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Our newsletter provides

informative and practical


information regarding legal
and commercial developments
Issue 12, 2014 in construction and energy
sectors around the world.

Inside this issue: • FIDIC Dispute Adjudication Boards


• Ebola & ISIS: Force Majeure under the FIDIC form and civil
codes
• Does the UK late payment legislation apply to international
contracts?
• Good Faith: English Law v the UAE Civil Code
• Enforcement in Saudi Arabia and the UAE

Follow us on and for the latest construction and energy legal updates
Contract Corner:
A review of typical contracts and clauses Issue 12, 2014

FIDIC Dispute Adjudication Boards


By Jeremy Glover Owner of its intention to refer to a Dispute the FIDIC form was:
Fenwick Elliott Adjudication Board (DAB) a claim for €21
“not mandatory in that it would be a pre-
million.
Of all the provisions to be found in the FIDIC condition to the right to initiate arbitration
form, those of clause 20 have attracted by It was not until 2 May 2011 that both parties or that failure to observe it would lead to
far the most comment. One of the potential had appointed their respective adjudicators. inadmissability”.
hurdles that need to be overcome with
clause 20 is the appointment of the Dispute In October 2011, the prospective chair of the The majority of the Tribunal noted that in
Adjudication Board or DAB itself. This is dealt DAB was provisionally agreed. However, no the FIDIC Contracts Guide the commentary
with in sub-clause 20.2 of the standard Red and formal appointment was made because the on sub-clause 20.8 states that one of the
Yellow FIDIC forms and sub-clause 20.3 of the DAB Agreement was not itself agreed. reasons that there may not be a DAB in place
Gold Book. One particular feature of the FIDIC is because of a “party’s intransigence”, and
In March 2012, the prospective chairman pointed out that the FIDIC General Conditions
form of contract is that obtaining a decision
disclosed a conflict of interest. do not set a time limit to constitute a DAB,
from a DAB is generally a precondition to a
party being entitled to commence arbitration. which they said would argue against the
A further chairman was not agreed until 14
This can often result in two conflicting mandatory nature of the prior procedure of
June 2012. That second prospective chair
questions: dispute settlement established by FIDIC. The
requested that the parties produce a draft
approximately 15 months (March 2011 to
agreement by letter dated 2 July 2012.
(i) What can I do if the other party to July 2012) it took for the parties to succeed in
the contract refuses to assist in the On 27 July, the Contractor filed a request for constituting such a body in the case at hand,
appointment of the DAB? How do I arbitration with the ICC and a three-member without either party being entirely responsible
resolve my dispute if there is no DAB and Tribunal was appointed, the seat of the for the delay, was said to be irrefutable
no DAB decision? Can I go straight to arbitration being in Geneva. evidence of that.
arbitration?
On 13 September 2012, the prospective On 26 February 2014, the Owner filed a request
(ii) Do I have to go through the DAB process? chair of the DAB circulated a draft Dispute to set aside the interim award for lack of the
The contract is at an end. Obtaining a Adjudication Agreement (DAA). On 18 October Tribunal’s jurisdiction.
decision of the DAB is just an unnecessary 2012, the Owner suggested some changes
duplication of costs. The Decision of the Swiss Supreme Court
and invited the Contractor to sign the Dispute
Adjudication Agreement. First of all, the court considered whether the
Interestingly there have been two recent
decisions which address these issues, one pre-arbitration procedure was mandatory. The
The Contractor replied the following day,
from England and one from Switzerland. It is court was of the view that it was. The word
noting that as the DAB was still not in place
therefore possible to compare and contrast the “shall” was an obligation or duty and means
some 18 months after it had first tried to
approach of the Civil Codes and Common Law. that the action to which the verb applies must
initiate proceedings, it had initiated the
be undertaken. FIDIC itself made this clear in
arbitration procedure to protect its rights.
Switzerland: Decision 4A_124/2014 the definitions section of the Gold Book where
The Owner challenged the jurisdiction of it states at sub-clauses 1.2(e) and (f ):
This was a decision of the Swiss Supreme
the Arbitration Tribunal on the failure of the
Court. “ ‘shall’ means that the Party or person
Contractor to follow the DAB procedure
referred to has an obligation under the
The attempts to set up a DAB required by the contract.
Contract to perform the duty referred to …
The Decision of the Arbitral Tribunal whilst ‘may’ means that the Party or person
On 6 June 2006, the parties entered into a
referred to has the choice of whether to act
contract based on the FIDIC Red Book.
On 21 January 2014, the Arbitration Tribunal or not in the matter”.
In March 2011, the Contractor notified the made an award, by a majority, holding that the
DAB procedure contemplated by clause 20 of In the view of the court, the DAB dispute
Contract Corner:
A review of typical contracts and clauses Issue 12 2014

resolution proceeding foreseen by clause 20 of


the General Conditions is mandatory insofar as
it must be finished for an arbitration procedure
to begin. However, the court also looked at the
approach of the Employer or Appellant, noting
that:

“The DAB contemplated was more similar


to an arbitral tribunal of first instance rather
than an actual DAB, considering that it
would intervene so late in the development
of the contractual relationships and even
after they were extinguished, when the
respective positions of the parties were
already fixed and the opponents doubtlessly
irreconcilable. Therefore, even though it
was proscribed by the General Conditions in
principle, its implementation may no longer
have been absolutely necessary in view of
the economy of the system because it was
unlikely that it would avoid the initiation of
the arbitral procedure reserved by Sub-
Clause 20.6 of the General Conditions. Seen
in this perspective, the Appellant’s will to
obtain a DAB decision no matter what
appears questionable at the very least.”

Further, the court noted that the procedure


to constitute the DAB had started 15 months
before the Respondent filed its request for
arbitration (10 March 2011 to 27 July 2012),
which is a long time “in the context of a
dispute resolution mechanism supposed to
be expeditious”: five times longer than the 84
days within which the DAB procedure must impossible to blame the Respondent for losing of the economy of the system”?
normally be conducted. The court noted that, patience and finally skipping the DAB phase
despite its mandatory nature in order to submit England: Peterborough City Council v
after initiating the process, the Contractor tried
the matter to arbitration.” Enterprise Managed Services Ltd1
several times to restart the process despite the
Employer’s “passivity”, a role it shook off only Here, following completion of a project,
Thus, although the court agreed that the
after the filing of the arbitration notice. Peterborough alleged that the plant had failed
DAB procedure was mandatory, it also took
into account the reasons why there had to achieve the required power output and
Swiss Court Conclusion
been no DAB. Here it would be a breach of claimed the Price Reduction. On 6 January
Accordingly, the court concluded that: good faith for the Owner to insist on the 2014 Peterborough issued a letter of claim
mandatory nature of the DAB procedure, under the Pre-action Protocol. EMS responded
“In this respect, considering the circumstances given the substantial delay in constituting the that in accordance with the Contract terms
germane to the case at hand … they cannot DAB for which it was primarily responsible. In the dispute ought to be referred to a DAB. Mr
be criticized for failing to denounce the addition, the court did question whether in Justice Edwards-Stuart was therefore asked
Respondent’s failure to sign the DAA from circumstances where the project was over, the to consider whether or not the terms of the
the point of view of the rules of good faith. ad hoc DAB would in reality be similar to an Contract required a dispute to be referred to
Pursuant to these rules and considering the arbitral tribunal at first instance. Would holding adjudication by a DAB first as a pre-condition
process of constitution of the DAB, it is indeed a DAB “have been absolutely necessary in view to any court proceedings. If that was correct,
Contract Corner:
A review of typical contracts and clauses Issue 12, 2014

should the court exercise its discretion and output was achieved was foreseeable from the procedure, even if more expensive and
order that the Council’s proceedings be stayed? outset, yet nevertheless the parties chose to extensive, than to take the real risk that this
incorporate the adjudication machinery in the will be required in any event in addition to an
On the first issue the Judge decided that FIDIC form of contract. Both parties therefore adjudication.
upon a proper interpretation of the Contract, agreed to the “rough and ready” adjudication
sub-clause 20.8 would only apply to give procedure. However in the Swiss case, the Supreme Court,
Peterborough a unilateral right to opt out of perhaps because the Swiss Civil Code, like that
DAB adjudication if the parties had agreed That said, in circumstances where the parties of Romania, makes provision for the parties to
to appoint a standing DAB at the outset. had not yet invested time or money in the DAB act in accordance with the principles of good
Accordingly, given that sub-clause 20.2 adjudication, the Judge was sympathetic to faith, looked at the whole circumstances of
provided for ad hoc DAB appointments, the Peterborough’s case that the court proceedings the disputes between the parties. Here the
Judge accepted EMS’s argument that the should not be supplanted by adjudication. Contractor spent some 18 months trying to
Contract required the determination of the bring about the appointment of a DAB before
dispute through DAB adjudication prior to However, the overriding principle, as illustrated resorting to arbitration. An Employer could
any litigation. The right to refer a dispute to by the English legal authorities, clearly showed not then in good faith insist on the mandatory
adjudication arises under sub-clause 20.4 as a presumption in favour of leaving parties to nature of the DAB procedure it had done so
soon as a DAB has been appointed, whether resolve their disputes in the manner they had much to frustrate in the first place. This is rather
under sub-clause 20.2 or 20.3. agreed to in their contract. Accordingly, the helpful for contractors who are faced with an
Judge ordered that the court proceedings employer who is apparently trying to prevent
Peterborough then argued that sub-clause 20.8 were to be stayed. what is seen as a legitimate dispute from being
provided an opt-out from DAB adjudication resolved through the DAB process.
but that if reference of a dispute to a DAB was The Swiss and English decisions compared
mandatory, the court proceedings should be
Although the circumstances of the cases were Footnotes
allowed to continue on the grounds that:
very different, both the English and the Swiss 1. [2014] EWHC 3193 (TCC)
(i) what was a complex dispute was courts emphasised that DAB procedures must
unsuitable for a “rough and ready” DAB be treated as mandatory.
adjudication procedure; and
One of the main differences between the two
(ii) any DAB adjudication would be an decisions was the attitudes of the parties. In
expensive waste of time as it was the Swiss case, the Employer was essentially
inevitable that the losing party would go trying to frustrate the entire dispute resolution
to court. process, first by moving very slowly when it
came to the appointment of the DAB and
Peterborough submitted that any decision
then using the lack of a DAB to allege that the
by the DAB would almost inevitably provoke
arbitration tribunal did not have jurisdiction.
a notice of dissatisfaction from one or other
In the English case, the Employer did not really
party. Accordingly, to embark on the fairly
want to have a DAB, preferring to go straight
lengthy (and therefore expensive) adjudication
to a final resolution of the case. This may, to a
procedure under the contract would be a
limited degree, have had an influence on the
wholly or at least largely unproductive exercise.
decision.
The dispute raised complex questions of
construction and application of legislation,
Thus whilst both courts did agree that the
mandatory codes and standard industry
DAB was a condition precedent to arbitration,
practice and would require extensive
in England this meant that the parties had
disclosure. Therefore the “rough and
to submit to the DAB, even though the
ready” process of adjudication was entirely
Judge recognised that there was a real risk
inappropriate to resolve this dispute.
of duplication of costs. This was not a case
However, the Judge noted that this was where either party had invested any time or Jeremy Glover
nothing new: the complexity of a potential money on the preparation for or conduct of Fenwick Elliott
dispute about when the required power an adjudication, and so it can fairly be said that +44(0)207 421 1986
it was better to have one dispute resolution jglover@fenwickelliott.com
Universal view:
International issues around the globe Issue 12, 2014

Ebola & ISIS: Force Majeure under the


FIDIC form and civil codes
By Lisa Kingston of force majeure events are also set out (as is Contractor’s Personnel and other
Fenwick Elliott the case in the FIDIC form). employees of the Contractor and Sub-
contractors
The recent incursion of ISIS forces into Iraq is a The civil law jurisdictions on the other hand
matter of considerable concern to many who define what is meant by force majeure, and (iv) munitions of war, explosive materials,
are involved in projects in Baghdad and Syria, in some cases, have a requirement for force ionising radiation or contamination
who need to ensure the wellbeing of their majeure events to be unforeseeable. This raises by radio-activity, except as may be
staff and security of the works in difficult and the force majeure threshold considerably attributable to the Contractor’s use of
often unpredictable circumstances. Ebola is above that which is seen at common law.1 such munitions, explosives, radiation or
equally problematic in West Africa and beyond, radio-activity, and
Force majeure under the FIDIC form
where there are concerns about workforces
(v) natural catastrophes such as earthquake,
falling ill, travel being restricted or delayed Force majeure is widely drawn under the FIDIC hurricane, typhoon or volcanic activity.
both domestically and internationally, and the form to reflect the greater risk that is inherent
impact of government quarantine measures. in international projects, where parties often Sub-clause 19.2 deals with notice, and provides
contract in jurisdictions that are outside their a time bar in terms that:
This article aims to consider (i) what events
own. Sub-clause 19.1 of the 1999 Red Book
might constitute a force majeure in the “if a party is or will be prevented from
(“the Red Book”) defines force majeure as an
international context; (ii) force majeure under performing any of its obligations under
exceptional event or circumstance:
the FIDIC form and civil codes; (iii) how to the Contract by Force Majeure, then it shall
establish force majeure; and (iv) practical tips (a) which is beyond a Party’s control, give notice to the other Party of the event
on how to deal with a potential or actual force or circumstances constituting the Force
majeure event. (b) which such Party could not have Majeure and shall specify the obligations, the
reasonably provided against before performance of which is or will be prevented.
What is force majeure? entering into the Contract, The notice shall be given within 14 days
In general terms, a force majeure event is an after the Party became aware, or should
(c) which, having arisen, such Party could not
event that relieves the parties from performing have become aware, of the relevant event or
reasonably have avoided or overcome,
their obligations under the contract. Such circumstance constituting Force Majeure.
and
events are usually exceptional events that
The Party shall, having given notice, be
are deemed to be beyond the control of the (d) which is not substantially attributable to
excused performance of such obligations
parties, and which make performance of the other Party.
for so long as such Force Majeure prevents it
the contract physically or legally impossible,
Sub-clause 19.1 then goes on to provide a from performing them”.
as opposed to merely more difficult, time-
consuming or expensive. non-exhaustive list of the kind of events or
The consequences of force majeure appear at
circumstances that might amount to force
Sub-clause 19.4, namely:
There is no generally recognised doctrine majeure. These include:
of force majeure at common law, where “If the Contractor is prevented from
force majeure exists as a concept with an (i) war, hostilities (whether war be declared
performing any of his obligations under the
unclear meaning. Force majeure will only or not), invasion, act of foreign enemies,
Contract by Force Majeure of which notice
apply at common law if there is a specific as been given under Sub-clause 19.2, and
(ii) rebellion, terrorism, revolution,
contractual provision which defines the type suffers delay and/or incurs Cost by reason of
insurrection, military or usurped power, or
of occurrence(s) that might constitute a force such Force Majeure, the Contractor shall be
civil war,
majeure event. Often, the procedures that entitled subject to Sub-clause 20.1 to:
need to be followed when a party seeks to (iii) Riot, commotion, disorder, strike or
declare force majeure, and the consequences lockout by persons other than the (a) an extension of time for any such delay,
Universal view:
International issues around the globe Issue 12, 2014

if completion is or will be delayed, under Service Period of the contract (to reflect the some reasonable precautions and reasonable
Sub-clause 8.4, and fact that the Operation Service Period cannot alternative measures that could be taken to
be extended). It is anticipated that FIDIC will avoid the ISIS threat.
(b) if the event or circumstance is of the
follow the form adopted in the Gold Book
kind described in sub-paragraphs (i) As far as Ebola is concerned, because it is not
when it releases its updated version of the
to (iv) of Sub-clause 19.1 and, in the an airborne disease, again, there are likely to be
1999 Form.
case of subparagraphs (ii) to (iv), occurs various measures that contractors could take
in the Country, payment of any such Establishing force majeure to protect against the risks the disease poses.
Cost….” For example, medical checks could be imposed
Is it a true force majeure event? and employees could be excluded from site
Notice of Force Majeure is given under Sub-
if necessary. Or materials could be sourced
clause 19.2 and the notice is to be delivered in In order to establish Force Majeure, the
from alternative locations and/or suppliers in
accordance with Sub-clause 1.3. Contractor will have to establish that the force
the event that the supply chain was affected
majeure event is included within one of the
Under Sub-clause 19.6, if the execution of (the same would apply to any logistical issues
definitions in Sub-clause 19.1 (or is similar in
substantially all of the works is prevented for a arising out of the ISIS threat).
nature), and that he has been prevented from
continuous period of 84 days (or for multiple performing his contractual obligations in that Is the Contractor being prevented from
periods that total more than 140 days) by performance has become physically or legally performing any of his obligations under the
reason of Force Majeure, then either Party can impossible, as opposed to more difficult or Contract by reason of the Force Majeure?
issue a notice of termination, which will take unprofitable.
effect seven days later. The Engineer will then
Causation issues may arise in circumstances
determine the value of the work that has been Taking this and applying it to the ISIS where a Party is concerned that conditions at
done, and other costs such as demobilisation insurgency, it should be possible to establish or outside the site are too dangerous to allow
costs. that the actions of ISIS in trying to establish its staff or sub-contractors to continue working.
an Islamic State within Iraq constitutes war, The issue here is that if the Contractor’s
The 2008 Gold Book (“the Gold Book”) is also hostilities, terrorism, and invasion and so the
important in the context of force majeure as response was to evacuate the site, a situation
existence of a Force Majeure event ought to be would not be created whereby work would be
it represents a more collaborative, risk sharing able to be satisfied. Epidemics are not explicitly
approach than that which is seen in the 1999 prevented from taking place. The Contractor’s
covered under Sub-clause 19.1, but it must at actions in evacuating the site would stop work,
suite of contracts: indeed, FIDIC is likely to least be arguable that the Ebola outbreak is
follow the Gold Book approach at such time as not the ISIS threat, regardless of how strong
exceptional in its extent and nature, in which that threat is, or is perceived to be.
the 1999 suite is revised. case it might be regarded as being a natural
catastrophe. An alternative scenario may arise in relation to
The Gold Book does not contain the usual
1999 suite Clause 19 force majeure provisions. causation whereby the Contractor is unable
Could the Party have reasonably provided
Instead, it drops Clause 19 completely in favour to carry out work that is on the critical path,
against the Force Majeure before entering into
of a new Clause 18 that is headed “exceptional but he can carry out non-critical path work.
the Contract / is the Force Majeure beyond the
risks”, and Clause 17 (which was formerly risk Whilst this may cause substantial problems, it
Party’s control or attributable to the other Party
and responsibility) has been re-named “risk would probably not be prohibitive in terms of
/ could the Party have avoided or overcome
allocation”. The definition of exceptional risks performance of the Contractor’s obligations.
the Force Majeure event once it had arisen?
is very similar to the force majeure definition
Foreseeability (under the civil codes)
at Clause 19, but it is Clause 17 that makes These issues are relatively straightforward and
the Gold Book stand out from the 1999 suite. the ISIS insurgency and Ebola threat provide If foreseeability is an issue under any applicable
Clause 17 sets out the risks that the Employer some good examples. ISIS taking control of civil code (foreseeability does not feature in
and Contractor are to bear in a very detailed Bagdad is arguably an event that could not be the FIDIC form), then the question that has to
manner, having separate regard to the Design- prevented or avoided despite the exercise of be asked is if the force majeure event would
Build Period and the Operation Service Period reasonable diligence by either Party; indeed have been foreseeable to the hypothetical
of the contract. The Contractor is entitled to neither the current Iraqi government or the reasonable party at the time the contract was
an extension of time and its costs if there are international community has been able to entered into. This question is likely to create
any exceptional risks or Employer risks during effectively challenge the advance of ISIS. substantial difficulties.
the Design-Build Period, but to its costs only if However, if parties were affected by what is
those same risks occur during the Operation happening in Bagdad, then there are probably The current security situation in Iraq is seen
Universal view:
International issues around the globe Issue 12, 2014

by some as being entirely different from the


problems that have been faced by Iraq in
previous years and it is probably arguable that
no reasonable party could have foreseen the
rapid rise of ISIS in the manner in which it has
occurred: ISIS taking control of Bagdad would
probably also be unforeseeable. Contractors
who have entered into contracts which were
connected with areas that were previously
secure, but that have subsequently fallen
into turmoil should have less difficulty in
establishing the foreseeability element of force
majeure.

That said, given the very turbulent history


of Iraq which includes the Iran-Iraq war,
and the deposing of Saddam Hussein and
the turbulence that followed, the contrary
argument is that it was foreseeable that an
If any applicable civil code requires force The key point to note about claims for
insurgency such as ISIS might gain ascendancy
majeure events to be unforeseeable, then it additional time and cost is that they are subject
in Iraq and that Baghdad might fall into the
would probably make it much more difficult to the time bar at Sub-clause 20.1. Under
control of the insurgency and/or occupy sites
for the Contractor to establish force majeure. Sub-clause 20.1, claims for additional time or
in the region.
On a similar note, if the event is foreseeable, payment need to be made:
Much would depend on the site, the precise then it will be more difficult for Contractors
to argue that the impact of the force majeure “…not later than 28 days after the Contractor
situation that was on foot around the time the
event could not be mitigated, or alternative became aware, or should have become
contract was entered into, and the extent to
arrangements put in place in order to honour aware, of the event or circumstance”.
which the parties recognised the force majeure
event as being a likely risk. If, for example, the their contractual obligations.
Any claim for time or money will therefore be
site was associated with a strategic energy lost if it is not made within 28 days after the
Entitlement to additional time and cost
asset in an isolated location, then it would be Contractor became aware of the force majeure
more realistic for it to be considered a likely Additional time event or circumstance, or should have been
target. aware of it. The Contractor should keep such
Under the Red Book, the contractor would contemporary records as may be necessary to
Ultimately, whether the force majeure event be entitled to an extension of time in substantiate its claim.
is foreseeable to the reasonable party at the circumstances where delay affects completion,
time the contract was entered into would subject to the time bar provision at Sub-clause A fully detailed claim needs to be provided
be a matter for expert evidence. The political 19.2 in relation to the giving of notice. The within 42 days of the date on which the
stability of Iraq and the surrounding area, entitlement to any additional cost however is contractor became aware, or should have
the general security position in Iraq and slightly more complex. become aware, of the event or circumstance,
the surrounding area, and the strength and and fully supporting particulars of the basis
capability of insurgency groups such as ISIS at Additional cost of the claim, and of the extension of time
the time the contract was entered into would and/or additional payment claimed must be
all have to be considered. Whilst the history of The entitlement to additional cost relates
included. Sub-clause 20.1 goes on to make
Iraq may suggest that it was foreseeable that only to those force majeure events listed in
further provision for a Force Majeure that has a
an insurgency may gain ascendancy, whether Sub-clause 19.1(ii) – (iv). Therefore, taking the
continuing effect.
that insurgency would have been expected ISIS example again, if the site is located near
to come from ISIS is a much more difficult borders with countries that are affected by the Practical tips when dealing with a potential
issue and the arguments for and against are ISIS threat, there would be no entitlement to or actual force majeure event
therefore reasonably well balanced. additional costs as ISIS would not physically be
in the same country. • Employers sometimes amend the
Universal view:
International issues around the globe Issue 12, 2014

definition of force majeure at the drafting • If you do have to make a formal Conclusion
stage. They may, for example, narrow the declaration of Force Majeure, once you
definition of force majeure, exclude the have served notice of Force Majeure Force majeure can be a mine field, not least
right that otherwise exists to payment of under Sub-clause 19.2, you need to because the definition of force majeure can
costs, or limit the termination provisions. present your claim for additional time prove to be problematic and difficult issues of
It is always worth checking your contract and/or cost under Sub-clause 20.1 causation and foreseeability can arise.
to see if any bespoke amendments have within 28 days of the date on which you
A possible solution may be found in the
been made which alter the usual force became aware of the Force Majeure event
advance warning procedure that appears in
majeure provisions in order to avoid being or circumstance, or should have been
Sub-clause 8.4 of the FIDIC Gold Book which
caught out. aware of it, and your fully particularised
may assist to better manage difficult events.
• As soon as you become aware of a claim should follow 14 days later. Your
Sub-clause 8.4 provides that each Party shall
potential force majeure event that may claim may be subject to a decision of the
endeavour to advise the other Party in advance
potentially impact the performance of arbitral tribunal in due course so provide
of any known or probable future events or
your contractual obligations or the works, as much documentary evidence as you
circumstances which may adversely affect
serve notice under Sub-clause 19.2. It can.
the work, increase the Contract Price or delay
is better to err on the side of caution • If your claim for relief for Force Majeure the execution of the Works or the Operation
and serve a notice that transpires not looks doubtful under the FIDIC form, Service. The Employer’s Representative may
to be necessary, than to serve a notice consider whether any provisions of require the Contactor to submit an estimate of
too late and lose your entitlement to the relevant civil code might offer you the anticipated effect of the future events or
make a claim. Sub-clause 19.2 is rather assistance. Most civil codes provide relief circumstances, and/or a proposal under Sub-
draconian in that the time bar starts to run for true force majeure events, but a word Clause 13.3 [Variation Procedure].
from 14 days from when the Contractor of warning. Not all provide a clear right
should have become aware of the Force to compensation2, and some require the If parties incorporate the provisions of Sub-
Majeure event, and common and civil law force majeure event to be unforeseeable clause 8.4 of the Gold Book into their contracts,
jurisdictions will generally uphold time at the time the contract was entered into, then it is to be hoped that the parties would
bar provisions. which can create considerable difficulties be able to better manage force majeure type
• If you find yourself in a potential force in countries such as Iraq that are mired events, and that the formal declaration of force
majeure situation, you need to reduce by security and political conflict, as noted majeure would be the very last resort.
the risk surrounding whether an event is above.
a true force majeure event by entering • If you do need to demobilise and/or
into without prejudice discussions with evacuate, prepare an inventory of all
the other party. Try and agree what will equipment and materials on site and Footnotes
constitute a force majeure event before secure photographic, video and/or 1. See, for example, Article 1148 of the
the event actually arises, and / or agree documentary evidence of the physical French Civil Code which provides
legitimate steps you can take to mitigate condition of the site and works, as well as that a force majeure event must be
the risk in a given set of circumstances. the progress of the works. Be sure to copy unforeseeable, and render performance
If all else fails, speak to the other party to any paperwork in relation to progress both impossible and outside the
see if you can suspend or terminate the payments, variations, or any pending control of the party who seeks to invoke
works rather than declaring force majeure claims before you leave. If you are suspension of the relevant contractual
to avoid any liability that might otherwise unable to take soft copies, endeavour to obligation.
arise from a false declaration of force transport hard copies to a safe and secure 2. See, for example, Articles 168 and 425
majeure. location. This documentation will be of the Iraqi civil code which make no
• Before making any firm decisions about invaluable in substantiating future claims mention of compensation
whether to cease work, obtain as much or defences that you might bring in due
information as you can about the force course relating to the Force Majeure, or
majeure event. In the case of ISIS, try and in circumstances where theft or damage
get reports from security advisers and occurs due to the actions of a third party. Lisa Kingston
any information that might be published Most claims and defences fail due to a Fenwick Elliott
by government agencies to support the lack of supporting evidence.
+44(0)207 421 1986
existence of your force majeure event.
lkingston@fenwickelliott.com
Universal view:
International issues around the globe Issue 12, 2014

Does the UK late payment legislation apply


to international contracts?
By Jeremy Glover makes them particularly vulnerable if their (iv) Where the economic consequences of a
Fenwick Elliott debts are paid late, and the general deterrence delay in payment of debts may be felt in
of late payment of commercial debts. This does the UK, something which may engage
In England and Wales, the Late Payment of not explain why section 12 provides that where consideration of related contracts, related
Commercial Debts (Interest) Act 1998 applies parties to a contract with an international parties, insurance arrangements or the tax
to the vast majority of contracts for the supply dimension have chosen English law to govern consequences of transactions.
of goods and services. It operates by implying the contract, the choice of English law is not
a term into those contracts whereby, unless of itself sufficient to attract the application of Finally, the Judge was of the view that when
the contact itself provides a substantial remedy the Act. it came to the performance of the contract,
for late payment, debts are to carry statutory what mattered, at least for a contract for the
interest at a rate of 8% above base rate. It can Mr Justice Popplewell explained. First, it supply of services, was the performance of the
be seen that the interest rate is not intended reflected domestic policy considerations which supplier, not that of the person who is paying
to be compensatory. It clearly exceeds the are not necessarily the same as for contracts for the services.
interest rates which most parties would be with an international dimension. Second,
charged if they had to borrow money to it is of considerable economic value that Accordingly, the late payment legislation
cover the shortfall of not being paid. The Late international parties regularly choose English will only apply where there is a “substantial
Payment Act, as a matter of general policy, law and jurisdiction to govern their contracts. connection” between the parties or their
is intended to promote prompt payment of Section 12 recognises that subjecting parties transaction and the UK. That is the case, even if
all commercial debts and discourage the use to a penal rate of interest on debts might the parties have chosen English law to govern
of delay in payment as a business tool for be a discouragement to those who would their contract.
commercial advantage. otherwise choose English law to govern
contracts arising in the course of international
One question that has arisen is whether or not trade, and accordingly does not make such
this legislation might apply to international consequences automatic.
contracts, where the parties have chosen
English law. And this was the issue that came The Judge identified the following factors
before Mr Justice Popplewell in the case of which might justify the application of a
Martrade Shipping v United Enterprises [2014] domestic policy of imposing penal rates
EWHC 1884 (Comm). of interest on a party to an international
commercial contract. They must provide a
Here, the Judge explained that section 12 of real connection between the contract and
the Late Payment Act provides that where the effect of prompt payment of debts on the
parties to a contract with an international economic life of the UK:
dimension have chosen English law to govern
the contract, the choice of English law is not of (i) Where the place of performance of
itself sufficient to ensure that the Act applies. obligations under the contract is in
The Act will only apply if there is a significant England;
connection between the contract and England
(ii) Where the nationality of the parties or of
or if the contract would be governed by
one of them is English. Here, if the paying
English law, leaving aside the choice of law
party was a UK national then the Act may
clause.
well be engaged; Jeremy Glover, Partner
The Judge also reminded everyone of the Fenwick Elliott
(iii) Where the parties are carrying on some
twin purposes of the Act: namely, to protect +44(0)207 421 1986
relevant part of their business in England;
commercial suppliers whose financial position jglover@fenwickelliott.com
Commentary:
International dispute resolution & adjudication Issue 12, 2014

Good Faith: English Law v the UAE Civil Code


By Claire King1 and, specifically, that ITC had: (i) failed to act Compass had exceeded the number of Service
Fenwick Elliott with an implied obligation of good faith and Failure Points allowed in any given six-month
prejudiced Yam Seng’s sales by offering the rolling period.
Introduction same products for domestic sale below the
duty free prices that Yam Seng was permitted This contract contained an express duty to
The reluctance of English common law to to offer; (ii) instructed or encouraged Yam Seng cooperate in good faith “as is necessary for
imply a term of good faith into agreements to incur marketing expenses for products that the efficient transmission of information and
negotiated between two commercial parties ITC was unable or unwilling to supply; and instructions and to enable the Trust or, as the case
at arm’s length is well known and is based on (iii) offered false information upon which Yam may be, any Beneficiary to derive the full benefit of
the long-established doctrine of freedom of Seng relied to its detriment. There were no the Contract”. 4
contract. In stark contrast in civil law countries express terms of the contract covering any of
such as the United Arab Emirates, performing these points. The question before the court was whether this
obligations in a manner consistent with good clause provided an overarching obligation on
faith is a fundamental part of the contract. Leggatt J noted: “The content of the duty of good the parties to operate with each other in good
faith is established by a process of construction faith. The Court of Appeal held that whilst
A series of English cases on good faith in early which in English law is based upon an objective there was an obligation to act in good faith it
2013 had raised the prospect that the English principle. The Court is concerned not with the was specifically focused on the obligation to
courts may be on their way to recognising subjective intentions of the parties ...” take all reasonable action as was necessary for
an overarching duty of good faith but this the efficient communication of information
prospect now seems to have receded. This On the facts, only two obligations were and instructions. There was nothing that
article provides an update on the latest implied. First, the court found there was an required the parties to act in good faith in
position under English law whilst highlighting obligation not to undercut duty free prices, relation to anything else.
the contrasting position under the UAE Civil and secondly, there was an obligation not
Code. Those working with construction to knowingly provide false information; a Overturning the first instance decision,5 the
standard forms internationally need to keep duty of good faith was implied in both these court held that commercial common sense did
these very real differences in mind as they respects. The first obligation was contrary to not favour the addition of an overarching duty
can have a significant impact on how some usual standards of commercial dealing and to cooperate in good faith in circumstances
provisions operate in practice. the second was implied into the agreement where good faith had been provided for in the
between the parties as a matter of fact. contract in such a precise manner already.
English case law on good faith: the latest
position The fact that the contract was a long-term Applying this reasoning to the facts of the
distributorship agreement which, the court case, the Court of Appeal considered that the
The early 2013 case of Yam Seng Pte Ltd v noted, required the parties to communicate Trust was not prevented from awarding service
International Trade Corporation Limited (“ITC”)2 effectively and cooperate with each other in its failure points for failures in performance. The
involved a long-term distribution agreement performance, appears to have influenced the contract expressly contained precise rules
for fragrances produced by ITC bearing the result. The state of the contract, which had not for these matters and the ability of the Trust
name “Manchester United”. The court adopted been drafted by lawyers also appears to have to impose service failure points for poor
a fairly broad and purposive approach swayed the Court. performance was an absolute contractual right:
regarding the circumstances in which good “if the parties want to impose such a duty they
faith obligations might be implied, raising In stark contrast, the Court of Appeal took a must do so expressly”.
expectations that the courts were open to an much narrower and restrictive approach in
overarching duty of good faith being implied Compass Group UK and Ireland Ltd v Mid Essex The issue of good faith was further considered
more widely. Hospital Services NHS Trust.3 This also involved a in TSG Building Services plc v South Anglia
long-term contract for catering services. Housing Ltd (“SAH”)6 in May 2013 in relation
In that case Yam Seng (the distributor) argued to an ACA Standard Form of Contract for Term
there was an implied term that the parties The issue was whether the Trust was entitled Partnering.7
would deal with each other in good faith to terminate the contract on the basis that
Commentary:
International dispute resolution & adjudication Issue 12, 2014

Clause 1.1 of the contract provided: The subcontract also provided that the where there was a discretionary right (for
parties “shall uphold the highest standards example awarding a discretionary bonus to an
“The Partnering Team members shall work of business ethics in the performance of the employee). In those circumstances a decision-
together and individually in the spirit of trust, contract. Honesty, fairness and integrity shall be maker’s discretion will be limited, as a matter of
fairness and mutual cooperation for the paramount principles in the dealings between the necessary implication, by concepts of honest
benefit of the Term Programme . . . and in all parties.” good faith and genuineness and the need for
matters governed by the Partnering Contract the absence of arbitrariness, capriciousness,
they shall act reasonably and without delay.” Ramsey J referred to the Court of Appeal perverseness and irrationality.
decision in Socimer International Bank Ltd
The contract contained an “unqualified and (in liquidation) v Standard Bank London Ltd,9 Good faith in UAE contracts
unconditional right to terminate” at any time (i.e. which related to the standard to be applied
termination for convenience). in circumstances where the valuation of In stark contrast, a duty to act in good faith is
assets was left entirely in one party’s hands. In implied into all contracts that are subject to
SAH terminated the contract and TSG argued that case it was held that a decision-maker’s UAE law. This is underscored by principles of
that the termination was wrongful and in discretion will be limited, as a matter of fairness developed under Sharia law.
breach of clause 1.1. The issue the court had necessary implication, by concepts of honest
to decide was whether the good faith clause good faith and genuineness and the need for Article 246 of the UAE Civil Code provides that:
was pervasive such that it applied to the whole the absence of arbitrariness, capriciousness,
contract and therefore to the termination “a contract must be performed in accordance
perverseness and irrationality. However, the
provisions. with its contents, and in a manner consistent
decision remained with the decision-maker
with the requirements of good faith”.
and was therefore subjective.
The court accepted that, in principle, an
express obligation to act in good faith could be This in effect is a requirement not to use
Ramsey J decided that the same standard
pervasive and, depending on the nature and the terms of a contract to abuse the rights
applied in these circumstances and was not
drafting of the clause, it may be possible for it of the other contracting party, not to cause
impacted by the express clause in the contract
to affect all aspects of the contract. unjustified damage to the other party and to
although that clause was consistent with
act reasonably and moderately.
it. He went on to find that termination had
However, the court held that this was not
been justified on four of the five main grounds Decisions of the Dubai Court of Cassation
the case here. The contract contained an
alleged in the contractor’s notice of default.10 have ruled that an act of bad faith by one
unqualified right to terminate for convenience,
to which the obligation to act in good faith contracting party may provide a cause of
Summary
could not possibly extend. The entitlement action for the other and the duty of good faith
to terminate the contract was absolute. Each It seems then that the English courts are not is therefore overarching, unlike at English law.
party was entitled to terminate at any time. ready to imply a general doctrine of good In deciding whether an act constitutes bad
Further, clause 1.1 primarily related to the faith. The judgment of the High Court in Yam faith the court may also look at Article 106 of
assumption, deployment and performance of Seng appears to have been sidelined (if not the UAE Civil Code which provides that a party
roles, expertise and responsibilities set out in directly overruled) by the Court of Appeal and is prohibited from exercising its rights if:
the Partnering Documents. subsequent cases.
• it is intended to infringe the rights of
In the later 2014 case of Bluewater Energy If the parties want to have an express duty of another party;
Services BV v (1) Mercon Steel Structures BV and good faith they need to create one and they
others,8 Ramsey J examined again the impact • the outcome is contrary to the rules of
should think very carefully about its scope. The
of a good faith provision in the context of Islamic Sharia, the law, public order, or
English courts will not allow good faith-type
termination. morals;
wording to overrule an absolute contractual
right such as the right to terminate for • the desired gain is disproportionate to the
That contract provided for a notice of default convenience. The parties will need to expressly harm that will be suffered by the other
to be issued to the subcontractor requiring provide that a good faith obligation operates in party; or
them to “immediately commence and thereafter relation to such a provision.
continuously proceed with action satisfactory to • it exceeds the bounds of custom or
Bluewater to remedy such default”. If they did The situation might, however, be different if practice.
not do so, a notice of termination could then there was evidence to suggest a breach of an
be issued. express good faith obligation in circumstances
Commentary:
International dispute resolution & adjudication Issue 12, 2014

There are some potentially wide-ranging of good faith is not applicable to the Footnotes
ramifications of this including: obligation itself but to the performance
of the obligation. Accordingly the parties’ 1. With thanks to Lisa Kingston of Fenwick
• Good faith is most likely to be applied to agreement that the employer may Elliott for her great assistance in preparing
evidence for, or to support, an allegation terminate the contract for convenience this paper and Ahmed Ibrahim of Ahmed
of breach. Where, for example, building is a valid agreement and the UAE courts Ibrahim Advocates and Legal Consultants
materials are found to be defective a will normally uphold this. Although this for his assistance in relation to the position
breach will be easier to establish if there employer’s right might be looked at as under UAE Law.
has been some attempt to conceal this or contradicting the good faith principle, it 2. [2013] EWHC 111 (QB) (February 2013)
cover up the materials once incorporated would be an enforceable contract term as 3. [2013] EWCA Civ 200 (March 2013).
into the works. it was freely entered into. However, if the 4. Clause 3.5 of the contract.
employer relies on this contract provision 5. At first instance the High Court ruled
• Reliance on a time bar notice (e.g. FIDIC’s to terminate the contract in circumstances that the Trust had abused its contractual
clause 20.1) is likely to be restricted where that give rise to performing the contract powers in relation to the service credits
a party seeking to rely on it knew about in a manner that is inconsistent with and breached the express provision of
that breach previously (for example, good faith, then the court might have a Clause 3.5. It further held that the Trust
if notification of the claim was made different view. For example, if the contract had acted capriciously and irrationally
informally and is recorded in meeting provides for termination for convenience in the way in which it deducted out the
minutes or similar but was never formally and limits the liability of the employer credits (e.g. deducting £84,540 for one day
made). In other words, denying a claim to compensate the contractor for the out of date chocolate mousse).
due to the time bar when it had already work done until the date of termination, 6. [2013] EWHC 1151 (TCC).
been communicated, albeit informally, but excluding mobilisation cost, the 7. TPC 2005 as amended in 2008.
would be an act of bad faith. employer who terminates the contract 8. (2) Mercon Holding BV; (3) Mercon Groep
for convenience immediately after BV [2014] EWHC 2132 (TCC).
• Avoiding liability for a very substantial 9. [2008] EWCA Civ 116
mobilisation and before the contractor
claim due to a time bar may also be 10. In the Compass case, Jackson LJ had
has done any work is performing the
unlawful where the losses were serious rejected such an implied term on the
contract in bad faith. In this case, the
and unequal with the employer’s grounds that the term in question was an
contractor might rely on Articles 246
contractual claim to be notified in a absolute contractual right and not one
(good faith), 106 (abuse of right) and
required time period (for example 28 days which could be exercised with discretion
390(2) (claiming actual loss) of the UAE
under clause 20.1 of FIDIC). Article 106
Civil Code to recoup its losses.
(1) of the UAE Civil Code provides that “a
person shall be held liable for an unlawful
exercise of his rights” and this, together Overview
with the good faith obligation, may be
used to challenge the effectiveness of a The stark contrast between the position
time bar in such circumstances. regarding good faith under English law and
that under the UAE Civil Code remains in place.
• Whilst the UAE Civil Code does provide This may make a real difference with regard to
that parties may fix a pre-agreed how some standard provisions in construction
compensation mechanism or amount in contracts are interpreted. As outlined above,
their contract, the court may also vary the the same time bar and termination for
pre-agreed amount of compensation or convenience provisions may result in very
damages to equal the actual loss in any different outcomes on similar facts, depending
event, regardless of whether there was on how the governing law approaches the
any “act of prevention” on the part of the issue of good faith.
employer.11

• Good faith is also applicable in relation Claire King


to termination for convenience clauses Fenwick Elliott
although it is worth noting that the duty +44(0)207 421 1986
cking@fenwickelliott.com
Universal view:
International issues around the globe Issue 12, 2014

Enforcement in Saudi Arabia and the UAE


By Nicholas Gould were required to bring applications for claiming damages of US$1.2 billion based on a
Fenwick Elliott the enforcement of foreign judgments breach of contract by Emaar on a construction
and arbitration awards before the Board project. The lengthy arbitration took two years
In March 2013 a new Enforcement Law came of Grievances. This was a lengthy and rigid but was finally dismissed, with Jadawel being
into effect in Saudi Arabia, replacing the procedure as the Board of Grievances would ordered to pay legal costs. The award was
relevant provisions of the 1989 Rules of Civil undertake a full review of the merits of then submitted to the Board of Grievances
Procedure before the Board of Grievances. each award, ensuring that the award was for enforcement. In its review, the Board
With a particular impact on the enforcement compliant with shariah law. It also required all proceeded to re-examine the merits and not
of arbitral awards, whether domestic or relevant documents from the arbitration to be only did it decline to enforce the award, but it
international, this new Enforcement Law submitted to the Board in Arabic to allow for reversed the award and ordered Emaar to pay
also contains provisions that affect aspects the review. damages to Jadawel.
of domestic and foreign judgments and is a
welcome change. An illustration of the old system is seen in The new Enforcement Law
an ICC case, Jadawel International (Saudi
Saudi Arabia: before the new Enforcement Arabia) v Emaar Property PJSC (UAE). In 2006 Abandoning the old system of enforcement
Law Jadawel commenced arbitration before a proceedings before the Board of Grievances,
three-member tribunal seated in Saudi Arabia, the new Enforcement Law introduces
Prior to the new Enforcement Law, parties an Enforcement Judge to deal with all
Universal view:
International issues around the globe Issue 12, 2014

enforcement issues. Courts of the UAE trend by the UAE courts away from overturning
arbitration awards on purely technical reasons.
The Enforcement Judge is required to A similar situation can be seen in the courts of
follow shariah principles, unless the law the UAE, as there are a number of technicalities Although there are still exceptions to this trend,
stipulates otherwise, and Article 9 of the new which are peculiar to UAE law. Such there seems to be a more arbitration-friendly
Enforcement Law provides for compulsory technicalities include requirements that: climate in the UAE and the developments are
enforcement upon the presentation of an positive.
executive deed, including a final arbitral award. • a UAE award must be physically signed
within the UAE;
Conclusion
Also, notably, appeals of the Enforcement
Judge’s decisions suspend enforcement. This • the legal representative of each party
The new Enforcement Law in Saudi Arabia is
goes against domestic law trends seen in other possesses a valid power of attorney to act
a positive step in the right direction. It should
parts of the world such as France. in the proceedings; and
guarantee that the merit of the dispute is
• witnesses should not be present in the no longer revisited; however, it is yet to be
The Enforcement Judge may enforce foreign
evidentiary hearing except when they determined what effect the provisions will
arbitral awards only on the basis of the
are giving evidence (however, it is worth have in practice. The new Enforcement Law
principles of reciprocity, refusing to enforce
noting that this is often relaxed by the does not protect parties or foreign awards
arbitral awards from jurisdictions that would
agreement of the parties). that are unfamiliar to Saudi law or shariah law
not enforce Saudi judgments or awards, and if
concepts.
the party seeking enforcement can ensure that:
In the past, awards have been overturned by
the courts for apparently insignificant errors Similarly, the positive advances in the UAE are
• Saudi courts do not have jurisdiction with
such as the tribunal’s failure to sign each page encouraging, but while fewer technicalities are
regard to the dispute;
of the award in full, instead simply initialling being flagged by the courts, it is still important
• the award was rendered in compliance each page. The Bechtel case is an example to know the pitfalls that can arise.
with due process requirements; of this, where the Dubai Court of Cassation
overturned an arbitration award because
• the award is in final form in the law of the the oath used to swear in witnesses during
seat of the arbitration; the arbitration did not follow the formula
prescribed for UAE court hearings.
• the award does not contradict a judgment
or order issued on the same subject by a Notably, the Paris Court of Appeal upheld the
judicial authority in the Kingdom of Saudi award in favour of Bechtel, setting aside the
Arabia; and Dubai Court of Cassation’s decision. The Paris
Court of Appeal ruled that the arbitral award
• the award does not contain anything
satisfied the requirement.
contradictory to Saudi public policy.
Positive trends in UAE courts
• The new Enforcement Judge will be
specialised in the enforcement of However, despite the history of technicalities, Nicholas Gould
awards, and judgments should be more there are also positive developments in the Fenwick Elliott
expedient. UAE courts. There appears to be a general ngould@fenwickelliott.com
News and events
Trends, topics and news from Fenwick Elliott Issue 12, 2014

This edition sponsor of this event we are able to offer a 30% always interested to hear your feedback and
discount using the VIP code FKW82533FEE. would welcome suggestions regarding any
Seminars and conferences Guests can register online, via email to aspects of contruction, energy or engineering
Fenwick Elliott once again supported the FIDIC professionalcustserv@informa.com or by sector that you would like us to cover. Please
International Contract Users’ Conference 2014 calling +44 (0) 20 7017 5503. contact Jeremy Glover with any suggestions
which took place on 2-3 December 2014 in jglover@fenwickelliott.com.
2014
London.
2014 has been a busy year for the firm and
Nicholas Gould, Partner, Jeremy Glover, Partner one in which the team has grown. During the
and Vincent LeLoup, EC Harris discussed past twelve months we have had two new International Quarterly is produced
“Time Bar Application under a Civil Law and a partners in the firm, David Bebb and Thomas
quartely by Fenwick Elliott LLP, the
Common Law Perspective” in the morning of leading specialist construction law
Young were promoted internally from senior firm in the UK, working with clients in
the second day. associates to partners and we have also had the building, engineering and energy
Fenwick Elliott are also supporting the FIDIC one new senior associate (Marc Wilkins) and sectors throughout the world.
Middle East Contract Users 2015 Conference three new associates (Martin Ewen, Robbie
McCrea and Suryen Nullatamby) join the
International Quarterly is a newsletter
in March next year. Both Nicholas and Jeremy and does not provide legal advice.
will be speaking on the first day providing firm. This further strengthens our team of
practical insights as to the reasons behind construction law specialists. Edited by Jeremy Glover, Partner, Fenwick Elliott LLP
jglover@fenwickelliott.com Tel: + 44 (0) 207 421 1986
the application of time bars, their operation This publication Fenwick Elliott LLP
under different Governing Laws (civil law vs. Aldwych House, 71-91 Aldwych
common law jurisdictions), ways around it We aim to provide you with articles that are London , WC2B 4HN
and recent jurisprudence on this matter. As a informative and useful to your daily role. We are www.fenwickelliott.com

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