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Article: November 2019: Construction Litigation Update

Business Litigation Reports

Arbitration Laws Updated in the UAE; New Construction Arbitration Guide Released; and the UK Court of Appeal Weighs in on Liquidated Damages

 

New UAE arbitration laws: The UAE has introduced a new arbitration law, the Federal Law No. 6 of 2018 on Arbitration.  It repeals the arbitration chapter previously embedded in the federation’s civil procedure laws, which had been criticized for failing to reflect international best practice, and replaces it with a stand-alone instrument.  The new law is based heavily on the UNICTRAL Model Law and is designed to bring the UAE closer in line with other international arbitration hubs and make it a more attractive arbitration prospect.  The new law clarifies various matters, including procedures for arbitrator recusal, limits on the challenging of an award, the rules relating to the conduct of the arbitration (such as venue and electronic communications), and technicalities relating to the signing of awards outside the jurisdiction.  The Dubai International Finance Centre (DIFC) continues to operate its own English language, common law arbitration framework.

            The ICC construction industry arbitration guide:  In February 2019, the ICC published its updated guide on the tools and techniques for successfully managing construction arbitrations.  The guide reflects the updated ICC Arbitration Rules of 2017 and recent developments in construction arbitration practice.  The guide notes that international construction disputes are frequently more complex, both factually and technically, than other international commercial disputes.  They often require more documents to be examined than other types of disputes and encompass a multitude of fact, opinion and law which could in themselves merit a decision as if they were their own arbitration. The complexity of the arbitrations is reflective of the various methods of procurement, pre-arbitral dispute methods (including adjudication and dispute boards), number of parties (including subcontractors, consultants and engineers), and technical complexity (including the use of BIM modelling) of the mega-projects from which such disputes stem.

            In that light, the ICC guide seeks to facilitate expeditious and cost-effective procedures in construction arbitrations.  It discusses most aspects of the arbitral journey with a construction focus, from terms of reference, pleadings, case management, through to expert evidence and hearings. Amongst other matters, the guide notes it is “highly desirable” that the arbitrators are familiar with construction contracts, relevant regional and cultural nuances, and the evolution of construction disputes.  It notes that delay and disruption claims, common in construction projects, can involve large sums of money and require careful handling.  It further notes that although arbitrations on mega-projects often involve separate questions of jurisdiction, preliminary issues, liability and quantum, the decision to split a case into separate hearings should be left until it is clear that it is sensible and cost-effective to do so.  A number of the issues in the guide, and more, are explored in the updated second edition of The Guide to Construction Arbitration, from the Global Arbitration Review. Quinn Emanuel London partner James Bremen, and Of Counsel Mark Grasso, contributed several important chapters to the text.

            Liquidated damages claims:  Earlier this year, the United Kingdom’s Court of Appeal resolved inconsistencies in a century of case law on the application of liquidated damages provisions. In Triple Point Technology, Inc. v PTT Public Company Ltd [2019] EWCA Civ 230, the Court denied an employer’s entitlement to liquidated damages for delay in completing a project,  when the contract was terminated prior to completion.  The Court held that the liquidated damages provision in question had no application because the contractor never handed over completed work to the employer.  The Court clarified, however, that the employer remained entitled to claim general damages for delay.  As the Court noted, each case will “turn on the precise wording of the liquidated damages clause in question.”  In this case, the contract was a bespoke contract for the provision of a software system, which provided that the contractor would pay liquidated damages “per day of delay from the due date for delivery up to the date [the employer] accepts such work.”  The Court held that the provision has “no application in a situation where the contractor never hands over completed work to the employer.”  While not a standard form construction contract, the case law reviewed in the judgment included analysis of several construction cases, including those applying the JCT standard forms.  It is arguable that other forms, including some FIDIC contracts, may be susceptible to similar interpretation.  Were the Court’s interpretation found to apply to the liquidated damages provisions in other common, international construction contracts, and where a particular contract is governed by English law, the decision could have significant impact.

            General damages for delay can be difficult and costly for an employer to prove, and in some cases no substantial losses can be identified.  A pending decision to terminate a contractor for delay prior to completion may need to be reassessed based on the prospects of establishing actual delay damages.  The ongoing entitlement of an employer to withhold liquidated damages from progress payments throughout the period of delay, but prior to termination, could also be affected by the decision.

            But this is not all bad news for employers.  Where the liquidated damages in an affected contract are significantly less than  the employer’s actual losses, the decision may permit the employer to jettison the liquidated damages regime and replace it with a larger claim for general damages that more accurately reflects the impact of the contractor’s default.