Disputes Adjudication Boards: The Strategic Alternative?

Author

Victoria Cunningham

Counsel

The last twelve months have been a battle for business, even in the industries that seem to be impermeable to significant global economic shifts. Looking back, it’s clear that all of us have been navigating some of the most uncertain and testing conditions in the legal world.

Lawyers across all jurisdictions scrambled as the first of several national lockdowns took hold to guide their clients through this uncharted territory, whilst tackling their own challenges within newly-federated teams, often being strangers to work-from-home protocols and set adrift from the usual day-to-day support of the legal HQ. Gradually, it seems, the new working world has become a more productive place, free of commutes and office distractions. Productivity has also risen dramatically in the field of disputes. A sharp rise in litigations linked to the repercussions of the global pandemic, from contract breaches to insolvencies, was perhaps no surprise. Now, pandemic-related disputes are reaching the courts, with business interruption leading the charge.

Throughout the pandemic in the UAE, construction has remained one of government’s essential activities, with particular sector specific restrictions and exemptions. However, given the international nature of most construction projects and the supply chains that power them, it hasn’t been plain sailing for contractors, with more and more employers seeking to adapt contracts to suit the new economic reality. So, if many of the reports of a ‘golden age’ of litigation in a post-pandemic world are to be believed, does that mean a tougher time for clients? Not necessarily. Right now, the unprecedented number of construction projects in the UAE could signal a great number of potential disputes. But there are some interesting options available, designed to solve thorny issues before they lead to a seemingly inevitable clash. A renewed interest in pre-disputes resolution is signaling a much more strategic approach, with clients taking proactive steps to avoid disputes and settle commercial and contractual challenges much earlier than before. And one such form of pre-dispute resolution comes in the form of Disputes Adjudication Boards (DABs).

In the construction sector in the UK, Ireland, Hong Kong, Singapore, Australia and New Zealand, there are formal adjudication procedures enshrined in statute that must take place before any formal legal process begins. In the UAE, such an approach does not exist and alternative dispute resolution is yet to flourish but the increased use of the DAB could change that to some extent. Today, we see that DAB provisions are increasingly being retained in construction contracts on many high-profile projects. DABs, originally envisaged by FIDIC as being a precursor to litigation, are being utilised by clients who are willing to devote resources to it as it becomes viewed as a genuine process designed to navigate the parties towards a realistic commercial resolution and thus avoid the potential perils and pit-falls of large-scale disputes. So, what’s driving this?

One contributing factor is that economic uncertainty following on from the global pandemic, and the staggered recovery from it, has led to a genuine reluctance to enter into a full-scale, expensive, protracted arbitration, particularly when clients realize that an arbitration on a final account dispute could easily take up to two years to reach a final award. The heightened level of post-pandemic commercial issues and resultant impact means that contractors are seeking much faster solutions, too.

Aside from the overall expense, arbitrations can take up an extraordinary amount of time and business resource, particularly for the senior individuals involved in dealing with the dispute on either side. DABs offer an opportunity to select key disputed issues and test their efficacy. In addition, standing DABs can be woven into contract procedures from the very beginning of a project too, which means that if any issues arise along the way, a claim can be taken to the Engineer, and thereafter if the Engineer’s decision is disputed, it can be referred to the DAB, while the project unfolds.

These provisions are often forgotten during the contract negotiation stage, and along the way during the works, but when a dispute looks likely to appear on the horizon, it is possible to agree a DAB panel, or one DAB member, who can adjudicate on disputes referred to the DAB on an ongoing basis. Put simply, DABs offer a genuine attempt to test claims before they reach the expensive realms of arbitration. Whilst neither the contractor nor the employer has to accept a DAB’s decision, they can both take some comfort from the fact that an industry professional is tasked with looking at the issues from a third-party perspective and giving a view on the rights and wrongs of each side’s respective positions. What’s more, the prospect of the potential advantage of avoiding a lengthy arbitration, with all of the huge investment of time, budget and energy this will involve, tends to focus the minds of everyone involved on moving towards a possible ‘middle-ground’.

How do we at Mantle Law help in this area? We see many clients that haven’t been through the DAB process before because the provisions have been struck out of previous contracts they have entered into. Or they have simply not been aware of the advantages of bringing in lawyers to assist at this pre-arbitration stage. However, a discreet budget deployed on correctly framing the legal arguments around the facts and the evidence of the case at this stage can go a very long way. Equally, sometimes clients will prefer to manage the DAB themselves internally and will limit legal input to reviewing and adding to the legal aspects of the submissions as, in many cases, there may not be an oral hearing in the procedure. So, clients will prepare the factual submissions but they will utilise us to help apply the legal framework around those submissions to make them more compelling. We can also assist in a project counsel role, identifying the strengths and weaknesses of the various claims. It is this co-operative approach with our clients all the way along the DAB procedure that can really help them make the most of the procedure.

Equally, our clients often ask us to help at a strategic level, providing project counsel support right at the heart of their team and the business. Mantle Law is designed to be more agile than most law firms and that means we can and often do spend significant time onsite, right beside the project team who really understand the history of the project, working with our clients and helping them work through the procedure from start to finish. Under most standard form contracts, the DAB is an 84-day procedure, so unless the provisions have been amended or the parties mutually agree to a longer process, our clients need lawyers that can react quickly, roll up their sleeves and discuss the real issues that are at the heart of the dispute, and understand the surrounding issues that may be driving parties towards a wider, more costly, formal dispute. Being more mobile helps, but so does technology. Having great interfaces, from client extranets, cloud spaces and information portals means everything can be accessed at a moment’s notice. Flurries of emails, with multiple responses from different time-zones just don’t cut it for our client working across the Middle East and the globe.

Longer term, DABs could well result in a bigger shift in mindset, too. If they are put into use more widely, (and we see signs that they are), we should see a construction industry becoming more strategic about advancing ‘good’ claims and closing them out before they turn into large-scale disputes that neither party particularly wants in the first place. There has been a long-held culture in the industry of starting claims and worrying about the consequences later, with an emphasis on warning shots and scare tactics. Making the DAB process work as it was intended by the contract drafters, makes everyone think a little bit harder about their claims. The process of examining the various outcomes helps clients, both on the contractor and employer side, really think about the end result. Plus, if DABs do become more prominent and widely used in the UAE, we believe employers, contractors and sub-contractors may reach out to their lawyers earlier for help in mapping out the art of the possible. This in turn may lead to contractors and employers working together, more effectively, and we may just see less of a ‘claim culture’. We can but hope!