FIDIC for PRACTITIONERS
Legal System and News
The Use of FIDIC in a legal context
Legal systems are different. However, a contract becomes embedded in or, if the phrase be permitted, is naturalised by the agreed proper law, so that, for better or worse, its existence and its future are determined by this legal system and none other (F.A. Mann, The proper law in the conflict of laws, 46 Int’l & Comp. L. Q. 437 (1987)). As a result FIDIC based contracts are also somehow embedded in law. The European Regulation Rome I does not preclude the parties from incorporating by reference into their contract a non-State body of law or an international convention. However, in principle choice is still limited to a “law” in the traditional formal sense of a State or EU legislative act.
The law will decide whether there is a contract and whether it is enforceable. Contract law can be divided into two distinct classes. The larger class consists of "default" rules that parties can contract around by prior agreement, while the smaller, but important, class consists of "immutable" rules that parties cannot change by contractual agreement. Default rules fill the gaps in incomplete contracts; they govern unless the parties contract around them. Immutable rules cannot be contracted around; they govern even if the parties attempt to contract around them (Ayres and Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, (1989). Faculty Scholarship Series. Paper 1545).
Hence, FIDIC forms of contract become in force because there is the law. Also FIDIC forms of contract have to be construed in light of and in accordance with the proper law of the contract. In any case, culture and local practise may influence heavily the use and understanding of FIDIC based contracts. In some countries it is more important to avoid losing face rather than to pursue a claim at court (Korea, Japan). In others the mere fact that a contract has the nature of a locatio conductio operis results in a decennial guarantee for the stability of the building (France, Qatar, Malta). In each case English words as used by FIDIC will not be perceived as a crystal, transparent and unchanged, rather as the skin of a living thought, and may vary greatly in color and content according to the circumstances and the time in which it is used.
FIDIC contracts also do not prevent contractors and employers from relying on legal claims such as quantum meruit claims, misrepresentation claims or complementary conditions precedent of a claim, for instance in the laws of Egypyt, Qatar and the UAE regarding the excess in quantities.
FIDIC forms of contract provide a contractual machinery for the handling of claims and disputes (see Sub-Clauses 20.1, 20.2, 20.3, 20.4 et seq. FIDIC 1999 or Sub-Clauses 20.2, 21.1 et seq. FIDIC 2017). They are traditionally aimed at the early resolution of disputes and dispute avoidance. Dispute avoidance and dispute resolution activities involve legal work. Compliance with jurisdiction clauses, natural justice and other relevant legal principles is a core element of successful dispute management and handling. Additional softkills like charisma and ability to establish an atmosphere of mutual trust are necessary and helpful.
Nestor trainers have gained experience throughout the world as counsels, arbitrators, adjudicators, trainers, contratc experts, contract managers and designers. Hence they are not only experienced in the use of FIDIC contracts. Rather they also know that the forms though applied throughout the world have to be explained against the local context in which they are applied. Nestor trainers exchange experiences among themselves for the benefit of trainings and share their knowledge with course attendees. Also Nestor trainers come from different countries and have enjoyed different education.
The governing law of the Contract always prevails if it is mandatory or compulsory. Other law may apply by default and provide a kind of underlying framework. Sometimes legislators make users aware of the mandatory nature of legal provisions by stating that the parties are not permitted to deviate form it and that any agreement to th oposite may not be valid and enforceable. Unfortunately legislators are under no duty to to warn users. The very nature of the provision may make it anyway mandatory. For instance French courts have held that the subcontractor´s direct claims aginst the employer belong to the French public order if the Works are to be executed in France.
Also the concept of the decennial liability in respect of the structural stability of a building may have this nature, as it is the case in France, various north African and middle east jurisdictions (like the Philippens and Indonesia). This decennial liability feature may involve further investigations on insurance issues and the joint insurance required by consultant engineers and contractors. In some countries it is mandatory to provide insurance in regard to the joint and several decennial liability of contractors and consultants (for instance in France and Egypt).
It is obviously important to understand how mandatory law interferes with FIDIC forms of Contract and whether there is a risk of contradictions. However, in most cases it is sufficient to understand the underlying policies and concepts in order to avoid misunderstandings and unnecessary change to the FIDIC wording.
However in most case legislators confine themselves to providing a legal framework including default rules which shall apply in case of gaps or as a legal Leitmotiv. These provisions do apply albeit neither party have thought about it. In other words, if they had been aware of it they might have excluded or replaced it either in parts or in full. It is a frequent mistake to save costs for a legal research. It may bring to light that additional time bars, limitation rules and claims provisions do exist.
Though in daily engineering practice the sound knowledge of the law is not required, good skills in understanding the standard form of Contract in use and an ability to apply consruction law related general rules are a key to success. For instance Employers may find it strange to read that Sub-Clause 2.5 1999 FIDIC Red Book/Yellow Book and respectively Sub-Clause 20.2 of the 2017 Red Book / Yellow Book provides for a time bar. Therefore, at least in common law jurisdictions Employers may wish to know more about the 2015 Privy Council decision involving a case from Trinidad and Tobago.
Legal Terms (Faux Amis)
Legal terms must be precise in order to avoid the need to interpret the same. Frequently they are borrowed from the colloquial language. Thus a term may be understood differently depending on the context and the time on when it is used and was borrowed. Sometimes in a legal environment terms are used which may have different meanings in different jurisdictions. For instance the term Force Majeure has different meanings in England and in France. The connotation Taking-Over may be misleading in Civil Law jurisdictions where the law requires an act of acceptance by the employer. Training on the correct use of terms is therefore a cornerstone of international construction business.
Dispute Avoidance and Dispute Resolution mechanisms are closely linked to legal concepts. FIDIC forms of Contract provide for a two tier process: Adjudication - Arbitration. Disputes shall be referred to a Dispute Adjudication Board (DAB) or since 2017 to a Dispute Avoidance and Adjudication Board (DAAB) and subsequently before an arbitral tribunal may have jurisdiction to hear the case. Though this goes frequently without problems sometimes users face the issue that this particular FIDIC approach will be questioned as either being unnecessary, too expensive, or illegal, etc. FIDIC trainings will help users to understand that DABs or DAABs are first of all contractual aminals which shall help to avoid disputes and that referrals of disputes to the DAB should be last resort. Second FIDIC trainings will also demonstrate the advantages of DABs if properly implemented and used. In principle the proper use of DABs should be allowed in any legal environment worldwide provided that it is not misused as cheap arbitration and that subsequent access to either arbitration or the courts is allowed.
DAB or DAAB clauses are usually combined with the right to refer the dispute subsequently to arbitration. This helps to derogate the jurisdiction of state courts. On the other hand, DABs and DAABs operate totally independent and less formal than arbitration penals. At the same time they provide high value for money by giving way to discussions between those people who work on site and know the project very well.
Author: Dr. Götz-Sebastian Hök