Introduction to construction disputes

Applicable principles of law

Construction by its very nature is a complex undertaking involving numerous trades and disciplines all working under what is usually a “tight budget” and with time constraints for completion – all of which lead to the possibility of conflict and disputes arising as to time, quality, delay, and a myriad other complications. The law relating to these “construction disputes” or, as more commonly known in England and Wales, “construction law”, arises from the fact that this particular field of endeavour tends to generate a large volume of disputes arising from the actual Works themselves, the performance of the professionals prior to the Works (e.g. architects, engineers, surveyors and then the contractor) and its interactions with both these professionals and the employer.

The underlying basis for this is that all construction works are created by contract, some verbal, some written and some implied. In turn these contracts are grounded in the law of the country in which the contract is executed (or the country agreed upon by the parties) and which ultimately governs its execution. For example, the FIDIC1 contracts state specifically that: “The Contract shall be governed by the law of the country (or other jurisdiction) stated in the Appendix to Tender”. The major legal systems worldwide that govern contracts are the common law, civil law and additionally that of Sharia law.

Common law

Common law refers to law derived from the courts and is to be differentiated from statutory law or regulatory law. In most common law countries there are “statutes” which are enacted by the legislature and/or “regulations” which are enacted by the executive branch through various departments or agencies, which are invested with power from a legislature. The common law, however, comes from actual court decisions over hundreds of years or from quasi-judicial tribunals. It is these court decisions, without the benefit of any express statutory authority, which form the basis for the contract law upon which the enforcement of construction disputes rely.

In England and Wales, in Commonwealth countries and in most states of the United States of America, the basic law of contracts does not exist in statute, but only in common law that is modifiable by statute, e.g. the Uniform Commercial Code in the United States. In almost all areas of the law, statutes can state the general principles but any distinctions or definitions exist only in the common law. The “actual” law on a subject is thus the result of what is known as stare decisis (stare decisis et non quieta movere), which literally means “stand by decisions and do not move that which is quiet”, and under the common law one is bound by precedential decisions on the topic.


Prior to the existence of the common law concept in England, i.e. before William the Conqueror, society both in England and throughout much of Europe, in particular the Germanic peoples, was subject to varied local customs that generally were unwritten, were not uniform and were enforced arbitrarily.

In 1154, during the reign of Henry II, the common law system in England was institutionalised into “a unified system of law” which was “common” to the country through incorporating and elevating local custom to the national level, which ended local control, eliminated arbitrary remedies and reinstated a system which resolved claims by evaluating common local knowledge.

Judges would be sent from the King’s central court to hear the various disputes throughout the country. These judges would then resolve disputes on an ad hoc basis according to what they interpreted the local customs to be. They would then return to London and would discuss their cases and the decisions they made with the other judges and before recording their decisions. Over time the rule mentioned earlier of stare decisis developed, where a judge would be bound to follow the decision of an earlier judge and would be required to adopt the earlier judge’s interpretation of the law and apply the same principles promulgated by that earlier judge, if the two cases had similar facts. By this system of precedent, decisions became useable and with it the pre-Norman system of disparate local customs was replaced by a consistent system of laws that was common throughout the whole country, hence the name, “common law”.

Stare decisis

The rule of stare decisis has two components. The first is that a decision made by a superior court is binding on a lower court. This is known as “binding precedent” or “binding authority”. Under the English system precedent is usually created by the decision of a higher court, such as the House of Lords, which has now become the Supreme Court of the United Kingdom after taking over the judicial functions of the House of Lords in 2009. This differs from civil law and pluralist systems, such as Scots law, where precedent is not binding but instead case law will be taken into account by the courts in rendering their decisions. The second component is that a court should not overturn its own precedents unless there is a strong reason to do so and should be guided by principles from lateral and lower courts as required under the circumstances. This also leads to what is known as “persuasive precedent”, which, while not binding on the particular court, is “advisory” in nature and something that can be ignored if necessary.

In the common law system, there are various levels of courts usually commencing with the trial courts, whose decisions can be reviewed by the intermediate appellate courts and thereafter by a supreme court, such as in the UK. The inferior courts, i.e. the trial courts, are where the matters commence and they are bound to obey precedents established by the appellate court for their jurisdiction and all Supreme Court precedent. It is interesting to note where arbitrations and adjudications fit into this picture. In most international adjudications, e.g. FIDIC contract-related, there is recourse to arbitration for an “appeal”-type process and from there to the “trial” court level and upwards from that point. As will be seen in later chapters, arbitrators may or may not be required to follow the law but for purposes of this chapter the “chain” of stare decisis would be from the Supreme Court down to the appellate court to the trial court to arbitration and then to adjudication.

One succinct explanation of this principle was set out in a North American case, where the Supreme Court of California3 wrote:

“[u]nder the doctrine of stare decisis, all tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction. Otherwise, the doctrine of stare decisis makes no sense. The decisions of this court are binding upon and must be followed by all the state courts of California. Decisions of every division of the District Courts of Appeal are binding upon all the justice and municipal courts and upon all the superior courts of this state, and this is so whether or not the superior court is acting as a trial or appellate court. Courts exercising inferior jurisdiction must accept the law declared by courts of superior jurisdiction. It is not their function to attempt to overrule decisions of a higher court.”

While discussing this principle it is interesting to note that there are slight modifications in the various jurisdictions; however, generally this method of “filtering down” decisions from the Supreme Court is referred to as “vertical stare decisis”.4

This concept of vertical stare decisis, based upon the idea that a judge, for reasons of commercial and social stability, should be bound by judges of higher courts, has another facet and that is that a judge should also respect the decisions of earlier judges of similar or of a coordinate level. This is known as “horizontal stare decisis”.5

In the UK, the House of Lords was the court of last appeal before it evolved into the Supreme Court of the UK and until London Street Tramways v London County Council6 it was not strictly bound always to follow its own decisions. In that case the Earl of Halsbury LC wrote:

“… it has now been admitted that there is upon this very question a decision of this House … My Lords, for my own part I am prepared to say that I adhere in terms to what has been said by Lord Campbell and assented to by Lord Wensleydale, Lord Cranworth, Lord Chelmsford and others, that a decision of this House once given upon a point of law is conclusive upon this House afterwards, and that it is impossible to raise that question again as if it was res integra and could be reargued, and so the House be asked to reverse its own decision. That is a principle which has been, I believe, without any real decision to the contrary, established now for some centuries, and I am therefore of opinion that in this case it is not competent for us to rehear and for counsel to reargue a question which has been recently decided.”

After this case, once the Lords had given a ruling on a point of law, the matter was closed unless and until Parliament made a change by statute. This rather strict view was modified after the Practice Statement of 1966, which allowed the House of Lords to adapt English law to meet changing social conditions. Although the House of Lords would treat its decisions as normally binding, it would depart from these when it appeared right to do so. It should be noted, however, that despite this the Practice Statement has been seldom applied by the House of Lords and then usually only as a last resort. This is one of the major differences between the stare decisis principle in the UK and in the USA. In the United States the Supreme Court can, and does, overrule itself. There, for example, the court wrote in Burnet v Coronado Oil & Gas Co:7

Stare decisis is usually the wise policy, because in most matters it is more important that the applicable rule of law be settled than that it be settled right. … But in cases involving the Federal Constitution, where correction through legislative action is practically impossible, this Court has often overruled its earlier decisions. … This is strikingly true of cases under the due process clause.”

The United States Supreme Court further wrote in Smith v Allwright:8

“[W]hen convinced of former error, this Court has never felt constrained to follow precedent. In constitutional questions, where correction depends upon amendment, and not upon legislative action, this Court throughout its history has freely exercised its power to re-examine the basis of its constitutional decisions.”

It is interesting to note that while in the UK the House of Lords rarely reverses itself, the United States Supreme Court in the period 1946–1992 alone reversed itself in about 130 cases.

Further, with the advent of the EU under section 3(1) of the European Communities Act 1972, decisions of the European Court of Justice are binding in matters of community law on all English courts despite the fact that it is not bound by its own previous decisions. Thus the new order of stare decisis in the UK is as follows:

  1. European Court of Justice.

  2. The Supreme Court of the United Kingdom (formerly the House of Lords).

  3. Court of Appeal: Here the Court of Appeal is bound by decisions of the Supreme Court of the United Kingdom even if it considers them to be wrong. In Young v Bristol Aeroplane Co Ltd, the Court of Appeal held that it was bound by its own previous decisions subject to the following three exceptions:

    1. Where there are two conflicting decisions the Court of Appeal must decide which to follow and which to reject;

    2. Where a decision of its own has been impliedly overruled by the House of Lords;

    3. The previous decision was given by carelessness or mistake.

  4. Divisional Courts: A Divisional Court is bound by the Supreme Court and the Court of Appeal and normally follows a previous decision of another Divisional Court.

  5. High Court: The High Court is bound by the Court of Appeal and the Supreme Court but is not bound by other High Court decisions. However, other High Court decisions are of strong persuasive authority in the High Court and are usually followed. Decisions of individual High Court judges are binding on the county courts.

  6. Crown Courts: Decisions made on points of law by judges sitting at the Crown Court are not binding, though they are of persuasive authority.

  7. County Courts and Magistrates’ Courts: Decisions of these courts are not binding.

It should also be noted the effect of the European Court of Human Rights pursuant to the Human Rights Act 1998, where courts in the UK must now have regard to decisions of the European Court of Human Rights.

Further, as to the principle of stare decisis, it should be noted that only the actual statements of law are binding and these are the reasons for the decision or “ratio decidendi”. All other reasoning within a judgment is known as “obiter dictum”. If a statutory provision or precedent had not been brought to the previous court’s attention before its decision, the precedent would not be binding. Also, if a court finds a material difference between cases then it can choose not to be bound by the precedent. Persuasive precedents are those that have been set by lower courts and, as already mentioned, while they may be persuasive, they are not binding. Most importantly, precedents can be overruled by a subsequent decision by a superior court or by an Act of Parliament.

Common law countries

The common law constitutes the basis of most former English speaking and/or British Commonwealth countries including:

  • England & Wales

  • Australia

  • Canada (except Quebec)

  • Sri Lanka

  • Singapore

  • Northern Ireland

  • New Zealand

  • South Africa

  • Malaysia

  • Hong Kong

  • The Republic of Ireland

  • USA (except Louisiana)

  • India

  • Pakistan

  • Malta

Stare decisis, therefore, is not usually a doctrine used in civil law systems because, as will be seen in the next section, it violates the principle that only the legislature may make law. However, the civil law system does have jurisprudence constante, which is similar to stare decisis and dictates that the courts’ decisions move in the direction of maintaining a predictable result for the benefit of society and commerce. Thus, theoretically inferior courts are generally not bound to precedents established by superior courts. However, in practice the need for predictability dictates that inferior courts generally defer to precedents by superior courts. In a sense, the most superior courts in civil law jurisdictions, such as the Cour de Cassation and the Conseil d’État in France, are recognised as being bodies of a quasi-legislative nature.

The doctrine of jurisprudence constante also influences how court decisions are structured. In general, court decisions of common law jurisdictions are extremely detailed with lengthy speeches by the court providing reasoning behind the decision and how it was reached. This occurs to justify a court decision on the basis of previous case law as well as to make it easier to use the decision as a precedent for future cases.

By contrast, court decisions in some civil law jurisdictions, such as France, tend to be extremely brief, mentioning only the relevant legislation and not going into great detail about how a decision was reached. This is the result of the theoretical view that the court is only interpreting the view of the legislature and that detailed exposition is unnecessary. As a consequence, much more of the exposition of the law is done by academic jurists who provide the explanations, whereas in common law nations this would be provided by the judges themselves.

Court opinions in other civil law jurisdictions, e.g. Germany, tend to be much longer than in France, and courts will frequently cite previous cases and academic writing. However, some of these courts place less emphasis than do common law courts on the particular facts of the case, instead emphasising the discussion of various doctrinal arguments and finding what the correct interpretation of the law should be.

Civil law

Civil law is the predominant legal system in the world today. The original difference between the common law and civil law was that the common law developed through custom and practice, beginning before there were any written laws and continuing to be applied by courts after there were written laws, whereas civil law developed out of the Roman law of Justinian’s Corpus Juris Civilis.

The civil law, over time, became codified as droit coutumier or customary law that was in effect “statutory-like” local compilations of legal principles recognised as normative. In the eighteenth century, during the Age of Enlightenment, attempts to codify private law began as an expression of both natural law and the ideals that began in the Enlightenment. Those ideals required the creation of certainty of law through the recording of law and through its uniformity. Gradually, the old Roman law, and its interaction with the customary and local laws, began to disappear, followed by the Codex Maximilianeus Bavaricus Civilis in Bavaria in 1756, the Allgemeines Landrecht in Prussia in 1794, and the West Galician Code in Galicia, which was then part of Austria, in 1797. It was not until after the French Revolution that “civil codes” with any lasting import began. These started with the Napoleonic Code and continued in other jurisdictions during the nineteenth century as the recording of the law that would eventually become applicable to the various nation states, such as Austria’s Allgemeines Bürgerliches Gesetzbuch (ABGB), Spain’s Código Civil, the Netherlands’ Burgerlijk Wetboek (BW), and Germany with its Bürgerliches Gesetzbuch (or BGB).

The Napoleonic Code

The Napoleonic Code, known originally as the Code Civil des Français, is the French Civil Code, established in 1804 under Napoléon I, and originally drafted by four jurists. For its time, it was striking in that it forbade privileges based on birth, allowed freedom of religion and specified that government jobs go to the most qualified. While it was not the first legal code to be established in a European country with a civil legal system, it was, with its stress on clearly written and accessible law, a major step in establishing the rule of law. Historically, the Napoleonic Code was not based on earlier French laws but instead developed out of the various customs of France, notably the Coutume de Paris and this process of re-codification was inspired by Justinian’s Corpus Juris Civilis in dividing civil law into:

  1. the law of persons;

  2. the law of property;

  3. acquisition of property.

Before the code, France did not have a single set of laws but instead depended on local customs and often on exemptions, privileges and special charters granted by the kings or other feudal lords, which were removed during the French Revolution. Specifically, the many different legal systems used in different parts of France were to be replaced by a single legal code, the drafting of which was led by Jean-Jacques-Régis de Cambacérès, then the Second Consul under Napoleon.

In ancien régime France, law courts, which were then known as the “parlements”, often took a somewhat legislative role where the judge would either protest a royal decision, i.e. protest excesses of royal power, or, in some occasions, defend the privileges of the social classes to which the judges belonged. The latter was especially true in the final years before the French Revolution and as a result, the French Revolutionaries took a negative view of judges making law. This was reflected in the Napoleonic Code provisions, which prohibited judges from passing judgments exceeding the matter to be judged, because general rules were within the domain of the legislative not the judiciary power. As mentioned in the previous section, in theory there is no case law in France. Despite this the French courts had to fill the gaps in the laws and regulations. This resulted in a large body of jurisprudence being developed and although there is no actual stare decisis the decisions by important courts have become more or less equivalent to case law.

Key to all of this is that the code established certain important provisions regarding the rule of law. Laws could be applied only if they had been duly promulgated and only if they had been published officially, which meant that no secret laws were authorised. Additionally, ex post facto laws were also prohibited and importantly the code also prohibited judges from refusing justice on grounds of insufficiency of the law thus encouraging the courts to interpret the law and to give “case specific” decisions rather than handing down general judgments, which had functioned in the past as a substitute for the legislature.

In 1808, the Code d’instruction criminelle was published and is the basis of the modern “inquisitorial system” of criminal courts, used in France and in many civil law jurisdictions. Interestingly, in light of the current trend in the EU as to the European Court of Human Rights, the French Revolution’s Declaration of the Rights of Man and of the Citizen almost 200 years earlier had taken up the banner of protecting the weaker in society from the perils of a strong regime. Indeed, Napoleon remarked that care should be taken to preserve personal freedoms, especially when the case was before the Imperial Court as “these courts would have a great strength, they should be prohibited from abusing this situation against weak citizen without connections”. It should also be noted that while it was not until 1836 in England that prisoners charged with a major crime were allowed to have counsel, article 294 of the Code d’instruction criminelle allowed the defendant to have a lawyer before the Court of Assizes and mandated the court to appoint the defendant a lawyer if the defendant did not have one. Failure to do so would render the proceedings null and void.

Even though the Napoleonic Code was not the first civil code and did not represent the whole of his empire, it was one of the most influential. It was adopted in many countries occupied by the French during the Napoleonic Wars and thus formed the basis of the private law systems in countries including Italy, the Netherlands, Belgium, Spain, Portugal, and their former colonies. In the German regions on the left bank of the Rhine (Rhenish Palatinate and Prussian Rhine Province), the former Duchy of Berg and the Grand Duchy of Baden, the Napoleonic Code was in use until the introduction of the Bürgerliches Gesetzbuch in 1900 as the first common civil code for the entire German Empire. Indeed, the Napoleonic Code was in force in central Poland from 1808 to 1946, and was also adopted in 1864 in Romania (with some modifications) and which is still in force. Further, it was also adopted in Egypt as part of the system of mixed courts introduced in Egypt after the fall of Khedive Ismail.9 Other codes with some influence in their own right on the codification of the civil law were the Swiss, German and Austrian codes, but even there some influence of the French code can be felt, as the Napoleonic Code is considered the first successful codification. Thus, the Napoleonic Code has to different degrees influenced the civil law systems of the countries of modern continental Europe, with the exception of Russia and the Scandinavian countries.

Additionally, in the United States, the State of Louisiana’s civil code has kept its Roman roots and some of its aspects feature influences of the Napoleonic Code, with the inclusion of both Roman and Spanish civil traditions. The term “Napoleonic Code” is also used to refer to legal codes of other jurisdictions that are influenced by the French Code Napoléon, especially the civil code of Quebec, which was derived from the Coutume de Paris, which the British continued to use in Canada following the Treaty of Paris in 1763. Most of the laws in Latin American countries are also based in the Napoleonic Code, such as the Chilean Civil Code and the Puerto Rican Civil Code.

Differences between common and civil law

Codification is not the only difference between civil and the common law. The important distinction between codes and statutes is the methodological approach taken by the courts. In civil law countries, legislation is seen as the primary source of law and the courts base their judgments on the provisions of codes and statutes from which solutions in particular cases are to be derived. Thus, courts have to reason extensively on the basis of general rules and principles of the code, often drawing analogies from statutory provisions to fill any gaps in the understanding of the statute and to achieve coherence. In the common law, cases are the primary source of law while statutes are seen only as incursions into the common law and, thus, interpreted narrowly.

Another difference between the common and civil law countries lies in the methods used by the judiciary. In the United States, judges are seen as balancing the power of the other branches of government. In civil law in France, however, the concept of separation of powers is accomplished by assigning different roles to the legislature and to the judges, with the judge as la bouche de la loi: “the mouth of the law”. That is why under the civil law the concept of binding precedent does not exist to the same extent that it does under the common law and certain civil law systems are based upon the inquisitorial system (similar to Dispute Boards) rather than the adversarial system of the common law countries.

Civil law countries

Civil or civilian law is a legal tradition which is the base of the law in the majority of countries of the world, including:

  • France (and former colonies)

  • Germany

  • Greece

  • Japan

  • Denmark

  • Finland

  • Quebec (Canada)

  • China (a mix of civil and socialist law)

  • Italy (and former colonies)

  • Austria

  • Portugal

  • South Korea

  • Norway

  • Iceland

  • Puerto Rico (USA)

  • Russia (a mix of civil and socialist law)

  • Spain (and former colonies)

  • Switzerland

  • Turkey

  • Republic of China (Taiwan)

  • Sweden

  • Louisiana (USA)

  • Latin America

Sharia – Islamic law

While most countries utilise either the common law or civil law, there is a third body of law which is applicable to construction dispute resolution via arbitration and/or adjudication and is used either directly or as an adjunct to the civil law and is prevalent in countries such as Saudi Arabia, Egypt and Iran.10


Historically, Sharia or Shari’ah is the body of Islamic law and the legal framework in Muslim legal systems that deals with aspects of both business law and contract law. Some Islamic scholars accept it as the body of precedent and legal theory established before the nineteenth century while other scholars view Sharia as a changing body and include Islamic legal theory from the contemporary period.

Before Islam, the Arabs resolved their disputes without the use of any formal court system. This was done either through arbitration or through conciliation and was administered through tribal chiefs or other respected tribal elders. The resolution of disputes during this period relied on the parties’ first coming to an agreement as to the extent to which any resolution of their dispute would be binding upon them.

The coming of Islam brought with it the development of a legal system known as Sharia, which in effect recognised and upheld the earlier dispute resolution procedures. The ability to settle disputes amicably is seen in Sharia. Dispute resolution techniques, notably arbitration, are seen in all four sources of Sharia. This totality of Sharia is based upon the Quran (Koran): Sunna (the acts and sayings of the Prophet Mohammad (pbuh)); Idjma’ (the consensus of opinion – which is similar to the concept of “common law”) and Qiyas (which is reasoning by analogy). Whether dispute resolution is binding or not is, of course, still dependent upon the intent of the parties and this can best be determined if the parties at the inception have an agreement as to whether any dispute resolution decision is final and binding upon them. Thus agreements for such dispute resolution methods as arbitration could be made binding, or even for Dispute Board decisions. Conciliation, similar to mediation, is permitted under Islamic law in civil, commercial, family and other matters as long as it does not permit acts against God’s commands or the matter settled by conciliation falls in the ambit of rights of God, i.e. crimes and their sanctions. Again, this method of dispute resolution is also dependent upon the agreement of the parties to its being held as binding or not.

Sharia does not give detailed rules on any form of dispute resolution. The Quran sets out general principles, which govern individuals and, like in the common law countries, it is the jurists who are responsible for expanding and clarifying various aspects as necessary. The interpretation of the Quran, known as the “Ijtihad”, is where the Islamic jurists give their elaborations and deductions as needed by society and it is this area of Sharia that governs in matters such as dispute resolution. It is important to note that there are four major doctrinal schools of Islamic Sharia, each with a slightly different view on dispute resolution, in particular dealing with arbitration and conciliation. Both of these principles are also part of the adjudication processes such as Dispute Boards and as such become part of this discussion.

Hanafi Islamic Sharia

Hanafi Islamic Sharia places a great deal of emphasis on the agreement of the parties in the settlement of disputes, i.e. through arbitration, and finds that arbitration is similar to conciliation and that an arbitrator acts as the agent of the parties who have appointed him. Under this school of thought, any award of an arbitrator is not the same as a court judgment but rather similar to conciliation between the parties. However, the scholars that developed this school of Sharia law feel that the parties must accept the award made in an arbitration, if the parties have agreed in writing to be bound by the award.

Shafi Islamic Sharia

Under the principles of Shafi Islamic Sharia dispute resolution methods, such as arbitration, are a legal practice, whether or not there is a judge in place where the dispute has arisen.11 The difference here is that arbitrators are held to be at a level below that of judges because an arbitrator can be removed at any time prior to his issuing any award.

Hanbali Islamic Sharia

Hanbali Islamic Sharia is of the position that awards have the same stature and are as binding as a court’s judgment. Here the one making an award must have the same qualifications as a judge and as such any awards made by an arbitrator are binding.12

Maliki Islamic Sharia

Maliki Islamic Sharia accepts that one of the parties can be chosen as an arbitrator by the other disputing party. This is explained by the fact that one relies upon the conscience of the other party.13 The Maliki school also feels that whoever is acting as the dispute resolver, such as an arbitrator, cannot be revoked after the commencement of the arbitration proceedings.

All of these Schools of Islamic Sharia Law base their rules on the use of an agreement that confers the powers upon the dispute resolver to make a binding decision14 as well as the full consent of all of the parties.

Interestingly, whether or not any such agreement is to be written or oral is not decided by any school in Sharia. In the leading case between the Caliph “Ali Ben Abi Taleb” and “Muawya Bin Abi Sofian”, the two parties agreed to appoint two arbitrators in a written deed which stated the names of the arbitrators, the time limit for making the award, the applicable law and the place of issue of the award.15 In this dispute the parties used arbitration to settle the dispute, but the arbitration clause was not effective.16 Here, the issue arose as to whether under Sharia a “future” dispute could be referred to arbitration or only disputes that had come into being. All four schools of thought dealt only with disputes that were already in existence and not with disputes that had not yet occurred. While this matter has been the subject of much debate, the underlying Sharia principle is that parties to a contract are allowed to contract for whatever they decide so long as whatever they decide is not against any of God’s specific commands, such as adding contract provisions allowing interest.

Dispute resolution clauses, such as those dealing with arbitration, which are beneficial in allowing quick and reasonable solutions to complex commercial matters and which do not contravene any of God’s commands, are considered valid.

The older view, that such dispute provisions are not truly binding and that such agreements are revocable options rather than contractual undertakings,17 led some classical jurists in Islamic countries to argue as to whether such agreements are binding,18 either at the start of the agreement or through to final completion. This was later incorporated in Al-Majala, which was later codified in the laws of the Ottoman Empire.19

Modern thinkers now take the view that the older concept of non-binding agreements to sort disputes is “obsolete, superficial and ill-founded”.20 The current view under Sharia law is that any such dispute agreements (such as arbitration) are binding upon all of the parties once the agreement has been entered into and that the parties are also bound by any decision which flows from that agreement, e.g. the arbitrator’s award. Islamic scholars have taken the position that the binding nature of dispute resolution agreements flows from the Quran where it states “… and fulfil every agreement, for every engagement …”.21 This meaning was stressed by the Prophet Mohamed (pbuh) where he said, “Believers should honour their engagements …”. It is now widely held that, once entered into, such dispute resolution agreements, so long as freely made, will be upheld but, as the Quran does not mention rules and procedures, how dispute resolvers are to be selected and/or other matters, the parties themselves or the state are able to make these determinations. For example, the parties are free to agree on the manner and method of selection of arbitrators or any other dispute resolver(s). While the parties are free to agree a method to pick individuals or to define the dispute resolvers by the position they are to occupy, none of the four schools of thought talks about having anyone other than the parties to a dispute choose the person(s) who will act to resolve the matter. There is no mention of any third person making any selection or any entity. But despite no mention being made of how this would work, there is also nothing under Sharia law that prohibits the appointment of any dispute resolver by others than those involved with the dispute, i.e. some appointing body such as the ICC.

Additionally, none of the four schools of thought places any restriction on the number of dispute resolvers that may be used or appointed. It is left entirely to the parties to decide whether they want one or three or more acting as dispute resolvers or arbitrators and additionally, the number need not be an even number. However, a divergence of views occurs as to whether, once arbitration has started, the arbitrator can be removed unilaterally by either of the parties. Both Shafi and Hanafi allow the unilateral removal of an arbitrator at any time prior to his giving his award. The Maliki school, however, does not allow any unilateral removal once the procedure has commenced. Of course, under any of the schools of thought, any dispute resolver can be removed if all of the parties agree.

It should also be noted that if one of the parties to the dispute is not Muslim and a non-Islamic legal system/procedure is utilised, this will be recognised by Maliki, Shafi and Hanbali Islamic Sharia. Also, as several Muslim countries are signatories to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), they have, by doing so, approved of these Muslim/Non-Muslim methods of dispute resolution so long as the underlying rules do not violate the express rules of either the Quran or Sunna.22

The four schools of Islamic Sharia agree that the only matters which are not subject to dispute resolution by individuals such as arbitrators, etc., are matters relating to the “Rights of God”23: in other words, areas of the law including family matters, criminal matters and areas of public policy must be referred to the Islamic Courts. Other than areas that are specifically prohibited, dispute resolution using arbitration, mediation, Dispute Boards, adjudication or similar processes can be used.

The Maliki, Hanbali, Hanafi and the majority of Shafi24 Sharia schools hold that an arbitral award is as enforceable as a court judgment once a judge has reviewed the decision/award of the arbitrator and has ruled that it is enforceable. The Maliki, Hanafi, Hanbali and the Shafi majority also hold that if absent an obvious error on the face of the award or if it is “unjust” the judge is required to enforce an arbitral award and must do so even if that judge does not agree with the opinion contained in the award and further, the judge is not allowed to delve into the merits of the award itself nor the actual reasoning by the arbitrator. Indeed, one of the only reasons to set an award aside is if the award is in violation of public policy or Sharia law.25

Sharia does not have a strictly codified uniform set of laws. In a way it is more similar to common law as it is a system of devising laws, based on the Quran, Hadith, and centuries of debate, interpretation and precedent.

Additionally, there are no specific rules of procedure in Sharia law. Every country chooses its own procedural law as it wishes. So, for example, the procedures in Saudi Arabia and Iran are very much similar to those in civil law countries, such as Egypt and France. In fact, the Saudi laws that have been enacted in the last 60 years are based on Egyptian laws. When it comes to court procedure, the procedure in Saudi Arabia and Iran is much less complicated than the procedure in Egypt, which is taken directly from the French Civil Law.

Due to this lack of specific procedure, any arbitration undertaken without resort to an appointing body or, for example, an adjudication, which is part of an ad hoc programme, needs to have as its contractual system as much detail as possible. This is necessary to avoid any ambiguity or procedural gaps that may lead to legal disputes before the courts and any potential resulting judicial intervention in interpreting the adjudication agreement. As always, a detailed contract is the best choice to prevent any judicial “over-interpretation”. This principle, that the contract is the “law of the parties”, is a Sharia principle as much as it is a worldwide-accepted concept.

ADR procedure

There are some procedural steps that should be set out in detail in any Alternative Dispute Resolution (“ADR”) contract that may have to later rely on Sharia Law. These are:

  • Enforcement provisions

    As far as enforcement is concerned, ADR decisions would be enforced via the courts in both Saudi Arabia and Iran according to the arbitration law of each country. The Saudi Arbitration Law (“SAL”) would take this decision to the Board of Mazalim jurisdiction “Diwan Al-Mazalim”.26

The Commercial Circuit (“CC”) in the Diwan will revise the decision and decide whether it is enforceable in Saudi Arabia or not. The Commercial Circuit in Diwan Al-Mazalim could also revise any arbitration award or ADR decision sought to be enforced by the court’s coercive powers in Saudi Arabia — according to the substantive rules of Sharia as expressed in the Hanbali School of Law.27 This revising power finds its base in article (39) of the implementation rules, which binds the tribunal to issue its award in accordance with Sharia law. The same also applies to Dispute Boards.

In Iran, according to the Iranian Arbitration Law (“IAL”) the competent court will play the same role. The main difference is that the Iranian Arbitration Law is based on the UNCITRAL Model Law while the Saudi Arbitration Law is not. The competent Iranian court will decide the enforceability of the award in Iran according to the requirements of article 33(1) of the Iranian Arbitration Law.

Enforcement of adjudication decisions versus arbitration awards

The contract between the parties should make clear whether the ADR decision is an arbitration award or advisory or binding adjudicatory decision, and if combined the distinction should be clear. Because, if any of these is not amicably enforced, it would be subject to substantive review in Saudi Arabia by the Commercial Circuit of Diwan Al-Mazalim. Additionally, the newest forms of ADR using Dispute Boards bring with them enforcement issues caused by the differences between recommendations and decisions. These are as follows:

Dispute Review Board decisions

  • An ADR proceeding such as a Dispute Review Board could, for example, issue a recommendation, which is open to acceptance. In the recommendation situation, if neither of the parties sends a notice of dissatisfaction to the other party28 this recommendation is considered a final and binding resolution to the issue in question. The parties are required to enforce it and it would not be subject to any further recourse.

  • The party seeking to enforce the Dispute Review Board’s decision should refer the other party’s failure to agree to a binding form of ADR. If an arbitration award were issued in favour of the claimant, the claimant could seek enforcement in Diwan Al-Mazalim. The Diwan will revise the award. The dispute referred to arbitration will not be seen as the mere failure to comply with the Dispute Review Board’s decision, but the supervisory power of the Diwan will extend to include a substantive review of the Dispute Review Board’s decision. The same will happen if the failure to comply with the Dispute Board’s decision is by itself referred to the Diwan.

Dispute Adjudication Board decisions

  • A Dispute Adjudication Board will issue a decision, which will be accepted by both parties and, thus, enforced amicably. Or the other party will serve a notice of dissatisfaction on one party. Consequently, the Dispute Adjudication Board’s decision will be temporarily binding pending final resolution if either party so desires.

  • A temporarily binding decision is not likely to be capable of enforcement in Saudi Arabia. A notice of dissatisfaction would have an effect of an accepted application for leave to appeal in the court’s system – in suspending enforcement of the Dispute Adjudication Board’s decision.

The form of the Dispute Board decision

No binding rule on the form of Dispute Board decisions is available in Sharia law. It should follow the form agreed upon by the parties. In the case of no agreement, it will take the form the board members deem proper. However, the Dispute Board decision must always be in writing and good practice dictates that if the form of the decision is not stated the parties should either agree a format or the Dispute Board members should set one out for the agreement of the parties as part of their Board procedure.

Particulars as to the Kingdom of Saudi Arabia

As mentioned above, the enforcement of a Dispute Board decision is likely to end up in the form of an arbitration award. Hence, the constraints relevant to Sharia law in the Saudi Arbitration Law (“SAL”) are relevant to arbitration as they are to Dispute Board decisions. Also, some public order Sharia substantive principles will be of significant relevance. Most important in this regard is that no interest should apply to any amount of money to be paid. The right to be heard on all issues, natural law or due process and a fair hearing for both parties and their representatives, should be clearly shown by the decision in order to prove that fair trial has taken place.

On 8 June 2012, Saudi Arabia published its new Arbitration Regulation (Royal Decree No. M/34) (the New Arbitration Regulation “NAR”) replacing the Arbitration Regulation of 1983 (Royal Decree No. M/46) and the Rules for the Implementation of the Arbitration Regulation of 1985 (Ministerial Resolution No. 7/2021/M) (the former law) – all of which affect the enforcement of Dispute Board decisions through arbitration. The NAR (which became effective on 7 July 2012) institutes a variety of reforms to Saudi Arabia’s arbitration system.

Prior to this new law, all arbitrations in Saudi Arabia were subject to judicial oversight by the Saudi courts and under the former law were to be conducted in Arabic and awards could be modified, reformed and/or rejected at the discretion of the court.

Additionally, under the former law the court was responsible for appointing arbitrators if the parties did not do this and also for approving the parties’ agreement to arbitrate, and as there were no written requirements for arbitration agreements any decision as to whether to approve arbitration was in the court’s discretion. It should be noted that under the former law the court also supervised and gave rulings on procedure and requests for injunctive and interim relief.

Most importantly, under the former law the courts had sole responsibility for the enforcement of arbitral awards (both foreign and Saudi) and were free to review the award specifically to make certain that the award was Sharia-compliant – the broad right to reverse, rewrite or vacate any award and then to award new damages as it deemed necessary.

The NAR now follows from the 1985 UNCITRAL Model Law on International Commercial Arbitration, as amended in 2006, and as a result aligns Saudi law with international arbitration norms, allows more control to the parties, and provides greater clarity on several issues, which include:

  • New written guidelines for determining whether an agreement to arbitrate may be enforced.

  • Clear and detailed procedures for the appointment and/or recusal of arbitrators.

  • Languages other than Arabic may be used if ordered by the arbitration panel or the parties agree (although awards must be translated to Arabic prior to enforcement).

  • Government bodies are prohibited from entering into arbitration agreements, unless approved by the Prime Minister.

  • The parties are now free to choose which law will apply. However, the new arbitration law affirms that Sharia is paramount and that arbitration awards may be enforced only if they are Sharia-compliant.

  • It should be noted that while the New Law provides increased flexibility with respect to many matters it is all still subject to the Saudi courts’ oversight and mandate to ensure Sharia compliance.

It is still for discussion whether under Saudi law women can now act as arbitrators.29 If in any dispute or in any stage of a Dispute Board’s decision is referred for enforcement, defence of nullity may face the party in whose favour the decision was. If the Dispute Board decision is used as evidence, this defence may not be raised, however. Additionally, the chairman of the board shall have sufficient knowledge of the Sharia principles.30

To avoid the possibility of annulment of Dispute Board decisions, it may be advisable to use women and/or non-Muslims as experts and not as members of Dispute Boards, keeping the membership of the Dispute Boards to Muslim men.

Further, if oral evidence is admitted, the testimony of two women will be considered equal to that of one man. Hence, on every issue on which oral evidence is given, the testimony of two men or one man and two women is required for this oral evidence to be admissible and effective.31 This is subject to article 31 of the implementation rules, which requires that witness statements shall be given pursuant to Sharia principles.

As for Gharar,32 it is more likely to appear in cases of bespoke contracts and not in standard forms with which Saudi Arabia courts are now quite familiar.

This review of Sharia-related issues in the Saudi Arbitration Law is necessary because arbitration, unlike the concept of Dispute Boards, has gained considerable recognition, understanding and familiarity in Saudi Arabia. Yet, the issues raised are still obstacles in the way of the Dispute Board-friendly environment in Saudi Arabia.

Particulars as to the Islamic Republic of Iran

The Iranian Arbitration Law is based on the UNCITRAL Model Law. No Sharia-related provisions are found in it, and hence any legal issues related to Dispute Boards would be secular provisions and not Sharia-based ones.

In principle, Dispute Boards are an acceptable means of dispute resolution under Sharia law, given that the parties are treated on an equal footing and that the general principles of adjudication are taken into consideration. The agreement to refer any dispute or difference to a Dispute Board, whether a Dispute Review Board or Dispute Adjudication Board, is a contractual agreement that shall be respected and to which the parties are bound as far as their contracts allow.

Dispute Boards under common, civil or Sharia law

Since Dispute Boards are governed by the law of the country in which the underlying contract is also governed, the basis of its decisions and rulings should follow those of the “host” country. Generally, this is governed by the underlying law of contract. To the extent that Dispute Board members are in need of assistance in this regard most standard Dispute Board provisions should provide for the member’s right to seek legal guidance as needed.

Additionally, as to the Dispute Board Decision, most contracts provide that if the decision is not accepted then the matter may go to arbitration, usually before a pre-agreed arbitration panel or to be determined by an internationally recognised arbitration group, such as the International Chamber of Commerce (ICC). In this regard the arbitration decision will be based upon the rule of law of that particular jurisdiction.

The historical development of dispute resolution in construction matters

The resolution of construction disputes relies either on the courts of the country named in the contract or, more likely, on some form of ADR (alternative dispute resolution) such as arbitration, mediation or adjudication by itself or through the use of a Dispute Board. Traditionally, construction dispute resolution lies in the history of arbitration and the role of the arbitrator.

In England the first “official” mention of arbitration, or “Arbitrament” as it was then known, was in William Sheppard’s “A Grand Abridgment of the Common and Statute Law of England,” published in 1675. This was 23 years before the first arbitration legislation in the common law, and three centuries before the UNCITRAL rules. The statement of the law, as it then stood, was therefore a pure statement of the “common” law, as Sheppard understood it. He recorded, in the volume dealing with “Arbitrament and Arbitrators”, that:

“Arbitrament is an Award or Judgment made by one or more at the Request of some parties for the ending of some difference between them. An Arbitrator is he, or one of them so chosen, said to be an extraordinary Judge in matter of difference between party and party by their mutual consent, and their authority is given to them by the parties litigant to hear and determine the matter in difference between them to whose judgment they bind themselves to stand: It is called an Arbitrament, either because these judges may determine it ex bon viri Arbitrato, not being bound to the strict Rules of Law, or because they have submitted to them, not by compulsory means but ex libero Arbitrio. Terms ley, West Symb. 2 part. sect 21.”

“Arbitrament, some say, is General, but when it is an Award of all Actions, demands and differences between the parties upon such a Reference thereof unto them: or Special, where the Reference and Award upon it is only one or more matters of difference mentioned between them, but whichever it is it is called a Judgment. The Award also may be made and rendered, either in writing or by word of mouth.”

“An Umpire is the same in effect with an Arbitrator, for he is one chosen by the Arbitrators finally to order, and determine the matter in difference between them, if the Arbitrators cannot, or do not order by the day agreed upon between them.”

“For this take these things in general:

  1. That there are five things incident to an Arbitrament; (1) Matter of Controversy: (2) Submission to the award of the persons chosen: (3) Parties to the Submission: (4) Arbitrators: (5) The making of an award by word or writing. Co.10.137. Dyer and 217.

  2. That the Submission is the agreement by both parties to abide and submit to the order made by the Arbitrators: this is sometimes made between the parties reciprocally, and sometimes to the arbitrator. It is made between the parties sometimes by Bond, sometimes by Covenant, sometimes by Promise, and it may be good, either way. And so it may be without any of these by a bare Submission and agreement only to refer it to them: and an Obligation or Assumpsit to stand to the award of I.S. and I.D. hath in an Implicit Submission it to the Award. This is also sometimes absolute without reference to any time: and sometimes Conditional, as a Submission to their Award it if it be made by such a day. Co.10131.5.78 20 H6.18 Trin 18 Jac. Cyprian Salters Case.

  3. That if the award is Repugnant, insensible, incertain, against Law, not definitive, or on the one side only, it may be void. Yelverton 98. for it shall not have a favorable construction as a Deed or Will shall have to bring it to the intent of parties, for it is in nature of a Judgment and must be plain and complete. Yelverton 98. Croo.I.3, 4. Co.5.77.

  4. That if it do not pursue, and be made according to the power given to them by the Submission, it will not be good. Bendloes 38. It may in not be larger nor narrower than the authority given thereby. Jenk. Cent.3 case 6.

  5. Arbitrators may not refer their Arbitrament to others, or to an Umpire, unless the Submission be so made to them, nor may they make their Arbitrament in their own Names, and the Name of a third person to whom no Submission was made; nor may they alter their Award once being made. Jenk Cent 3. case 6.”

It should be noted that the dispute resolution process Sheppard describes and labels as Arbitrament, could actually describe a number of processes. It is described as

“… an Award or Judgment made by one or more at the Request of some parties for the ending of some difference between them.”

While the concept that private parties under their agreements are bound to whatever dispute resolution agreements they enter into goes back to Roman times,33 the underlying rules, as written by Sheppard, of how an Arbitrament should operate, and the rules an arbitrator is bound by, remain fundamental to modern concepts of arbitration.

The legal development of other dispute resolution methods

Over the past 300 years dispute resolution methods to resolve and/or prevent construction disputes have developed further. In both the common law and civil law jurisdictions the characteristics of arbitration have been solidified. Internationally, the recognition of the rights of private parties (as opposed to the rights of states34) has been a recent development.

It may well be that this “categorisation” of arbitration led to the need to identify and regulate other dispute settlement devices that looked like, but did not exactly replicate, arbitration. Thus, civil and the common law jurisdictions also listed the characteristics of experts, and the process they embarked upon, with investigative/valuation processes in different industries being noted and categorised.35 Lord Mustill has questioned the desirability of the process of separating and labelling dispute resolution methods.36

The engineer/arbitrator as judge

After the Industrial Revolution in England, the courts became faced with the problem of how to deal with various dispute resolution clauses in contracts. The first of these decisions was in 1850 and dealt with the famous engineer Brunel.

“The undersigned, being duly authorized, declare that they accept, on behalf of the countries which they represent, the following provisions:

1. Each of the Contracting States recognises the validity of an agreement whether relating to existing or future differences between parties, subject respectively to the jurisdiction of different Contracting States by which the parties to a contract agree to submit to arbitration all or any differences that may arise in connection with such contract relating to commercial matters or to any other matter capable of settlement by arbitration, whether or not the arbitration is to take place in a country to whose jurisdiction none of the parties is subject.”

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