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FIDIC around the world – March 2020

Construction Law International homepage  »  March 2020

 

Poland

Dr Joanna Rupa
Friedrich Graf von Westphalen & Partner, Cologne

 

In this questionnaire, references to FIDIC clauses are references to clauses in the 1999 Red Book.

 

1. What is your jurisdiction?

Poland.

 

2. Are the FIDIC forms of contract used for projects constructed in your jurisdiction? If yes, which of the FIDIC forms are used and for what types of projects?

FIDIC forms of contract are frequently used in Poland, primarily for domestic projects for construction of buildings and large infrastructure projects (construction of roads and motorways), but also for civil engineering works in the private sector.

The most commonly used FIDIC forms of contract are Conditions of Contract for Construction (1999 Red Book), but also Conditions of Contract for Plant and Design-Build (Yellow Book) and Conditions of Contract for Design, Build and Operate Projects (Gold Book). The Short Form of Contract (Green Book) is also used often for projects carried out in Poland.

 

3. Do FIDIC produce their forms of contract in the language of your jurisdiction? If no, what language do you use?

The FIDIC forms are available and commonly used in Polish, even for the projects with a foreign element. The translations of the Red Book, Yellow Book, Golden Book and Green Book was prepared under the patronage of the Polish Association of Consulting Engineers and Experts (Stowarzyszenie Inzynierów Doradców I Rzeczoznawców).

 

4. Are any amendments required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what amendments are required?

Generally, parties are permitted to arrange a contractual relationship at their sole discretion under Polish law as long as the content or purpose of the contract is not contrary to the nature of the relationship, the law or the principles of community life (Article 353(1) of the Polish Civil Code). FIDIC conditions might form the basis of a contractual relationship; however, some of the FIDIC terms contradict mandatory provisions of Polish law.

For example, according to the Civil Code, the regular term for asserting a claim associated with business operations is three years and changing the limitation periods in a contractual way is not allowed (Article 119). In this regard, sub-clause 20.1 of the FIDIC forms of contract, as far as it excludes the Contractor’s right to claim an extension of time or additional payment after the expiry of 28 days, might be invalid under some circumstances (see the response to question 7).

Some clauses, such as sub-clause 8.7, require interpretation adjustments to existing national legal instruments, rather than amendments.

Furthermore, considering the fact that FIDIC terms of contract are commonly used for public procurement projects, the provisions of the Polish Procurement Act need also to be taken into account. According to its Article 144, changes to the contractual provisions modifying the offer are not permitted. This would lead to the loss of the importance of clause 13, regulating the variation procedures. In line with Article 144 of the Polish Procurement Act, an example is that changes to the works that require the contracting of additional services are conceptually a distinct matter from an amendment to the contract due to a variation. These examples are not exhaustive.

 

5. Are any amendments common in your jurisdiction, albeit not required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what (non-essential) amendments are common in your jurisdiction?

Due to the common use of the FIDIC Conditions of Contract for contracts awarded under the public procurement procedure, a number of FIDIC Sub-Clauses are amended. The majority of these amendments consider the reduction of a Contractor’s rights and an increase of its obligations, as well as changes in the provisions, to reflect local regulatory requirements. 

 

6. Does your jurisdiction treat sub-clause 2.5 of the 1999 suite of FIDIC contracts as a precondition to Employer claims (save for those expressly mentioned in the sub-clause)?

There is case law (eg, Case No XXV C 1328/15 dated 14 July 2016 and Case No XXV C 1328/15 dated 28 September 2016 in the Warsaw District Court) with respect to the interpretation of sub-clause 2.5 under Polish law, which concentrates on the conditions of a valid deduction from the contract price. In general, Polish law permits the parties to arrange a contractual relationship at their sole discretion (see the response to question 4). This also applies for regulating the conditions of asserting and deducting claims in the contract deviating from the legal regulations. The Polish jurisdiction treats the ‘notification’ stated in the sub-clause 2.5 as a condition that needs to be complied with to assert the claims or make a deduction to the contract price. 

There are no court decisions or (published) arbitration awards dealing with sub-clause 2.5 as a precondition to Employer’s claims.

It is worth mentioning, that this sub-clause is often modified in contracts awarded under the public procurement procedure.

 

7. Does your jurisdiction treat sub-clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money (not including Variations)?

There are two opposing views in Polish law regarding the nature, validity and consequences of sub-clause 20.1 of the FIDIC Conditions of Contract. Under one view, sub-clause 20.1 is invalid. The Civil Code prohibits the change of limitation periods in contracts (Article 119). In a judgment dated 11 June 2012 (Case No XXV C 647/11) the Warsaw District Court defined the notification period provided by sub-clause 20.1 as a limitation period and determined that a sanction for failure to comply with the notification period would have the same results as a sanction for taking action after the limitation periods. As a consequence, Sub-Clause 20.1 is a violation of the mandatory law. According to the opposing view, sub-clause 20.1 is not a modification of the limitation period but only a contractual agreed term under which claims are made, which is permitted under Polish law. The Supreme Court declared this in its judgment dated 23 March 2017 (Case No V CSK 449/16). At the same time, the Supreme Court ruled that the validity of such contractual provisions needs to be proved having regard to the particular circumstances of the case against the general rules of the law, especially Articles 353(1) and 56 of the Polish Civil Code. In that particular case, sub-clause 20.1 was declared as invalid. 

 

8. Does your jurisdiction treat sub-clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money arising from Variations?

See the answer to question 7.

 

9. Are dispute boards used as an interim dispute resolution mechanism in your jurisdiction? If yes, how are dispute board decisions enforced in your jurisdiction?

There is a practice of using dispute boards under FIDIC contracts performed in Poland, but it is not widespread.

In light of Polish case law, if parties agreed on the application of the sub-clause 20.2, enforcing the decision of dispute boards is a necessary precondition to initiating arbitration (Case No II CSK 327/14 dated 6 February 2015 r. and Case No IV CSK 443/14 dated 19 March 2015 r. in the Supreme Court). Dispute board decisions might be enforced in a similar way to decisions made by an arbitration tribunal according to the Civil Procedure Code (Article 1212) once certified by the court.

 

10. Is arbitration used as the final stage for dispute resolution for construction projects in your jurisdiction? If yes, what types of arbitration (ICC, LCIA, AAA, UNCITRAL, bespoke etc) are used for construction projects? And what seats?

Arbitration is generally used in Poland to resolve disputes arising under FIDIC contracts. However, institutional arbitration seems to be increasingly popular, compared to ad hoc arbitration. The most common institutions that parties choose include the arbitration tribunal of the Polish Chamber of Commerce (Sad Arbitrazowy przy Krajowej Izbie Gorpodarczej), the arbitration tribunal of the Association of Consulting Engineers and Experts (Sad Arbitrazowy przy Stowarzyszenie Inzynierów Doradców I Rzeczoznawców) and the arbitration tribunal of the Polish Confederation of Private Employers Lewiatan (Sad Arbitrazowy przy Polskiej Konfederacji Pracodawców Prywatnych Lewiatan). The international arbitration institutions, such as International Chamber of Commerce or the London Court of International Arbitration, are chosen by the parties in some cross-borders projects.

Notwithstanding this, in some FIDIC contracts, the parties exclude both dispute boards and arbitration in favour of national courts.

 

11. Are there any notable local court decisions interpreting FIDIC contracts? If so, please provide a short summary.

There are not many court decisions that interpret FIDIC terms. The most important ones are referred to in the answers to question 6, 7 and 9. However, it is worthwhile to refer to the judgment of the Supreme Court dated 13 September 2017 (Case No IV CSK 578/16), which confirms that the FIDIC terms are general contract terms and shall apply as agreed between the parties insofar as they are not in conflict with the law. Another significant judgment of the Supreme Court, dated 29 April 2016 (Case No I CSK 306/15), confirms that the general rules of interpretation (Article 65 of the Civil Code) also apply to the interpretation of FIDIC terms.

 

12. Is there anything else specific to your jurisdiction and relevant to the use of FIDIC on projects being constructed in your jurisdiction that you would like to share?

Due to the fact that the FIDIC Conditions of Contract are often applicable to contracts awarded under the public procurement procedure, two things are specific when using FIDIC terms in Poland. First, the FIDIC terms are usually changed in favour of the government Employer. Second, the Public Procurement Act provides special procedures from the National Board of Appeal regarding disputes arising during public procurement. Particularly, FIDIC conditions or modified FIDIC conditions often have been issued in proceedings from the National Board of Appeal. Decisions of the National Board of Appeal are generally not binding, but they affect the practical use of the FIDIC Conditions of Contract.

 

Dr Joanna Rupa is an associate at Friedrich Graf von Westphalen & Partner. She specialises as a Polish and German attorney-at-law in international construction projects. She can be contacted at joanna.rupa@fgvw.de.

 


 

 

China

Jinlin Nan
Zhonglun Law Firm, Shanghai

 

In this questionnaire, references to FIDIC clauses are references to clauses in the 1999 Red Book.

 

1. What is your jurisdiction?

China.

 

2. Are the FIDIC forms of contract used for projects constructed in your jurisdiction? If yes, which of the FIDIC forms are used and for what types of projects?

Normally, for foreign-investment projects in China, the FIDIC forms are frequently preferred by the Employer, especially when the funds are from multilateral development banks, such as the World Bank.

However, the standard template issued by the Ministry of Housing and Urban-Rural Development, which includes versions for construction, design and engineering, procurement and construction (EPC), are more widely used when both the Employer and Contractor are domestic companies. The Ministry drafted the template contract in reference to the FIDIC version, particularly the structural form and clauses.

 

3. Do FIDIC produce their forms of contract in the language of your jurisdiction? If no, what language do you use?

The FIDIC 1999 forms were translated into Chinese by the China National Association of Engineering Consultants, as authorised by FIDIC. The 2017 forms have not been translated into Chinese yet. Chinese-language FIDIC contracts are recognised by authorities in most places.

 

4. Are any amendments required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what amendments are required?

Yes, there are amendments required for the FIDIC Conditions to be operative. The usual way is that parties write the contract on the FIDIC general conditions and do not draft a new particular condition. Occasionally when we are involved in the drafting work, we recommend that the parties keep the general conditions as they are and draft a particular condition and putting the revised term in it.

Regarding the frequently revised clauses, there are some clauses under the general conditions that are in conflict with mandatory regulations in China, such as that a foreign arbitration tribunal (such as the International Chamber of Commerce) shall not be selected when the contractual relationship lacks foreign elements and that the completion and acceptance standards must meet the requirement of regulations issued by the government besides the requirements of Employers. The nominated subcontract in the FIDIC Conditions of Contract is also not allowed in China.

 

5. Are any amendments common in your jurisdiction, albeit not required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what (non-essential) amendments are common in your jurisdiction?

No, there are not common amendments in China except the mandatory clauses stated in the answer to question 4.

 

6. Does your jurisdiction treat sub-clause 2.5 of the 1999 suite of FIDIC contracts as a precondition to Employer claims (save for those expressly mentioned in the sub-clause)?

There is no mandatory requirement to treat sub-clause 2.5 as a precondition to Employer claims. Chinese laws recognise freedom of contract and it very much depends on the contract terms agreed. Normally, the Employer claim occurs at the time of the final account and occasionally the court would prefer to select a third party to do the evaluation of the claimed work if there is no precondition clause to restrict such claim in the contract.

 

7. Does your jurisdiction treat sub-clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money (not including Variations)?

There is no mandatory restriction on treating sub-clause 20.1 as a precondition to Contractor claims. Under Chinese law, the issues related to Contractor claims for extension of time and money, whether such claims arise from Variations or not, shall comply with the contract signed by the parties and be in line with the true and common intention of the parties.

For some cases the court recognises the precondition to a Contractor’s claim, such as duly giving notice of claim, based on freedom of contract. But it very much depends on how the Employer’s lawyer presents the claim in court.

 

8. Does your jurisdiction treat sub-clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money arising from Variations?

See the answer to question 7.

 

9. Are dispute boards used as an interim dispute resolution mechanism in your jurisdiction? If yes, how are dispute board decisions enforced in your jurisdiction?

No, in the construction sector in China an interim dispute resolution such as a decision of a dispute adjudication board (DAB) or dispute avoidance adjudication board (DAAB) is unusual. Most contracts would stipulate that both parties shall actively communicate and negotiate when a dispute arises. If the dispute cannot be settled through top-level negotiation by the parties, a court or arbitration procedure shall be triggered.

 

10. Is arbitration used as the final stage for dispute resolution for construction projects in your jurisdiction? If yes, what types of arbitration (ICC, LCIA, AAA, UNCITRAL, bespoke etc) are used for construction projects? And what seats?

Both arbitration and court are common for dispute resolution in the construction field in China, depending on the parties’ preferences.

For arbitration, the China International Economic and Trade Arbitration Commission is frequently chosen as the arbitration commission for purely domestic construction projects.

 

11. Are there any notable local court decisions interpreting FIDIC contracts? If so, please provide a short summary.

In an interesting case in 2013, the Intermediate Court of Chongqing considered the role of the Engineer under the contract (as in FIDIC Red Book 1999) regarding the variation orders. Although the case was amicably settled in the court, the judge recognised the FIDIC contract terms and interpretation of the independent Engineer role in accordance with FIDIC.

12. Is there anything else specific to your jurisdiction and relevant to the use of FIDIC on projects being constructed in your jurisdiction that you would like to share?

In China, apart from the conditions stipulated in sub-clause 10.2, a project shall be taken over after a joint check by the Employer, Contractor, Engineer, Designer and Supervisor (called the five-party check and acceptance) and passing a fire protection test by the fire department of the public security office. This process is a mandatory condition for the Taking-Over Certificate.

 

Jinlin Nan is a partner at Zhonglun Law Firm in China. He can contacted at nanjinlin@zhonglun.com.

 


A FIDIC pitfall perpetuated

Jinlin Nan
Zhonglun Law Firm, Shanghai

 

FIDIC’s concept of requiring the Party receiving a dispute board award of money to provide to the paying Party security for the payment pending the award becoming final appeared in 2007. The evolution of the provision into its appearance in FIDIC’s Gold Book (2008) is mentioned in passing in 31 Const L J 7 (2015) at p 415, where it was noted as a brief insertion in the FIDIC Guidance Memorandum of 1 April 2011. Despite its brevity, the insertion stood out because it had no relevance to the rest of the Memorandum, which recommended amendments to Clause 20 intended to enable a failure to comply with a binding-but-not-final dispute board decision to be referred to arbitration without having first to obtain a further dispute board decision and undertake amicable settlement efforts. Those amendments were FIDIC’s response to the Persero court decisions in Singapore in 2010 and 2011.

The concept of providing security was to be inserted as a new penultimate paragraph for sub-clause 20.4 of the 1999 First Edition of the Red, Yellow and Silver Books: ‘If the decision of the DAB requires the payment by one Party to the other Party, the DAB may require the payee to provide an appropriate security in respect of such payment’.

Obviously, the concept was problematic.

What are the criteria which the DAB should consider in deciding whether to require the security? Should it be for every payment irrespective of the nature of the payment? For example, should it apply to a decision that the Contractor should pay the Employer delay damages? Should the security be for every payment irrespective of amount? If the payment is an amount to be paid over time, should the security be reduced as payments are made, and if so, how and by whom – the dispute board? The payer? The payee?

What constitutes ‘appropriate’ security? A surety? A bank guarantee? A pledge of non-monetary property? Does the Party providing the security have choice of the form of security or is the form to be determined by the dispute board? Should the security be irrevocable? Unconditional? Payable in full at first demand? Must the security be issued in the country of the project or can it be issued in a foreign country? Is the judgment of the dispute board on what is ‘appropriate’ binding unless and until modified in arbitration or litigation? What if the Party to whom the payment is to be made is unable, for reasons not its fault, to obtain an appropriate security – does that extinguish the right to the receipt of the payment?

When is the security required to be furnished? Before the paying Party makes payment? If so, what happens if security is provided but the Party that was to make the payment fails to do so? Should there be the equivalent of a ‘closing’ at which the payment and the provision of security are exchanged? If so, should the dispute board be the entity conducting the exchange? If another entity is used to effect the exchange, such as an escrow agent, how is such entity selected and what security of such agent’s good performance is to be obtained?

What is to be the duration of the security? If we assume what is likely, that is, that the amount of money is significant, there is a significant risk that the dispute to which the payment relates may not be resolved finally until the dispute is the subject of a final award in arbitration or the final decision of a court, which may take some years and involve extensions or renewals of the security. Even when the final award or decision is obtained, such award or decision may have to be enforced, which may involve additional duration for the security.

Who bears the cost of the security? Presumably the Party that the dispute board ordered to pay was (in the view of the board) wrongfully failing to pay: if so, should payment of the cost of the security be a condition precedent to the entitlement to receive the security? With the possible exception of a nation state, a person furnishing security normally suffers a corresponding restriction upon borrowing or bonding capacity for other purposes, thus, for example, prejudicing a Contractor’s ability to supply performance guarantees in order to secure other work. Should this be taken into account? If so, how?

Why restrict the requirement of ‘suitable security’ to dispute board decisions requiring ‘payment’? Might it not be just as appropriate for obligations to do work? If near to the time for Completion, a variation is instructed and performance will entitle the Contractor to additional time, should the Employer be required to provide ‘suitable security’ to the Contractor for the Employer’s obligation to adjust the date(s) for Completion?

These questions and problems were raised during FIDIC’s ‘friendly review’ process prior to the publication of the 2017 second editions of the Red, Yellow and Silver Books. Whether as a consequence or for other reasons, what FIDIC published was a provision that introduces even more problems:

‘If the decision of the DAAB requires a payment of an amount by one Party to the other Party:

(i) subject to sub-paragraph (ii) below, this amount shall be immediately due and payable without any certification or Notice; and

(ii) the DAAB may (as part of the decision), at the request of a Party but only if there are reasonable grounds for the DAAB to believe that the payee will be unable to repay such amount in the event that the decision is reversed under sub-clause 21.6 [Arbitration], require the payee to provide an appropriate security (at the DAAB’s sole discretion) in respect of such amount.’ [sub-clause 21.4.3]

It will be noted that the 2017 provision has what seems to be a new requirement, which is that the DAAB is to act ‘at the request of a Party’ and seemingly not on its own initiative. There is no indication of the time at which the request is to be made to the DAAB. Should the ability to pay be allowed to be raised at the time of the Engineer’s endeavours to ‘agree’ the resolution of the claim? If it is allowed, can it be raised again if no agreement is reached and the Engineer has begun the ‘determining’? If it is not raised earlier, can it be raised after the Engineer’s determination? If yes, must it be raised at the same time as the notice of dissatisfaction with the Engineer’s determination, or can it be raised later? If the latter, what is the effect on the time limit for the DAAB decision?

What if the DAAB decision on an amount to be paid is not ‘reversed’ but simply modified, perhaps to a lesser or greater amount, does that affect entitlement to make use of the security, and if yes, how?

Suppose that no request is made by a Party but a DAAB member becomes aware after referral to the DAAB that the Party seeking a payment is in financial difficulty and may be unable to repay later if the right to payment is not upheld in arbitration – can such DAAB member raise the matter? If yes, should the member do so?

Does the request affect the time limit for the DAAB’s decision? Can either Party ask for a hearing by the DAAB on the issue of ability to repay? Can either Party make written submissions to the DAAB on ability to repay? Can the Parties introduce independent expert evidence on the issue? Would such evidence be within the intent of DAAB Procedural Rule 5.1(d), and if yes, can the party who may have to repay have the power to block the use of such expert evidence?

If ‘suitable security’ has been provided in response to the DAAB requirement, can the providing Party ‘redeem’ the security and settle the amount finally determined to be due by means other than use of the security?

Aside from these procedural questions, what are ‘reasonable grounds’ for belief of future inability to repay if obliged to do so? How can a DAAB member – or anyone – make such a judgment when the obligation to repay may not arise until some years after the obligation to pay was established? The risk of such an eventuality seems unavoidable in a system providing timely decisions which are binding but not final because they may be subject to later revision. If so, there seems to be solid reasons to leave that risk where it fell at the time of the binding (but perhaps not final) decision.

 

Gordon L. Jaynes is a lawyer and arbitrator in Surrey, United Kingdom. He can be contacted at glj4law@aol.com.