The construction industry in the UAE is booming, with a projected market value of USD 133 billion by 2027. As the sector continues to expand, it’s crucial to understand the legalities surrounding construction contracts. In this concise legal blog, we’ll go through the intricacies of construction contracts in the UAE.
Understanding UAE Construction Contracts
Article 872 to 896 of the UAE Civil Code lay the foundation for construction contracts, known as “muqawala contracts.” These articles provide the basic legal framework that governs construction agreements. While parties have the flexibility to tailor their contracts, certain provisions are imperative and cannot be bypassed. Additionally, some rules are of public order, which means they cannot be overridden even when foreign law or arbitration is involved.
Choice of Foreign Law
In Dubai, a global commercial hub, it’s common for parties to select foreign law to govern their contracts. Article 19(1) of the Civil Code allows this choice, except for contracts related to property in the UAE or those involving governmental bodies. However, there are crucial considerations.
The UAE courts will uphold a choice of foreign law, provided that it doesn’t contradict Islamic Sharia, UAE public order, or morals. The definition of domestic public order is extensive, encompassing personal status, freedom of trade, wealth circulation, and rules of individual ownership.
In essence, the UAE legal system retains its grip on certain matters, ensuring that parties cannot escape local legal principles entirely.
Choice of Dispute Resolution Mechanisms
Parties entering into construction contracts in the UAE can opt for different dispute resolution mechanisms: UAE courts, foreign courts, or arbitration. Here’s where it gets interesting: even when parties agree to arbitration or foreign court jurisdiction, UAE courts may accept jurisdiction in certain cases.
Why? Because rules regarding the jurisdiction of UAE courts are considered a matter of public order. This means that, if a dispute has a legal nexus with the UAE, local courts might step in, irrespective of the parties’ agreement. For construction contracts, these legal nuances are vital to grasp.
Enforcement of Judgments and Awards
Enforcing judgments and awards adds another layer of complexity. UAE law differentiates between domestic and international awards. For domestic awards, the Civil Procedure Code allows judicial scrutiny for form but not substance. However, foreign judgments must meet stringent criteria, including:
1. Jurisdiction of foreign courts.
2. Proper summons and representation of parties.
3. Compliance with public order and morals.
For arbitration awards, domestic awards can be enforced only after ratification by the competent UAE court. This process can be lengthy and formalistic. However, international awards, as per the New York Convention, have fewer grounds for refusal.
In recent developments, a draft arbitration law based on UNCITRAL Model Law is set to streamline the process of ratifying domestic awards, making it more efficient.
Conflicts of Jurisdiction: DIFC vs. Dubai Courts
A unique challenge arises when dealing with disputes related to the ratification of arbitral awards. Conflicts of jurisdiction often occur between the Dubai International Financial Centre (DIFC) courts and the Dubai courts.
Parties have sought to use the DIFC courts as a “conduit jurisdiction” to simplify the ratification process. This approach involves initiating the ratification process in the DIFC courts, which can be more efficient and straightforward, especially for awards obtained in non-DIFC seated arbitrations. However, this has led to conflicts of jurisdiction and judgments between the DIFC and Dubai courts.
To resolve these issues, the Ruler of Dubai established a Judicial Tribunal (JT) for the Dubai and DIFC courts. The JT aims to clarify the jurisdictional conflicts and ensure a smooth legal process. Recent decisions from the JT have emphasized that when parties bring a claim for recognition of a domestic arbitral award in the DIFC courts and the award debtor challenges it in Dubai courts, the Dubai courts maintain jurisdiction.
DIAC’s Initiatives for Efficient Enforcement
To alleviate some of the formalistic conditions for the enforcement of domestic awards set out in the Civil Procedure Code, the Dubai International Arbitration Centre (DIAC), which handles domestic UAE/Dubai awards, has taken proactive steps. These include:
- Opening a representative office in the DIFC.
- Signing a cooperation agreement with the Dispute Resolution Authority in the DIFC to expedite the enforcement of DIAC arbitral awards before the DIFC courts.
These initiatives aim to simplify and accelerate the enforcement process for domestic awards, particularly in construction contract cases, where swift enforcement can be crucial.
In conclusion, the UAE’s construction sector is flourishing, offering unparalleled opportunities. However, to navigate the complexities of construction contracts in this dynamic environment, stakeholders must be well-versed in the legal intricacies. For the best legal guidance in Dubai’s construction industry, reach out to legal consultants.
Astute assistance is necessary to navigate the complex legalities of Construction Contracts in the United Arab Emirates. Our seasoned team of lawyers and legal experts at BSB Legal is skilled in deciphering the complexity of construction rules. With our in-depth understanding and experience of UAE law, you can rely on us to protect your interests and guarantee contract compliance. Being among the top attorneys in Dubai, we offer complete solutions that include all aspects of building contracts. Join together with BSB Legal for methodical direction, astute advice, and a resolute dedication to safeguarding your building projects within the confines of the law. Our top priority is your mental well-being.