A quick solution to contractor disputes

24 January 2019
Adjudication could offer a quick resolution for contractors locked in construction disputes in the GCC

"Statutory adjudication would sort it out overnight.” This was the bold statement made by a lawyer when asked about the region’s most cited construction industry problems in an interview for DLA Piper and MEED’s recently published industry report, ‘Time for Change – Construction in the GCC reaches a tipping point’.

Few would argue that the introduction of a statutory adjudication scheme would go a long way in relieving pressures related to payment delays; non-payment or underpayment of variations; and the failure of employers to recognise entitlement to additional time and associated costs. Perhaps the greater question is whether the region could sort out statutory adjudication overnight.

Adjudication schemes in other jurisdictions, such as those in the UK and Australia, offer a party to a construction contract an automatic right to refer any dispute to an adjudicator for a decision in about 28 days. That decision is instantly binding and there is a short-form process of enforcement if needed. In this way, projects are prevented from becoming mired in dispute, stalled because cash flow has dried up, or worse, beset with insolvency in the supply chain.

In recognition of the 28 days representing a form of ‘rough justice’, the same dispute may be reheard later in court or arbitration. In the majority of cases, the decision is not revisited.

Slow introduction

It is these distinct characteristics of: automatic right; 28 days to a decision; that it is binding; and it is immediately enforceable, that have made adjudication successful. In this region, it is these same characteristics that means introduction may take some sorting out.

The industry may require an education phase prior to acceptance. While many international contractors will have experience of statutory adjudication gained from other jurisdictions, the majority of the market will be unfamiliar with adjudication as a process and its distinct effects.

For example, the speedy process of statutory adjudication favours a claimant and could catch a prospective defendant unprepared. A claimant has the luxury of time to prepare its claim before launching proceedings with minimal notice – a risk less apparent in traditional forms of dispute resolution.

  • Click here to access Time for Change – Construction in the GCC reaches a tipping point

The immediately binding nature of an adjudication decision will also be foreign to many companies. Generally, those operating in the GCC expect to have some form of appeal right; and not to pay immediately on the issuance of an award or judgment but to require a lengthy enforcement process. Education will be required to gain confidence in the process, although experience in other jurisdictions shows take-up is fast.

It is not enough for the industry to be behind the solution. The legal system needs to underpin it.

Statutory adjudication requires the adjudicator to have jurisdiction to hear the dispute. Jurisdiction is usually conferred on the adjudicator by law (if an automatic right to adjudication was to be written into the law) or by virtue of the contract the parties sign. In principle, there would be no problem with either scenario in the context of sharia, but potentially conflicting laws do exist in some countries across the GCC. For example, Saudi Arabia’s Government Tender and Procurement Law has very strict provisions on how disputes are resolved, including disputes on additional time and money in construction projects.

Critical to the success of an adjudication scheme is the ability to enforce it quickly and easily. This presents perhaps the greatest problem to sort out before adjudication is able to be introduced. The most obvious avenue is through offshore courts. For example, the specialised technology and construction division of the DIFC Courts, which is familiar with construction and English law concepts and processes, and with a track record for the enforcement of its judgments in onshore Dubai.

The biggest concern, however, is whether, once enforced in onshore Dubai, the judgment will maintain its temporary binding nature. Sharia law may have difficulty enforcing a decision on a temporary basis in case that decision causes irreparable harm to the paying party in the event it is later overturned. In other jurisdictions, this is managed by the ability to stay enforcement in limited circumstances such as in the case of insolvency of the receiving party.

Logistics issues

There are, of course, also logistical considerations, such as:

  • Affordable fees (including adjudicator costs and expenses);
  • The establishment of a clear, efficient procedure and predictability as to how deviations from it will be dealt with;
  • Language – A balance is needed between a default choice of language and the parties’ choice of language. Costly and time-consuming translation could easily derail a 28-day process.

Confidence in a statutory adjudication scheme will only come from respect for the decisions of the adjudicators. What will qualify those adjudicators? To where will the parties apply for the appointment of an adjudicator if they cannot agree on whom to appoint?

These are just some of the many issues that need to be sorted to introduce a successful adjudication mechanism into the GCC. However, while it might require a network of new legislation, an adjudication scheme could be introduced in the region, and this is being talked about. Unfortunately for an industry currently under pressure, statutory adjudication will not be sorted out overnight.

Click here to access your copy of ‘Time for Change: Construction in the GCC reaches a tipping point’




About the authors

  • Suzannah Newboult (pictured) is a partner at DLA Piper
  • Ahmed Hammadi is a legal consultant at the firm

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