Leaders Kuwait 2018: Disruption claims may post new challenges

Disputes may increase as the build of New Kuwait advances, experts at Leaders Kuwait say

The dispute resolution panel at Construction Week's Leaders Kuwait Summit (L-R): Jonathan Collier, Richard Davies, Michael Sergeant, and Peter Banathy.
The dispute resolution panel at Construction Week's Leaders Kuwait Summit (L-R): Jonathan Collier, Richard Davies, Michael Sergeant, and Peter Banathy.

Peter Banathy, managing director of the Middle East at construction consultancy Driver Trett, warned Kuwait needs to be ready for a rise in disruption claims. Banathy was one of four legal experts participating in the dispute resolution panel at Construction Week’s Leaders in Construction Summit Kuwait 2018.

He was joined by Michael Sergeant, partner at HFW, Jonathan Collier, a partner of Pinsent Masons’ construction, advisory, and disputes group, and Richard Davies, UAE country managing partner at Bryan Cave Leighton Paisner (BCLP).

During the close of the session when the four-strong panel weighed in on trends causing disputes, Banathy said he expected to see a “rise in contractors pursuing disruption claims” in Kuwait.

“What we as a business have seen, certainly in the last two years or so particularly in the UAE, is an increase in contractors pursuing disruption claims,” he said. “We see very, very little of that here in Kuwait, but my observation is that it is coming.”

READ: Disputes delay $800m Saudi school construction projects

The sheer volume of work and labour required for the so-called New Kuwait programme may see builders sign up to “difficult terms of contracts” that could make it harder to “recover overrun costs entirely through variation”. When contractors fail to recover costs, claims for disruption have become a “default position” in the Middle East, Banathy added.

Construction disruption claims are uncommon in Kuwait, something partially attributed to a lack of understanding about the type of events constituting disruption, the experts said. The panel agreed that clients often do not understand that a project can face disruption without delay, and that claims can arise due to productivity losses too, not just manpower costs.

In terms of dispute resolution mechanisms, some local clients are believed to be wary of arbitration. This is largely due to a legal case involving Dow Chemicals that saw the US company win a large award worth approximately $2.2bn (KWD667.5bn) in Kuwait. HFW's Sergeant said this case demonstrated why arbitration remains an unpopular form of resolution in the country.

“Understandably that caused an awful lot of concern in Kuwait and I think, absolutely understandably, it caused a concern that having an arbitration clause in the contract might not necessarily be such a good thing if it resulted in that type of outcome for the client.”

READ: Rics chief calls on governments to help fix construction disputes

Even if arbitration is not on the cards, Pinsent Masons' Collier said there is a perception among some contractors who believe fair justice may not be dispensed by the courts.

“I think they do have a concern about the use of local courts, particularly when they are contracted with government entities,” he said.

“The question I often get asked is: how I am going to get my claims heard fairly? The implication being that they won’t get fair justice and the court will automatically default against the contractor or there will be some kind of third-party interference against fair justice. For the record, I will say that I have never experienced that, but it is a concern and a perception that some contractors have.”

Improving the terms of a contract is a solution often touted as one that could make dispute resolution easier. BCLP's Davies, who said he wanted to “do away” with liquidated damages claims because they are “unjustifiable”, explained that there are ways in which the terms of a construction contract can be improved.

He added: “I think there are creative solutions to contracts. You can experiment with things, [and] rather than allocating the risks you can work to identify the risks. When those risks arise, parties can work out where that risk should be managed and which [stakeholder] is best placed to manage the risk.”

He also advised private enterprises to explore “long-term arrangements” with contractors that they can work with on a repeat basis and build trust with. This is a far more beneficial approach as against viewing a contract as a “one-off relationship” that lasts for the duration of the venture and then ends.

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