Wednesday, 27 May 2009

Legal firm sees sharp rise in UAE contract disputes

From, 25 May 09

This is a story to watch as there are rumours circulating in Dubai (Rumour Central of the Entire World) of huge, almost mind-boggling, amounts of money owed to contractors and construction companies by quasi-government development companies. Aside from industry publications, discussion of the level of debt owed to the companies has received little attention here, probably because its bad news so its just passed off by the media here as "a misunderstanding". The flow-on effects of the cancelled, sorry "postponed", projects and the resultant job losses, actual and looming, are the focus of many expats' attention.

How long can these companies continue to carry the debts? There is also an effect on the Dubai economy as a whole: If the big guys aren't being paid, they aren't paying their sub-contractors who then can't pay their workers who then aren't spending in the shops etc etc. Its a big circle.

If the written contracts prove to be so full of holes you could shoot pumpkins through them and attempts at reasonable negotiation fail, what options are left to the companies to recover the debt or part of it, except to litigate? Does the threat of "you'll never work in this town again" really mean anything any more or has it become, for some, wishful thinking?
There has been a sharp rise in litigation cases in the UAE resulting from contractors not being paid, law firm Al Tamimi said on Monday.

Speaking on the sidelines of an Al Tamimi seminar about financial and legal recovery strategies for creditors and stakeholders in Dubai, Raza Mithani, a senior advocate at Al Tamimi told Arabian Business: "We are seeing a huge upturn in the amount of litigation that is coming through which suggests amongst other things that a number of contractors are not being paid."

"In addition we are experiencing a significant rise in arbitration work across a variety of sectors. Presently we are dealing with a range of claims worth from hundreds of millions of dirhams to hundreds of millions of US dollars," he said.

"We are dealing with a number of truly massive claims which we believe to probably be some of the largest ever arbitrated in the UAE."

Arbitration is a legal process for resolving disputes outside the courts.

Severe liquidity conditions and a property downturn triggered by the global crisis has left many contractors and consultants in mainly the construction and real estate sectors owed millions of dirhams.

Almost $636m is owed to British consultants and engineers in unpaid fees from work undertaken in the UAE, according to the UK’s Association for Consultancy and Engineering (ACE).

WS Atkins, the engineering consultancy that designed the Burj Al Arab, said it was owed $39.7m that should have been paid in the first quarter by developers in the Middle East.

Evidence is also mounting that UAE companies who are not paying their customers are in “serious trouble”, said Gary Watts, head of the corporate commercial department at Dubai- based Al Tamimi – the largest law firm in the Middle East.

“It has become obvious that some people are tight with releasing cash, and other people are in serious trouble – they do not have the cash to release and they do not have the resources to meet their commitments,” he said.

Watts said that ‘an abrupt interruption of cash flowing around the system’ had put companies in the position of not being able to pay their contractors and consultants.

1 comment:

  1. According to a report from the UK law firm Norton Rose, the answer to your last question is 'yes'. The report says that contractors and consultants were reluctant to take action against developers in the region for two reasons. Firstly, the major developers in Dubai had a large number of significant projects on their books in which contractors were keen to remain or become involved. And secondly, many large developers are wholly or partially state-owned, and there was a perception that taking action against them might limit a company’s future business opportunities in the region.