA: an Update”, pp. 292-293.
 S. Brekoulakis; D. Brynmor Thomas, GAR, The Guide to Construction Arbitration, “The Nuts and Bolts of Construction Arbitration in MENA: an Update”, p. 292.
 See, for example, Article 148(1) Egyptian Civil Code; Article 129 Bahraini Civil Code, Article 197 Kuwaiti Civil Code, Article 172 Qatari Civil Code, Article 246 UAE Civil Code.
 See, for example, Article 148 (2) Egyptian Civil Code; Article 127 Bahraini Civil Code, Article 195 Kuwaiti Civil Code, Article 172 Qatari Civil Code, Article 246 UAE Civil Code; Article 156 Omani Civil Code.
 See, for example, Article 5 Egyptian Civil Code; Article 28 Bahraini Civil Code, Article 30 Kuwaiti Civil Code, Article 63 Qatari Civil Code, Article 106 UAE Civil Code; Article 59 Omani Civil Code.
 See, for example, Article 244 Egyptian Civil Code; Article 226 Bahraini Civil Code, Article 303 Kuwaiti Civil Code, Article 266 Qatari Civil Code, Article 390 UAE Civil Code.
 See, for example, Article 147(2) Egyptian Civil Code; Article 130 Bahraini Civil Code, Article 198 Kuwaiti Civil Code, Article 171 Qatari Civil Code, Article 249 UAE Civil Code; Article 159 Omani Civil Code.
 See, for example, Article 373 Egyptian Civil Code; Article 364 Bahraini Civil Code, Article 437 Kuwaiti Civil Code, Article 402 Qatari Civil Code, Article 472 UAE Civil Code; Article 339 Omani Civil Code.
 See, for example, Article 157 Egyptian Civil Code; Article 140 Bahraini Civil Code, Article 192 Kuwaiti Civil Code, Article 402 Qatari Civil Code, Article 272 UAE Civil Code; Article 171 Omani Civil Code.
 See, for example, Article 650 Egyptian Civil Code; Article 615 Bahraini Civil Code, Article 667 Kuwaiti Civil Code, Article 688 Qatari Civil Code, Article 877 UAE Civil Code.