Practical Law

Taking up the challenge: the role of mediation, DABs and other ADR methods in the Middle East

With a considerable number of new and on-going projects in the Middle East, efficiently resolving disputes remains a pertinent issue for contractors and employers alike. The fallout following the global recession led to multiple disputes, but have contracting parties learnt any lessons?

Traditionally, dispute resolution in the Middle East utilised arbitration or litigation for the resolution of disputes. Despite this, parties should consider alternative dispute resolution (ADR) options such as mediation, dispute adjudication boards (DABs) and expert determination. While in other jurisdictions, such as England and Wales, it is common for parties to be open to and adopt ADR methods, the take up of such methods in the Middle East is rare. Parties are generally reluctant to move away from the traditional forms of dispute resolution. This blog briefly describes these methods of ADR and their use in the Gulf region.

Mediation

Mediation involves the parties engaging a neutral third party to facilitate communications with the aim of resolving the dispute. It is voluntary and the parties are free to withdraw at any time. Mediation itself is a non-binding process and the parties are not obliged to settle their dispute. As such, a perceived disadvantage of mediation is its lack of enforceability.

A mediator does not have authority to enforce an award against a party. However, if the parties reach resolution, they will generally enshrine their agreement in a legally binding document, which they can then rely on for any subsequent enforcement.

The concept of mediation fits in well within the Middle East, where informal discussions, often held as a form of counsel within the privacy of the Majlis, are common and seen as a way to resolve disputes. The UAE has taken the use of mediation one step further, with the government introducing structured mediation options:

• Conciliation and Reconciliation Committees of the Federal Courts.
• Dubai Centre for Amicable Settlement of Disputes: limited to disputes up to AED 50,000 involving a property and a bank as a party to the dispute.
• Dubai Land Department and Legal Affairs Department of Dubai: operates investor led mediation committees to assist parties resolve disputes.
• Ministry of Labour: all employment contracts outside freezones must be registered with the Ministry of Labour: before an employment dispute can be formalised, the dispute must be lodged with the Ministry of Labour, which will attempt to mediate and settle the dispute.

I have also seen examples in the region of successful quasi-mediation processes, whereby the parties agree to enter into mediation but with a further agreement that, should the parties fail to successfully settle their dispute, the mediator is empowered to produce a final and binding decision on the outstanding issues (akin to an expert determination). Entering into such a process provides the parties with comfort that their disputes are being reviewed by an independent, experienced third party, but without associated time and cost commitments arising from arbitration or litigation. A potential disadvantage of quasi-mediation is that a mediator’s decision could be made without proper submissions or evidence from the parties involved. In turn, a party may lose an opportunity to present its claims or defend claims made against it.

DAB

A DAB is a panel of independent, impartial professionals, usually with relevant technical expertise, appointed at the outset of a project to review and consider disputes and issues as they arise during the course of the project. As the DAB becomes acquainted and familiar with the project, its role is to settle disputes, before they become too large and are referred to arbitration.

DABs aim to facilitate co-operation between the parties, while preventing adversarial attitudes. They are private and confidential. DABs provide parties with a binding decision that both parties give effect to unless or until the decision is revised in a subsequent amicable settlement or as part of arbitral proceedings. In the event that neither party seeks to challenge the DAB decision, its decision will be final.

The main disadvantage of DABs is their cost. Parties are jointly liable for the costs of the DAB members and additional costs arising from the dispute resolution process. DABs are also often viewed as a contractor-friendly method of dispute resolution. While this may not be a routine disadvantage to their use, in the Middle East market where the employer is generally the more powerful party, DABs are rarely used.

There are projects in the Middle East using DABs as part of a multi-tiered dispute resolution process. A number of contracts in the FIDIC suite, including the Red Book (which is the most commonly used standard form contract in the region), incorporate DABs as part of the dispute resolution process. However, such clauses are often removed as part of the contractual negotiations. In theory, DABs would be helpful in a region of large and complex infrastructure projects but, in my experience, parties are reluctant to use a DAB due to the uncertainty of whether a DAB will operate successfully and provide any real benefits.

It is worth nothing that, in the UAE, the courts have not been called upon to determine the validity or enforceability of a DAB decision. The principle of freedom of contract is recognised in the UAE Civil Code, therefore arguably a DAB decision should be recognised and enforced based on the parties’ agreement to be bound by the DAB process.

At this point in time, it remains unclear whether attitudes may change towards DABs and if there will be a shift in the use of this dispute resolution method in the Middle East.

Are there other options?

Next week I’ll take a look at whether there are other ADR options for parties to explore. I’ll ask what influence ADR may have on the future of dispute resolution in the region.