Doubling of cases shows strong effect of economic downturn in once-booming sectors
Property disputes up last year
The number of property and construction disputes heard at the Dubai International Arbitration Centre (DIAC) more than doubled last year as the financial crisis took hold. The centre handled 206 cases last year arising from the property and construction sectors, compared with 100 in 2008.
Of last year's disputes, 126 were property-related and principally between large commercial investors and developers of overdue projects. The remaining 80 cases were from the construction sector. DIAC's workload is expected to increase further this year as the fallout from the financial crisis continues to be felt, said Fathi Kemicha, an executive committee member at DIAC, which is part of the Dubai Chamber of Commerce and Industry. "The latest indications are that it will not slow," he said. "On the contrary, when you have a crisis, there are more disputes."
Meanwhile, DIAC also handled 81 cases last year that revolved around "breaches in commercial contracts" across all sectors, while just five cases related to the insurance and shipping sectors. Arbitration is a legal process in which disputes are resolved by a third party without recourse to litigation, which can be expensive and time-consuming. "You don't need to go to court if you have an enforcement of a decision from DIAC," Mr Kemicha said. "The final award is final and that's it."
Most of the property disputes involved late or non-delivery of projects, while contractors were chasing compensation for cancelled projects or late payments from developers. Other cases involved subcontractors seeking payments from main contractors. A slowdown in the emirate's formerly thriving construction sector since the onset of the economic downturn has led to the rise in disputes. About 240 projects have been cancelled or are indefinitely on hold in Dubai, according to Proleads, an industry auditing company based in the emirate.
A construction lawyer in Dubai, who asked not to be named, said most of the disputes were caused by a "lack of attention" to contract details when they were signed, mainly because developers and contractors were "caught up in the boom". One of the biggest cases to emerge last year was between Arabtec Holding, the UAE's largest construction company, and Meydan Group, the developer behind the Meydan Racecourse in Dubai.
Arabtec and its joint-venture partner, Malaysia's WCT Engineering, are seeking Dh1.6bn (US$435.5 million) in compensation after a Dh4.77bn deal to build the recently opened racecourse was cancelled half-way through construction in January last year. Arbitration continues in the case. Over the past year, DIAC has had to hire more legal experts to handle the backlog of cases and is seeking more experts, added Mr Kemicha. "We handle some huge cases and you need to have experienced arbitrators."
Law firms have also seen a rise in demand for their services over the past year, although the number of construction-related cases has fallen slightly in recent months, said Philip Punwar, a partner at Fulbright and Jaworski in Dubai. "Things have settled down a bit," he said. "I think people have overcome the shock at the onset of the financial crisis and many have worked out some way forward for themselves. Companies are also reluctant to commit their resources to arbitration and hope they can reach an amicable solution."
Meanwhile, he said, disputes between investors in property and developers of projects that are late currently make up the largest number of cases. "It's mainly for commercial property, say an investor who bought 15 units in a building that is way beyond schedule. But every now and then you will come across a case that might be about a single villa, for example." @Email:firstname.lastname@example.org