The construction industry in the Middle East, burgeoning with high-value projects, is no stranger to disputes, often involving substantial sums. Construction disputes commonly rank as the most arbitrated disputes across arbitral institutions, with the average value of construction dispute in the Middle East reaching US$90.4 million in 2021 and the highest recorded value dispute reaching US$1 billion.

Unlike other jurisdictions with high settlement rates ( for example, the Technology and Construction Court in England and Wales saw an 81% settlement rate from October 2022 to September 2023), it is far more common for arbitral disputes in the Middle East to proceed to a hearing until finally determined through an arbitral award.

The use of formal ADR methods has traditionally been less common throughout the Middle East, despite the overwhelming benefits. However, the Middle East is seeing an increase in the use of mediation as a means of dispute resolution, with a number of jurisdictions and institutions introducing formal procedural frameworks to encourage its usage and foster mediation in local proceedings. For example:

KSA

• In 2023, the Ministry of Justice prepared a draft Mediation Law in an effort to develop the legislative framework for mediation and conciliation.
• The Saudi Centre for Commercial Arbitration (SCCA) published its own Mediation Rules in 2018, which are largely based on the UNCITRAL Mediation Rules. KSA was also a founding signatory of the UN Singapore Convention on Mediation in 2020.

UAE

• The UAE issued its own Mediation Law in April 2021. The UAE also announced in 2022 that it would become a signatory to the Singapore Convention.
• In October 2023, the Dubai International Arbitration Centre issued the DIAC Mediation Rules.

Qatar

• Qatar introduced its Mediation Law in November 2021.
• The Qatar International Court and Dispute Resolution Centre also supports mediation by offering services that cater specifically to commercial disputes.

Oman

• The Oman Commercial Arbitration Centre issued its Mediation Rules in July 2021.

Practical benefits of mediation

All of the above evidences the growing understanding in the Middle East of mediation's commercial benefits and particularly the potential scope for: minimising the often substantial legal and expert costs that traditional legal proceedings typically entail; encouraging parties to reach a more amicable resolution (thereby preserving supply chain relationships); and allowing parties to explore novel commercial solutions outside more rigid, formal legal remedies.

Whilst often viewed as an alternative to arbitration, we are increasingly seeing mediation being used as an effective tool to help parties “close the gap” to achieve settlement of some issues during arbitral proceedings. Middle Eastern disputes are no different from those elsewhere in that parties' positions can become entrenched and potentially acrimonious throughout arbitration proceedings as each party robustly advances its case.

Mediation provides the opportunity for each party to step back and take a more pragmatic view. Further, depending on the role agreed for the mediator by the parties, an independent mediator may also provide an impartial assessment to key decision-makers of the likely outcome should the dispute proceed to a hearing. Such views can trigger timely and effective reality checks that lead to settlement.

Parties are more open to mediation as an opportunity to overcome a 'stalemate' and to reduce the expense and time of an arbitral hearing rather than an additional, avoidable expense. This shift in approach is encouraging.

This article was first published in Construction Law on 1 October 2024.