CLInt - Book Reviews - March 2020

Construction Insolvency: Security, Risk and Renewal in Construction Contracts Author: Richard Davis Publisher: Sweet and Maxwell: Sixth Edition 2017 ISBN: 978-0-414-06291-7 1134 pages, £275 Reviewed by Bill Barton

Construction Insolvency: Security, Risk and Renewal in Construction Contracts is focused on the law as it stands in England and Wales, but as the author himself points out, previous editions of the book have been the subject of government reports in Hong Kong, Australia and Canada. While the focus is on English law, it has clear application to common law jurisdictions.

The previous edition was in 2014 and so the book provides a focused update on changes to insolvency and the further development of cases under the Housing Grants, Construction and Regeneration Act, not to mention the new versions of Joint Contracts Tribunal (JCT) Standard Form contracts, issued in 2016.

In light of recent high profile insolvencies involving Carillion and Condotte d’Acqua, construction lawyers need to be able to advise their clients, particularly subcontractors, quickly as to the impact of the insolvency regime to be applied. Will there be a moratorium on actions/debts? How long will that be in place? Is the insolvency final or to be seen as a route for the company to seek temporary protection before returning to trade? Can your client bring claims during this period and should they be an active creditor? Can you negotiate direct payment for your client?

The book is divided up into meaningful and relevant chapters that any practitioner specialising in construction will appreciate immediately. While there are effectively introductory chapters – on historical background and the variety of securities available and applicable – the ability to have insolvency placed in immediate context of plant and equipment, goods and materials adjudication and termination, to give but a few examples, enables the reader to locate and extract relevant information quickly.

Each chapter starts with an introduction and explanation as to what is dealt with and reference to any applicable procedure, definitions and applicable statutes and immediately brings you up to date with relevant case law.

Thus, while the experienced and specialist construction lawyer will derive guidance and clarity, the book can be used by practitioners with little or no experience and knowledge in a particular area, due to the fulsome text and rich application of case law and examples.

Clearly, any book on this subject will cover mainstream topics, but the extent of detail and explanation in niche areas, such as novation and completion contracts, demonstrates the strength of this book. These are areas where you may struggle to identify relevant cases, without exhaustive searches and an existing detailed knowledge of the area. However, that is why you are no doubt researching such points, as you lack that detailed knowledge and or understanding. What you need is an accelerated learning course, reference to the main cases, guidance as to which standard form contracts can be used or are applicable and then an analysis of the most common situations.

Too often in legal text there is a presumption that the reader is an expert already. That can make text overly complex and incomprehensible to read and understand. Davis manages to provide a logical progression through the subject. Of course, if you have enough prior knowledge you can skip the first few sections of a chapter and there will certainly be a subsequent heading ‘on point’.

For the technical geeks, the layout is fantastic. You have individual chapters, and then numbered paragraphs, with clear use of bullet points and diagrams, and no footnotes! The text is clean and spaced and it is surprisingly easy to read.

The chapters on adjudication and termination cover not only the obvious cases, but provide subsets that are enough to ensure you stop and consider any advice you may have been planning to give and check that you have indeed covered all eventualities. Read the section on repudiation and you obtain guidance on whether that unequivocal act is present, what may or may not amount to acceptance and the added complexity of anticipatory breach, all with cases summarised, explained and applied.

There may be books which deal in greater detail with a particular area covered by Construction Insolvency. Indeed, Davis does refer to some of them. However, given that the rate of construction insolvency is at its highest for five years, with the public demise of construction giants, such as Carillion, this book should be considered as essential for any lawyer working in or advising on construction.

UNIDROIT Principles of International Commercial Contracts: An Article-by-Article Commentary Author: Eckart J Brodermann Publisher: Kluwer Law International, 1st Edition.  Alphen aan den Rijn 2018.  ISBN: 978-90-411-9956-0 433 pages, £115 Reviewed by Thayananthan Baskaran

Various laws may be relevant to an international construction contract, for example, the law of the state in which the site is situated, the law of the contract and the law applicable to dispute resolution proceedings. The law of the state in which the site is situated is dependent on the geographical location of the site and not on the agreement between the parties. The law of the contract and the law applicable to the dispute resolution proceedings are, however, dependent on the agreement between the parties. The parties may find it difficult to agree on the law applicable to the contract, as they may be from different legal traditions, for example, the employer may be from a civil law jurisdiction, while the contractor may be from a common law jurisdiction. Even if both parties are from a common law jurisdiction, a party may be uncomfortable agreeing to the law of the other party’s state being applicable to the contract, simply because the party is not familiar with such laws.

The UNIDROIT Principles of International Commercial Contracts (the ‘Principles’) seek to address these difficulties by offering a codified set of rules that are drawn from various legal traditions. By way of background, UNIDROIT, or the International Institute for the Unification of Private Law, as the organisation is known in full, was founded as an organ of the League of Nations. At present, it is an international organisation with 64 member states acting on the basis of the UNIDROIT Statute.

The origins of the Principles can be traced to 1968, when based on a dialogue initiated by the Secretary-General of UNIDROIT that year, the Governing Council of UNIDROIT included in its working programme for 1971 the goal of ‘progressive codification of the law of contractual obligations’.

The goals of the Commentary under review are expressly stated to be:¹

• to convey trust in a developed, both pragmatic and sophisticated contractual regime, conveying personal experience of trust in the quality of the Principles and the process of their making;

• to provide short and ‘compact’ comments to key issues; and

• to emphasise practical aspects of using the Principles including a discussion of the limits of any given rule and the options for practitioners.

The Commentary achieves these goals admirably. In particular, it provides a concise and insightful explanation of the Principles, coupled with several practical examples, which bring the Principles to life. A practising construction lawyer would be able to easily relate to many of the examples provided.

The Official Comments on the Principles confirm that they are not limited to ‘ordinary exchange contracts’, but extend to ‘complex transactions in particular long-term contracts’.² The Principles may therefore be adopted for international construction contracts, which are long-term complex transactions. In this context, two articles of the Principles are of particular interest.

The first is Article 2.1.8, which provides for the modification of the terms of a contract: ‘A contract in writing which contains a clause requiring any modification or termination by agreement to be in a particular form may not be otherwise modified or terminated. However, a party may be precluded by its conduct from asserting such a clause to the extent that the other party has reasonably acted in reliance on that conduct.’

Article 2.1.8 strikes a reasonable balance between the commercial need for certainty, on one hand, and preventing unconscionable conduct, on the other, by providing, generally, that if a contract provides for modification of its terms in a particular form then that form must be complied with if the modification is to be effective. To this general rule there is then the exception that a party may be stopped from insisting on such requirements of form due to its conduct, if the other party has relied on such conduct.³ This will apply to international construction contracts, which often provide that any modification of the terms of the contract is to be in writing and signed by the concerned parties.

The second is Article 5.1.3, which provides for a duty to cooperate in the following terms: ‘Each party shall cooperate with the other party when such co-operation may reasonably be expected for the performance of that party’s obligations.’

Again, a good balance is struck between a general duty to cooperate, which is then tempered by a limit of reasonableness. The reasonable limit, as the Commentary explains,⁴ may be viewed from the following aspects: (1) costs; (2) the economic balance agreed upon in the contract; and (3) any possible information asymmetry of the parties.

The duty to cooperate is particularly applicable to international construction contracts, where both the employer and the contractor must cooperate in terms of information, instructions and the site to ensure that the project is completed.

Article 5.1.3 is similar, in this regard, to clauses 2.2 and 4.6 of the FIDIC Conditions of Contract for Construction (2nd edition, FIDIC 2017), which provide:

‘2.2 Assistance

If requested by the Contractor, the Employer shall promptly provide reasonable assistance to the Contractor so as to allow the Contractor to obtain:

(a)          copies of the Laws of the Country which are relevant to the Contract but are not readily available; and

(b)          any permits, permissions, licenses or approvals required by the Laws of the Country (including information required to be submitted by the Contractor in order to obtain such permits, permissions, licenses or approvals):

(i)            which the Contractor is required to obtain under sub-clause 1.13 [Compliance with Laws];

(ii)           for the delivery of Goods, including clearance through customs; and

(iii)          for the export of Contractor’s Equipment when it is removed from the Site…

4.6 Co-operation

The Contractor shall, as stated in the Specification or as instructed by the Engineer, co-operate with and allow appropriate opportunities for carrying out work by:

(a)          the Employer’s Personnel;

(b)          any other contractors employed by the Employer; and

(c)           the personnel of any legally constituted public authorities and private utility companies,

who may be employed in the carrying out, on or near the Site, of any work not included in the Contract. Such appropriate opportunities may include the use of Contractor’s Equipment, Temporary Works, access arrangements which are the responsibility of the Contractor, and/or other Contractor’s facilities or services on the Site.

The Contractor shall be responsible for the Contractor’s construction activities on the Site, and shall use all reasonable endeavours to co-ordinate these activities with those of other contractors to the extent (if any) stated in the Specification or as instructed by the Engineer.

If the Contractor suffers delay and/or incurs Cost as a result of an instruction under this Sub-Clause, to the extent (if any) that
co-operation, allowance of opportunities and coordination was Unforeseeable having regard to that stated in the Specification, the Contractor shall be entitled subject to sub-clause 20.2 [Claims For Payment and/or EOT] to EOT and/or payment of such Cost Plus Profit.’

The Commentary provides a concise and practical explanation of the Principles, which may be adopted for international construction contracts. The balance struck by the Principles in defining the duties and obligations of the parties is reasonable and in line with the practice of the international construction industry.

Notes

1 Commentary, p 9, para J2.

2 Ibid, p 13, para A1.

3 Ibid, pp 60–61, Art 2.1.8, paras A, B.

4 Ibid, pp 123–125, Art 5.1.3, paras A–D.