By DAVID JOHNSTON
WHEN agreeing to a dispute resolution clause in a construction contract, there are a number of matters to consider. Perhaps the most important of these is whether to proceed by way of litigation (before a court) or arbitration (contractual dispute resolution by a tribunal under procedural rules agreed by the parties).

Arbitration is an increasingly popular option for parties in the GCC, for various reasons. In international arbitration, it is more common for, at least, a proportion of a successful party’s legal costs to be awarded; whereas in court proceedings in the GCC, a successful party will usually only be awarded a nominal sum in respect of its legal costs. Litigation in the GCC will also, generally speaking, take longer to reach a final decision than arbitration because there is an automatic right to appeal to a higher court. In contrast, arbitral awards are usually final and binding, are generally not subject to appeal and tend to be more readily enforceable outside the jurisdiction in which they were issued than court judgments.

In addition, most court proceedings in the GCC are held in Arabic (exceptions being proceedings before the DIFC Courts and the Qatar International Court, which may take place in English). In contrast, parties can choose the language of arbitration, which is likely to be an important factor for international developers and contractors.

Another potentially important advantage of arbitration over litigation, depending on the provisions of the contract and the applicable rules, is that the parties may have the ability to nominate one of the arbitrators. Many arbitration rules that are commonly used in the GCC, such as the rules of the Dubai International Financial Centre-London Court of International Arbitration Centre (DIFC-LCIA), the International Chamber of Commerce (ICC), the Bahrain Chamber of Dispute Resolution (BCDR) and the Dubai International Arbitration Centre (DIAC) include a default provision that arbitrations will be presided over by a single arbitrator (unless the relevant institution decides that a three-member tribunal is more appropriate).

Other sets of rules, however, such as the GCC Commercial Arbitration Centre (GCCCAC) rules, and the UN Commission on International Trade Law (UNCITRAL) rules, set the default position as a three-member tribunal. Parties are generally free to establish their own procedures in this regard, and many will prefer a three-member tribunal, particularly to deal with more complex disputes.

The ability to nominate an arbitrator (as part of a three-member tribunal or as a sole arbitrator) gives the parties an opportunity to have a person of their own choice engaged in the determination of the dispute. The nomination of a party-appointed arbitrator in a three-member tribunal where the nomination of the third arbitrator is undertaken by the party-appointed arbitrators may afford parties the chance to have an indirect impact on the selection of the chairman of the tribunal.

There are a number of factors which should be taken into account when deciding on the identity of a party-nominated arbitrator. Parties may prefer that their nominated arbitrator is from the same culture and has the same outlook as them, and may seek to secure this (if it is permissible under the applicable law and/or arbitral rules) by nominating someone who is a national or citizen of the country in which they are established or where a majority of the project team are from.

Parties may, however, prefer to nominate locally-based arbitrators on the basis of direct previous experience of their work or word-of-mouth. Such individuals would have experience of working and determining issues in the local market and, perhaps more importantly, may be more familiar with the parties and how they operate.

Most sets of arbitration rules impose a requirement that arbitrators are impartial and independent, and will allow the nomination of an arbitrator to be challenged by the other party to the proceedings on this basis. Examples would include where the arbitrator has a financial interest in the dispute, either by profiting directly from the outcome or by holding an interest in one of the parties, where the arbitrator has previously provided advice to one of the parties on the issue in question, or where the arbitrator has a close personal or business relationship with one of the parties. Parties should carry out sufficient due diligence to ensure that their nomination carries an acceptably low risk of being challenged successfully.

The subject matter of the dispute is also important in identifying suitable candidates. If it is a programming dispute then an arbitrator with a background in programming and delay analysis may be advantageous. If the dispute is technical in nature an arbitrator with a technical or engineering background is likely to be preferred. Similarly, in disputes which are more likely to turn on issues of contractual interpretation, appointing a legally-qualified arbitrator may be a prudent strategy. Such an individual could be a lawyer or a qualified engineer who has also obtained a legal qualification.

The overall efficiency of the proceedings, as well as the quality of the tribunal’s award, will depend to a large extent on the arbitrators who are appointed. Therefore, parties should take great care in nominating an arbitrator of sufficient skill and experience, in addition to the considerations above. A party should not appoint an arbitrator as an advocate for its case or to be an “inside man” on the tribunal, but should rather appoint someone who it is hoped will be sympathetic to and understanding of a party’s position, while at the same time maintaining sufficient independence and impartiality so as not to breach the rules of the arbitration or vitiate the determination of the proceedings altogether.

 

Gulf Construction

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