1. Overview

This Practice Note provides a comprehensive overview of the legal and commercial framework governing construction contracts in the United Arab Emirates (UAE). It is designed as an authoritative guide for legal practitioners, contract managers, engineers, and other professionals involved in the UAE's dynamic construction sector. The construction industry is a cornerstone of the UAE's economy, characterized by ambitious, large-scale projects that attract international expertise and investment. Navigating this landscape requires a sophisticated understanding of a unique legal environment where a civil law tradition, influenced by Islamic Sharia principles, is overlaid with commercial practices and standard form contracts, such as those from the International Federation of Consulting Engineers (FIDIC), that are rooted in common law.1

The objective of this note is to provide clear, practical, and in-depth guidance on the critical legal issues that shape construction projects in the UAE. The analysis will cover the foundational laws, including the UAE Civil Code and the recently updated Commercial Code, and explore the core legal principles that dictate contractual rights and obligations. It will differentiate between the distinct legal regimes for public and private sector projects, detail key compliance requirements such as building codes and the mandatory decennial liability regime, and critically examine the ubiquitous use and necessary adaptation of FIDIC contracts to ensure compliance with local law. Finally, the note will survey the modern dispute resolution landscape, which has seen a decisive shift towards arbitration as the preferred method for resolving complex construction disputes, culminating in an analysis of the modern DIAC Arbitration Rules and the robust framework for the enforcement of arbitral awards. The analysis is exclusively centered on the laws and practices of the UAE, referencing federal legislation and key Emirate-level regulations from Dubai and Abu Dhabi where applicable.3

2. Definitions

To establish a clear and consistent terminology for the key entities and legal instruments referenced throughout this note, the following definitions are provided:

• UAE: United Arab Emirates. A federation of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah, and Umm Al Quwain. Federal laws apply across the entire federation.1
• DIAC: Dubai International Arbitration Centre. Established in 1994, DIAC is one of the most prominent and active arbitral institutions in the Middle East, administering a significant number of construction-related disputes.4
• ADGM: Abu Dhabi Global Market. An international financial centre and free zone located in Abu Dhabi. The ADGM operates under its own civil and commercial laws based on English common law and has its own courts system.
• Civil Code: The UAE Federal Law No. 5 of 1985 on Civil Transactions. This is the principal legislation governing all civil and contractual matters in the UAE. Its provisions form the bedrock of construction law, establishing rules for contract formation, interpretation, performance, and remedies for breach.5
• Commercial Code: The UAE Federal Decree-Law No. 50 of 2022 on Commercial Transactions. This law, which came into effect on 2 January 2023, abrogated and replaced the former Commercial Transactions Law of 1993. It governs "commercial activities" and the obligations of "merchants," which encompasses most entities involved in the construction industry.7

3. Practical Guidance

3.1. Foundational Legal Framework for Construction in the UAE

Governing Laws

The primary legal instruments governing construction activity in the onshore UAE are Federal Law No. 5 of 1985 (the UAE Civil Code) and Federal Decree-Law No. 50 of 2022 (the UAE Commercial Code).3 These federal laws apply uniformly across all seven Emirates and establish the core principles for all commercial and civil agreements, including construction contracts.1

The Civil Code is the foundational text, providing a comprehensive framework for all contractual matters. It contains general principles applicable to all contracts, such as formation, interpretation, and termination, as well as a specific chapter dedicated to construction contracts, known as muqawala contracts.5 The legal system is a civil law jurisdiction with influences from Egyptian and French law, and it also incorporates principles of Islamic Sharia, which serve as a source of law and inform concepts such as good faith and the prohibition of uncertainty (gharar) and interest (riba).5

The Commercial Code specifically regulates "commercial activities" and the obligations of "merchants," a category that includes most construction companies and contractors. A critical development introduced by the 2022 Commercial Code was the reduction of the general limitation period for commercial obligations. Under the old law, the period was ten years; under the new law, parties must initiate action within five years from the date the cause of action arises.8 This significant change shortens the window for bringing commercial claims and requires parties to act more promptly to enforce their rights.

Muqawala Contracts

The UAE Civil Code dedicates a specific chapter, comprising Articles 872 to 896, to what are termed muqawala contracts.10 Article 872 defines a

muqawala as a "contract to make a thing or to perform a task".13 While this definition is broad enough to cover various service contracts, this chapter is the primary source of codified law specifically governing construction and engineering projects in the UAE.14

These articles establish a set of default rights and obligations for the key parties in a construction project—the employer, the contractor, and the supervising engineer or architect—which apply in the absence of express contractual agreement to the contrary.1 However, certain provisions within this chapter, and within the Civil Code more broadly, are considered mandatory rules of public order and cannot be contracted out of, irrespective of the parties' agreement.12

Key codified rights and obligations under the muqawala chapter include:

• Contractor's Obligations: The contractor is obliged to complete the work in accordance with the conditions of the contract and industry standards, using materials supplied by the employer or providing them itself as agreed.16 If the contractor provides the materials, it is responsible for their quality. The contractor is liable for any damage or loss resulting from its acts or work, but not for unavoidable accidents.18 If it becomes apparent during construction that the contractor is performing the work in a defective manner, the employer may give notice to rectify the work within a reasonable period, failing which the employer may request the court to terminate the contract or authorize it to engage another contractor to complete the work at the original contractor's expense (Article 877).17
• Employer's Obligations: The employer's primary obligations are to take delivery of the completed works once they are finished and to make timely payments for the work performed.16 If the work is completed and placed at the employer's disposal, and the employer is notified to take delivery but fails to do so without good reason, the risk of the works passes to the employer.19
• Engineer's Role and Liability: The Civil Code explicitly recognizes the role of the supervising designer (referred to as an "architect" but understood to include engineers).14 The most significant provisions relate to the engineer's joint and several liability with the contractor for structural defects under the decennial liability regime (Articles 880-883), which is a mandatory and non-excludable obligation.20
• Subcontracting: Articles 890 and 891 permit the main contractor to subcontract the whole or part of the works, unless the contract specifies otherwise or the personal nature of the contractor's work is a key consideration.13 Crucially, the main contractor remains fully liable to the employer for the actions and defaults of its subcontractor.15

Despite its importance, the muqawala chapter is not exhaustive. For instance, it does not contain specific provisions for delay penalties, compelling parties and tribunals to rely on the general provisions of the Civil Code, such as Article 390 on liquidated damages.13 The rules on subcontracting are also considered by some practitioners to be insufficient for the complexities of modern, multi-tiered construction projects.13

3.2. Core Principles that Directly Impact Construction Contracts

Duty of Good Faith

The duty to act in good faith is one of the most fundamental and pervasive principles of UAE contract law. Codified in Article 246 of the Civil Code, it is a mandatory, non-negotiable obligation that is implied into every contract governed by UAE law.10 The article states that a "contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith".35 This principle, rooted in Islamic Sharia, extends a party's obligations beyond the express contractual terms to encompass what is required by law, custom, and the nature of the transaction.3

In the context of construction contracts, the duty of good faith acts as a vital check on the exercise of contractual rights and powers. It prevents a party from using the literal terms of a contract to achieve an unfair or unjust outcome or to cause disproportionate harm to the other party.34 The UAE courts may apply this principle to achieve an equitable result where there are competing legal interests.33

Practical applications of this principle are wide-ranging. For example, an employer who exercises a right to terminate a contract for convenience with the sole intention of avoiding a significant payment milestone could be found to have acted in bad faith.35 Similarly, an engineer who repeatedly rejects a contractor's valid claims without proper justification, or an employer who calls on an on-demand performance bond for a trivial or disputed breach, may be seen as violating the duty of good faith. The principle can also be invoked to challenge the strict application of notice-based time bars, such as those in FIDIC contracts, particularly where the employer was fully aware of the circumstances giving rise to the claim and suffered no prejudice from a minor delay in notification.24 However, the principle cannot be used to rewrite the express terms of a contract; rather, it governs the manner in which the rights and obligations under those terms are exercised and performed.10

Contract Interpretation

The rules of contract interpretation under the UAE Civil Code are primarily set out in Articles 258 and 259, which create a nuanced and sometimes challenging framework for determining the parties' obligations.

Article 258(1) establishes the primary rule: "The criterion in (the construction of) contracts is intentions and meanings and not words and form".38 This reflects a subjective approach, where the principal aim is to ascertain the "common will of the parties" at the time of contracting.40 If the wording of a contract is ambiguous, a judge or arbitrator is empowered to look beyond the literal text and consider the context of the transaction, the parties' conduct, and industry custom to determine their true mutual intent.40

This subjective approach is, however, balanced by the clear directive in Article 259(1), which states that "Where the wording of a contract is clear, it shall not be permissible to deviate from it by way of interpretation to ascertain the intention of the parties".40 This creates a preference for a literal or objective interpretation when the contractual language is plain and unambiguous.

This creates an interpretive tension that is critical in construction disputes. The process typically begins with an examination of the contractual text. If the wording is clear and unequivocal, Article 259 will prevail, and the court will enforce the plain meaning of the words. It is only when the text is ambiguous, contradictory, or silent on an issue that the door opens for the more expansive, subjective inquiry under Article 258. This dynamic has profound implications for construction contracts in the UAE, which are often heavily amended versions of standard forms like FIDIC.41 Unskilled or excessive amendments frequently create contradictions and ambiguities, inadvertently inviting judicial interpretation under Article 258. This can lead to outcomes that deviate significantly from a party's unilateral understanding of the agreement. Therefore, achieving contractual certainty in the UAE hinges on exceptionally clear, precise, and consistent drafting to ensure that the contract's wording is deemed unambiguous and thus interpreted literally under Article 259.

Liability and Damages

• Limitation of Liability: Parties in the UAE are generally free to agree on limitations and caps on their contractual liability.42 Such clauses provide commercial certainty and are typically enforceable. However, this freedom is subject to a critical mandatory exception. Article 290 of the Civil Code, in conjunction with other provisions, establishes that it is not permissible to contractually exclude or limit liability for one's own fraud or "gross negligence" (also translated as "gross error" or "gross fault").16 Any contractual provision that purports to do so will be considered void. Consequently, liability caps in construction contracts must be drafted to explicitly carve out liability arising from fraud or gross negligence to ensure their enforceability.
• Liquidated Damages: As detailed previously, the treatment of liquidated damages is a defining feature of UAE contract law. Article 390 of the Civil Code permits parties to pre-agree the amount of compensation for a breach of contract.42 However, Article 390(2) grants the court or an arbitral tribunal the mandatory power, upon the application of either party, to vary this agreed amount—either by increasing or decreasing it—to ensure the compensation is equal to the actual loss suffered by the aggrieved party.29 Any clause in the contract that attempts to prevent this judicial adjustment is void.29 This fundamentally alters the nature of liquidated damages clauses as understood in common law jurisdictions. Instead of being a final and binding pre-estimate of loss, a liquidated damages provision in a UAE-law-governed contract functions as a rebuttable presumption of the quantum of loss, shifting the burden of proof to the party seeking to challenge the amount.45
• Consequential Loss: The Civil Code does not define "consequential loss," but it does distinguish between direct and consequential harm. Article 283 states that direct harm must be unconditionally compensated, whereas compensation for consequential harm requires proof of a wrongful or deliberate act.25 In the context of contractual damages, the guiding principle is found in Article 292, which allows for compensation that covers the actual loss suffered and any loss of profit, provided it is a "natural result of the harmful act".27 This is generally interpreted by the courts as a test of foreseeability at the time of contracting.26 Contractual clauses that mutually waive liability for consequential loss are very common in UAE construction contracts and are generally enforceable. However, these waivers cannot exclude liability for mandatory matters such as fraud, gross negligence, or personal injury.25

Unforeseen Circumstances and Hardship

UAE law provides two distinct statutory mechanisms for relief in the face of unforeseen events, offering a more flexible framework than is typically found in common law systems.

• Hardship / Onerous Performance (Article 249): This provision offers a unique remedy for situations where performance becomes excessively burdensome but not impossible. It states that if "exceptional circumstances of a public nature which could not have been foreseen" arise, and as a result, the performance of a contractual obligation becomes "oppressive for the obligor so as to threaten him with grave loss," a judge may, after balancing the interests of both parties, "reduce the oppressive obligation to a reasonable level." This is a powerful judicial tool that can be invoked, for example, in response to sudden and extreme price escalations for key materials caused by unforeseen global events, allowing a court to adjust the contract price to a more equitable level.32
• Force Majeure / Impossibility (Article 273): This article addresses the higher threshold of impossibility of performance. If an external event beyond the control of the parties makes the performance of the contract entirely impossible, the corresponding obligations are extinguished, and the contract is automatically terminated or rescinded.12 If the impossibility is only partial, only that part of the obligation is extinguished. This aligns more closely with the concept of force majeure found in international contracts, but its application is mandatory under UAE law.32

3.3. Public and Private Sector Construction Contracts

Legal Demarcation

A clear legal demarcation exists between construction projects in the private and public sectors in the UAE.

• Private Sector Projects: These are primarily governed by the general framework of the UAE Civil Code and Commercial Code. Parties enjoy significant freedom of contract, allowing them to negotiate and agree on terms, including the choice of a foreign governing law (subject to the mandatory provisions of UAE law that will apply regardless) and dispute resolution mechanisms like international arbitration.1
• Public Sector Projects: These are subject to a more rigid and distinct legal regime. Contracts entered into with federal or Emirate-level government departments, authorities, or other quasi-governmental bodies are governed by specific procurement laws and regulations.1 Two critical and non-negotiable rules apply to public sector contracts:

1. They must be governed by UAE law. Any clause stipulating a foreign governing law is void.46
2. Disputes are typically referred to the local courts of the relevant Emirate. An agreement to arbitrate with a government entity is only valid if it receives special approval from the relevant authority.46

Public Procurement Laws

The framework for public works is multi-layered, with laws at both the federal and Emirate levels.

• Federal Level: The overarching framework is set by Federal Decree-Law No. 11 of 2023 on the Regulation of Federal Government Procurements.48 This law aims to modernize federal procurement by enhancing integrity, transparency, competition, and efficiency.49 It promotes the use of digital procurement systems and supports the national economy by providing preferences for Small and Medium Enterprises (SMEs).49 However, Article 4 of this law explicitly exempts "Construction projects and contracts" from its scope of application.48 This suggests that federal construction procurement may continue to be governed by prior regulations or specific directives until further clarifying executive regulations are issued.
• Dubai: Procurement for Dubai government entities is regulated by Law No. 12 of 2020 on Contracts and Warehouse Management in the Government of Dubai.18 This law provides a detailed framework covering the entire procurement lifecycle, including tendering procedures, requirements for bid bonds and performance bonds, contract drafting specifics, and rules on breach and payment.53 The Dubai Government also operates a centralized electronic procurement portal called "eSupply" to manage tendering processes.54
• Abu Dhabi: The Department of Government Enablement (DGE) oversees public procurement in Abu Dhabi, establishing an integrated regulatory framework known as the Abu Dhabi Standards for Government Procurement.55 A key feature of Abu Dhabi's system is that its procurement law mandates the use of standard forms of contract for construction and engineering services procured by government departments. These standard forms are based on the FIDIC suite of contracts, adapted to comply with local law.46 The government also operates the Abu Dhabi Government Procurement Gate, a digital platform for tenders.58

3.4. Role of UAE Building Codes and Key Compliance Requirements

Governing Codes

Compliance with technical building codes is a mandatory requirement for all construction projects in the UAE. These codes are enforced by local municipalities and civil defence authorities and are designed to ensure public health, safety, and welfare.59

• UAE Fire and Life Safety Code of Practice: This is a critical federal-level code enforced by the Civil Defence authority in each Emirate, such as the Dubai Civil Defence (DCD) and Abu Dhabi Civil Defence (ADCD).60 The Code sets comprehensive and stringent minimum standards for fire prevention, detection, suppression, and emergency evacuation in all types of buildings.61 It is regularly updated to incorporate global best practices and align with international standards like the National Fire Protection Association (NFPA) codes, while being tailored to the UAE's specific context of high-rise buildings and extreme climate.60 Compliance is non-negotiable, and failure to adhere to the Code can result in significant penalties, including fines and suspension of operations.65
• Emirate-Level Building Codes:
• Dubai Building Code (DBC): Implemented by the Dubai Municipality, the DBC aims to unify building design and construction standards across the Emirate of Dubai. It provides a clear and accessible set of minimum requirements covering structural integrity, health and safety, environmental impact, and sustainable development.66 It is intended to be used in conjunction with other specific regulations issued by the Municipality.68
• Abu Dhabi International Building Code (ADIBC): The Emirate of Abu Dhabi has adopted a suite of codes based on the International Code Council's (ICC) family of I-Codes, which have been customized to suit local conditions.69 The ADIBC, implemented by the Department of Municipalities and Transport (DMT), provides a comprehensive framework for construction safety and fire protection.68

Decennial Liability

Decennial liability is a foundational and mandatory principle of UAE construction law, codified in Articles 880-883 of the Civil Code. It imposes a strict, ten-year liability on contractors and supervising designers for major structural defects.1

• Joint and Several Liability: Article 880 establishes that the contractor and the supervising designer (architect or engineer) are jointly and severally liable to the employer.20 This means the employer can claim the full amount of compensation from either party, regardless of which one was actually at fault.
• Scope and Duration: The liability covers a period of ten years, commencing from the date of handover of the works (typically the date of the Taking-Over Certificate).21 The liability is triggered by either (a) the total or partial collapse of the building or other fixed installation, or (b) the appearance of any defect that threatens the stability or safety of the structure.72 The courts have interpreted this to include serious defects, such as water leakage from a swimming pool that could compromise structural integrity.73
• Strict Liability Regime: This is a "no-fault" liability. The employer is not required to prove any fault or negligence on the part of the contractor or designer.14 The liability applies even if the defect or collapse arises from a defect in the land itself, or if the employer had previously consented to or approved the defective works or designs.14 The only available defence is to prove that the event arose from an "extraneous cause" (force majeure).74
• Non-Excludable Obligation: Under Article 882, any contractual provision that purports to exclude or limit this liability is void.21 It is a mandatory rule of public order.
• Limitation Period for Claims: While the liability period lasts for ten years, Article 883 stipulates that any claim for compensation under this regime must be brought within three years from the date of the collapse or the discovery of the defect.21 This creates a scenario where the total exposure period for a contractor or designer can extend up to 13 years from project handover (i.e., if a defect is discovered in year 9, the employer has until year 12 to file a claim).14

The strict, joint, and no-fault nature of decennial liability creates a significant potential mismatch with standard professional indemnity (PI) insurance policies. PI insurance typically operates on a fault basis, covering the insured professional for losses arising from their own negligence or breach of professional duty.75 However, under Article 880, a supervising designer can be held 100% liable for a structural defect caused entirely by the contractor's poor workmanship, even if the designer was not negligent. In such a scenario, the designer's standard PI policy may not respond to the claim, leaving them with a substantial uninsured liability. This highlights the critical importance for designers, contractors, and employers in the UAE to consider project-specific decennial liability insurance or Inherent Defects Insurance (IDI) to adequately cover this mandatory statutory risk.

3.5. FIDIC Contracts in a UAE Context

Prevalence of FIDIC

The FIDIC suite of contracts, particularly the 1999 editions of the Conditions of Contract for Construction (Red Book), Plant and Design-Build (Yellow Book), and EPC/Turnkey Projects (Silver Book), are the de facto standard forms for most large-scale private construction and engineering projects in the UAE.53 Their widespread use is attributable to their international familiarity, comprehensive nature, and perceived balanced allocation of risk (though this is often heavily amended).77

Essential Amendments (Particular Conditions)

While FIDIC contracts provide a robust framework, they are drafted based on common law principles and must be carefully amended through the Particular Conditions (Part II of the contract) to align with the mandatory provisions of the UAE Civil Code and local commercial practice.53 Failure to make these amendments can result in key contractual provisions being deemed unenforceable by UAE courts or arbitral tribunals.41 Essential amendments include:

• Governing Law and Language: While private parties can choose a foreign governing law, Article 19 of the Civil Code mandates the application of UAE law for contracts relating to property located in the UAE and for all contracts with government entities.46 Even where a foreign law is chosen, UAE courts may disregard it if the parties fail to adequately prove its content and will not apply any provision that contravenes UAE public policy or Islamic Sharia.47 For practical purposes, as Arabic is the official language of the UAE courts, all contract documents submitted in legal proceedings must be translated into Arabic.
• Compliance with Sharia Principles: All contracts in the UAE must comply with the principles of Islamic Sharia, which form part of the country's public order.10 Two key principles affecting construction contracts are:
• Riba (Interest/Usury): The prohibition of charging excessive interest. This has a direct impact on the enforceability of FIDIC clauses related to financing charges and interest on late payments.9
• Gharar (Uncertainty): The prohibition of excessive uncertainty or speculation in a contract. This principle reinforces the Civil Code's requirement that the subject matter, price, and duration of a muqawala contract be clearly defined and specified to avoid ambiguity and potential disputes.79
• Damages and Liability Provisions: Clauses limiting liability must be amended to explicitly state that they do not apply in cases of fraud or gross negligence, in line with Article 290 of the Civil Code.17
• Dispute Resolution (Clause 20): The multi-tiered dispute resolution process in FIDIC contracts (Engineer's determination, followed by a Dispute Adjudication Board (DAB), and finally arbitration) is often amended. Parties frequently delete the DAB provisions to save costs, though this can remove a valuable mechanism for early dispute resolution. The arbitration agreement itself must be explicit and clearly incorporated to be upheld by UAE courts.46
• Force Majeure and Hardship: The FIDIC Force Majeure clause (Clause 19) should be reviewed to ensure its alignment with the distinct concepts of impossibility of performance under Article 273 and the hardship provisions for onerous performance under Article 249 of the Civil Code.12

Modification of Specific Clauses

• Interest (Riba): Standard FIDIC clauses that stipulate interest on late payments (e.g., Sub-Clause 14.8 of the 1999 Red Book) are potentially unenforceable in the UAE courts on the grounds that they may constitute Riba. The common and recommended practice is to amend these clauses in the Particular Conditions to re-characterize the payment not as "interest" but as "compensation for delay in payment" or "financing charges." This reframing significantly improves the likelihood of the clause being enforced.9 The 2022 Commercial Code also sets a fallback rate for commercial interest at 9% and expressly prohibits compounded interest.9
• Liability (Consequential Loss): The mutual waiver of consequential loss found in FIDIC contracts (e.g., Sub-Clause 17.6 of the 1999 Red Book) is generally accepted and enforceable under UAE law.25 However, the term "consequential loss" is not defined in the Civil Code. Article 292 allows for the recovery of foreseeable losses, including loss of profit.26 To avoid ambiguity and potential disputes over what constitutes direct versus consequential loss, it is crucial for parties to clearly define in the Particular Conditions the specific heads of loss (e.g., loss of profit, loss of use, loss of contract) that are being excluded.
• Liquidated Damages: The FIDIC "Delay Damages" clause (e.g., Sub-Clause 8.7 of the 1999 Red Book) is always subject to the mandatory power of judicial review under Article 390 of the Civil Code.2 This means that the contractually agreed daily rate and overall cap on delay damages are not absolute. A contractor can ask a court or tribunal to reduce the amount if it can prove the employer's actual loss was less than the liquidated damages claimed. Conversely, an employer can request an increase if it can prove its actual loss was greater, although this is less common in practice.29
• Status and Liability of the "Engineer": The FIDIC model envisions the Engineer as a quasi-independent professional who makes impartial determinations. However, under UAE law, the principle of privity of contract prevails. The Engineer is appointed by and acts as the agent of the Employer. As such, the Employer is ultimately responsible to the Contractor for the Engineer's actions, instructions, and decisions.76 While the Engineer's primary liability is to the Employer under their consultancy agreement, they also bear a mandatory, joint and several decennial liability with the Contractor towards the Employer for structural defects if they perform a supervisory role.2

3.6. Dispute Resolution: From Litigation to Modern Arbitration

Common Causes of Disputes

The high value, complexity, and fast-paced nature of construction projects in the UAE make them susceptible to disputes. The most common causes of conflict include 83:

• Payment Issues: Delayed, partial, or non-payment by employers is a frequent trigger for disputes, disrupting contractor cash flow.83
• Delay and Disruption Claims: Disputes over extensions of time and the financial consequences of delay are endemic, often complicated by issues of concurrent delay.1
• Variations and Scope Changes: Changes to the scope of work, whether instructed by the employer or necessitated by design issues, often lead to disagreements over time and cost implications.86
• Defective or Non-Compliant Work: Disagreements over the quality of work and liability for defects are a common source of conflict.83
• Contractual Ambiguity: Poorly drafted or heavily and inconsistently amended contracts often lead to conflicting interpretations of the parties' rights and obligations.84
• Encashment of Performance Bonds: The calling of on-demand performance bonds is a contentious issue, particularly when the underlying breach is disputed.1

Evolution of Dispute Resolution

Historically, dispute resolution in the UAE was dominated by litigation in the local courts. However, in line with its development as a major international business and financial hub, the UAE has seen a decisive shift towards arbitration as the preferred method for resolving large and complex construction disputes.5 International parties, in particular, favor arbitration for its key advantages: confidentiality, procedural flexibility, the ability to select arbitrators with relevant technical and industry expertise, and the enhanced international enforceability of arbitral awards under the New York Convention.83

The DIAC Arbitration Rules

The issuance of the new DIAC Arbitration Rules in 2022 marked a significant modernization of arbitration practice in Dubai, aligning it with international best practices and making it more suitable for complex construction disputes.88 The core objective of the 2022 Rules is to ensure arbitrations are conducted efficiently, fairly, and in a cost-effective manner.90 Key features relevant to construction disputes include:

• Joinder and Consolidation (Articles 8 & 9): The Rules provide clear and effective mechanisms for joining additional parties to an arbitration and for consolidating multiple related arbitrations. This is invaluable in construction disputes, which often involve a web of contracts between employers, main contractors, subcontractors, and consultants.88
• Expedited Proceedings (Article 32): An expedited procedure is available for smaller claims (where the total amount in dispute is AED 1 million or less), cases of "exceptional urgency," or where the parties agree. This process involves a sole arbitrator and aims for an award within three months, offering a faster and more cost-effective route for less complex disputes.4
• Emergency Arbitrator (Appendix II): Parties can apply for the appointment of an Emergency Arbitrator to obtain urgent interim relief before the main arbitral tribunal is constituted. This is particularly useful in construction for seeking orders to prevent a party from calling on a performance bond or to secure evidence on site.90
• Default Seat of Arbitration: Unless the parties agree otherwise, the default seat of arbitration under the new rules is the Dubai International Financial Centre (DIFC). The DIFC is a common law jurisdiction with its own arbitration law and courts, which can provide a familiar and predictable legal framework for international parties and may streamline the enforcement process.4

Enforcement of Arbitral Awards

The reliability of enforcing arbitral awards is a critical factor for parties choosing to do business in a jurisdiction. The UAE has established a robust and pro-enforcement legal framework for this purpose.

• Legal Framework: The Federal Arbitration Law No. 6 of 2018 governs all arbitrations seated in the onshore UAE and the enforcement of both domestic and foreign arbitral awards. The law is largely based on the UNCITRAL Model Law on International Commercial Arbitration, and its enactment in 2018 was a landmark step that significantly streamlined and clarified the arbitration process, replacing the outdated and often problematic provisions of the Civil Procedure Code.92
• Pro-Enforcement Stance: The UAE is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a cornerstone of international arbitration. The UAE courts have consistently demonstrated a pro-enforcement stance, recognizing their obligations under the Convention and routinely enforcing both domestic and foreign awards.6 The process for ratifying an award has been expedited under the 2018 Law, with applications made directly to the Court of Appeal.95
• Limited Grounds for Annulment: The grounds for setting aside (annulling) an arbitral award under Article 53 of the Arbitration Law are narrow and exclusive, mirroring those found in the UNCITRAL Model Law and the New York Convention.96 These are primarily procedural in nature, such as the non-existence or invalidity of the arbitration agreement, a party's inability to present its case (a violation of due process), or the tribunal exceeding its authority. An award cannot be challenged on the merits or for errors of fact or law.
• Public Policy and Sharia Law: One of the grounds for annulment is that the award conflicts with the "public order and public morals of the State".96 While this was historically a concern for international parties, fearing it could be used as a broad gateway to challenge awards, the UAE courts have adopted a narrow interpretation of this exception. For an award to be set aside on public policy grounds, it must violate a fundamental principle of justice or a core tenet of Islamic Sharia, such as the prohibition on Riba.98 The courts have made it clear that a mere error in the application of the law is not sufficient to engage the public policy exception, thereby reinforcing the finality of arbitral awards and the reliability of the UAE as a seat of arbitration.

Works cited

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3. Understanding Construction Contracts in the UAE - ATB Legal, accessed August 20, 2025, https://atblegal.com/blog/dispute-resolution/construction-disputes/contracts/
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