Legal abroad: Doing business in the United Arab Emirates

The United Arab Emirates, which has a population of almost 10 million, offers excellent opportunities for foreign construction companies with its focus on real estate development, oil and gas projects, investment in infrastructure, and solid overall economic growth and outlook.

The UAE has the world’s highest percentage (99%) of its population fully vaccinated and has had relatively few covid restrictions since 2020 directly affecting its building industry. There remain some restrictions in Abu Dhabi, where testing must be done at regular intervals to access public venues, but there are none in Dubai.

Infrastructure investment

The country is investing heavily in its infrastructure. In September 2021, to mark the nation’s 50th anniversary, the UAE government announced its “Projects of the 50” including the £12.1bn Etihad Railway Programme. It is also investing in energy, with initiatives such as the Energy Strategy 2050. It is the first country in the Gulf Co-operation Council region to commit to carbon neutrality by 2050 and plans to spend £145bn on renewable energy over the next three decades. There are also plans to invest £15.7bn in the Emirati housing programme in Dubai up to 2041, which should further support the well-established real estate market.

The Abu Dhabi Airport Midfield Terminal is an example of a recent £2.7bn megaproject now nearing completion as part of the Abu Dhabi government’s plan to increase the number of tourists visiting the UAE. There is a growing presence of Chinese contractors in the UAE, working on a wide range of major projects including Etihad Rail, the Hassyan coal-fired power plant, and the Mohammed bin Rashid Solar Park.

Strong on arbitration

The UAE has the most developed arbitral system in the region, with arbitration the preferred mode of dispute resolution for construction. Within the UAE, arbitrations can be seated either onshore, such as in Dubai or Abu Dhabi, or in free zones such as in the Dubai International Financial Centre or the Abu Dhabi Global Market. This is especially relevant to the enforcement stage of arbitral awards. While the onshore civil law courts operate in Arabic, the offshore free zone courts operate in line with the common law system, hearing cases in English, and are often seen as more arbitration-friendly and, therefore, preferable for foreign contractors.

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Dubai was one of the top 10 arbitral seats in the world in 2021, surpassing well-known locations such as Vienna and Washington. The UAE’s main arbitral institution is the Dubai International Arbitration Centre, which recently underwent a significant reform aimed at modernising it and bringing it more in line with other best-in-class arbitration institutions.

Nevertheless, there are certain key legal issues to be aware of. Awards rendered by arbitral tribunals can be set aside for a variety of reasons, including where the award conflicts with UAE public policy. Moreover, because some foreign contractors have encountered difficulties in enforcing awards in the onshore courts, particularly where a state-owned entity is involved, it can be preferable for the contract to provide that the seat of the arbitration be located in a neutral jurisdiction outside the UAE.

Legal peculiarities

Contractors should be aware of several important peculiarities of UAE law in relation to construction disputes. Mandatory conditions precedent to commencing arbitration (such as requirements to provide dispute notices or to attempt a settlement) can be strictly enforced, and therefore it is advisable to ensure compliance with any contractual preconditions to arbitration. Tribunals applying UAE law are empowered to adjust liquidated damages clauses, instead awarding damages for the loss actually suffered, which could in theory be higher or lower. Another key difference with English law is the treatment of termination for convenience.

Decennial liability is also a key feature of construction contracts in the UAE, as in several other countries in the region. It refers to a 10-year liability imposed upon contractors, engineers and architects as a matter of UAE law to any building intended to stand for 10 years or more. Decennial liability is a “strict” liability for defects affecting the stability or safety of a structure or for the partial or total collapse of the building, and the potential compensation to be paid can be extremely high. It is important to know that, being a mandatory provision of the UAE Civil Code, contractors cannot contract out of decennial liability.

Finally, construction contracts often provide that the applicable law will be the laws of the UAE. Because the UAE is a civil law jurisdiction, it is crucial for foreign contractors to be aware of key civil law concepts, in particular good faith, which plays a broad underlying role relevant to the interpretation of contractual obligations and rights, and which differs significantly in scope from the narrower duty of good faith under English law.

Gerard Moore is a senior associate and Bruno Savoie an associate in the Dubai office of global law firm Mayer Brown