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FIDIC around the world – June 2022

Monday 27 June 2022

FIDIC around the world – Ireland

Eoin Cassidy and Anne McCarthy
Mason Hayes & Curran, Dublin

In this questionnaire, references to International Federation of Consulting Engineers (FIDIC) clauses are references to clauses in the 1999 Red Book, unless otherwise noted.

1. What is your jurisdiction?

Ireland.

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 is widely used in Ireland, particularly for large-scale infrastructure and energy projects in the private sector. The Yellow Book and, to a lesser extent, the Silver Book are used on these large-scale engineering projects which are being procured on a design and build/ engineeering, procurement and construction (EPC) basis.

The Government Construction Contracts Committee standard forms of works contracts are used for public construction projects (and include a suite of contracts to be used for engineering or building works that are being procured on an employer-designed or design and build basis). However, the use of FIDIC contracts is increasing in the public sector. Transport Infrastructure Ireland (TII), the state agency in Ireland dealing with road and public transport infrastructure, approved the use of FIDIC-based contracts on a trial basis. The approval process to allow FIDIC contracts to be considered as an option for publicly funded infrastructure projects is under consideration and is supported by the Office of Government Procurement.1 Irish Water, the water utility company in Ireland, uses the FIDIC Gold Book in relation to the design, construction and operation of water treatment facilities.

The Red Book is not used as frequently in Ireland. The Royal Institute of Architects in Ireland has, in conjunction with the Construction Industry Federation and the Society of Chartered Surveyors, put together standard form building contracts (typically employer-designed but frequently converted to design and build); these are the most common form of contract used in non-public sector commercial development projects (commercial and residential).

The NEC 4 form of contract is starting to be used on some engineering projects, but it is typically heavily amended.

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

Yes, English.

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, amendments are required to incorporate construction-related statutory requirements. These include the following:

• The Safety Health and Welfare at Work (Construction) Regulations 2013–2021 require that certain health and safety obligations are complied with, including the appointment of a project supervisor for the construction stage (PSCS) and a project supervisor for the design process (PSDP) where a construction project meets certain criteria. The Contractor is often, but not always, appointed as PSCS, and the terms of their appointment are typically included as an amendment to the FIDIC Conditions of Contract. Where the Contractor is not appointed as the PSDP, compliance and cooperation amendments are also incorporated into the FIDIC Conditions of Contract to ensure compliance with these statutory requirements.

• The Building Control Regulations 1997–2020 require the Contractor to perform certain statutory building compliance roles, and provide certificates of compliance and supporting documentation where the works meet certain criteria. Where the Contractor is appointed to perform these statutory roles, its appointment and the documentation requirements are typically included as an amendment to the FIDIC Conditions of Contract.

• The Construction Contracts Act 2013 sets out minimum payment terms for construction contracts and provides for a regime of statutory adjudication. The payment provisions in clause 14 are amended for Irish-based contracts to align with the payment terms included in the Act. The dispute resolution provisions are also amended to incorporate the statutory right to refer a payment dispute to adjudication under the Construction Contracts Act 2013. Issuing proceedings in the High Court or any other forum will not interfere with this right.

• Relevant contract tax is a withholding tax that applies to certain payments by principal contractors to subcontractors in the construction industry. The FIDIC Conditions of Contract are amended for Irish-based contracts to ensure the Employer is provided with the appropriate documentation to enable it to make the payment gross. Where the documentation is not provided, these amendments permit the Employer to make any deduction or withholding on account of tax as is required by laws or as is required by the published practice of the Revenue Commissioners. The Contractor will be required to accept the net amount paid after deduction or withholding in discharge of the Employer’s payment obligations.

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?

Design risk: Projects using the FIDIC Yellow Book in Ireland are commonly amended so that Sub-Clause 1.9 is deleted and the final two paragraphs in Sub-Clause 5.1 are deleted or amended. This is so that the Contractor has the full design obligation under the contract. The intention is to remove design responsibility from the Employer in respect of documents provided by the Employer that form part of the Employer’s Requirements. This has become a standard amendment in Ireland in the FIDIC Yellow Book for design and build contracts. Generally, funders in the Irish market want all design responsibility to rest with the Contractor, and the Employer looks to make the necessary amendments to reflect this position in the FIDIC Yellow Book.

Setting out: A common amendment in the FIDIC Yellow Book in Ireland is for Sub-Clause 4.7 (Setting Out) to be amended so that a Contractor cannot claim time or money in respect of errors in the positioning or setting out of the works. This effectively aligns the Yellow Book to a Silver Book position. This amendment is particularly common in civil work contracts for renewable energy projects that are project financed. Funders will look for the setting out risk to be passed onto the Contractor.

Ground condition risk: The FIDIC Yellow Book is commonly amended so that a Contractor cannot claim time or money due to the condition of the Site, and accept the ground condition risks in respect of the Site, including its subsurface, hydrological and climatic conditions. The Contractor shall be deemed to have inspected the Site and all information provided, and Sub-Clause 4.10 is amended to reflect this position. An Employer will provide site surveys, reports or other documents it has in relation to the Site, but Employers in the Irish market will not accept reliance on the completeness of the information disclosed. Amendments to Sub-Clause 4.10 (Site Data) reinforces the position that the Contractor will not be entitled to rely on reports or information provided by the Employer, and expressly state the Employer does not provide any warranties in relation to the information provided. In addition, Sub-Clause 4.12 (Unforeseeable Physical Conditions) is regularly deleted, passing the ground risk on to the Contractor. Again, this is a position that funders in the Irish market look to have transferred over to the Contractor to provide security of performance and price. 

Multi-contractor co-operation: In multi-contractor projects, Sub-Clause 4.6 (Co-operation) of the FIDIC Yellow Book is also commonly amended and expanded upon to provide that a Contractor will cooperate with and coordinate its design and construction work with other contractors and the Engineer. The use of interface agreements in Ireland has decreased and these are now rarely used. To mitigate the risks involved in large projects that involve multiple contractors, the Employer looks to expand on the cooperation provisions included in Sub-Clause 4.6. The amendments require the Contractor to interface and integrate with the works of other contractors to ensure timely, efficient and cost-effective completion of the various elements of its own work and that of other contractors on Site so that each contractor can comply with the programme.

IP licence and indemnity: Sub-Clause 17.5 is usually amended to provide the granting of a non-exclusive, royalty-free, transferable licence to the Employer in relation to the Contractor’s Documents required for the operation of the Works. A reciprocal licence in relation to the Employer’s documents is also typically given to the Contractor. The IP indemnity included in Sub-Clause 17.5 is also carved out from the consequential loss limit on liability, ensuring the Contractor is responsible for any loss of profit or consequential loss arising as a result of a breach of IP rights.

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)?

Yes, an Employer is required to give a notice of the claim detailing the particulars of the claim, including the clause or other basis of the claim, and include substantiation of the amount and/or extension to which the Employer considers itself to be entitled in connection with the Contract. The clause is routinely amended to note the Employer’s failure to provide timely notice does not constitute a waiver of any of the Employer’s rights to pursue such claim, and the Employer (under the 1999 suite of FIDIC contracts) is not subject to any time requirements on when it may bring a claim against the Contractor. In Ireland, an additional set-off provision is usually included in the amendments to the General Conditions to provide a general right of set-off in favour of the favour of the Employer, over and above the set-off provisions included in Sub-Clause 2.5.

7. Does your jurisdiction treat Sub-Clause 20.2.1 of the 2017 suite of FIDIC contracts as a condition precedent to Employer and Contractor claims?

The 2017 suite of FIDIC contracts has not been widely adopted in Ireland and we regularly see developers continuing to rely on the 1999 suite of FIDIC contracts. Where the 2017 suite of FIDIC contracts are adopted, we have seen Sub-Clause 20.2.1 amended so the time bar provision in this clause only applies to the Contractor, bringing the pre-conditions to an Employer’s claim in line with the position in the 1999 suite of FIDIC contracts. In some instances, no time limits apply to an Employer claim; in other instances, we have seen the Employer amend the provisions to provide for a longer time period for bringing claims. There would appear to be an unwillingness in Ireland to adopt the approach included in the 2017 suite of FIDIC contracts, which sought to introduce reciprocity in the obligations of each party in relation to claims.

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 (not including Variations)?

Yes, the Contractor is required to comply with the requirements of Sub-Clause 20.1 where it looks to bring a claim for additional time and/or money (not including Variations). Where the Contractor does not comply with these provisions in their entirety, the Contractor has no contractual right to adjustment of the Time for Completion or the Contract Price. Failure by the Contractor to adhere strictly to the time limits specified within Sub-Clause 20.1 or to comply with any of the provisions of this sub-clause will invalidate any contractual claims by the Contractor for an adjustment to the Time for Completion or the Contract Price.

9. 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?

No, the provisions of Sub-Clauses 13.2 and 13.3 are applied where a Contractor looks to make a claim for a Variation and the provisions of Sub-Clause 20.1 are not applied in respect of the Variation process. In some instances, Employers may include a prescribed time period for the submission of Variation proposals as a Particular Conditions amendment to Sub-Clause 13.3.

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

The dispute resolutions provisions in Sub-Clauses 20.2 to 20.8 are regularly amended in Ireland to remove the use of dispute boards in the FIDIC suite of contracts. In Ireland, the dispute provisions are typically amended to provide for a tiered dispute process which usually provides for internal escalation, conciliation and arbitration with allocation also provided for statutory adjudication. Alternatively, some Employers look to refer disputes to the Courts of Ireland rather than arbitration, as disputes of more than €1m can be referred to the Commercial Court. Claims that are submitted to the Commercial Court benefit from a case management system that can in some instances prove to be more expeditious than an arbitration process.

11. 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 frequently used as the final stage for dispute resolution for construction projects in Ireland where the Employer has not opted to provide for disputes to be referred to the Courts of Ireland for final determination. Arbitration in Ireland will be governed by the Irish Arbitration Act of 2010, which gives the force of law to the UNCITRAL Model Law on Commercial Arbitration. Employers in Ireland look to also incorporate the Institute of Engineers Ireland Arbitration Procedure 2011, or in some instances, large multijurisdictional contractors may also look to incorporate the ICC Arbitration Rules. The seat of arbitration is typically Dublin. Before Brexit, some large multijurisdictional contractors would look for the seat of arbitration to be in London, but this request has dwindled since the United Kingdom exited the European Union.

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

From our searches, there are no noted cases in the Irish courts in relation to the interpretation of FIDIC contracts.

13. 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?

While not a case involving a FIDIC contract, Law Society of Ireland v Motor Insurers’ Bureau of Ireland2 is an important judgment to note in respect of the rules on contract interpretation in Ireland. The judgment delivered by the Supreme Court of Ireland marked a significant shift in emphasis in the law of contract interpretation in Ireland. The judgment retreated from a strictly literal approach, and instead placed considerable emphasis on the importance of understanding ‘the background, the context, the knowledge shared between the parties, and the purpose for which the contract was being made’ when interpreting a contract. The Supreme Court cautioned against adopting an overly literal approach that puts emphasis on the natural and ordinary meaning of the words regardless of the possibly detrimental commercial consequences, stating that ‘this approach elevates the ordinary meaning of the words to a position which is not perhaps entirely merited’. By adopting a decidedly contextual approach to contract interpretation, the Supreme Court has held that Irish law now requires full account to be taken of the relevant factual background and commercial purpose when interpreting a contract. Interpretation is to be given to the contract as a whole and in its entire context. This is particularly important when considered in the context of the projects in which FIDIC contracts are used and where relevance is given to the factual background and the commercial purpose of the contract.

Another important aspect to note that is specific to Ireland and that applies to liability in multiparty claims is the Civil Liability Act 1961. Under this Act, where two parties are responsible for the same damage, sections 11 to 14 entitle a plaintiff to recover a separate judgment for the whole amount of its damages against each concurrent wrongdoer, provided each contributed to causation. The key feature in establishing whether the parties are concurrent wrongdoers is that the wrong of each party must lead to one injury to the plaintiff. This may be because the wrongdoers have acted in concert to cause a single injury or where the independent wrongs of separate wrongdoers have led to a single injury to the plaintiff. The net effect of sections 11 to 14 of the Act is that a plaintiff is entitled to recover separate judgments for the whole amount against each concurrent wrongdoer: that is, even where there is an apportionment of liability as between concurrent wrongdoers, one wrongdoer can bear the full responsibility. This is colloquially known as the ‘1 per cent rule’. Under this rule, a plaintiff can elect to recover the total of their judgment against any named defendant(s), even if they are only liable for 1 per cent of the damage caused. The effect of these provisions is most clearly seen where one of the concurrent wrongdoers is insolvent. In this situation, the solvent co-defendants (who are also concurrent wrongdoers) are liable for the entirety of the damages. ‘Net contribution clauses’ are intended to negate the effects of the Act by limiting a party’s liability to such portion of any loss as they ought reasonably to pay, having regard to that party’s responsibility for loss and damage suffered as a result of the occurrence. However there is, as of yet, no specific Irish authority dealing with the effectiveness of a net contribution clause, and its impact on the Civil Liability Act 1961.

Notes

1 Jack Horgan-Jones and David Labanyi, ‘Contractors on major road projects sought €850m over agreed prices’ (The Irish Times 6 April 2021), see www.irishtimes.com/news/ireland/irish-news/contractors-on-major-road-projects-sought-850m-over-agreed-prices-1.4529605, accessed 23 May 2022.

2 [2017] IESC 31.

Eoin Cassidy is a partner at Mason Hayes & Curran in Dublin and can be contacted at ecassidy@mhc.ie.

Anne McCarthy is a senior associate at Mason Hayes & Curran in Dublin and can be contacted at amccarthy@mhc.ie.


FIDIC around the world – Pakistan

Khawaja Hamid Mushtaq

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

1. What is your jurisdiction?

Pakistan.

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 are commonly used in all types of infrastructure projects in Pakistan, both in the public and private sectors.

With regards to construction projects financed by the public sector, it is mandatory for public sector organisations under the relevant regulations to use FIDIC Standard Forms. In this sense, the Pakistan Engineering Council (PEC), the construction industry’s regulator, has prepared Standard Bidding Documents including the standard particular conditions of the 1987 FIDIC Red Book, and published them on its website along with the FIDIC Yellow and Silver Books.

In some China Pakistan Economic Corridor Projects (CPEC) road and infrastructure projects, the FIDIC 1999 Silver Book has been used. The FIDIC 1999 Yellow Book is used mostly in the private sector.

Given recent developments, seminars and meetings at PEC level, it is highly likely that, in the near future, the 2017 FIDIC Rainbow Suite will be adopted in the public sector instead of the 1987 FIDIC Suite.

In addition, almost all the multilateral development banks (MDBs) have obtained exclusive licences to use FIDIC Standard Forms 2017. Therefore, in the future it is anticipated that FIDIC Standard Forms 2017 will be used on MDB-sponsored or aided projects.

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

Urdu is the national language of Pakistan. FIDIC Standard Forms in Urdu are not produced by FIDIC and no official translations of FIDIC Standard Forms are available in the Urdu language.

In the local construction industry, the FIDIC standard forms in English are commonly used.

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?

Pakistani law embraces the rights of parties to choose the terms and conditions of their contracts as long as the conditions are not illegal or in contradiction to public policy.

As an example, under Sub-Clause 11.11 of the 1999 FIDIC Silver Book, the Employer is entitled to sell the Contractor’s equipment, surplus material and wreckage in the event of the Contractor’s failure to remove the same from the Site, after receiving the performance certificate.

Section 172 of the Contract Act 1872 defines ‘pledge’ as: ‘The bailment of goods as security for payment of a debt or performance of a promise.’ Similarly, under section 176, the pawnee has the right to sell the goods pledged.

FIDIC Sub-Clause 11.11 does not satisfy this requirement until the Contractor has expressly pledged its Goods and Equipment for such purpose. Thus, the  Employer may not be able to sell such equipment through a contractual provision alone. It is pertinent to mention that construction machinery such as cranes, excavators, loaders, dump trucks, forklifts and road rollers requires registration under relevant motor vehicle laws.

In general, FIDIC contracts are generally operative in Pakistan without many amendments.

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?

As already stated, the 1987 FIDIC Red Book is the standard form of choice on most public sector projects. As per PEC-approved bidding documents, some amendments we regularly see in Pakistan that are reproduced from PEC bidding documents are:

1. Sub-Clause 2.1 (Engineer Duty and Authority). The Engineer requires specific approval of the Employer in the following matters:

(i) consenting to the sub-letting of any part of the Works under Sub-Clause 4.1 (Subcontracting).

(ii) certifying additional cost determined under Sub-Clause 12.2 (Not Foreseeable Physical Obstructions or Conditions);

(iii) any action under Clause 10 ‘Performance Security’) and Clauses 21, 23, 24 and 25 (Insurance of sorts);

(iv) any action under Clause 40 (Suspension);

(v) any action under Clause 44 (Extension of Time for Completion);

(vi) any action under Clause 47 (Liquidated Damages for Delay) or Payment of Bonus for Early Completion of Works (PCC Sub-Clause 47.3);

(vii) issuance of Taking Over Certificate under Clause 48;

(viii) issuing a Variation Order under Clause 51, except:

a) in an emergency situation, as stated below, or

b) if such variation would increase the Contract Price by less than the amount stated in Appendix A to Bid;

(ix) fixing rates or prices under Clause 52;

(x) extra payment as a result of a Contractor’s claims under Clause 53;

(xi) release of Retention Money to the Contractor under Sub-Clause 60.3 (Payment of Retention Money);

(xii) issuance of the Final Payment Certificate under Sub-Clause 60.8;

(xiii) issuance of Defect Liability Certificate under Sub-Clause 62.1; and

(xiv) any change in the ratios of contract currency proportions and payments thereof under Clause 72 (Currency and Rate of Exchange).

2. Bonus for early completion of Works, Sub-Clause 47.3.

3. Secured advance on materials, Sub-Clause 60.11.

4. Financial Assistance to the Contractor, Sub-Clause 60.11.

5. Default of a Contractor under Sub-Clause 63.1 is to be notified to the PEC for punitive action under the Construction and Operation of Engineering Works Bylaws 1987.

6. Ad hoc arbitration under Sub-Clause 67.3, under the Arbitration Act 1940 in Pakistan.

7. Integrity Pacts under Sub-Clause 74.1. The Employer usually provides a template of the Integrity Pact in the bidding document, stating that the Contractor shall not be involved in any illegal and corrupt practices, including bribery and commission etc. If the Contractor is found in breach of this Integrity Pact, the Employer can terminate the Contract.

8. Termination for Employer’s convenience under Sub-Clause 75.1.

9. Joint and several liability of joint ventures under Sub-Clause 77.1.

In public sector projects, the FIDIC Yellow Book or Silver Book standard forms also contain some of these amendments.

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)?

Yes, the Employer must comply with the notice requirements under Sub-Clause 2.5. It has been observed that the parties tend to retain Sub-Clause 2.5 in their contracts without any amendment.

I have frequently observed that dispute adjudication boards (DABs) have not hesitated at all in application of this clause, and have rejected Employer claims that failed to give notice under Sub-Clause 2.5.

The main reason for the applicability of this Sub-Clause is that Pakistani law embraces the right of parties to set any condition of the Contract as long as it is not illegal.

In the case of Ovex Technologies (Private) Limited Vs PCM PK (Private) Limited [PLD 2020 Islamabad 52], the observation of Honourable Justice Miangul Hassan Aurangzeb in the Islamabad High Court sums up the position of Pakistani law in relation to all such questions:

‘27 [...] It is for the parties to make their own contract and not for the court to make one for them. A court is only to interpret 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)?

Yes, the procedure set out in Sub-Clause 20.1 can be seen as a condition precedent for Contractor claims for additional time and/or money.

I have experienced many DABs religiously applying the procedure set out in Sub-Clause 20.1. Therefore, the Contractor needs to be vigilant in serving timely notice of its claim under Sub-Clause 20.1. Otherwise it may risk its entitlement for additional time and money.

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?

Yes. The law does not distinguish between the requirements of valid notice under Sub-Clause 20.1 for Contractor claim procedures for additional time and/or money arising out of Variations or otherwise.

As explained, the courts restrict themselves to the interpretation of contracts. Therefore, if the parties have set Sub-Clause 20.1 as a condition precedent for contract claims, the courts will interpret it in the same manner and such a condition must be complied with.

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?

Yes. In Pakistan, DABs are used on construction contracts as an interim dispute resolution mechanism created by the parties. It is purely contractual and, unlike arbitration, there is no regulation behind it. Therefore, the decision of a DAB is not submitted to the court for enforcement purposes.

In most cases, the decisions of DABs are challenged in arbitration by the parties.

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?

Yes. Arbitration is commonly used as a final stage for dispute resolution in Pakistan both in the public and private sectors. Once the arbitral tribunal renders an award, it is filed in the court under section 14 (2) of the Arbitration Act 1940 to make the award rule of the court.

Ad hoc arbitration is the most common in construction projects in Pakistan. However, in recent years, we have seen parties opting for institutional arbitration. The most used institution is the International Chamber of Commerce (ICC), followed by the London Court of International Arbitration (LCIA) and the Singapore International Arbitration Centre (SIAC).

We have also seen a couple of International Centre for Settlement of Investment Disputes (ICSID) arbitrations on construction projects in recent years.

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

Unlike many jurisdictions, disputes on construction projects in Pakistan usually don’t end up in court.

In both private and public sectors, the contracts generally have a well-structured and tiered alternate dispute resolution (ADR) mechanism clause. Parties tend to follow this tiered mechanism and attempt to resolve their dispute by arbitration or other alternative methods.

The court usually refers any contract where there is a valid arbitration clause available, and where one party is willing to commence arbitration, to arbitration under section 34 of the Arbitration Act 1940.

There are some areas where the law has been settled over time:

Liquidated damages: Pakistani law does not distinguish between penalty and liquidated damages. The case law developed under section 74 of the Contract Act 1872 puts an additional responsibility on the claimant to prove the loss. Mere stipulation of liquidated damages in the contract will not be sufficient. In Investment Corporation of Pakistan v Sheikhupura Textile Mills [2004 CLD 394], the Sind High Court held: ‘By now, it is well-settled that liquidated damages can be recovered only if the party claiming the same can prove the same.’

Governing law: parties are free to choose any law governing their contract, and courts have upheld the choice of the parties in this regard. However, it has been observed in public sector contracts, that the law governing the contract is Pakistani law and this position is generally non-negotiable.

12. Is there anything else specific to your jurisdiction and relevant to the use of FIDIC on projects being constructed?

In Pakistan, FIDIC forms on infrastructure projects are very popular. The local industry is very familiar with the Red, Yellow and Silver Books. The industry regulator PEC also believes that FIDIC forms provide a good ground for the stakeholders due to their balanced risk allocation. At the moment, we don’t see any competitor to FIDIC forms in the local market.

Due to a well-structured dispute resolution mechanism, disputes are usually settled through ADR mechanisms and not in courts.

Khawaja Hamid Mushtaq FCIArb is a director in the Dispute Resolution Cell in the National Highway Authority of Pakistan and can be contacted at hanny_khawaja@hotmail.com.


FIDIC around the world – India

Shri Venkatesh, Ashutosh K Srivastava and Jayant Bajaj

SKV Law Offices, Delhi

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

1. What is your jurisdiction?

India.

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?

The FIDIC suite of contracts are prevalent in EPC and large-scale projects in India. One of the widely used FIDIC forms of contract in India is the plant and design/build contract. The design and construct contracts prevalent in India take their inspiration from the FIDIC Conditions of Contract for plant and design/build: that is, the FIDIC Yellow Book.

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

In India, English is the accepted language. Hence, English language versions of FIDIC forms of contracts are used in India.

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?

FIDIC contracts, by their very nature, adhere to the essential elements of a valid contract as per the provisions of the Indian Contract Act 1872. Hence, no amendments are required to make them consistent with the applicable laws of India.

Nonetheless, the construction sector in India is highly regulated and monitored at various levels through numerous legislations and by-laws. Laws governing construction activities are enacted by both Parliament and state legislatures due to the federal structure envisaged under Schedule VII of the Constitution of India. Hence, as well as from the standard conditions of the contract, the parties, depending upon the nature of work, must comply with the relevant central/state legislation.

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?

The FIDIC suite of contracts are comprehensive and adequately deal with the rights/obligations of the parties in India. Insofar as non-essential amendments are concerned, there are certain modifications that may be carried out by the parties to cater to the project/sector specifications.

The following conditions are desirable for consistency with applicable laws:

Performance guarantee: As a way of practice, construction contracts necessitate that a Contractor must furnish an unconditional performance bank guarantee to ensure that contractual obligations are fulfilled adequately and in a timely manner. This performance bank guarantee must be kept valid by the Contractor until completion of the defect liability period. In this regard, the FIDIC General Conditions provides that a Contractor shall obtain (at its cost) a performance security for proper performance, in the amount and currencies stated in the particular conditions, if the condition is specified in the contract.

Force majeure: A clause with respect to force majeure is usually made a part of infrastructure contracts. Force majeure has been defined as ‘an event or effect that can be neither anticipated nor controlled’. This concept has been recognised under the doctrine of frustration of contracts as per section 56 of the Indian Contract Act 1872. Frustration of a contract discharges the parties of all underlying obligations. Hence, parties usually incorporate this clause in their contracts.

Suspension: Suspension clauses in a contract are quite similar to the provisions dealing with termination. A Contractor may suspend the execution of work due to an alleged breach of contract by the Employer. Similarly, an Employer may suspend payments owed to the Contractor on grounds of delay.

It would be difficult for either party to enforce a right to suspend in the absence of express provisions in the contract. Courts in India have frequently refused to enforce such a right. Thus, a suspension clause which adequately addresses the practical consequences of suspension of work is desirable in construction contracts.

Dispute resolution: Due to poor enforcement of the decisions of dispute adjudication boards (DABs) or dispute review boards (DRBs), the parties make provision for arbitration as a preferred mode for dispute resolution. Usually, clauses for ad hoc arbitration in accordance with the Arbitration and Conciliation Act 1996 are incorporated.

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)?

In India, freedom of contract is an essential for a valid contract. Hence, it is open for the parties to agree to notice conditions. However, it must be pointed out that, due to the prevalence of FIDIC standard forms of contract in India, the requirement of serving a notice as a precondition is usually retained in such contracts. 

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)?

As stated, the issuance of a notice is a condition precedent for a Contractor to claim additional time or money, unless otherwise agreed. In India, the courts have consistently held that the parties are free to enter into a contract as per their specific requirements.

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?

As stated, the parties are free to modify the clauses as per their specific requirements, subject to being in accordance with the applicable laws.

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?

In India, dispute boards came into use after liberalisation, when they were mandatory for all projects financed by the World Bank with a value of more than US$50m. Their importance has again been revived and they are being employed in several large construction projects.

However, dispute boards are not an effective forum due to the lack of enforceability of dispute board decisions. The parties are supposed to promptly comply with the decision made by a dispute board. Therefore, to seek a strict enforcement of such contracts, the dispute is often referred to arbitration.

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?

The Arbitration and Conciliation Act 1996 is the governing law of arbitration in India and is essentially based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law 1985 and Model Arbitration Rules 1976.

The Indian Arbitration Act provides ample flexibility to the parties to choose the venue (lex loci) and seat (lex arbitri) of the arbitration.

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

Even though the FIDIC suite of contracts has gained prevalence in India, there are no reported judgments that specifically deal with the FIDIC suite of contracts. However, the general view of the court rendered on the Indian Contract Act 1872 is applicable to the operation of the FIDIC suite of contracts as well.

Judgments often deal with the specific enforcement of  a contract.

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 recent years, the construction industry in India has witnessed astronomical growth. As of 2019, the construction industry is the second biggest industry in India after agriculture and employs nearly 50 million people in the country. While 42.39 per cent of the workforce in India were employed through agriculture in 2019, the other half was evenly distributed among other industries and services. The construction industry contributed over INR 2.7tn to Indian GDP in 2019, accounting for about 11 per cent of total GDP.

As a natural corollary, the reliance on standard forms of contracts such as FIDIC has increased. The convenience of using FIDIC forms of contract is due to the fact that the jurisprudence governing contracts is highly developed in India. The FIDIC suite of contracts are largely coherent with the Indian Contract Act 1872 and are therefore a reliable and predictable document for the parties to execute.

Shri Venkatesh is a partner at SKV Law Offices in Delhi and can be contacted at shri.venkatesh@skvlawoffices.com.

Ashutosh K Srivastava is a senior associate and Jayant Bajaj an associate at SKV Law Offices in Delhi.