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| 21 April, 2017

Dubai's push for transparent real estate arbitration

Dubai Marina night skyline.  Image used for illustrative purpose.

Dubai Marina night skyline. Image used for illustrative purpose.

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The regulations and processes are in place to effect timely interventions by courts

21 April 2017

Nasser Malalla Ghanem
Given the large role that real estate plays in the economy, it is of little surprise that legislation in this sector has been among the most proactive in the world, with many other countries following suit in terms of adopting the principles that Dubai has put into place for the protection of both investors and developers.

The most notable has been the case of India, where there has been the establishment of RERA, an extrajudicial body that oversees the sector and expedites claims brought before it, especially by the small investor.

In Dubai, what needs to be examined is the role that arbitration plays before either party goes for litigation. It is this process that has been developed throughly over the years, and it is because of these procedures that dispute resolution has been made considerably more effective. It is worth noting here that because of the measures in place, disputes being escalated to the courts dropped considerably in the last three years.

Litigation is always a lengthy exercise. It is safe under normal circumstances to estimate the period it takes to issue a first instance verdict as being six to ten months.

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Then, it takes a further six months to issue a second instance verdict (by the appeal court). In total, it takes between 10 months to a year or 18 months to reach a final colony of a lawsuit of said nature under normal circumstances. In some cases, however, the lawsuit is prolonged to enter a third stage, i.e., Court of Cassation.

The total period increases in such cases might even reach two or three years, bearing in mind the parties’ possible ill-intentioned intervention to play tricks and prolong the period it takes to litigate and reach a final colony. It is the length of this period that has led Dubai’s RERA (Real Estate Regulatory Agency), the DIAC (Dubai International Arbitration Centre) as well as the legal community to encourage arbitration as an effective and expeditious form of dispute resolution.

The bilateral contract entered into between parties therefore forms the crux of the issue. Form F instituted by RERA has gone a long way towards the standardisation of contracts that developers and investors enter into.

Nonetheless, the devil is always in the details, and it is highly encouraged that at its inception, as well as for any subsequent amendments that may be entered into for the duration of the agreement, legal advice be sought, which is widely available, both at RERA as well as through the legal community at large.

It is also critical to highlight that communication in the event of a dispute should be prompt, and in writing, such that a trail of documentation is clearly established. These widely established best practices ultimately aid both the regulator as well as the arbitrator in expeditiously arriving at a solution, thereby negating the need (in most cases) to resort to litigation.

Ultimately, it is worth highlighting that in case of deciding to file a lawsuit, the importance of checking the judicial jurisdiction. That is, whether it shall be considered by the courts or an arbitration tribunal. This is determined by the agreement between the developer and purchaser as stated in the contract.

For instance, if the agreement states that arbitration shall be sought in case of any conflict, the parties are to abstain from resorting to courts. And in the event that a party resorts to court, the other party may maintain that the lawsuit shall be revoked due to the arbitration clause.

On the other hand, if the agreement states that arbitration shall be sought in case of any conflict and a party seeks litigation with a court while the other party does not maintain the arbitration clause during the first hearing set, the defendant is considered to have forfeited its right to maintain the arbitration clause and shall not be allowed to submit the invalidity of the lawsuit due to the arbitration clause.

In addition, the court shall have the jurisdiction over the conflict regardless of the contract provisions stating otherwise. In Cassation Appeal No 14 Year 2012 Real Estate, the court ruled that rules relating to registration of properties in the real estate registry in the emirate are matters of public policy and, thus, may not be subject to arbitration.

This widely read result, gives the investor the comfort that the courts ultimately have the authority to protect the claims of the investor and override what they believe to be unfair settlements.

The writer is the senior Partner at NM Law, which has an alliance with GCP Group.

© Gulf News 2017