United Arab Emirates: Cassation Court Rules That Expert Determination In A Construction Dispute Is Not Enforceable

Introduction

The GCC area has witnessed an increase in the dependence on alternative dispute resolutions in the last decade, particularly in the construction industry. Arbitration remains the most prevalent method.

However, due to the adoption of certain standard contracts such as the FIDIC suite of contracts, multi-tier dispute resolution mechanisms have been introduced and are frequently adopted for large and mega construction projects throughout the region.

In the UAE, the courts have gradually and increasingly embraced arbitration, although, the courts continue to scrutinize strictly adherence to certain procedural matters dealing with arbitral proceedings which would readily lead to the setting aside of the award.

Notwithstanding the above, the enforceability of other alternative dispute resolution ("ADR") methods such as adjudication and expert determination remains unclear and there is somehow an understanding in the construction circles that such methods are unenforceable in the Middle-Eastern jurisdictions including the GCC.

This emanates from the fact that UAE laws do not provide a legal basis for ADR mechanisms with the exception of arbitration and mediation in the Emirate of Dubai since 2013. This led some practitioners to conclude that all other ADR mechanisms are unenforceable.

Expert determination/evaluation by which an expert is appointed to issue a binding evaluation is one of the relatively economic and speedy ADR methods relied on in many jurisdictions, including the UK, in disputes related to technical matters in construction and the oil and gas industry. The decision of the expert is final and binding and subject to appeal only on limited grounds such as fraud or bias.

The Case

In a ruling in 2014 in Petition No 739/2013 Commercial, the Abu Dhabi Court of Cassation had the opportunity to examine and rule on the validity and binding nature of expert determination. While the disputing parties had not labelled the mechanism as expert determination, it is believed that the characteristics of that process agreed upon were congruent to those required in expert determination.

By way of background, the case concerned a construction contract where certain conflicts arose between the employer and the main contractor regarding the latter's entitlement to time and cost extensions. The parties agreed to nominate an international construction consultancy firm to act as, as they termed it, "sole arbitrator" in the dispute. The parties agreed the terms of this nomination and that the decision of the "arbitrator" would be binding.

The nominated "arbitrator" issued its so-termed "binding recommendation" ordering the employer to pay the contractor a sum of AED 4,696,611 representing the cost of works delayed by the employer. Following non-payment by the employer, the contractor commenced proceedings before the Abu Dhabi Commercial Court seeking the ratification of the "award" of the said "arbitrator". The employer argued that the award should be set aside on the grounds that it could not be considered an arbitral award due to it lacking the procedural requirements of an award.

The main contractor maintained that arbitrators are not obliged to follow civil procedural rules applicable before the courts, and alternatively requested the court, if it decided to set aside the arbitral award, to enforce the binding recommendation pursuant to the agreement of the parties.

The Court of First Instance refused to ratify the award on the ground that it was incomplete, that is, lacking procedural requirements such as name of arbitrator, date of issuance, summary of parties' statements, and legal reasoning. Its decision was upheld by the Court of Appeal.

At the cassation level, the Court noted that the two lower courts had erred in the reasoning of the judgment but reached the same conclusion that the award was not enforceable.

The Court opined:

"Arbitration differs from other methods of dispute resolution such as settlement, conciliation, mediation or expertise and others in that the dispute is resolved through a judicial act by the arbitrator. The duty of the arbitrator varies from that of the expert whereby the arbitrator adjudicates the dispute through an award binding on the parties, while the expert's mission is restricted to expressing a technical view in a non-legal matter. The differentiation is not based on wording or description used by the parties; it rather depends on the nature of the mission itself. Thus, if the parties agree, outside the court, to commission a technical expert to make a final and binding determination in a purely technical matter, such agreement cannot be considered arbitration, and the decision issued by the said expert shall not be considered an arbitral award, as long as this expert determined a dispute of purely technical nature and not a legal dispute ..."

The Court went on to state that although Article 212/1 of the UAE Civil Procedures Code exempted the arbitrator from following the rules of procedures applicable before the courts, the arbitrator must respect the rules of due process by offering the parties the opportunity to make statements, submit their defence, and challenge the other party's submissions.

The Court reached a decision to dismiss the cassation petition reasoning that the role of the expert was not to adjudicate a legal matter, but to determine whether the contractor was to be entitled to an extension of time and additional costs and that such matter did not involve any legal issues. The Court added that the recommendation issued could not be construed as an arbitration award in legal terms because it lacked the requirements of an arbitration award such as a copy of the arbitration clause, a summary of the parties' statements, legal reasoning, disposition, place and date of issuance, name of arbitrator, any absence of due process, and the respect for the adversarial principle.

Conclusion

This judgment lays down many legal points that can be summarised as follows:

• The parties' agreement to designate an entity/person as an arbitrator has no legal bearing on whether his decision will be an arbitral award. This is in line with the principles of construction of contracts in the UAE Civil Transactions Code, in particular Article 258 which provides that a contract should be constructed based on intention and meanings and not on words and forms.
• An expert's decision cannot be binding on the parties; it remains a mere technical opinion regardless of the parties' agreement to give it a binding effect. This may lead to the conclusion that expert determination will not be considered binding. Therefore, although parties can agree that the expert determination or opinion is binding, which may give rise to a claim before the competent court in the event of a party's abstention to abide by the expert's determination, it appears that the court will not accept to treat the agreement as such, because an expert determination/opinion is considered a mere element of evidence, the probative value of which is subject to the sole discretion of the court.

An arbitrator's duty should include the judicial determination of a legal dispute. Apparently, the judicial factor in the courts' eyes is to be deduced from several elements such as the nature of the dispute, whether it is legal or of a pure technical nature, and whether the parties were given the opportunity to make statements, prove their case, and rebut the opponent's case.

Originally published 2016-11-01

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.