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March 2008

Construction Law
UAE
In this Issue …
FIDIC White Book: the
We focus on some of the topics which have been keeping our Construction and Dispute
fundamental things apply
Resolution team busy in recent months.

First, we look at the FIDIC White Book which is widely-used in the UAE as the platform Direct Agreements:
document for client-consultant contracts. We at Denton Wilde Sapte are admirers of necessary, but evil?
FIDIC’s Silver, Red and Yellow Books. However, we are less comfortable recommending the
White Book to our clients. Some of the reasons why are outlined in “FIDIC White Book: the Mediation: will the rubber
fundamental things apply”. hit the road?

Our guest contributor in this issue of Construction Law UAE is Udayan Mukherjee, a
Arbitration in the DIFIC: all
member of our UAE Project Finance team. Even the impact of “hundred dollar oil”
dressed up and somewhere
on public funds has not blunted the regional appetite for infrastructure and utility
to go
procurement using project finance. Contractors working in these markets will, therefore,
need to understand the imperatives of lenders’ direct agreements. In “Direct Agreements:
Recent developments
necessary but evil?” Udayan explains the whys and wherefores.
in UAE Labour Law:
No issue of Construction Law UAE is complete without a look at trends and developments punishment or reward?
in the regional construction dispute resolution scene. In “Mediation: will the rubber hit the
road?” and “Arbitration in the DIFC: all dressed up and somewhere to go” we look at some
of the changes that may, or possibly may not, be afoot.

Lastly in this issue, some observations on recent developments in local labour law and their
implications for the construction industry.

We are, as always, interested in our readers’ views. If you have any comments, whether
positive or negative, we would be interested to hear them and, with your agreement, to
include them in our next issue.

Denton Wilde Sapte’s UAE Construction and Dispute Resolution team comprises: Ravinder
Bhullar, Matthew Blycha, Andrew Chegwidden, David Courtney-Hatcher, Ashley Hill, Alastair
Hirst, Michael Kerr, Nick Kramer and Beau McLaren.

In Doha, our team is led by Julian Pope and in Muscat by Mary Allan and Abdelrahmen
Mohamed Elnafie.

Our clients are drawn from all sides of the construction, engineering and project
development industries. We work with them on contracts, claims, dispute resolution and all
related negotiation, project structuring, drafting and advisory work.
2

FIDIC White Book : the • What is the fee, what does it include and exclude, how
and when is it going to be paid?
fundamental things apply • What rights exist in relation to copyright and other
“If you’re not here, you’re not working” was how a director intellectual property?
of one of the big-name architectural firms summed up
• What are the requirements for PI insurance?
his profession’s view of the UAE these days. Most, if not
all, of the big architectural, engineering, project and cost • What is the position regarding third party liabilities?
management firms are here. And, to judge by the moans
• What circumstances will excuse non-performance?
and groans, not all of them enjoy happy relationships with
their clients or their clients’ contractors. More than ever, • What will justify termination and what will its
these firms and their clients are taking the contract (if consequences be?
any!) out of the bottom drawer, blowing the dust off it and
• How will disputes be resolved?
seeing what it says.
• What, if any, will be the caps on and exclusions of
Often that contract will be based on the FIDIC White liability and what will be the governing law?
Book.1 This may be unfortunate because, unless the
In the 2006 edition of the White Book, all these topics are
parties have supplemented and amended the White
tackled and it is much better organised and laid out than
Book with additional clauses, they could be in for some
previous editions. But there are plenty of important areas
unpleasant surprises.
where amplification and clarification will be required if early
finger-pointing leading to relationship meltdown are to be
FIDIC updated the White Book in 2006, boasting changes
avoided. Here are some suggestions.
which “cover virtually every aspect of the agreement to
bring it in line with today’s business practice.”2
Information to be provided by the Client
We wonder whether the requirements of “today’s business “In order not to delay the Consultant in the performance of
practice” are very different from those of any other era’s the services, the Client shall within a reasonable time give
business practice. As the song goes “the fundamental to the Consultant free of cost, all information which may
things apply, as time goes by”: the fundamental things that pertain to the Services which the Client is able to obtain.”3
parties to a contract for the appointment of a consultant
need, and have always needed, are certainty and clarity on This is far too woolly. Absolute certainty is required as
the following issues at least: to what information the Client will provide and what the
consequences will be of his failure to provide it.
• What is the scope of services?

• To what standards must they be performed?


Assistance to be provided by the Client
• When are they to be performed and completed? “…in respect of the Consultant, his personnel and
dependants, as the case may be, the Client shall do all
• What rights and liabilities do the parties have if the
in his power to assist in [various things, including visas
specified times, dates and standards are not met?
and permits, ‘unobstructed access’, customs clearance,
• How can the services scope be changed? repatriation, ‘providing access to other organisations for
collection of information’]”4
• How and when will scope changes be valued and
paid for?

Section 2.1.1
3
1
Latest edition: Client/Consultant Model Services Agreement Fourth
Section 2.3.1
4
Edition 2006.
2
Press release, 23 October 2006.
3

This requirement for the client to “do all in his power It is too long to set out in full here. We simply recommend
to assist” is well-intentioned. But it sets the bar at an that both parties read it carefully. Then, consider what
unrealistic level. Clarity will be needed in the Particular changes need to be made so that their contract clearly and
Conditions, in the case of each Client and each project, as simply sets out what the Consultant’s duties and powers as
to exactly what assistance the Client will provide. the Engineer are and what limits and constraints apply. By
way of example, the suggestion that the Engineer may be
“authorised [to] vary the obligations of [the Contractor]”12
Consultant’s duty of care
needs reconsideration. A conventional variations clause,
“…the Consultant shall have no other responsibility than
such as those in the FIDIC Red, Yellow and Silver Books,
to exercise reasonable skill, care and diligence in the
may authorise the Engineer to vary the Contractor’s scope
performance of his obligations under the Agreement.”5
of work. But will it authorise him to vary the Contractor’s
“obligations”? Highly unlikely. This is a simple matter of the
This seems to us to have been carelessly drafted. The
wrong terminology being used but its consequences could
standard of “reasonable skill, care and diligence” is, of
be far from simple.
course, conventional for professional service firms and it
is the standard against which the PI insurance industry
traditionally provides cover. However, to say that this Consultant’s responsibilities
standard applies to the performance of all the Consultant’s Clients of Consultants are often frustrated by their
obligations under the Agreement seems absurd. It is Consultant promising in his bid proposal to put his best
the standard to which he must perform the Services; and most experienced people on the project but failing to
fair enough. But is it the standard to which he must keep them available once the contract is secured. Clients
perform his many other obligations? For instance, the might reasonably expect the White Book to require the
duty not to commit corrupt acts;6 the duty to appoint Consultant not to remove the designated key personnel
competent personnel;7 the duty to commence on the (unless in case of emergency) without the Client’s
Commencement Date;8 the duty to give prompt notice of approval.13 As the White Book is drafted, the Client has
changed circumstances;9 the duty to take out and maintain no control over how the Consultant redeploys his key
PI insurance;10 and so on. Surely these are absolute personnel – unfair in our view.
obligations not limited by any standard of reasonableness.

Variations
Role of “the Engineer” Clients need to be aware that Section 4.3 suggests that
Is there a construction market anywhere in the world where the Client has no right to require his Consultant to carry
contractors are not complaining about the lack of fairness out additional services unless and until the fees associated
and impartiality (and worse) of the Engineer? Answers with the change have been approved. This suggests that
on a postcard please. We do not expect to receive many if the Consultant is unwilling to carry out the additional
suggesting the UAE. Questions as to how the Engineer can services – even if only a modest extension to his existing
be impartial, when the Client is paying his fees and when he scope - he can present an unfeasibly high fee quote, safe in
is usually adjudicating on his own alleged misdemeanours, the knowledge that the Client will reject it. In other words,
abound here as everywhere else. The White Book deals there is no requirement for the Consultant to undertake
with the Consultant’s duties in the role of the Engineer.11 any additional services, unless he agrees to do so. We
doubt this is workable in practice.

5
Section 3.3.1
6
Section 1.10.1
7
Section 3.7.1
8
Section 4.1.1
9
Section 4.5
10
Section 7.1.1 12
Section 3.3.2(c)
11
Section 3.3.2 13
Section 3.7.1
4

Changed circumstances Conclusion


Why use words whose meaning will always be open to These are just some of the reasons why we recommend
argument? Section 4.5 provides for certain precautions to that those preparing contracts for the appointment of
be taken in the event of “changed circumstances”. It says: Consultants based on the White Book should consider what
clarifications, replacements and elaborations need to be
“If circumstances arise for which neither the Client nor the made. Careful thought about the full implications of the
Consultant is responsible and which make it irresponsible or White Book as drafted and appropriate re-drafting in the
impossible for the Consultant to perform in whole or in part Particular Conditions before the Contract is signed, will save
the Services in accordance with the Agreement, he shall additional, harder and costlier work later on.
promptly dispatch a notice to the Client.”

What does “irresponsible” mean? Does it mean unfeasibly


expensive? Likely to endanger life and limb? A potential Direct Agreements:
breach of national security? Politically incorrect? It is
impossible to say. This provision is far too important to
necessary, but evil?
suffer from vague wording of this kind. Direct agreements are a sensitive subject for project
contractors and investors alike. Failure to appreciate
the importance and goals of direct agreements can
Liability
lead to contractors being left unnecessarily exposed
“The Consultant shall only be liable to pay compensation
to risk or unexpected liabilities. We take a brief look at
to the Client arising out of or in connection with this
what direct agreements are, why they are required and
Agreement if a breach of Clause 3.3.1 is established
some of the potential issues of contention between
against him.”14
contractors and lenders.

This is what Section 6.1.1 says, but is this right? If, despite
his reasonable efforts, the Consultant is unable to provide What are direct agreements?
sufficient numbers of competent staff for the project, it The requirement for a direct agreement arises where
seems reasonable that the Client should, after giving notice, a project is funded on a limited recourse basis by a
be in a position to terminate the contract. Also, to recover company established for the sole purpose of building
from the Consultant the additional costs the Client incurs in and operating the venture (known as a “special
having the Services completed by a new firm. It is not clear purpose vehicle” or “SPV”). Often, a large proportion
that this will be the case unless substantial amendments of funding for the project is provided by secured
are made and set out in the Particular Conditions. loans. This debt is then repaid out of the assets being
financed and their revenues.

Indemnities
Lenders will be anxious to protect their investment in
The requirement for the Client to indemnify the Consultant
the project. Part of this protection will be provided by
against the adverse effects of all claims, including claims
the contractor giving the banks certain consents, rights
by third parties which arise out of or in connection with
and undertakings which protect the lenders against
the Agreement, is a curious one. It prompts the question:
the loss of their investment. These will be set out in
why? Why should the Client indemnify the Consultant if, for
a “direct agreement” between the contractor and the
instance, the Consultant breaches the contract and thereby
lenders. As might be expected, these agreements are
incurs liability to a third party? We urge reconsideration of
heavily negotiated.
Section 6.4 of the Particular Conditions.

14
Section 6.1.1
5

The direct agreements are between an agent bank, Direct agreements seek to allow the lenders to maintain
the project company and the counterparty to each control by providing for rights to step in and take control
major project contract. Their purpose is to protect the of a project. They also protect the lenders against the
lenders against the loss of their investment if the project risk of termination of key contracts which are critical to
company defaults under one of the key contracts it the success of the project (and therefore the repayment
has entered into and, as a result, termination of that of the original debt).
contract is threatened. The direct agreement provides
the lending banks with a direct contractual link to the Direct agreements are particularly important to lenders
project company’s key contractual counterparties. in jurisdictions where there is legal uncertainty about
taking effective security over the project company’s
Contracts typically covered by direct agreements include assets. This is because they provide the lenders with
main construction contracts, long-term supply contracts, a contractual mechanism to take control of the key
O&M contracts and any long-term off-take contracts. project assets, rather than relying upon uncertain or
weak legislative protection.

The importance of direct agreements for


banks Contentious points in direct agreements
Project financing relies on future project cash flows Contractors may view the direct agreement as an
to service the debt. From the lenders’ perspective, unacceptable variation of the terms of their underlying
maintaining the major project contracts is critical to contract with the project company. They may also
the ability of the project company to repay the debt. be reluctant to give a third party additional rights or
Lenders will monitor progress under all the key project agree to limit the exercise of their own key contractual
contracts and reserve for themselves the ability to “step rights (such as the right of termination). The reality
in” to a project contract and work out any problems is, however, that lenders are likely to view direct
under that contract that the project company cannot agreements as a critical element of the security package
resolve itself. in limited recourse project financing.

Under a direct agreement, the lenders will typically For these reasons, they can be heavily negotiated
require the contractors to: documents. A well-advised project developer will
agree the principles, and ideally the detailed terms,
• provide notice of any potential defaults under the
of the proposed direct agreement with its contractor
project contract;
before awarding the construction contract (or other
• allow a representative of the lenders, usually a lender- project contract).
controlled company, to “step in” to the place of the
project company under the project contract, and Areas of contention between banks and contractors are
assume its rights and obligations; likely to include:

• allow an additional cure period for that representative to • Eligibility of the lenders’ representative or buyer
remedy any outstanding project company defaults that
Contractors may insist that:
would otherwise allow the counterparty to terminate
the contract; and – The lenders’ representative must have sufficient technical
expertise and financial resources to discharge the project
• acknowledge the lenders’ security over the
company’s obligations under the project contract;
project contract.
6

– the lenders guarantee the performance of these In response, lenders are likely to argue that they would
obligations; only step in if they considered they could solve a
problem that had arisen and keep the contract in place,
– the lenders cannot transfer the project (including the
which is something that is in all parties’ interests.
project contracts), without the contractor’s consent, to a
competitor or an entity with whom they have a difficult
commercial relationship. • Payment Defaults
Contractors may require that all overdue sums under the
In contrast, lenders are likely to resist any restrictions
project contract are paid to it by the lenders as a condition
which could make it difficult for them to find a suitable
of stepping in. There are arguments for and against such a
representative or a potential buyer of the project.
position, but this is usually a key point for contractors.

Ultimately, however, both parties will want to ensure that


any entity that steps into a project has the skills to run • Amendments to the project contract
the project successfully and perform obligations under Lenders may try to use the direct agreement as an
the project contract. After all, this is the simplest way for opportunity to amend the underlying terms of the project
the lenders to recover their money and the contractors contract. Reasons for this include improving the risk
their contract price. A common solution is for the allocation or amending any provision which they consider
parties to agree objective criteria that any representative to be unduly harsh, inappropriate or otherwise harmful to
or buyer must satisfy. These criteria will include the “bankability” of the project. Understandably, however,
sufficiency of technical capability and financial resources, contractors might view this as changing the terms of a
amongst other things. deal that has already been agreed.

• Liability of the lenders’ representative Where there is a competitive tender process, these
disputes are typically avoided by requiring a direct
Lenders will want the liability of any representative to
agreement to be included in the tender documentation.
be clearly defined and limited. The lenders also want
Sometimes, a template direct agreement may even
these liabilities to be released once their representative
be included in the tender documentation. The project
has stepped out of the project contract. Contractors,
company therefore has the comfort of knowing that the
on the other hand, often seek to ensure that the
successful tenderer has committed itself to entering into
lenders’ representative is, and remains at all times,
the direct agreement required by its lenders.
fully responsible for all of the liabilities of the project
company once it steps into a project contract.
Contractors entering the market for construction of
project financed infrastructure, utility and energy projects
A common compromise is for the representative to
will need to understand and accept the role of direct
be released from liabilities upon stepping out of the
agreements within the wider contractual framework of
contract provided it has satisfied its obligations under
limited recourse financings. They can then protect their
the contract in full during the step-in period.
own interests whilst enabling the project to receive the
necessary financing to proceed to implementation.
• Limit on step-in rights
Contractors may want to limit the amount of times
or the circumstances in which step-in rights can be
exercised by banks. They will wish to prevent disruption
to the management of the relevant contract, a change
in the counterparty they are dealing with or the ability
of any lenders’ representative to perform its obligations
under the contract.
7

Mediation: will the rubber hit in which our firm acted, approximately 80% of disputes were
settled at or shortly after mediation. In 2006/07, English
the road? statistics for government disputes reported a settlement rate
of 67%, with costs savings of £73.08 million.115
Last September the UAE Society of Construction Law (SCL)
held a lively debate posing the question “Is the UAE ready for
But mediation is not without its snags. For instance, at the
Mediation?”. At the end of the seminar a quick poll among
SCL Seminar in September, arguments against the UAE’s
the attendees suggested, by a slim margin, that the UAE was
“readiness” for mediation included:
not ready for mediation. The majority of the Construction and
Dispute Resolution team in our office agreed, although we • The lack of “without prejudice” protection under UAE
know that when it can work, it works well. law, which would enable parties to negotiate without
giving up confidential information and/or the fear
In February 2008 the SCL ran another mediation-related topic, of prejudicing their legal position. We agree with this
“Project Mediation – Dealing with Disputes Early”. This seminar concern. The absence of “without prejudice” protection
espoused the virtues of appointing a mediator to large projects will tend to stifle negotiations. Breach of a confidentiality
to anticipate and deal with issues at site level before they agreement would leave an aggrieved party with no
escalated into full-blown disputes. remedy but to sue for the breach. Information disclosed
“in confidence” would then become a matter of public
So, we again posed the question: are we, in 2008, any record in any event. Parties to a mediation must have
closer to seeing mediation emerge as a realistic means of confidence that information disclosed at mediation
dispute resolution in the UAE? The answer this time? A cannot subsequently be used against them. They must
definite “maybe”. be comfortable that offers or concessions can never
prejudice them.
For those readers who have been sheltered from the
• Few experienced mediators in the UAE. We disagree.
worldwide frenzy over alternative dispute resolution
There are plenty of senior experienced lawyers and other
(ADR) methods, mediation is the most informal means of
professionals who could act as a mediator. More and more
ADR. It is a brokered or facilitated settlement negotiation.
of those working in the region have the requisite training
The mediation process and disclosure of confidential
and experience.
information permits the parties to have the merits of their
respective positions assessed by an independent third party: • A perception that an imposed resolution is
the mediator. The mediator should be an experienced preferable. It is said that parties prefer to have their
professional, preferably one trained in mediation techniques. “day in court” rather than “folding” and making a
He will ordinarily assist the parties to identify the strengths commercial settlement. Our own experience does
and weaknesses of their respective positions. The aim is for not support this point. In most cases commercial
the mediator to assist the parties to reach a compromise concerns are paramount. Parties are focused on
agreement. One of mediation’s best features is that it is a building business relationships in the region. They
non-binding process. There is no risk of an adverse result are not likely to do that by becoming embroiled in
for a party participating in a mediation – if the best deal the litigation or arbitration. However, we do note that
mediator can facilitate is unpalatable to either party, there is in the UAE it is likely that one party may be quasi-
no (legal) compulsion on that party to accept it. Only when government. This may give rise to the objection
an acceptable resolution has been agreed, documented and that resolution of a dispute by mediation will lack the
signed, does the settlement become legally binding. rigour and legitimacy of formal legal proceedings.

Mediation is flexible. There are no rules other than the rules


the parties agree. It can preserve commercial relationships. It
is, relative to other legal proceedings, quick and inexpensive.
Not surprisingly, mediation is a popular means of informal ADR. 1
The Annual Pledge Report 2006/07: monitoring the effectiveness of
Around the world, its success rate is good. In the mediations the government’s commitment to using ADR - http://www.justice.
gov.uk/docs/annual-pledge-report-2006-07.pdf - 15.01.08
8

• Mediation is no more than a prelude to the real negotiation. This is an


Do you want to Mediate?
interesting point. It presupposes that senior management will not take an interest
Some questions to consider
in a dispute until it has to. In our recent experience, the contrary is most often
the case. Instead of allowing disputes to escalate, early intervention from senior Is your opponent willing to sign
management invariably saves costs, achieves a reasonably fast outcome and a confidentiality agreement
saves business relationships. regarding the conduct of the
mediation? If not, do not mediate!
• Few developers and contractors in the UAE have been exposed to the huge
investment of time and money involved in arbitration. As there is no fear of How harmful would a breach of
litigation or arbitration (so the argument runs), mediation can be seen as a feeble confidentiality be? Would you
and inconclusive alternative. In our practice, we see no evidence of this. On pursue your opponent for breach
the contrary, no client likes losing money and mediation’s success as a low cost, of the confidentiality contract?
results-driven option is seen as increasingly convincing.
Is your opponent willing to pay half
• Reluctance to impart bad news and/or publicly admit weakness. Is this of the costs of the mediation? If
really an issue? Parties to a mediation recognise that a compromise may be they are not, are they really serious
the only realistic way to achieve a resolution. It is no admission of weakness about settling?
and more often a reflection of the value placed on the relationship and the
Are the parties willing to prepare
need to draw a line.
position papers outlining their
• Construction disputes tend to involve myriad inter-related disputes. arguments? Position papers can
Resolution of disputes involving complex interactions of disputed facts can be serve to structure a mediation.
difficult within the framework of a mediation where the parties need to wrap up If the claim or a defence is
quickly all issues in an overall settlement. Despite this, mediation has proven not clear before a mediation,
successful in major multi-party litigated matters. The Project Mediation seminar discussing the claim or defence
run by the SCL in February demonstrated how the concept of mediation can often only serves to confuse
permeate through the entire project as a means of avoiding and/or resolving issues further. This is particularly
disputes at all levels. so where (as often happens in
the UAE) language differences
Perhaps the biggest barrier to mediation in the UAE is timing. A judge in England
make common understanding
recently suggested that the best time to mediate is after the parties have exchanged
of complex concepts difficult. A
enough information to understand the issues in dispute, but before the costs run up
position paper will be invaluable
so high they form an obstacle to settlement.216 In this jurisdiction, by the time a party
in understanding the position of
has retained a local advocate, paid an up-front fee, commenced legal proceedings (a
your opponent.
judge-driven process) and obtained disclosure of documents, the majority of litigation
costs have already been incurred. The parties have, to a degree, lost control of the Are both parties going to have
process. Furthermore, costs awarded by the UAE Courts to successful litigants are legal representation at the
very limited. Having to pay a small amount of an opponent’s legal costs is not in itself mediation? One-sided legal
a deterrent to litigate as it is in other jurisdictions. representation at mediation will
usually stifle discussions and result
Our view, in conclusion, is that the benefits of mediation are obvious and in an unwillingness to enter into
unquestionable. They warrant the UAE Courts and the legal profession doing serious negotiations.
whatever they can to facilitate it. For example, UAE law recognition of the
Can you and your opponent
“confidentiality” of mediation agreements and discussions held by parties to those
ensure that representatives at the
agreements will go a long way to encouraging parties to mediate not arbitrate. Until
mediation will have the necessary
fundamental issues like these can be resolved mediation may spin its wheels for a
authority to agree to settlement?
while longer.
If not, do not mediate.
2
Nigel Witham Ltd v Smith [2008] EWHC 12 (TCC) 04.01.08
9

Arbitration in the DIFC: all How well the Arbitration Centre will operate in practice, of
course, remains to be seen. For local parties, conducting
dressed up and somewhere an arbitration in Dubai will be a cheaper alternative than the
traditional arbitration centres of London, Paris or Geneva.
to go As the essential elements are in place (venue, skilled
arbitrators, and a legislative and court system supportive
On 17 February 2008 the Dubai International Financial
of arbitration) it should only be a matter of time before
Centre (DIFC), with the support of the London Court of
we start seeing the DIFC and the DIFC-LICA Arbitration
International Arbitration (LCIA), opened the DIFC-LCIA
and Mediation Rules cropping up in the dispute resolution
Arbitration Centre in the DIFC.
provisions of contracts in the UAE.

Established in 1883, the LCIA is one of the oldest and


We will provide an update on arbitrating in the DIFC when
most respected arbitral institutions in the world. Teaming
the new arbitration law comes into effect.
up with the LCIA gives the DIFC’s new Arbitration Centre
immediate credibility.

The Arbitration Centre will have access to the LCIA’s Recent developments in
database of arbitrators. This is significant; arbitrations in
the UAE often face difficulty in locating experienced (and UAE Labour Law:
available) arbitrators. Thus, the Arbitration Centre will
provide not only the physical location for hearings but also punishment or reward?
access to a panel of specialist arbitrators. For many years, the competitive edge of the UAE
construction industry has depended on cheap labour from
In conjunction with the new Arbitration Centre, the DIFC the traditional recruiting grounds of South Asia. However,
has prepared, in draft form, a new arbitration law. Readers as everyone knows, times have changed with a vengeance.
familiar with the DIFC will know that the DIFC has authority Every big project suffers from it own unique commercial
to self-legislate in civil and commercial matters and has “challenges”. But what we hear again and again from our
its own independent court system. The new arbitration clients is that, in addition to the severe shortages and
law is currently open for public consultation and is not yet escalating prices of materials (cement, steel and glass in
in force. When implemented, it will replace the current particular), there is now an acute shortage of skilled and
Arbitration Law (DIFC Law No. 8 of 2004). unskilled labour in the UAE.

The current Arbitration Law is limited to “disputes The reasons are clear. Traditionally, skilled and unskilled
arising out of or in connection with the DIFC…”. The labour has been drawn to the UAE by comparatively high
proposed law, on the other hand, permits overseas and wages combined with low living costs. But more recently,
domestic parties not connected to the DIFC to conduct inadequate employment regulations, serious inflation and
arbitrations in the DIFC. The DIFC hopes that this will see good work opportunities elsewhere have started to bite.
the DIFC-LCIA Arbitration Centre become a centre for The opportunity to save money, repay loans or repatriate
international arbitration, particularly for disputes relating funds is not what is was. Booming construction markets
to the Gulf region. elsewhere in the region, with stronger currencies, look
increasingly attractive.
This situation was partly alleviated and partly exacerbated intended to improve living conditions. Companies which
by government interventions in 2007. For instance, the default in salary payments will be fined. Salary payments
implementation of a government amnesty for illegal must be made using electronic payment methods, allowing
workers in the UAE – a three month period in which illegal officials to monitor companies’ compliance with the new
workers could seek to regularise their status in the UAE laws. Major changes to the existing labour laws introducing
or return home without penalties – led to approximately new health and safety regulations have been issued for
340,000 workers applying for the amnesty. Around half consultation and should be implemented this year.
elected to return home. In Dubai alone, over 120,000 illegal
workers left. Only around 60,000 chose to stay.1 17 In addition, the GCC member states have abandoned plans
to implement a controversial six-year residency cap on
A concurrent initiative seeks to clamp down on illegal semi-skilled and unskilled expatriates working in the Gulf.
workers in the UAE: any company found to have illegal Approval of the proposals, expected at the GCC summit
workers on site may be fined and blacklisted by the Ministry in Qatar in December 2007, was delayed in the face of
of Labour, while the workers face deportation and a ban widespread criticism from businesses already struggling to
from re-entering the UAE. Meanwhile, Memoranda of find and retain staff. Now the plans have been shelved in
Understanding signed by the UAE and ten Asian labour- favour of focusing on management of the labour market as
exporting countries are intended to smooth the process of a whole. The UAE Government will concentrate on forming
labour movement into and out of the UAE. They recognise partnerships between countries of origin and destination
that workers must return home once their employment around the administration of labour in the region, including
contract has ended. labour supply, welfare and protection of overseas workers.
As part of this process, the Ministry of Labour will open
On the other hand, there have been steps to improve bureaux in countries of origin to inform workers of their
conditions and restore the attraction of working in the rights and obligations under the Labour Law.
UAE. In November 2007, following a series of strikes on
other projects, workers for one of the UAE’s largest building Although a welcome development for many, the new
contractors went on strike, eventually forcing an increase initiatives come at a price. Contractors will have to spend
in salaries by around 20%. At the same time, the Ministry cash improving working, living and payment conditions
of Labour promised to introduce a range of new laws and for their workers. These increases will have an impact on
initiatives designed to benefit the construction workforce. profit margins and project costs. With construction costs
estimated to have increased by around 30% in 2007, 2008
Dubai is set to follow in Abu Dhabi’s example by requiring is expected to see even greater escalation, including the
mandatory health insurance schemes to be implemented cost of complying with the new rules.
for all construction workers. New municipality rules are
What can be predicted with some certainty is an increase
in project completion times and costs as contractors are
1
Information and figures referred to in this article were obtained from forced to comply with stricter regulations and ever tougher
various sources, including Construction Week,
competition for skilled and unskilled labour.
www.arabianbusiness.com and www.meed.com.

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