UAE

Ian Dalley
Dentons, Abu Dhabi, United Arab Emirates

Suzannah Fairbairn
Dentons, Dubai, United Arab Emirates

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

1. What is your jurisdiction?

United Arab Emirates (UAE).

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?

Yes, FIDIC forms of contract are popular for construction projects in the UAE. The FIDIC Red Book is the most common form because it is usual in the UAE for most (if not all) of the design to be carried out by or on behalf of the Employer. The 1987 FIDIC Red Book is still seen commonly on legacy projects, but the most popular form of Red Book for new projects is the 1999 Red Book. The 2017 Red Book has yet to gain much traction. As such, the contract-specific comments in this article refer to the FIDIC 1999 Red Book.

Some other forms of FIDIC are also used, albeit less frequently. In particular, the FIDIC Yellow Book is sometimes used for design and build projects, and the Silver Book is sometimes used for EPC contracts. The Gold, Green and White Books are also seen from time to time, but are less common.

Bespoke contracts are often used for power and industrial projects, or projects involving project finance, or other specialised projects. Bespoke contracts are also increasingly common for megaprojects.

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

FIDIC does produce its forms of contract in Arabic. English is widely used in the UAE and, due to the international nature of the construction industry in the UAE, the majority of parties tend to be most comfortable using the English version of FIDIC on large projects.

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?

Construction contracts, also known as muqawala contracts (which are contracts to do work or perform a task), are governed by Articles 872 to 896 of the Civil Transaction Law No. 5 of 1985, as amended by Federal Law No. 1 of 1987 (commonly known as the UAE Civil Code). Other provisions of the UAE Civil Code and other legislation will also be relevant.

Some of these provisions are ‘default provisions’, which parties must explicitly contract out of if parties do not want those provisions to apply. To the extent that the FIDIC Red Book deals with these provisions, the ‘default provisions’ will normally be overridden by the FIDIC terms and no further amendments are needed for FIDIC to be operative.

Other provisions in the UAE Civil Code are ‘mandatory provisions’, which means that parties cannot contract out of them. These mandatory provisions cover various issues such as decennial liability, and the court’s ability to vary agreed liquidated damages. The parties should be aware of these issues but, given that they cannot be contracted out of, no amendments to the FIDIC standard forms are required as conflicting FIDIC provisions will normally simply be overridden by the ‘mandatory provisions’, although it is usual to make amendments to align some of the conflicting FIDIC provisions with the mandatory provisions.

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?

FIDIC contracts are usually amended to be much more heavily in favour of the Employer, such as enabling the Employer to terminate for convenience in order to give the work to another contractor and deleting any Employer indemnities. The Engineer’s role is also often usurped such that the Engineer is required to seek the Employer’s approval for nearly every material decision it makes under the Contract.

Termination – There are specific provisions dealing with the termination of a muqawala contract under UAE law. In order to avoid unintended consequences, it is advisable for parties to amend the FIDIC provisions to clarify how the termination provisions are intended to operate in the context of the termination provisions in the UAE Civil Code.

Concurrent delay – There are no statutory rules or judicial guidance dealing conclusively with the definition or effect of concurrent delay. As such, it is common to include a clause stating that if a delay caused by an Employer’s risk is concurrent with another delay which is caused by the contractor, then the contractor will be entitled to an extension of time for the period of concurrency, but not to any costs for that period of delay.

Nominated subcontractors – Nominated subcontractors are common in the UAE and it is usual to state explicitly that the contractor is liable for the acts, omissions and delays of nominated subcontractors.

Physical conditions – Amendments are often made so that the contractor takes the risk of the physical conditions.

Dispute resolution – Dispute arbitration boards (DAB) have not yet gained much traction in the UAE, and it is common for the DAB provisions to be deleted.

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)?

This may depend on the particular factual circumstances involved. However, the Employer would not usually lose its rights to notify within a particular time period under Sub-Clause 2.5 because the clause does not provide a specific time period within which to provide the notices.

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 clear guidance from the UAE courts as to the enforceability of these types of condition precedents and there are arguments both ways under UAE law. This will also depend on the particular factual circumstances involved.

The starting position is that clear, express contract terms should be upheld (eg Article 126, 234(2) and 257 of the UAE Civil Code). Sub-Clause 20.1 includes a specific time period for filing the notice, and states that the rights will be lost if the notice requirements are not complied with.

However, there are also a number of arguments commonly employed by contractors to argue that Sub-Clause 20.1 should not be considered as a condition precedent, such as whether the party seeking to rely on the condition precedent has performed its obligations in good faith. In practice, whether a notice provision is enforced in an arbitration can also be influenced by the legal background or sympathies of the tribunal.

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?

The position is similar to the response to question 7. There is no clear guidance from the UAE courts on this.

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?

Dispute boards are not currently favoured in the UAE and Sub-Clauses 20.2 to 20.4 are usually deleted from most contracts. As such, there is limited evidence to demonstrate UAE courts’ willingness to enforce dispute board decisions.

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?

Due to the substantial growth of the construction industry in the UAE, the corresponding increase in legally intricate disputes means that arbitration is the favoured method of dispute resolution. It can be an effective means of unravelling the complex web for these kinds of construction disputes.

Arbitrations in the UAE commonly use the ICC (International Chamber of Commerce), DIAC (Dubai International Arbitration Centre) or LCIA (London Court of International Arbitration) rules. The ADCCAC (Abu Dhabi Commercial Conciliation & Arbitration Centre) rules are used to some extent for Abu Dhabi-based projects, but are less popular than ICC, DIAC or LCIA.

The DIFC–LCIA Rules were popular until the Dubai Government issued Decree No 34 of 2021 on 20 September 2021, which effectively abolished the DIFC–LCIA in order to make DIAC the single unified arbitration centre in Dubai.

Arbitrations that are seated ‘on-shore’ in the Emirates (ie, except in financial free zones) are governed by the UAE Arbitration Law (the Federal Arbitration Act of 2018), which is heavily shaped by the UNCITRAL Model Arbitration Law. Arbitrations are also commonly seated in the Dubai International Finance Centre (DIFC, which is an off-shore ‘free zone’) or in London, as well as the Abu Dhabi Global Market (another off-shore ‘free zone’).

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

There is no system of precedent in the UAE, so previous court decisions are not binding. Furthermore, the facts are often not fully set out in the judgments, so it can be unhelpful to seek to apply previous judgments to new cases.

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?

Agreements are generally enforceable, but some Articles of the Civil Code are ‘mandatory’ and apply regardless of any agreement between the parties. Some of these mandatory provisions that are particularly important to note in a construction context are:

• Liquidated damages can be adjusted at the discretion of a court (or arguably by extension a tribunal) to reflect the actual loss suffered (Article 390).

• Contractors, designers and architects will be liable for structural defects or the total or partial collapse of the building for ten years following handover of the works (Article 880). This is known as ‘decennial liability’.

• The parties are under an obligation to perform the contact in a manner consistent with the requirements of good faith (Article 246).

Agreements also will not be enforced if they are contrary to public order or morals (Article 205(2)) or the right is exercised in an unlawful manner (Article 106).

Hong Kong

Ben Bury
Holman Fenwick Willan (HFW), Hong Kong

Julie-Anne Mallis
Holman Fenwick Willan (HFW), Hong Kong

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

1. What is your jurisdiction?

Hong Kong Special Administrative Region of the People’s Republic of China (Hong Kong or the HKSAR).

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?

Yes, the FIDIC forms of contract are occasionally used for projects in Hong Kong, but other forms of contract are preferred.

Historically, in the public sector, the HKSAR Government (which is the main employer in the jurisdiction) used its own standard form contracts for civil engineering works, building works, electrical and mechanical works and design and build works which are modelled on the Institution of Civil Engineers (ICE) forms of contract.¹ Although these standard form contracts are still in circulation, since 2009 there has been a notable shift towards adopting the New Engineering Contracts (NEC) forms of contract (including the recently published NEC4) for public works projects including land supply, building, highway, drainage and sewerage, water supply, electrical and mechanical works, geotechnical works and operation and maintenance projects.² This shift is consistent with the current trend in the construction industry generally towards collaborative partnerships and collaborative management of construction projects.

In the private sector, standard forms of contract published by the Hong Kong Institute of Architects, the Hong Kong Institute of Construction Managers and the Hong Kong Institute of Surveyors are frequently used. The Joint Contracts Tribunal Limited (JCT) forms of contract are also popular. Having said that, it is not uncommon for parties in the private sector in Hong Kong to adopt clauses from the FIDIC forms of contract.

Stakeholders in the private and public sectors, including certain government departments such as the Hong Kong Housing Authority and certain quasi-government statutory authorities such as the MTR Corporation and Airport Authority Hong Kong, have also developed their own standard form contracts. The MTR Corporation intends to move towards using the NEC forms of contract in due course.

The FIDIC forms of contract are frequently adopted by Hong Kong parties involved in international construction projects including in Mainland China. The FIDIC forms of contract are often the starting point for the Belt and Road Initiative projects.

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

Yes, FIDIC publishes the full suite of the FIDIC forms of contract in English, which is one of the two official languages in Hong Kong, the other being Chinese. Last year, FIDIC also released a bilingual edition of five of its key forms of contract in English and Chinese: specifically, the 2017 versions of the Red, Yellow, Silver and White Books and the 2008 version of the Gold Book.

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 speaking, the provisions of the FIDIC forms of contract are compatible and consistent with Hong Kong law and no specific amendments are required for the FIDIC Conditions of Contract to be operative.

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 mentioned above, FIDIC forms of contract are only occasionally used for projects in Hong Kong. However, when they are used, they are often amended. There are several common amendments made to all standard form construction contracts in Hong Kong. Each of these amendments are addressed below.

Rights of third parties

It is common for parties who wish to deny rights to third parties under their construction contracts to exclude the application of the Contracts (Rights of Third Parties) Ordinance (Cap 623) (CRTPO), which creates a statutory exception to the longstanding doctrine of privity of contract. Pursuant to section 4 of the CRTPO, a third party may be entitled to enforce a term of a contract (including a term that excludes or limits liability) if the contract expressly permits them to do so or purports to confirm a benefit on them. The third party must be specifically identified in the contract by name, as a member of a class or as answering a particular description.³ Contracting parties can ‘opt-out’ of the application of the CRTPO by specific agreement and this exclusion is often included.⁴

Mandatory insurance

Construction contracts in Hong Kong will almost always be amended to provide for the mandatory insurance of each consultant and contractors’ employee in accordance with the Employees’ Compensation Ordinance (Cap 282) (ECO). The ECO sets out the rights and obligations of employers and employees with respect to injuries or death caused by: (1) accidents arising out of and in the course of employment; or (2) prescribed occupational diseases. In the context of FIDIC forms of contract, the compulsory obligations considered above will affect the drafting of Sub-Clause 19.2.5 [Injury to Employees of the FIDIC Conditions of Contract] and may also necessitate the incorporation of Special Provisions.

Opt-in provisions in Schedule 2 of the Arbitration Ordinance

Given the international nature of the FIDIC forms of contract, the FIDIC Conditions of Contract do not specifically provide for domestic arbitration in Hong Kong. Pursuant to section 99 of the Arbitration Ordinance (Cap 609), parties wishing to apply certain domestic arbitration provisions must specifically opt in to all or part of Schedule 2. The opt-in provisions under Schedule 2 of the Arbitration Ordinance include:

• having the dispute submitted to a sole arbitrator;

• consolidation of arbitrations by the court;

• determination of preliminary points of law by the court;

• challenges to awards permitted on grounds of serious irregularity; and

• appeals to the courts allowed on questions of law arising from arbitral awards.

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)?

The Hong Kong courts have not specifically considered the wording of Sub-Clause 2.5 [Employer’s Claims] of the FIDIC Conditions of Contract and determined whether it should be treated as a precondition to Employer claims. However, for the reasons set out below, it is almost certain that the Hong Kong courts would consider it to be a precondition to Employer claims.

The Hong Kong courts’ strict interpretation of conditions precedent to Contractor claims was illustrated in the recent Maeda Corporation v Bauer decisions,⁵ and such an approach is likely to be adopted to Employer claims as well – notwithstanding that Sub-Clause 2.5 of the FIDIC Conditions of Contract adopts different wording to Sub-Clause 20.1 [Contractor’s Claims] of the FIDIC Conditions of Contract concerning Contractor claims.⁶ It should also be remembered that English precedents are persuasive (although not binding) on the Hong Kong courts. In this regard, the Hong Kong courts are likely to be persuaded by the decision of the Privy Council to treat Sub-Clause 2.5 of the FIDIC Conditions of Contract as a precondition to Employer claims in NI International (Caribbean) Limited v National Insurance Property Development Company Limited (No. 2) (2015) [2015] UK PC 37.7.⁷

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)?

The Hong Kong courts have not specifically considered the wording of Sub-Clause 20.1 [Contractor’s Claims] of the FIDIC Conditions of Contract and determined whether it should be treated as a condition precedent to Contractor claims. However, for the reasons set out below, it is almost certain that the Hong Kong courts would consider it to be a precondition to Contractor claims.

In Maeda Corporation v Bauer,⁸ Madam Justice Chan of the Hong Kong High Court stated that Hong Kong courts would construe as a condition precedent to a Contractor’s claim any clause which employs clear, unambiguous and mandatory language for the service of notices prior to making a claim, with no qualifying language such as ‘if practicable’, or ‘in so far as the sub-contractor is able’. Madam Justice Chan further held that such clause must be strictly complied with and that a failure to do so will result in the Contractor having no entitlement.⁹ This decision was upheld on appeal.¹⁰

In this regard, Sub-Clause 20.1 of the FIDIC Conditions of Contract contains such clear, unambiguous and mandatory language for the service of notices. It requires the Contractor to give notice ‘as soon as practicable, and not later than 28 days after the Contractor became aware’, thereby setting out a precise period of time for compliance. It further provides that ‘[i]f the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment’, thereby setting out the consequences of any non-compliance.

Applying the Maeda Corporation v Bauer decisions,¹¹ it is almost certain that the notice requirements in Sub-Clause 20.1 of the FIDIC Conditions of Contract would be construed as a condition precedent to entitlement and therefore strict compliance is required.

It is worth noting that in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028, Justice Akenhead confirmed that Sub-Clause 20.1 of the FIDIC Conditions of Contract (1999 Yellow Book) is a condition precedent under English law, and for the reasons stated above it is likely that this decision would be persuasive in Hong Kong.

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, see the response to Question 7 above.

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, dispute boards have been used as an interim dispute resolution mechanism in Hong Kong. An example is the Hong Kong Airport Dispute Board (HKADB) which was established for the Hong Kong International Airport project in the 1990s. A group of six members and a convenor were selected based on their specialist knowledge and experience to cover 22 main contracts awarded by the Hong Kong Airport Authority for the project. When a dispute arose, a panel of one or three members were selected to determine the dispute. A total of six disputes were referred to the HKADB – with one dispute ultimately referred to arbitration.

Generally speaking, dispute board clauses in Hong Kong construction contracts will provide that parties shall comply with the determination of the dispute board. There is no underlying legislation in Hong Kong which provides for the enforcement of dispute board determinations. As such, if a party is in default of a dispute board determination, the enforcing party must commence court or arbitration proceedings against the defaulting party for breach of contract (depending on the precise terms of the dispute resolution clause).

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 the preferred method of dispute resolution for domestic and international construction disputes in Hong Kong. The prevalence of standard form contracts containing an arbitration clause has meant that construction disputes are almost always referred to arbitration.

The Hong Kong International Arbitration Centre (HKIAC) is the main arbitral institution used to administer construction arbitrations in Hong Kong. The seat is generally Hong Kong when HKIAC is selected as the administering institution, but not always. The International Court of Arbitration of the International Chamber of Commerce (ICC–ICA) and China International Economic and Trade Arbitration Commission (CIETAC) (among others) also operate in Hong Kong and are sometimes used.

Ad hoc arbitrations are also common in Hong Kong for domestic construction disputes. Hong Kong has adopted the UNCITRAL Model Law (as adopted on 21 June 1985 and amended on 7 July 2006) with specific Hong Kong modifications and supplementary provisions as the procedural law for both domestic and international seated arbitrations in its primary legislation, the Arbitration Ordinance.

Hong Kong is one of the world’s leading international arbitration jurisdictions. In addition to being a regional and global trade port and financial and services centre, the
pro-arbitration and pro-enforcement attitude of Hong Kong’s judiciary, presence of prominent arbitral institutions, strong pool of arbitrators and arbitration practitioners, and unique status as an English-Chinese bilingual common law jurisdiction make it an attractive venue for international arbitration, including for construction disputes.

Hong Kong has the added advantage of being a gateway for cross-border disputes involving Mainland Chinese parties and the reciprocal arrangements with Mainland China, namely:

• The Arrangement Concerning Mutual Enforcement of Arbitral Award Between the Mainland and Hong Kong 1999 (as amended in 2020), which provides for the mutual recognition and enforcement of arbitral awards; and

• The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the HKSAR 2019, which entitles parties of Hong Kong and Mainland Chinese-seated arbitrations administered by qualified arbitral institutions to apply to the Mainland Chinese courts for interim measures.

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

There are very few Hong Kong court decisions interpreting the FIDIC forms of contract. However, Hong Kong courts will frequently refer to English precedents (and precedents of other common law jurisdictions) where local court decisions are not available and therefore precedents from these jurisdictions will be relevant when interpreting the FIDIC forms of contract under Hong Kong law.

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?

Building and development controls

Hong Kong has strict statutory controls relating to:

• the approval and construction of new buildings or new building works, which extends to the supply of construction materials, site preparation, design parameters, engineering loads and stresses, structural requirements, layout, methods of construction, fire safety and demolition works;

• the monitoring and maintenance of existing buildings; and

• planning and development.

The primary statutory control for building works in Hong Kong is the Buildings Ordinance (Cap 123) (BO). The BO and its extensive regulations provide for the planning, design and construction of buildings and associated work, the rendering safe of dangerous buildings and land, and the regular inspections of buildings and the associated repairs to prevent buildings from becoming unsafe.¹² The statutory controls contained in the BO apply regardless of the scale and nature of building works (unless the building works are classed as minor works, in which case, the Building (Minor Works) (Amendment) Regulation 2020 applies).

For projects carried out in Hong Kong, parties should seek competent advice on the statutory controls, especially in connection with Sub-Clauses 1.13 [Compliance with Laws]¹³ and 4.8 [Health and Safety Obligations] of the FIDIC Conditions of Contract.

Environmental controls

Parties should also be aware of the extensive environmental protection legislation in place in Hong Kong including the:

• the Air Pollution Control Ordinance (Cap 311), which controls the emission of air pollution from stationary sources;

• the Noise Control Ordinance (Cap 400), which controls noise pollution;

• the Environmental Impact Assessment Ordinance (Cap 499), which mandates the assessment of the environmental impact of relevant projects; and

• the Buildings Energy Efficiency Ordinance (Cap 610).

Resourcing

Hong Kong has legislated to encourage companies to employ local workers on construction projects.¹⁴ Employment of foreign workers involves an approval process (granted on a case-by-case basis), payment of a levy of each foreign worker to the Employees Retraining Board and obtaining an appropriate visa/entry permit.¹⁵ Due consideration should be given as to how building, construction and infrastructure works carried out in Hong Kong will be resourced and parties should make appropriate provision for the time it may take to source an appropriate workforce. However, given the current skilled labour shortage, Contractors involved in public works who are experiencing difficulties in resourcing their works can refer to the expedited procedures for the Supplementary Labour Scheme.¹⁶

Security of payment

Unlike a number of common law jurisdictions, the HKSAR Government has not yet passed security of payment legislation. However, following the below-mentioned recent developments in the public sector in Hong Kong, the introduction of a statutory regime is imminent.

On 5 October 2021, the HKSAR Government Development Bureau issued a Technical Circular¹⁷ introducing an interim contractual security of payment regime which prescribes the mandatory incorporation of security of payment provisions (SOP provisions) into all public works contracts, including design and build contracts and term contracts (and any respective subcontracts) entered into on or after 1 April 2022.¹⁸

The key SOP provisions under the interim contractual regime include:

• a prohibition on conditional payment provisions (such as ‘pay when paid’ and ‘pay if paid’ provisions);

• prescribed maximum periods for determining payment claims (specifically, payment responses must be served by the paying party within 30 days and payment must be made within 60 days of the date the payment claim was served on the paying party);

• a right to refer payment disputes to adjudication within 28 days from the date when the payment dispute arose;

• a right to suspend or reduce rate of progress if adjudicated/admitted amounts are not paid;

• a mechanism for the Employer to circumvent the Contractor and directly pay Subcontractors unpaid adjudicated/admitted amounts; and

• a requirement for contract administrators to monitor the Contractor’s compliance with the regime and to rate the Contractor accordingly. Contractors with a poor record may be prevented from tendering or removed, suspended and/or demoted from the List of Approved Contractors for Public Works in Hong Kong.

Frustrated contracts

Sections 16(2) and 16(3) of the Law Amendment and Reform (Consolidation) Ordinance (Cap 23) (LARO) apply in circumstances where a contract has been brought to an end by frustration and: money has been paid or is owing prior to the frustrating event; or one party has conferred a valuable benefit on the other prior to the frustrating event. The LARO confers a wide discretion on Hong Kong courts and tribunals to determine what it considers to be a ‘just sum’; however, such a sum cannot exceed the expenses incurred or the value of the benefit conferred.¹⁹ Parties should review Clause 18 [Exceptional Events] of the FIDIC Conditions of Contract to determine whether it is appropriate in light of the LARO.²⁰

Implied terms

As with other common law jurisdictions, in addition to the express terms set out in the FIDIC Conditions of Contract, certain terms may be implied: under Hong Kong law subject to the court or tribunal’s interpretation of Sub-Clause 1.15 [Limitation of Liability] of the FIDIC Conditions of Contract;²¹ and by statute including pursuant to: (1) Supply of Services (Implied Terms) Ordinance (Cap 457), where the works include the supply of services; and (2) the Sales of Goods Ordinance (Cap 26), where the works include the sale of equipment and/or supplies.²²

Gross negligence

Sub-Clauses 1.15 [Limitation of Liability], 8.8 [Delay Damages], 11.10 [Unfilled Obligations] and 14.14 [Cessation of Employer’s Liability] of the FIDIC Conditions of Contract refer to the term ‘gross negligence’ as an exception to the application of the limitation of liability.²³ The concept of ‘gross negligence’ as distinct from negligence is not recognised under Hong Kong law.²⁴ Therefore, consideration should be given as to whether the phrase is appropriate.

Notes

¹ eg, the General Conditions of Contract for Civil Engineering Works 1999, the General Conditions of Contract for Building Works 1999, the General Conditions of Contract for Electrical and Mechanical Works 2007 and the General Conditions of Contract for Design and Building Contract 1999.

² See eg, Practice Notes for New Engineering Contract (NEC) – Engineering and Construction Contract (ECC) for Public Works Projects in Hong Kong (August 2021) published by the Development Bureau.

³ Ben Bury & Julie-Anne Mallis, ‘Applying FIDIC contracts in Hong Kong’ in Donald Charrett (ed) FIDIC Contracts in Asia Pacific A Practical Guide to Application (Informa Law from Routledge, 2022), 208; Ben Bury & Julie-Anne Mallis, ‘Hong Kong’ in in Donald Charrett (ed) The International Application of FIDIC Contracts – A Practical Guide (Informa Law from Routledge, 2020), 230.

⁴ Ibid.

⁵ Maeda Corporation and China State Construction Engineering (Hong Kong) Ltd v Bauer Hong Kong Ltd [2019] HKCFI 916 and Maeda Corporation and China State Construction Engineering (Hong Kong) Ltd v Bauer Hong Kong Ltd [2020] HKCA 830. This case is discussed in further detail at Question 7.

⁶ In particular, unlike Sub-Clause 20.1 of the FIDIC Conditions of Contract, Sub-Clause 2.5 of the FIDIC Conditions of Contract does not prescribe a precise time for compliance or the consequences of any non-compliance, although it does require the notice to be served ‘as soon as practicable’.

⁷ See Lord Neuberger’s judgment at [38] of NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd (No 2) (2015) [2015] UK PC 37.

⁸ Maeda Corporation and China State Construction Engineering (Hong Kong) Ltd v Bauer Hong Kong Ltd [2019] HKCFI 916, [23] and [31].

⁹ Ibid [23].

¹⁰ Maeda Corporation and China State Construction Engineering (Hong Kong) Ltd v Bauer Hong Kong Ltd [2020] HKCA 830.

¹¹ Maeda Corporation and China State Construction Engineering (Hong Kong) Ltd v Bauer Hong Kong Ltd [2019] HKCFI 916 and Maeda Corporation and China State Construction Engineering (Hong Kong) Ltd v Bauer Hong Kong Ltd [2020] HKCA 830.

¹² Ben Bury & Julie-Anne Mallis, ‘Applying FIDIC contracts in Hong Kong’ in Donald Charrett (ed) FIDIC Contracts in Asia Pacific A Practical Guide to Application (Informa Law from Routledge, 2022), 209; Ben Bury & Julie-Anne Mallis, ‘Hong Kong’ in in Donald Charrett (ed) The International Application of FIDIC Contracts – A Practical Guide (Informa Law from Routledge, 2020), 231.

¹³ Sub-Clause 1.12 is the relevant Sub-Clause in the 2017 Silver Book.

¹⁴ Ben Bury & Julie-Anne Mallis, ‘Applying FIDIC contracts in Hong Kong’ in Donald Charrett (ed) FIDIC Contracts in Asia Pacific A Practical Guide to Application (Informa Law from Routledge, 2022), 211; Ben Bury & Julie-Anne Mallis, ‘Hong Kong’ in in Donald Charrett (ed) The International Application of FIDIC Contracts – A Practical Guide (Informa Law from Routledge, 2020), 233.

¹⁵ Ibid.

¹⁶ Ibid.

¹⁷ HKSAR Government Development Bureau Technical Circular (Works) No. 6/2021 ‘Security of Payment Provisions in Public Works Contacts’.

¹⁸ The roll out of the contractual security of payment regime was staggered with tenders from Group B and Group C Contractors on the HKSAR Government Development Bureau’s ‘List of Approved Suppliers of Materials and Specialist Contractors for Public Works’, subject to the regime from 31 December 2021 and all other Contractors from 1 April 2022.

¹⁹ Ben Bury & Julie-Anne Mallis, ‘Applying FIDIC contracts in Hong Kong’ in Donald Charrett (ed) FIDIC Contracts in Asia Pacific A Practical Guide to Application (Informa Law from Routledge, 2022), 208; Ben Bury & Julie-Anne Mallis, ‘Hong Kong’ in in Donald Charrett (ed) The International Application of FIDIC Contracts – A Practical Guide (Informa Law from Routledge, 2020), 230.

²⁰ Ibid.

²¹ The applicable five-fold test is set out Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227; Kensland Reality Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at 391.

²² Ben Bury & Julie-Anne Mallis, ‘Applying FIDIC contracts in Hong Kong’ in Donald Charrett (ed) FIDIC Contracts in Asia Pacific A Practical Guide to Application (Informa Law from Routledge, 2022), 216; Ben Bury & Julie-Anne Mallis, ‘Hong Kong’ in in Donald Charrett (ed) The International Application of FIDIC Contracts – A Practical Guide (Informa Law from Routledge, 2020), 237-238.

²³ Sub-Clauses 1.14, 8.8, 11.10 and 14.4 are the relevant Sub-Clauses in the 2017 Silver Book. Ben Bury & Julie-Anne Mallis, ‘Applying FIDIC contracts in Hong Kong’ in Donald Charrett (ed) FIDIC Contracts in Asia Pacific A Practical Guide to Application (Informa Law from Routledge, 2022), 212; Ben Bury & Julie-Anne Mallis, ‘Hong Kong’ in in Donald Charrett (ed) The International Application of FIDIC Contracts – A Practical Guide (Informa Law from Routledge, 2020), 238.

²⁴ Ibid.