Alsuwaidi & Company Secures Two Arbitration Awards in Construction Disputes Involving Major Dubai Developments

Two arbitration awards. One clear principle: subcontractors must be paid for completed works.

Alsuwaidi & Company successfully represented a leading aluminium and glazing specialist in two construction disputes linked to major Dubai developments. The tribunals rejected the contractor’s reliance on “back-to-back” payment arguments and ordered payment of the outstanding sums.

We received two favourable arbitration awards in two different construction disputes involving two prominent real estate projects in Dubai against the same Respondent, a Dubai-based contractor, which was employed as a contractor by an Employer and which has been ordered to pay to the Claimant the sums due to them irrespective of their retrieval from the Employer.

The Claimant, being our client, is a premier company offering end-to-end solutions in the aluminium and glass industry. Having commenced operations in 1987 in Ras Al Khaimah, today the Claimant has evolved into a major business group in the Middle East with operations spread across the UAE and Oman. The Claimant is primarily focused on modern specialised aluminium architectural products and is engaged in a range of activities including the design, engineering and installation of aluminium and glass envelopes for buildings, colour coating of aluminium profiles, production of tempered glass, insulated glass units, and distribution of aluminium profiles, glass, automatic doors, accessories and more. The Claimant entered into a Subcontract with the Dubai-based construction entity, which provided arbitration as the dispute resolution mechanism.

In the first case, the Respondent primarily raised the contention that the Subcontract entered into with the Claimant was based on back-to-back provisions and was therefore contingent upon payment that may be received from the Employer. However, the Tribunal, in its award, observed that in order to claim that the contract was back-to-back, the Respondent must establish that it submitted the corresponding claims to the Employer, that such claims were duly pursued, and that payment from the Employer was objectively pending for reasons beyond the Respondent’s own conduct. There was no contemporaneous correspondence to evidence that the Respondent asserted the Claimant’s entitlement or took reasonable steps to secure payment from the Employer. In this regard, the Tribunal also gave credence to the authorities cited in the written submissions in support of the Claimant’s contentions. The Tribunal observed that the Dubai Court of Cassation in Case 281/1995 had held that a main contractor cannot defeat a subcontractor’s right to payment through a back-to-back mechanism once the works are executed and certified. The Respondent had also sought to rely on taking-over certificates as a condition precedent for payment, which were to be issued by the Respondent itself.

 The Tribunal further observed that a party cannot rely on a condition precedent where its own conduct obstructs fulfilment of that condition. In the present case, the Respondent retained exclusive control over certification, submission of close-out documentation, and communication with the Employer.

The Tribunal also observed that Article 390 requires proof of actual loss, and the Respondent had produced no schedule analyses, no critical path disruption evidence, no employer penalty notices, and no contemporaneous documentation attributing delay to the Claimant. In the absence of any demonstrated causation or quantifiable loss, the Tribunal found the delay damages claim entirely unsubstantiated. Further, in its award, the Tribunal observed that pursuant to Articles 243 and 246 of the UAE Civil Code, no person may benefit from his own wrongful act. Article 890 further mandates that payment to a subcontractor is not contingent upon payment by the Employer once the works have been executed. In any event, back-to-back clauses do not exempt a contractor from paying for completed works unless they are explicit, unequivocal and directly applicable, none of which was demonstrated in the present case.

In the second case, in issuing the award, the Tribunal made certain observations noting that there were no formal objections or disputes raised regarding compensation for delayed or executed works, despite such arguments being later advanced by the Respondent. Accordingly, the Respondent’s withholding of payment constituted a breach of the relevant clause of the Subcontract, and Articles 246 and 247 of the UAE Civil Code mandate reciprocal performance in good faith.

The Tribunal further observed that the Respondent’s monetary claim was unsupported and lacked any substantive basis. The Tribunal also considered the Respondent’s contention that the Claimant had produced no evidence of completion of the works and that the works were affected by sustained delay and defective performance. However, the Tribunal observed that the Respondent did not expressly dispute completion of the works and instead focused on the admissibility and evidential weight of the Claimant’s expert report, contending that it was unilateral and therefore of limited probative value.

The Tribunal observed that the expert report submitted by the Claimant was grounded in a physical inspection of the relevant real estate premises, during which the expert confirmed completion of the aluminium and glazing works, providing no indication of defective or incomplete performance.

Moreover, the Claimant’s witness corroborated that the works were delivered in accordance with the specifications, notwithstanding certain coordination obstacles during execution, and the Primary Receipt Certificate served as a formal and unequivocal confirmation of completion. As regards the expert report, the Tribunal observed that arbitration practice recognises unilateral expert reports as admissible, and that the Respondent did not submit a counter-expert report nor produce any technical evidence contradicting the core engineering findings, including completion of the works. The Tribunal found itself satisfied as to the relevance and utility of the report and admitted both the witness statement and the expert report into evidence.