Our experiences: International arbitration in the MENA region

  • 11 April 2016

The fourth International Chamber of Commerce (ICC) MENA Conference on International Arbitration kicks off this week in Dubai.

We sat down with The Best Friends group comprising international law firms BonellIiErede, Bredin Prat, De Brauw Blackstone Westbroek, Hengeler Mueller, Slaughter and May and Uria Menendez, to learn further about their contribution to the high-level conference and their observations on the region based on their combined practices.

Bommel van der Bend, a partner at De Brauw Blackstone Westbroek, and Paolo Daino, a partner at BonelliErede, are both panellists during this afternoon’s parallel industry sessions, which will discuss construction and energy disputes.

Can each of you briefly explain what you will be presenting?

Mr van der Bend: During my session on construction, I will be discussing the issue of notices for extension of time claims under the FIDIC standard. I will focus on the approach taken in civil law jurisdictions and will present a selection of cases from a variety of civil law jurisdictions to explain to what extent practitioners can expect the FIDIC notice provisions to hold. I hope to show that FIDIC provides a reliable and predictable basis for successfully executing large-scale projects under civil law.

This is an important observation for the MENA region as well, given that it is characterized by civil law jurisdictions and has seen many large-scale projects being initiated and executed over the past years. Many of my clients envisage busy times in future years as well. There are a number of projects that I am currently working on that are about to go into the execution phase. These are not all FIDIC based projects, but then again almost all projects are executed on the basis of contractual documentation that closely resembles the FIDIC approach in many respects.

I would like to point out, as a lawyer, that a sound contractual basis is only one of the factors that contribute to success. Efficient project management on both sides and true knowledge of the sector and the project of all people involved are arguably even more important. This is also what I experience every day. Resolving disputes in construction cases is not about simply applying the legal provisions of the contract. It is about strategizing on the basis of an overall approach based on in-depth knowledge of the project at hand, including the technical and commercial issues at stake. And it is perhaps even more accurate in construction disputes that the best way to avoid arbitration is to proactively prepare for arbitration in the early stages of the project.

Mr Daino: During the session on energy disputes, I will be discussing the application of force majeure clauses in long-term oil and gas sale contracts and concession agreements.

While we all know what force majeure is, the analysis of a number of contracts reveals that: (i) virtually all of them have
force majeure clauses; (ii) these clauses are often quite different and (iii) often the parties depart from the notion of force majeure that we study in books and regulate under the heading of force majeure situation that would normally fall outside of this category. I will give a few examples of these clauses and try to understand the rationale behind them. I will then address the issue of whether a seller’s inability to perform due to discrepancy between the reserves/production forecasts at the time of the agreement and the quantities of gas/oil that a seller may actually be able to produce or sell may qualify as force majeure.

Needless to say, a seller’s ability to invoke force majeure may have a considerable monetary impact. Yet, often, force majeure clauses are not the main focus of the parties’ negotiations and, most of the time, when an issue on the application of force majeure arises, we are before a clause that we wished was drafted slightly differently. The application of force majeure is ultimately a matter of risk allocation so, whether we are lawyers or industry players, we should always keep in mind what part of the risk we want to assume.

What makes the Middle East an important region in your practice?

Mr Daino: Over the last decade, businesses operating in the Middle East have been increasingly turning to arbitration over litigation in resolving disputes. International arbitration in the MENA flourished with numerous regional arbitration centres opening, the most notable being Dubai and Cairo, and new national arbitration laws being introduced for example in Doha, Abu Dhabi and Bahrain. On top of these institutional developments, some Middle Eastern countries have taken legislative steps towards becoming more “arbitration friendly” in order to respond to the increasing demand for international arbitration in the region.

For the Best Friends, the MENA region is one of our key focus areas for several reasons. First, we follow our clients wherever they go and many of them, including European-based global players, have been active in this region for decades. Today, the MENA plays an increasingly important role for European companies in their plans to expand their businesses. Export of European goods and direct investments in the region have continually increased in the past 10 years. For instance, while European exports to the United Arab Emirates and Saudi Arabia were worth €18,912 billion and €12,680 billion respectively in 2004; they amounted to €42,756 billion and €35,073 billion in 2014 (making the UAE and Saudi Arabia Europe’s principal export markets in the entire MENA region).

Second, given the prevalence of European companies acting as general contractors, suppliers for other enterprises, or members of consortia/joint ventures in major infrastructure projects in the region, we assist clients who have been involved in disputes arising out of the construction boom and the subsequent financial crisis. More recently, the drop in oil prices has also affected the balance in the energy industry in the Middle East. Our lawyers have therefore been very active in supporting our clients in renegotiating a variety of contracts, ranging from supply and transportation of oil and gas, to the construction of energy projects.

Third, we also notice that, with the lifting of sanctions against Iran, European companies are the best-positioned to take advantage of the new investment opportunities in Iran as the European Union has historically been one of Iran’s key trading partners. Of course, this means for the Best Friends that we are often advising European companies considering ventures in Iran. They need to carefully assess the scope of the latest relief of both European Union and United States sanctions against Iran and take all necessary precautions to protect their business and investments.

Finally, we also assist companies and investors from the MENA region establishing themselves and/or investing in Europe. We advise them on how to set up their business in the various jurisdictions and on the complexities of the European legal market from all perspectives (corporate law, tax, regulated industries, etc).

The MENA region is still booming with opportunities. In your view, what are the challenges that you think the region may face in the next few years?

Mr van der Bend: Generally speaking, in some Middle Eastern jurisdictions, the legal framework remains an area of uncertainty for many foreign investors. This lack of predictability leads businesses to set up special vehicles incorporated outside of the region and to select foreign laws to govern their contracts. This feeling of uncertainty extends to the judicial systems of these countries and to their courts. As a result, many investors choose to resolve their disputes in an international forum and the best option remains international arbitration with a seat outside of the Middle East.

In addition to the legal framework of these countries, the political future is also an important factor to take into account when running business in the region. This uncertainty is, of course, due to (i) the Arab Spring of 2011 and the subsequent destructions of certain foreign ventures in Libya, Tunisia and Egypt; (ii) the spread of terrorist groups such as ISIS; (iii) the war in Syria; and (iv) the terror attacks in the region.

Despite these events, in some countries, the push for political changes cannot be disregarded and dissociated from further economic reforms which will hopefully provide an opportunity to develop more transparent and economic governance. These economic developments should also contribute to improving corruption prevalent in some countries, which also has significant effects on the investment decisions of foreign companies.

Again, another major economic and financial challenge will be the continued fall of oil prices. For the first time, oil-rich or oil-dependent countries may face budget deficits leading to expenditure cuts. To address these issues, tax and budget restricting measures may need to be adopted. This could lead not only to reduced benefits for local communities but also to investors exercising caution when financing large-scale projects in the region, in the face of economic and financial uncertainty.

Your firms are part of a group of independent law firms, often referred to as the “Best Friends.” How do the Best Friends work in practice?

Mr van der Bend: The Best Friends are a group of six leading international law firms: BonelliErede, Bredin Prat, De Brauw Blackstone Westbroek, Hengeler Mueller, Slaughter and May, and Uria Menendez. We have made long-term investments to help foster connections among the firms at all levels. Understanding and communication between the Best Friend firms run deep. We share the same culture of excellence and absolute commitment to making the difference for our clients. Together, we have developed extensive and meaningful relationships with like-minded firms across the globe.

The Best Friends international arbitration group is one single practice group of approximately 40 partners and 150 associates. We operate as one team in daily communication on cases and other non-billable projects. We represent clients in all phases of the arbitration, including in post-award setting aside or enforcement proceedings before domestic courts.

Our lawyers know each other very well thanks to a long-standing history of working together on joint matters. Meeting regularly, our partners share and exchange know-how and discuss various business development activities. The Best Friends also exchange lawyers through secondments, operate cross-firm working groups across practice areas and industries and run joint training programmes several times a year.

Follow @ICCEvents throughout the ICC MENA Conference and be sure to use the hashtag #ICCMENA.