Over the last three or four years, there has been an increase in the hosting of ‘arbitration weeks’ across the globe including in London, Paris, Hong Kong and New York, with lawyers and experts in the arbitration community gathering to discuss topics of importance in arbitration. It is also an opportunity for those hosting to promote their countries as being an option for a party’s seat of arbitration in their arbitration agreements.
This year, from 14 – 18 November 2022, practitioners and subject matter experts gathered in the United Arab Emirates for Dubai Arbitration Week to discuss some of the current issues in arbitration and the construction industry generally. It was a time to reflect and consider some of the pivotal changes in arbitration over the last few years and an opportunity to network, share ideas, and knowledge.
Topics of particular importance that were discussed focussed on the use of technology in an ever-changing world, the need to increase diversity in arbitral appointments and the financial pressures and economic impact on the construction industry in the MENA region following COVID-19, Ukraine and other factors.
I was able to attend a few of the events throughout the week and set out below some of the key takeaways.
The Chartered Institute of Arbitrators Young Members Group Debate Series:
The Chartered Institute of Arbitrators is an organisation that promotes alternative dispute resolution procedures and provides training and professional qualifications for various forms of dispute resolution including arbitration, mediation, and construction adjudication. There are branches located all over the world.
The Chartered Institute of Arbitrators Young Members Group of the UAE hosted a debate series as part of Dubai Arbitration Week, where panellists argued for or against the following four motions and where members of the audience were given the opportunity to vote in favour of or against each motion:
- All model arbitration clauses should mandate mediation before arbitration.
- Artificial intelligence should replace human arbitrators for disputes below a certain monetary threshold.
- Diversity is only paid lip service in arbitral appointments.
- Green arbitration protocols should be given the force of law.
As to the first motion, mandating mediation before commencing arbitration proceedings is certainly an attractive time-saving and cost effective option and a great way in which alternative forms of dispute resolution can be promoted to ensure efficient and cost-effective means of resolving disputes. However, the general consensus was that parties (or their legal representatives) will ordinarily consider mediation as an option in their overall strategy but may not want to be compelled to mediate where the opposing party will use this as a delay tactic.
In terms of using artificial intelligence to replace arbitrators, good governance and risk management is essential should the arbitration community start leaning towards a consistent use of AI in arbitration proceedings. We have seen the use of AI in Estonia and China for the automation of small contract disputes being pursued with so-called ‘AI judges’. However, it is often the case that disputes of a lower monetary threshold present similar levels of complexity you tend to see in high value arbitration, and the arbitration community would need to be convinced that any apparent bias and the chances of AI making errors in the decision making process is eliminated. In addition, there are obvious issues with AI’s ability to consider witness evidence if there are difficulties in AI understanding human emotions. The majority of the audience were not in favour of this motion but as we continue to develop and advance technology, only time will tell whether the arbitration community will be convinced.
The lack of diversity in arbitral appointments is an issue that has long plagued the arbitration community. Without clients and their representatives adopting formal mechanisms to encourage arbitrator diversity, arbitral tribunals will continue to be governed by homogeneity. Nevertheless, it was promising to see the efforts that are being made by arbitral institutions in terms of gender diversity thanks to a greater increase in transparency. By way of an example, the ICC International Court of Arbitration reported that in 2021, women made up close to 40% of appointments by the ICC Court compared to just under 30% in 2017. In a similar vein, the London Court of International Arbitration reported that in 2021, 47% of all LCIA Court appointments were women compared to 45% of appointments in 2020.
The arbitration community has recognised the issues around diversity and as such, we have seen a number of initiatives geared towards increasing diversity in arbitration, such as the Equal Representation in Arbitration Pledge (“ERA Pledge“). The ERA Pledge seeks to improve the representation of women in arbitration and to increase the number of women appointed as arbitrators. On 5 September 2017, Gowling WLG (UK) LLP signed the ERA Pledge in support of increasing the representation of women in arbitration, and asof 31 October 2022, there are approximately 5,000 signatories (both organisations and individuals) to the ERA Pledge.
Finally, as governments across the world continue in their efforts in dealing with climate change, considering whether green protocols in arbitration could be met with the force of law is of no great surprise and one that was proven more difficult to argue against. Yes, we can all agree the benefits of seeing people in the flesh but given the current climate crisis, pleas were made for parties to continue to try to avoid excess printing where possible and avoid unnecessary travel, opting for videoconferencing facilities to reduce the hefty carbon footprint associated with dispute resolution. However, this is not an issue that will be solved instantaneously, though it is important to note that we (clients and their representatives) can all do more to tackle climate change. If green protocols were to be met with the force of the law, there is difficulty with regard to enforcement, as clients would need to be willing to sign up to such protocols.
Financial pressures and current economic impact on the construction industry:
Finally, I attended an event hosted by a UAE law firm in which the current financial pressures on the construction industry was discussed with comparisons drawn between the situation in the UK and the UAE.
As is the case in the UK, it was noted that rising interest rates, higher costs, tighter credit, and labour shortages are affecting the construction industry. In addition, tender prices in the Gulf remain competitive but as we are currently in an inflationary market, contractors are trying to swallow those rates but of course, this is not sustainable. Although labour tends to be cheaper in the Middle East, it was argued that there seems to be a reluctance in using modular design and off-site fabrication. There seems to be little engagement with the supply chain at the design stage, which often results in variations, increased costs, and delay.
In the UAE, it was noted that the procurement environment is such that fixed price lump sum contracting results in a high degree of contractor risk, meaning the construction industry is operating on rather thin margins. Additionally, the presenters suggested that the procurement model in the UAE has not changed significantly over the last 30 years, with many still opting for use of the 1987 FIDIC forms, which it was argued may no longer be fit for purpose in today’s day and age. There is also a culture of late payment, which has resulted in large internal contractors exiting the market over the last decade, or increased insolvency resulting in a loss of expertise in the region. As can be seen in the UK, there is a chase to the bottom and a fixation on cheapest costs, which as we know can lead to defects or in some cases, tragedy.
Despite these issues however, it was noted that liquidity is back, oil prices have increased, there is a current IPO fever, and as a result, the Gulf is an economic bright spot with plenty of capital going into treasuries around the region. For example, Saudi Arabia has recently announced its plans for and started works in relation to the USD 500 billion NEOM project, buoyed by its recent economic successes, which will include a mountain resort constructed to host the 2029 Asian Winter Games and the striking “The Line” development.
Overall, Dubai Arbitration Week was a success with some interesting and thought provoking discussions.
For further information on the construction and engineering disputes team, please contact Adain Bailey.