Clause 10 changes include express references to As-Built Records, Manuals, and Training for Taking Over, a Notice of No-objection requirement, deemed Taking Over without these Notices, immediate issuance of Taking-Over Certificates, and a 14-day prevention period.

The main changes in Clause 10 are the express reference in Sub-Clause 10.1 [Taking Over the Works and Sections] to the supply of As-Built Records, Operation and Maintenance Manuals and Training as a requirement of Taking Over.

• In the 1999 Yellow Book the requirement to provide training and these documents was hidden in Sub-Clauses 5.5 to 5.7. This express reference is then coupled with a requirement for the Engineer to issue a Notice of No-objection for the As-Built Records and the Operation and Maintenance Manuals.

There cannot be a deemed Taking Over under Sub-Clause 10.1 without these Notices. The second main change is the addition of the words in Sub-Clause 10.3 [Interference with Tests on Completion], of the failure to carry out any “performance test that is not possible due to available operating conditions during trial operation”.

The unavailability of operating conditions may not be due to the fault of the Employer; for example, there may have been a drought which resulted in water levels being too low for the testing of a dam. However, where this occurs then, subject to the Contractor issuing a Notice, there will be a deemed Taking Over of the Works or Section. Interestingly, because of the changes in drafting of Sub-Clause 10.1, it appears that deemed Taking Over occurs even without the As-Built Records, Operation and Maintenance Manuals and Training.

Other changes to note include:

• “Part” has now become a defined term meaning “a part of the Works or Section (as the case may be) which is used by the Employer and deemed to be taken over under Sub-Clause 10.2.”
• That when the Taking Over of Part of the Works occurs the Engineer must immediately issue a Taking-Over Certificate for this Part, which identifies the outstanding work to be completed (including Tests on Completion) and/or defects.
• In Sub-Clause 10.3 [Interference with Tests on Completion], the 14 day period of prevention can either be a continuous period or multiple periods which total more than 14 days.
• The referral of a claim for an Engineer’s Determination, under Sub-Clause 3.7, has been omitted from Sub-Clause 10.3.
• Sub-Clause 10.4 has not been changed; however the requirement to reinstate all parts of the Site is now expressly dealt with in Sub-Clause 11.11.

FIDIC is arguably the most widely used standard form of international construction contract but reported FIDIC cases are rare. Is it time for an increased publication of FIDIC cases? There are three categories of decisions arising out of FIDIC dispute resolution provisions: 1. Decisions of the Engineer or the Dispute Adjudication Board (DAB), which will generally not be published or reported to anyone other than the parties involved in the dispute. 2. Decisions of arbitral tribunals, which are not usually made public although this is subject to certain exceptions. 3. Decisions of national courts, which are a relatively rare occurrence for the reasons discussed below.

FIDIC is arguably the most widely used standard form of international construction contract but reported FIDIC cases are rare.  Is it time for an increased publication of FIDIC cases?

There are three categories of decisions arising out of FIDIC dispute resolution provisions:

1. Decisions of the Engineer or the Dispute Adjudication Board (DAB), which will generally not be published or reported to anyone other than the parties involved in the dispute.
2. Decisions of arbitral tribunals, which are not usually made public although this is subject to certain exceptions.
3. Decisions of national courts, which are a relatively rare occurrence for the reasons discussed below.

FIDIC-related arbitral cases 

Although there are some publicly available FIDIC-related decisions, FIDIC itself does not maintain a public library of them.  The International Chamber of Commerce (“ICC”) is perhaps the most prolific publisher of FIDIC cases, which is not that surprising given that most FIDIC disputes will be finally settled by ICC arbitration. Over the years, extracts, anonymous summaries and translations of various ICC decisions and awards dealing with FIDIC contracts have been published by the ICC and in legal journals.  The extracts published by the ICC are always confidential.  There is no published guidance from the ICC about how or why it decides to publish extracts in certain cases and not others.  Instead, it seems that the ICC considers the extracts that it publishes to be informative examples.  The extracts cover different substantive areas including construction as well as procedural topics including interim measures, jurisdiction and multi-tiered dispute resolution.  In 2015, the ICC published extracts from a further 17 decisions or awards issued by ICC arbitral tribunals relating to the multi-tiered dispute resolution provisions in FIDIC contracts and, in particular the DAB process, with commentary from Christopher Seppälä, in its inaugural “Dispute Resolution Bulletin”.  Awards dating from as recently as 2014 were included.  This is a marked shift away from the ICC’s previous position not to publish awards until three years after the case has been closed.

Although the ICC has for many years published extracts from FIDIC-related arbitral awards, Christopher Sepp lä applauded this most recent publication describing it as “an event of considerable importance, for two main reasons.  First, DABs have become the preferred method for resolving international construction disputes under such contracts (rather than having them settled by the Engineer or international arbitration).  Second, the awards are relatively recent – they were all issued between 2008 and 2014 – and all but two relate to the latest suite of FIDIC construction contracts for major works published in 1999 [the Red and Yellow 1999 Books].”[1]

The extracts from FIDIC cases published by the ICC are important for a number of reasons:

• Generally, they show the sorts of disputes being addressed by ICC arbitral tribunals, and the questions they are deciding, be they procedural, substantive, legal or factual.
• The extracts can give guidance to parties facing similar issues, showing the reasoning of previous arbitral tribunals, what issues of fact, contract, law or procedure were considered, and how the arbitral tribunal decided particular questions.
• The extracts reveal the arguments raised by the parties to the dispute which may be a source of inspiration for other parties.
• The extracts may inform the decisions of future arbitral tribunals deciding similar questions. Arbitral tribunals may find reassurance or inspiration in the reasoning of previous arbitral tribunals faced with similar questions.  However, they will not be bound by these previous decisions.

The extent to which the ICC’s extracts contribute to a body of FIDIC case law is necessarily limited, however, because:

• They are only extracts. It has been pointed out that “[w]hen extracts, digests or summaries are published, there is usually no way to ascertain their accuracy.  If they have been translated into another language as well, this may only enhance the risk of error.”[2]
• They are anonymous. Parties seeking guidance from them do not always know the governing or procedural law and therefore the extent to which, if at all, the legal framework of the decided dispute is similar to their own.  They do not always know all the procedural or factual issues, some of which may have been key to the decision-making process.  They do not know the identity of the arbitral tribunal or its experience and legal background which may have influenced each individual arbitrator’s position or thinking on certain issues.
• In sum, it is not always possible to get a feel for the “correctness” of the award.

National court decisions 

Very few FIDIC cases are considered by national courts.  This is because FIDIC contracts usually contain an arbitration clause and the majority of arbitral awards are complied with voluntarily.  National courts hear such cases in limited circumstances, such as if one party wants to remove an arbitrator or set aside or enforce an award.  The paucity of decisions by national courts on FIDIC contracts means that, when a national court does decide a FIDIC related issue, there is great interest.  This has been seen recently with, for example, the decisions of the Singapore High Court and Court of Appeal in the “Persero” cases relating to the enforcement of DAB decisions[3] and in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar relating to issues arising under the FIDIC 1999 Yellow Book (the Howard Kennedy International Construction team (formerly Corbett & Co.) acted for the Government of Gibraltar).[4]  This interest does not, however, necessarily equate to a requirement that arbitral tribunals or even other national courts follow the decisions.

Howard Kennedy International Construction team research into published FIDIC cases

Research by our International Construction team has identified approximately 130 reported or published court decisions and published extracts of decisions or awards by arbitral tribunals concerning or mentioning FIDIC contract disputes in the period 1974 to 2015.  In addition to these cases, there are other arbitral awards relating to FIDIC contracts that are referred to, anonymously, in textbooks and articles in legal journals and elsewhere.  Of the approximately 130 decisions we have identified, 61 are ICC arbitral awards or decisions (we have not found any published non-ICC arbitral decisions or awards) and 66 are court decisions.  The majority of the court decisions come from England and Wales.  Others come from India, South Africa, Trinidad and Tobago, Singapore and Australia as well as several other jurisdictions.[5]  We are publishing its list with this newsletter.

It is safe to assume that there are many unreported FIDIC-related arbitral awards in existence.  By way of example, we have been involved in a significant number of international arbitrations relating to FIDIC contracts which resulted in decisions or awards that have not been published and remain confidential.  Almost all of these were ICC arbitrations.  The ICC deals with many construction and engineering arbitrations each year (in 2014, 21% of the ICC Court’s total case load came from construction and engineering disputes[6]).  A fair percentage of these are likely to relate to FIDIC contracts.

The pros and cons of publishing more FIDIC-related arbitral awards 

So, should more FIDIC-related arbitral awards be published and, if so, how?  We want your views.

The benefits of having a body of published, accessible, full arbitral awards (not extracts, not anonymous) dealing with FIDIC-related disputes would include:

• Transparency in the final settlement of FIDIC related disputes.
• The development of a body of case law relating to FIDIC contracts, even if arbitral awards in commercial arbitration do not constitute binding precedent, and even if some awards are better reasoned than others.
• Such case law would assist with the development of consistent rules for recurring issues. In turn, this would assist with predictability in the administration of FIDIC contracts and the equal treatment of parties to those contracts.
• The better understanding by FIDIC users of the arbitral process.
• The assessment by FIDIC users of potential arbitrators through access to their published awards.
• The improvement of the quality of awards because of increased exposure and competition.

On the other hand:

• As noted by English judges in respect of the impact on the common law system of a huge volume of unreported cases deriving from the growing number of computerised databases: “… there is no pre-selection. Large numbers of decisions, good and bad, reserved and unreserved, can be accessed.  Lawyers frequently feel that they have an obligation to search this material.  Anything which supports their client’s case must be drawn to the attention of the court …”.[7] In other words, without any selection, there may be a torrent of published cases, and the usefulness of previous decisions might be neutralised as lawyers would eventually find support in previous decisions for any argument they care to run!
• Full publication would come at the price of confidentiality which, according to recent surveys,[8] remains important to many users.
• How could an increased publication of FIDIC-related decisions come about? Suggestions include amending national arbitration laws, amending the rules of arbitral institutions, amending FIDIC contracts to permit publication of arbitral awards and encouraging parties to FIDIC contracts and arbitration to agree to publication of awards.
• Who would publish the complete awards? If it was FIDIC, parties would have to send them to FIDIC for publication.  If it was the arbitral institutions, they may have to amend their rules.  If it was an independent body, for example a FIDIC users committee, it would have to rely on parties sending awards for publication.

Conclusion

• National court decisions relating to FIDIC projects will continue to appear sporadically and may give guidance but will not necessarily be binding on other courts or arbitral tribunals.

• The routine publication of complete, un-redacted arbitral awards on FIDIC disputes is unlikely. This is because parties would have to forgo confidentiality which, on the basis of recent surveys, they are unwilling to do.

• It is unclear who would be in charge of this publication exercise and how, practically, it would come about.

• Although such publication would be welcome for the sake of transparency, it may simply leave parties and arbitral tribunals swamped with a large volume of contradictory arguments and decisions.

• Publication by the ICC of anonymous extracts of FIDIC-related arbitral awards is valuable because the ICC has sifted and analysed the awards and the extracts comprise the only constant source of information on FIDIC awards. However, the extracts can do no more than what has already been described by the ICC, which is to inform, enlighten and contribute to greater transparency in the dispute resolution process.

[1] See the “ICC Dispute Resolution Bulletin 2015 No 1” available from the ICC Dispute Resolution Library at www.iccdrl.com.  See also the FIDIC commentary on this development at http://fidic.org/node/8818.

[2] Christopher Seppälä “The development of a case law in construction disputes relating to FIDIC contracts”, ICLR [2009] 105.

[3] The series of cases involving PT Perusahaan Gas Negara (Persero) TBK and CRW Joint Operation.

[4] Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) and [2015] EWCA Civ 712 (Court of Appeal).

[5] Including Northern Ireland, Tanzania, the Falkland Islands, Jamaica, Papua New Guinea, New Zealand, Botswana, the Philippines, Malaysia, Nairobi and Switzerland.

[6] Source: “2014 ICC Disputes Resolution Statistics” available at http://www.iccdrl.com.

[7] Per Laddie J in Michaels v Taylor Woodrow [2001] Ch 493 and quoted by Lord Carnworth of Notting Hill JSC in his address for the NMLR Annual Lecture Series in 2012 “Judicial Precedent – Taming the Common Law”.

[8] Such as the 2010 and 2015 International Arbitration Surveys by White & Case LLP and Queen Mary, University of London.

Even if a claimant has achieved complete success in litigation, it remains exceptionally difficult to recover legal costs on an indemnity basis, as this case demonstrates. Costs will most likely be recovered on the standard basis – at least in the absence of bad conduct during the litigation itself. This case also indicates that the court will generally limit an interim payment of costs to two-thirds of an approved costs budget.

Even if a claimant has achieved complete success in litigation, it remains exceptionally difficult to recover legal costs on an indemnity basis, as this case demonstrates. Costs will most likely be recovered on the standard basis – at least in the absence of bad conduct during the litigation itself. This case also indicates that the court will generally limit an interim payment of costs to two-thirds of an approved costs budget.

In the recent case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) [1] the Howard Kennedy International Construction Team (formerly Corbett & Co.) acted for the Government of Gibraltar (GoG). In April 2014, the Technology and Construction Court of England & Wales found that GoG had successfully terminated its £30 million FIDIC Yellow Book contract with Obrascón Huarte Laín SA (‘OHL’) for design and construction work to Gibraltar Airport, which principally involved the creation of a tunnel beneath the airport runway. As the successful party, GoG returned to Court in June 2014 to claim its legal and other costs of the proceedings. In particular, GoG sought the recovery of indemnity costs and an interim payment of those costs. As a general rule costs are not awarded on an indemnity basis. However, the Court’s discretion to award indemnity costs under Part 44.3 of the Civil Procedure Rules is wide.

The basis of costs

GoG requested costs on an indemnity basis due to OHL’s conduct. OHL accepted that it must pay GoG’s costs but asserted that it should do so on a standard basis only.

GoG referred to the cases of Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879 [2]and Three Rivers District Council v Bank of England [2006EWHC 816 (Comm) [3] as authority that a party seeking indemnity costs must establish some conduct or circumstance to take a case ‘out of the norm’. GoG asserted that OHL’s conduct indeed took the Gibraltar case out of the norm, in particular by OHL’s reliance on a report by a consultant whom it had engaged. That report was put forward to support OHL’s suspension of the works and redesign of the tunnel and also to put commercial pressure on GoG. In his judgment of April 2014 the judge had said this report was ‘palpably and obviously inept, was clearly worked on by OHL and cannot have been considered by OHL to be independent or competent’.

GoG also identified similarities in OHL’s conduct to that of the defendant in the case of Amoco (UK) Exploration Company v British American Offshore [2001] EWHC 485 (Comm).[4] In Amoco the defendant’s conduct had involved a deliberate policy calculated to exert unfair commercial pressure on the other party, the prioritisation of commercial interests over the rights and wrongs of the situation and a constantly changing case. It ultimately led to a resounding defeat at trial and the rejection of evidence put forward in support. The court had awarded indemnity costs in those circumstances.

OHL denied that its conduct bore any similarity to that of the defendant in the Amoco case. It instead asked the Court to consider the case of Courtwell Properties Ltd v Greencore PF (UK) Ltd [2014] EWHC 184 (TCC)[5] (a case heard by the same judge) where, although the defendant had been unsuccessful at trial, its position was nevertheless arguable and its conduct in the litigation had not been unreasonable.

Decision: costs on standard basis

The judge observed that the Gibraltar case was ‘many layered’ although primarily concerned whether the termination was lawful. He pointed out that there were other substantive and important issues such as ground/soil and water contamination, design processes, rock, suspension and re-design which had all been properly raised by OHL. He distinguished the Amoco case, and said that the primary question in present circumstances was whether a particular case was fought on a basis that took it out of the norm. Although highly sceptical of OHL’s tactics in the commissioning and drafting of the much criticised consultant’s report, the judge said that primarily the costs here were concerned with the costs of the litigation itself. OHL had run a large number of issues at trial and the fact that it had lost resolutely did not mean that GoG would automatically receive indemnity costs. OHL had not thereby taken the case out of the norm. This was not a case for indemnity costs, although the judge considered it was certainly not unreasonable for GoG to have requested them in present circumstances. OHL was ordered to pay the costs of the issues tried to date on the standard basis, to be the subject of a detailed assessment if not agreed.

Interim payment of costs: how much?

Early in the proceedings, at the case management conference, both parties had agreed cost budgets each in excess of £6 million and these had also been approved by the Court in a costs management order. Following judgment in April 2014, the parties had agreed that GoG was entitled to an interim payment of its costs, but disputed the size of that payment. GoG requested an interim payment of £5.5 million (approximately 80% of the budget previously approved by the Court) and OHL offered it only £4 million (approximately 58% of the approved budget).

GoG argued that its approved costs budget was ‘reasonable and proportionate’ and that its recoverable costs (after a detailed assessment) were unlikely to be much less. It relied on the case of The Board of Trustees of National Museums and Galleries on Merseyside v AEW Architects and Designers Limited -and- PIHL UK Limited and Galliford Try Construction Limited (in joint venture) [2013] EWHC 2403 (TCC).[6] There an interim payment of 70% had been made.

OHL argued that the fact that a costs management order had been made for the full agreed costs budget should not lead the Court to award more than would normally be paid on account. OHL referred to the cases of Henry v News Group Newspapers Ltd [2013] EWCA Civ 19 [7]and Troy Foods v Manton [2013] EWCA Civ 615[8] and claimed that the approved costs budget ‘does not act as a rubber stamp for claims up to that amount’. OHL said that GoG would still need to demonstrate in a detailed assessment that the costs it had incurred were proportionate and reasonable. It suggested that questions might arise in such a detailed assessment over the reasonableness of the approved costs budget. For example, OHL suggested there might have been some duplication in the involvement of two QCs and two law firms on the part of GoG (despite this point never having been raised before).

The judge remarked that the case was a relatively complex piece of litigation involving international parties, five disciplines of experts, and had been conducted in a short period of time, all of which meant that preparation for the trial had to be more focused. Although the costs budgets had been approved at the case management conference, the judge had not been asked to cast a critical eye over them at the time. They had not been criticised by the opposing parties nor did they seem out of the ordinary for a case of this nature.

The judge said that the purpose of an interim payment is to reflect the fact that there is a winning party entitled to substantial costs and to ensure that that party is not kept out of those costs. Whilst the agreed costs budget set a likely upper limit at this stage on what GoG is likely to recover in costs, it does not set out figures on a standard or detailed assessment. The judge confirmed that unless GoG’s costs could be agreed between the parties, there would have to be a detailed costs assessment process.

Decision: Interim payment of two-thirds of the approved costs budget

The judge considered that a costs assessment on a standard basis commonly, but not always, reduces the claimed sum to two-thirds (higher on an indemnity basis). Therefore, an interim payment should not represent more than could be recovered on a standard assessment. OHL was ordered to pay two-thirds of the approved costs budget i.e. £4.5 million on account of GoG’s costs. A time for payment was agreed between the parties.

Conclusion

Unless a losing party has behaved particularly badly during the litigation process itself, the winning party is unlikely to recover legal and other costs on an indemnity basis. The winning party can expect only to recover those costs on the standard basis even after an outright victory. The size of an interim payment is also likely to be capped at two-thirds of an approved costs budget. However, there is no absolute rule in this. In an even more recent case – (1) Peter Kellie and (2) Kelly Kellie -v- Wheatley & Lloyd Architects Limited [2014] EWHC 2886 (TCC)[9] – the court took a more generous approach. There almost all of the approved costs budget was ordered to be paid on account of costs. The facts of a particular case always have the potential to influence the outcome of an application for an interim payment.

http://www.bailii.org/ew/cases/EWHC/TCC/2014/1028.html

http://www.bailii.org/ew/cases/EWCA/Civ/2013/615.html

http://www.bailii.org/ew/cases/EWHC/TCC/2014/2886.html

As disputes under the FIDIC forms of contract are normally resolved in private Dispute Adjudication Board (“DAB”) proceedings or confidential arbitration proceedings, reported FIDIC cases are rare and often of considerable precdential value either formally or informally. In this article, originally published in The International Construction Law Review, Victoria Tyson considers one such recent decision which was transferred from the Gibraltar courts.

As disputes under the FIDIC forms of contract are normally resolved in private Dispute Adjudication Board (“DAB”) proceedings or confidential arbitration proceedings, reported FIDIC cases are rare and often of considerable precedential value either formally or informally. This article considers one such recent decision which was transferred from the Gibraltar courts specified in the  particular conditions of the contract (in lieu of arbitration) to the more specialised Technology and Construction Court of England and Wales by the agreement of the parties during the pre-action protocol process.

The case was Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar1 and concerned a dispute arising out of a £30 million contract for design and construction work to the  Gibraltar Airport (“the contract”). The contract incorporated the FIDIC Conditions of Contract for Plant and Design Build for Electrical and Mechanical Plant, and for Building and Engineering  Works, designed by the Contractor, 1st Edition 1999, commonly known as the Yellow Book.

Under the current arrangements, the road to the Spanish border (the Winston Churchill Avenue) traverses the airport runway so that the road must be closed when the runway is in use. In an  attempt to relieve the congestion caused by the frequent closure of this road, the works included the construction of a new dual carriageway road and a twin bore tunnel under the eastern end of the  airport runway, known as the Frontier Access Road.

The contract was entered into in November 2008 and works commenced in December 2008. After over two-and-a-half years of work on the two- year project, when little more than 25% of the work  had been done, the contract was terminated. The large Spanish civil engineering company 1 Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC);  [2014] BLR 484 Obrascon Huarte Lain (“OHL”) was the contractor. It commenced proceedings against the employer, the Government of Gibraltar 2 . Although Gibraltar is famous for its rock and  despite the airport site’s historic military use, the contractor argued inter alia that it had encountered more rock and contaminated material in the ground excavated on the site than would have been  reasonably foreseeable by an experienced contractor at the time of tender. The contractor also argued that as a result of a report it had commissioned, which concluded that airborne contamination  on the site posed a serious risk to the health of those working in the tunnel, it was necessary to suspend the tunnel excavation works and re-design the tunnel. There followed very little activity by the  contractor between 20 December 2010 (the date of the report) and 28 July 2011 (the date of the employer’s notice of termination). During this period of inactivity the contractor suggested a new  budget of some £98 million (over three times the original contract price) would be needed to complete the works.

The court disagreed with the contractor’s arguments and found, inter alia, that the contractor had failed to proceed with the design and execution of the works with due expedition and without delay.  It awarded the contractor just one day extension of time from the 660 days originally claimed (reduced to 474 days in the amended particulars of claim submitted during the trial itself). The  court was especially critical of the report heavily relied upon by the contractor to support its suspension of the works and redesign of the tunnel, which it described as “palpably and obviously inept,  was clearly worked on by OHL and cannot have been considered by OHL to be independent or competent”.

The main issue revolved around the termination of the contract. The court found that the contractor was responsible both in law and fact for the termination and that the employer had lawfully  terminated the contract. In determining responsibility for the termination of the contract, the court considered the following matters which are discussed in this article:

1. Was the engineer entitled to issue notice to correct on 16 May 2011
   and/or 5 July 2011 under clause 15.1?
2. Was the employer entitled to terminate the contract under clause

15.2? In particular:
(a) Did the contractor fail to comply with the notice to correct pursuant to clause 15.2(a)? 2 The Howard Kennedy International Construction team (formerly Corbett & Co.) acted on behalf of the Government of Gibraltar in this case. 3 Paragraph 332.© Informa UK  plc 2014 a commercially sensible construction and one to be encouraged; the construction industry would not benefit from trivial contractual failures giving rise to notices to correct, which if not  complied with, would in turn lead to contractual termination. Mr Justice Akenhead supported his view with reference to various authorities 4 . He emphasised that what is trivial and what is  significant or serious, will depend on the facts and gave the example that one day’s culpable delay on a 730-day contract or 1m² of defective paintwork out of 10,000m² good paintwork would not, if  reasonable and sensible commercial persons had anything to do with it, justify termination even if the contractor did not comply with the clause 15.1 notice. Nonetheless, despite this very well- reasoned guidance, it cannot be ignored that on its face the express wording “any obligation” in clause 15.1 is very broad indeed. It perhaps remains open to argument in other forums and  jurisdictions that a failure to carry out any obligation need not be an important or material obligation. There is also no express time limitation, so in theory it might be possible for the notice to  correct to deal with a failure which occurred months or years earlier and which then had, and still has, no significant impact on the contractor’s operation (provided that it can still be remedied).  Hopefully, the next edition of the FIDIC Yellow Book will resolve any ambiguity.

Mr Justice Akenhead’s second point was that the specified time for compliance within the clause 15.1 notice must be reasonable in all the circumstances prevailing at the time of the notice. He gave  the example that if 90% of the workforce had gone down with cholera at that time, the period given for compliance would need reasonably to take that into account, even if that problem was the  contractor’s risk. He said that it may well be relevant to take into account whether the clause 15.1 notice is coming out of the blue or if the subject-matter has been raised before and the contractor has  chosen to ignore what it has been told. He emphasised that what is reasonable is fact sensitive 5 .

His third point was that clause 15.1 is designed to give the contractor an opportunity and a right to correct its previous and identified contractual failure.

His final point was that given the potentially serious consequence of non-compliance, clause 15.1 notices need to be construed strictly but may be construed against the surrounding facts 6 . 4 Lord  Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201D; [1984] 2 Lloyd’s Rep 235; [1984] 3 WLR 592; [1984] 3 All ER 229, Hudson’s Building and Engineering  Contracts , 12th Edition, paragraph 8.056, Lord Steyn in Mannai Investment Co Ltd v Eagle Star Assurance Company Ltd (HL) [1997] UKHL 19; [1997] AC 749; [1997] 2 WLR 945; [1997] 3 All ER  352. 5 See, for example, Shawton Engineering Ltd v DGP International Ltd (t/a Design Group Partnership) (CA) [2005] EWCA Civ 1359 at paragraph 69. 6 Mannai Investment Co Ltd v Eagle Star  Assurance Company Ltd [1997] UKHL 19 per Lord Steyn.

WAS THE EMPLOYER ENTITLED TO TERMINATE THE CONTRACT UNDER CLAUSE 15.2?

The court then reviewed clause 15.2 the contract, which states:
“15.2. The Employer shall be entitled to terminate the Contract if the Contractor:

(a) fails to comply … with a notice under sub-clause 15.1 …
(b) … plainly demonstrates the intention not to continue performance of his obligations under the Contract,
(c) without reasonable excuse fails:
(i) to proceed with the Works in accordance with clause 8 … or;
(ii) to comply with a notice issued under sub-clause 7.5 …

In any of these events or circumstances, the Employer may, upon giving 14 days’ notice to the Contractor, terminate the Contract and expel the Contractor from Site.”

The employer served a notice of termination on 28 July 2011 on the grounds set out in clauses 15.2(a), (b) and (c).

Clause 15.2(a)

The court was asked to decide whether, as at 28 July 2011, the employer was entitled to serve a notice of termination under clause 15.2(a) of the contract by reason of the contractor’s failure to  remedy the defaults notified in notices to correct issued by the engineer on 16 May 2011 and/or 5 July 2011. Mr Justice Akenhead found that the employer was so entitled to serve a notice of  termination on 28 July 2011 on the basis that the contractor had failed to comply with the clause 15.1 notices to correct. He was clear that the contractor’s right to re-design the tunnel did not  outweigh its obligation to get on with the works 7 .

Clause 15.2(b)

In respect of clause 15.2(b) the court was asked to decide whether, as at 28 July 2011, the employer was entitled to serve a notice of termination pursuant to clause 15.2(b) of the contract because the  contractor had demonstrated an intention not to continue with the performance of its obligations under the contract. Mr Justice Akenhead found that the employer was entitled to serve a notice of  termination pursuant to clause 15.2(b) of the contract because the contractor had plainly demonstrated an intention not to continue with the performance of its obligations under the contract. He  drew a verbal and contractual distinction between an intention to continue performance and an intention to continue performance of the contractual obligations. He said that a clear avowed  intention to perform, but not by reference to important contractual terms, could demonstrate such an intention. The demonstration can be judged by reference not only to the words used but also to  the actions. On the other hand, a simple disagreement between parties about what the contract meant, or disagreement about whether the contractor had some claim entitlement, would in itself not  demonstrate such an intention 8 .

The court was also asked to decide whether any entitlement which the contractor might have had, as at 28 July 2011, to an extension of time for the completion of the works, would mean that the  employer was no longer entitled to serve a notice of termination pursuant to clause 15.2(b) of the contract. Mr Justice Akenhead found that as the contractor was entitled to only one day’s extension  of time as at 28 July 2011, such limited entitlement did not mean that the employer was no longer entitled to serve a notice of termination pursuant to clause 15.2(b) of the contract.

Clause 15.2(c)

In respect of clause 15.2(c) the court was asked to decide whether, as at 28 July 2011, the employer was entitled to serve a notice of termination pursuant to clause 15.2(c)(i) of the contract. Mr  Justice Akenhead found that the employer was entitled to serve a notice of termination pursuant to clause 15.2(c)(i) of the contract because the contractor had failed to proceed with the works with  due expedition and without delay and had therefore failed to proceed in accordance with clause 8.1, such as to give the employer an entitlement to terminate the works, and the contractor had no  “reasonable excuse” for such failure. He was critical of the contractor who had “consciously and with its eyes open wrongly and wrongfully suspended the work … and within a few weeks had  embarked on a wholly unnecessary re-design of the tunnel” 9 .

He further stated that the fact that liquidated damages (in this case Delay Damages) are permitted for the failure by the contractor to complete on time, does not qualify the right to terminate under  clause 15.2 for failure to proceed with due expedition and without delay. The parties must be taken to have known that these were both remedies, albeit on its proper construction minor or  insignificant breaches of the progress obligations would not justify termination under clause 15 10 .

Finally, in respect of both clauses 15.2(b) and (c), Mr Justice Akenhead gave two basic points of principle which are useful for general application 11 .
8 Paragraph 360.
9 Paragraph 357.
10 Paragraph 325.
11 Paragraph 356

Firstly, he said the test must be an objective one in relation to the grounds in both sub-paragraphs. So, if the contractor privately intended to stop work permanently but continued openly and  assiduously to work hard at the site, this would not of itself give rise to a plain “demonstration” of intention not to continue performance. Similarly, the fact that the contractor was, and had for many  months been, doing no work of any relevance without contractual excuse could, without more, objectively judged, give rise to a conclusion that it had failed to proceed in accordance with  clause 8 for the purpose of clause 15.2(c)(i).

Secondly, he again emphasised that the grounds for termination must relate to significant and more than minor defaults on the part of the contractor on the grounds that it cannot mutually have  been intended that a (relatively) draconian clause, such as a termination provision, should be capable of being exercised for insignificant or insubstantial defaults.

Therefore, he said a few days’ delay in the context of a two-year contract would not justify termination under clause 15.2(c)(i) and an unwillingness, or even refusal, to perform relatively minor  obligations would not justify termination under clause 15.2(b).

In summary, he found that the contract was lawfully terminated by the employer on 20 August 2011 pursuant to clause 15.2 of the contract.

MUST THE BREACH OF CONTRACT WHICH IS  RELIED UPON TO TERMINATE THE CONTRACT BE ANALOGOUS TO A REPUDIATORY BREACH OF CONTRACT?

The wording in clause 63.1 of the old FIDIC Red Book 1987 expressly permitted the employer to terminate the employment of the contractor where the engineer certified to the employer, with a copy  to the contractor, that in its opinion the contractor had “repudiated the Contract” but this wording was deleted from the FIDIC 1999 editions.

Nonetheless, the contractor argued (with reference to various authorities) that, where “a contract contains a provision such as clause 15.2 which entitles an employer to terminate by reason of a  failure to remedy a breach of contract which has been the subject of a clause 15.1 notice (or to terminate by reason of a breach of contract such as one of those of the type identified in clause 15.2(b)  and (c)) the breach of contract that is relied upon must be serious and one which is analogous to a repudiatory breach of contract” 12 . Mr Justice Akenhead disagreed with the contractor’s argument.  He stated that any suggestion that the breach of contract relied upon is analogous to a repudiatory breach of contract goes too far (at least as a general proposition) for a number of  reasons.

12 Paragraph 322.

Firstly, he said it is necessary to consider each contract, whether it is a lease, leasehold development, construction or other commercial contract, on its own terms. For example, if the termination  clause allows for termination “for any breach of contract no matter how minor”, the meaning is clear and does not require some repudiatory breach.

Secondly, most of the authorities referred to did not involve contracts like the contract in this case. The contract lists grounds on which termination can take place including clause 15.2(b) (where the  contractor “plainly demonstrates the intention not to continue performance of his obligations under the Contract”) which is not unlike the test for English common law repudiation. This ground can  be, and is, contractually distinguished from the other grounds, such as clause 15.2(c)(i) (failure “to proceed with the Works in accordance with clause 8”, that is in effect often a failure to proceed with  “due expedition and without delay”). He queried why the contract would have both the “intention not to continue performance of [contractual] obligations” as well as failure to proceed with due expedition and without delay unless they are, or can be, two separate grounds.

Thirdly, the cases relied upon by the contractor in its submissions had a relatively simple right to terminate (for a, or any, breach). In this contract under clause 15.2(a) (failure “to comply … with a  notice under sub-clause 15.1”) there was a warning mechanism whereby termination could be avoided by the contractor’s compliance with the clause 15.1 notice. In that sense, the contractor is given  the chance to avoid termination whilst the simple termination for any breach can come out of the blue. Commercial parties would sensibly understand that this contractual chance is a warning as  well to the contractor and the remedy is in its hands in that sense.

Finally, Mr Justice Akenhead accepted that the editors of Hudson’s Building and Engineering Contracts13 have properly set out the correct proposition that determination clauses such as this one  will generally be construed as permitting termination for significant or substantial breaches as opposed to trivial, insignificant or insubstantial ones. He stated that this accords with commercial common sense.

WILL TERMINATION OCCUR IF THE CONTRACTOR HAS BEEN PREVENTED OR HINDERED FROM REMEDYING THE FAILURE FOR WHICH THE NOTICE TO CORRECT
IS GIVEN UNDER CLAUSE 15.1?

Although there was no suggestion that the employer had hindered or prevented the contractor, Mr Justice Akenhead was clear that termination could not legally occur if the contractor has been  prevented or hindered 13 Hudson’s Building and Engineering Contracts , 12th Edition, paragraph 8.056 from remedying the failure for which the notice is given under clause 15.1 14 .

He stated that clauses 15.1 and 15.2(c) must, as a matter of common sense, pre-suppose that the contractor is given the opportunity by the employer actually to remedy the failure of which it is given  notice under clause 15.1. In that context, termination could not legally occur if the contractor has been prevented or hindered from remedying the failure within the specified reasonable time. This  stems from a necessarily implied term under English law that the employer shall not prevent or hinder the contractor from performing its contractual obligations; there is also almost invariably an  implied term of mutual co-operation. Therefore, if the engineer has served a clause 15.1 notice to remedy a breach of contract, and the employer hinders or prevents the contractor from remedying  the breach, the employer may not rely on the contractor’s failure in order to terminate the contract. This is because the employer should not be entitled to rely on its own breach to benefit by  terminating 15 . He gave the example of an employer who, following the service of a clause 15.1 notice, denies site access to the contractor to enable it to put right the notified failure.

WAS THE NOTICE OF TERMINATION DATED 28 JULY 2011 A VALID AND EFFECTIVE NOTICE PURSUANT TO CLAUSE 15.2 BECAUSE IT WAS NOT SERVED AT THE ADDRESS FOR  SERVICE OF THE CONTRACTOR AS STATED IN THE APPENDIX TO TENDER?

Clause 3.1 stated how communications were to be made:
“Wherever these Conditions provide for the giving or issuing of approvals, certificates, consents, determinations, notices and requests, these communications shall be:
(a) …
(b) Delivered, sent or transmitted to the address for the recipient’s communications as stated in the Appendix to Tender. However:
(i) If the recipient gives notice of another address, communications shall thereafter be delivered accordingly; and …”
The clause 15.2 notice of termination dated 28 July 2011 was sent by the employer to the contractor’s site office rather than to the contractor’s Madrid office, which was the address specified in the Appendix to Tender.
The contractor argued that it was therefore invalid and ineffective, and on 3 August 2011 wrote stating that this amounted to a repudiatory breach of the contract and purported to accept such  repudiation. 14 Paragraph 324.
15 See for example, Alghussein Establishment v Eton College [1988] 1 WLR 587

The court was asked to decide whether the notice of termination dated 28 July 2011 was a valid and effective notice pursuant to clause 15.2 of the contract because it had not been sent to the address  for service of the contractor as stated in the Appendix to Tender. It concluded that the employer’s notice of termination dated 28 July 2011 was a valid and effective notice pursuant to clause 15.2 of  the contract.

Although the Madrid office was given in the Appendix to Tender, Mr Justice Akenhead noted that throughout the project, correspondence (including the clause 15.1 notices to correct) had been sent  to the contractor’s site office without any objection. The project was being run by the contractor from the site office with this office handling the vast bulk of the correspondence, including letters,  emails, and technical documentation such as method statements etc. The project manager, with very substantial authority, was based there. He found that in these circumstances, in effect and in  practice the parties operated as if the site office was an appropriate address at which service of notices could be effected.

Relying on various authorities, 16 Mr Justice Akenhead drew the following conclusions when finding that service of the 28 July 2011 termination notice to the wrong address was not fatal.

His first conclusion was that termination of the parties’ relationship under the terms of such contracts is a serious step. There needs to be compliance with the contractual provisions to achieve an  effective contractual termination.

Secondly, as a general rule, where notice has to be given to effect termination, it needs to be in sufficiently clear terms to communicate to the recipient clearly the decision to exercise the contractual  right to terminate.

Thirdly, it is a matter of contractual interpretation, (i) as to the requirements for the notice, and (ii) whether each and every specific requirement is an indispensable condition without compliance  with which the termination cannot be effective. He said that this interpretation needs to be tempered by reference to commercial common sense.

Fourthly, in the contract in this case, neither clause 1.3 nor clause 15.2 used words such as would give rise to any condition precedent or making the giving of notice served only at the contractor’s  Madrid office a pre-condition to an effective termination. He said that the key elements of the notice procedure involve securing that the contractor is actually served with a written notice and  receives the notice and, it being clear and unambiguous, that the notice is one being served under 16 Bremer HandelsGesellschaft MBH v Vanden (HL) [1978] 2 Lloyd’s Rep 109, Worldpro Software  Ltd v Desi Ltd [1997–98] TLR 279, Rennie v Westbury Homes (Holdings) Ltd (CA) [2007] EWCA Civ 1401, PHRJ Newbold and Others v The Coal Authority (CA) [2013] EWCA Civ 584; [2014] 1  WLR 1288 clause 15.2, namely that 14 days’ notice of termination is being given by the employer to the contractor, such as to enable it to expel the contractor from the site.

Fifthly, he said the primary purpose of clause 1.3 is to provide an arrangement whereby notices, certificates and other communications are effectively dispatched to, and received by, the contractor.  The primary purpose of a clause 15.2 termination notice is to ensure that the contractor is made aware that its continued employment on the project is to be at an end.

His final conclusion was that the service of a clause 15.2 notice at the contractor’s Madrid office as such was not an indispensable requirement either of clause 15.2 or clause 1.3. Provided that service  of a written clause 15.2 notice was actually effected on the contractor’s affiliates at a sufficiently senior level, then that would be suffi cient service to be effective. Mr Justice Akenhead stated that  these conclusions applied both in relation to termination clauses in commercial and thus engineering and building contracts in general and specifically in relation to the contract in this case.

DID THE SERVICE OF THE TERMINATION NOTICE TO THE “WRONG” ADDRESS AMOUNT TO A REPUDIATION?

The contractor sought to argue that the service of the notice of termination dated 28 July 2011 to the wrong address was ineffective and thus amounted to a repudiation of the contract by the  employer which it elected to accept on 3 August 2011, such that the contract was terminated on that date. Although Mr Justice Akenhead concluded that it was not necessary for him to decide this  issue, 17 he stated that his findings would have been that the service of an otherwise valid and actually well-founded termination notice at the technically wrong address could not in law and on the  facts of this case, amount to repudiation (with reference to various authorities 18 ).

Therefore, the contractor was not entitled to treat what was otherwise a legally and factually proper clause 15.2 termination notice as a repudiation (as it purported to do). Consequently, he found  that the contractor itself repudiated the contract by the terms of its letter dated 3 August 2011 by wrongfully treating the contract as at an end, even though it was not accepted as such by the  employer.
17 Paragraph 375.
18 Freeth v Burr (1874) LR 9 CP 208; [1874–80] All ER 751, Ross T Smyth & Co Ltd v T D Bailey, Son & Co
(HL) (1940) 67 Ll L Rep 147; [1940] 3 All ER 60; [1940] 56 TLR 825 and Eminence Property Developments
Ltd v Heaney [2011] 2 All ER 223

The English Court considers termination and notice provisions under the FIDIC Yellow Book 1999. How are clause 15.1 notices to correct limited? Do termination events have to be repudiations? Is it fatal to serve notice of termination on the ’wrong’ address? When does the 28-day period under clause 20.1 start to run? Mr Justice Akenhead offers guidance to the industry.

The English Court considers termination and notice provisions under the FIDIC Yellow Book 1999.

• How are clause 15.1 notices to correct limited?
• Do termination events have to be repudiations?
• Is it fatal to serve notice of termination on the ’wrong’ address?
• When does the 28-day period under clause 20.1 start to run?

Mr Justice Akenhead offers guidance to the industry.

Introduction

Reported FIDIC cases are rare as disputes under these forms of contract are normally resolved in private Dispute Adjudication Board or confidential arbitration proceedings.  Consequently, they are often of considerable precedential value either formally or informally. One recent case is Obrascon Huarte Lain SA -v- Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) which was transferred from the Gibraltar Courts to the specialist expertise of the Technology and Construction Court of England and Wales by agreement of the parties.

The case concerned a dispute arising out of a £30 million contract for design and construction work to Gibraltar Airport. The contract incorporated the FIDIC Conditions of Contract for Plant and Design Build for Electrical and Mechanical Plant, and for Building and Engineering Works, designed by the Contractor, First Edition 1999, commonly known as the Yellow Book.

Currently, the road to the Spanish border traverses the airport runway so that it must be closed when the runway is in use. With a view to relieving the congestion caused by its frequent closure, the works included the construction of a new dual carriageway and tunnel under the eastern end of the airport runway.

The contract was entered into in November 2008 and works commenced the following month. After over 2½ years and with only 25% of the work done the contract was terminated by the employer, the Government of Gibraltar. The Spanish contractor Obrascon Huarte Lain (‘OHL’) commenced proceedings for extension of time and costs.

Although Gibraltar is famous for its rock and despite the airport site’s historic military use, the contractor argued that it had encountered more rock and contaminated material than would have been reasonably foreseeable by an experienced contractor at the time of tender.  The contractor also argued that a report it had commissioned, which concluded that airborne contamination posed a health and safety risk, meant that it was necessary to suspend the excavation works and    re-design the tunnel.

The Court disagreed with the contractor’s arguments and found inter alia that the contractor had failed to proceed with the design and execution of the works with due expedition and without delay. The contractor was awarded just 1-day extension of time from the 660 days originally claimed. The Court was especially critical of the report heavily relied upon by the contractor to support its suspension of the works and redesign of the tunnel, which it described as ‘palpably and obviously inept, was clearly worked on by OHL and cannot have been considered by OHL to be independent or competent’¹.

The Court found that the contractor was responsible for the termination and that the employer had lawfully terminated the contract. The Court was not asked to consider quantum which was left for a later date.

How are clause 15.1 notices to correct limited?

In determining who was responsible for the termination, the Court first reviewed clause 15.1 the contract, which states:

“15.1 If the Contractor fails to carry out any obligation under the Contract, the Engineer may by notice require the Contractor to make good the failure and to remedy it within a specified reasonable time.”

The judge found that the engineer was entitled to issue the clause 15.1 notices to correct and made some general points on their limits:

1. He adopted a commercially sensible construction, stating that clause 15.1 relates only to more than insignificant contractual failures by the contractor (such as a health and safety failure, bad work or serious delay on aspects of the work), which he said must be an actual failure to comply with the Contract rather than something that may have not yet become a failure. Whilst his approach is to be encouraged it cannot be ignored that, on its face, the express wording ‘any obligation’ is very broad indeed and it may remain open to argument in other forums and jurisdictions that a failure to carry out any obligation need not be an important or material obligation.
2. The time specified for compliance in the clause 15.1 notice must be reasonable in all the circumstances at the time of the notice. The judge gave the example that if 90% of the workforce had gone down with cholera at that time, the period given for compliance would need to take that into account, even if that problem was the contractor’s risk. He said that whether the notice came of the blue or if the subject matter had been raised before and the contractor had chosen to ignore what it has been told might also be relevant.
3. The contractor is given an opportunity and a right to correct any previous and identified contractual failure under clause 15.1.
4. Clause 15.1 notices must be construed

strictly but may be construed against the surrounding facts given the potentially serious consequence of non-compliance.

Had the employer been right in terminating the contract under Clause 15.2?

The Court then reviewed clause 15.2 the contract, which states:

“15.2 The Employer shall be entitled to terminate the Contract if the Contractor:

(a) fails to comply…with a notice under Sub-Clause 15.1…

(b) …plainly demonstrates the intention not to continue performance of his obligations under the Contract,

(c) without reasonable excuse fails:

(i) to proceed with the Works in accordance with Clause 8…or;

(ii) …

In any of these events or circumstances, the Employer may, upon giving 14 days’ notice to the Contractor, terminate the Contract and expel the Contractor from Site.’.

The employer served a notice of termination on the grounds set out in clauses 15.2(a), (b) and (c), and the judge concluded that the Contract was lawfully terminated by the employer on these grounds.

Clause 15.2(a)

The judge found that the employer was entitled to serve a notice of termination under clause 15.2(a) because of the contractor’s failure to remedy the defaults notified in the clause 15.1 notices to correct. The contractor’s right to redesign the tunnel (if it so wanted) did not outweigh its obligation to get on with the works.

Clause 15.2 (b)

The judge found that the employer was entitled to serve a notice of termination under clause 15.2(b) because the contractor had plainly demonstrated an intention not to continue with the performance of its obligations under the contract. He distinguished between an intention to continue performance and an intention to continue performance of the contractual obligations. A clear intention to perform, but not by reference to important contractual terms, could demonstrate such an intention. Whilst this can be judged by reference to both words and actions, a simple disagreement between parties about what the contract meant, or disagreement about whether the contractor had some claim entitlement, would in itself not demonstrate such an intention.

Clause 15.2(c)

The judge found that the employer was entitled to serve a notice of termination under clause 15.2(c)(i) because the contractor had failed to proceed with the works with due expedition and without delay and had thus failed to proceed in accordance with clause 8.1 without reasonable excuse.

Additionally, the fact that liquidated damages are permitted for the failure by the contractor to complete on time, does not qualify the right to terminate under clause 15.2 for failure to proceed with due expedition and without delay, as these are two separate remedies.

Finally, in respect of clauses 15.2(b) and (c), the judge said that:

1. The test must be objective. So, if the contractor privately intended to stop work permanently but continued openly and assiduously to work hard at the site, this would not of itself give rise to a plain demonstration of intention not to continue performance. Similarly, if the contractor was, and had for many months been doing no work of any relevance without contractual excuse, this could give rise to a conclusion that it had failed to proceed with due expedition and without delay.
2. The grounds for termination must relate to significant and more than minor defaults on the part of the contractor.

Do termination events have to be repudiations?

The wording in clause 63.1 of the old FIDIC Red Book 1987 expressly permitted the employer to terminate the employment of the contractor where the engineer certified to the employer, with a copy to the contractor, that in its opinion the contractor had ‘repudiated the Contract’. However, this wording was deleted from the FIDIC 1999 editions and did not apply to this contract.

Nonetheless, the contractor argued that, where ‘a contract contains a provision such as clause 15.2 which entitles an employer to terminate by reason of a failure to remedy a breach of contract which has been the subject of a clause 15.1 notice (or to terminate by reason of a breach of contract such as one of those of the type identified in clause 15.2(b) and (c)) the breach of contract that is relied upon must be serious and one which is analogous to a repudiatory breach of contract’².  The judge disagreed and said that this goes too far for a number of reasons:

1. Each contract must be considered on its own terms. For example, if the termination clause allows for termination ’for any breach of contract no matter how minor’, the meaning is clear and does not require some repudiatory breach.
2. The contract lists grounds on which termination can take place including clause 15.2(b) which is not unlike the test for English common law repudiation. This ground is different from the other grounds, such as clause 15.2(c)(i). The contract would not include both, unless they are or can be, two separate grounds.
3. The cases relied upon by the contractor had a relatively simple right to terminate, where termination might come out of the blue. Under clause 15.2(a) there was a warning mechanism whereby termination could be avoided by the contractor’s compliance with the clause 15.1 notice. Therefore, the contractor has the chance to avoid termination.
4. The correct proposition that determination clauses will generally be construed as permitting termination for significant or substantial breaches and not trivial, insignificant or insubstantial ones is set out in Hudson’s Building and Engineering Contracts³.

What if the contractor is prevented or hindered from remedying its failure?

Although there was no suggestion that the employer had hindered or prevented the contractor, the judge stated that clauses 15.1 and 15.2(c) must, as a matter of common sense, give the contractor an opportunity to remedy the failure of which it is given notice.

Therefore, termination could not legally occur if the contractor has been prevented or hindered from remedying the failure for which the notice is given within the specified reasonable time.  The judge gave the example of an employer who, following the service of a clause 15.1 notice, denies site access to the contractor to enable it to put right the notified failure. The employer should not be entitled to rely on its own breach to benefit by terminating.

Is it fatal to serve notice of termination on the ‘wrong’ address?

Clause 3.1(b) provided that notices were to be:

‘Delivered, sent or transmitted to the address for the recipient’s communications as stated in the Appendix to Tender.’

The clause 15.2 notice of termination was sent by the employer to the contractor’s site office rather than to the contractor’s Madrid office, which was the address specified in the Appendix to Tender. The contractor argued that it was therefore invalid and ineffective, and wrote stating that this amounted to a repudiatory breach of the contract and purported to accept such repudiation.

The judge disagreed and concluded that the employer’s notice of termination was a valid and effective notice. Although the Madrid office was given in the Appendix to Tender, he noted that throughout the project, correspondence (including the notices to correct) had been sent to the contractor’s site office without any objection. The project was being run from the site office which was handling the bulk of the correspondence, and the project manager, with very substantial authority, was based there. In these circumstances the parties operated as if the site office was an appropriate address at which service of notices could be effected.

The judge drew the following conclusions when finding that service of the termination notice to the wrong address was not fatal:

1. Termination of the parties’ relationship under such contracts is a serious step. The contractual provisions need to be complied with to achieve an effective contractual termination.
2. As a general rule, where notice has to be given to effect termination, it needs to be in sufficiently clear terms to communicate to the recipient clearly the decision to exercise the contractual right to terminate.
3. It is a matter of contractual interpretation tempered with commercial common sense (i) as to the requirements for the notice, and (ii) whether each and every specific requirement is an indispensable condition without compliance with which the termination cannot be effective.
4. Neither clause 1.3 nor clause 15.2 used words which would give rise to any condition precedent or making the giving of notice served only at the contractor’s Madrid office a pre-condition to an effective termination. The key is to ensure that the contractor is actually served with a written notice, receives the notice, it is clear and unambiguous and that it is being served under clause 15.2.
5. The primary purpose of clause 1.3 is to provide an arrangement whereby notices, certificates and other communications are effectively dispatched to, and received by, the contractor. The primary purpose of a clause 15.2 notice is to ensure that the contractor is made aware that its continued employment on the project is to end.
6. The service of a termination notice at the contractor’s Madrid office was not an indispensable requirement either of clause 15.2 or clause 1.3. Provided that service of a written clause 15.2 notice was actually effected on the contractor’s affiliates at a sufficiently senior level, then that would be sufficient service to be effective.

Did the service of the termination notice to the ‘wrong’ address amount to a repudiation?

The judge said that the service of an otherwise valid and actually well-founded termination notice at the technically wrong address could not in law and on the facts of this case, amount to repudiation. Therefore, the contractor was not entitled to treat what was otherwise a legally and factually proper termination notice as a repudiation (as it purported to do).  Consequently, the contractor had itself repudiated the contract by wrongfully treating the contract as at an end, even though it was not accepted as such by the employer.

However, by choosing to re-deliver the notice of termination via courier to the contractor’s Madrid office, the employer elected to treat the contract as continuing. Thus, had this redelivered notice had been necessary, the contract would have been terminated 14 days later contractually, as opposed to an accepted repudiation.

The judge found that given the employer took the contractual route of termination it was not entitled to elect to accept the contractor’s repudiatory conduct.

When do the 28 days under clause 20.1 start to run?

Clause 20.1 states:

 ‘If the Contractor considers himself to be entitled to any extension of the Time for Completion…under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim.  The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance.

If 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, and the Employer shall be discharged from all liability in connection with the claim. Otherwise, the following provisions of this Sub-Clause shall apply…’

The judge said that properly construed and in practice, the ‘event or circumstance giving rise to the claim’ for an extension of time must first occur and there must, second, have been either awareness by the contractor or the means of knowledge or awareness of that event or circumstance before the condition precedent bites. Given the potential serious effect on what could otherwise be good claims for instance for breach of contract by the employer, he did not believe that the clause should be construed strictly against the contractor but that it should be construed reasonably broadly.

In considering when the event or circumstance giving rise to the extension of time claim arose, regard was had to clause 8.4 which identifies when and in what circumstances such extension of time will be granted:

 ‘The Contractor shall be entitled subject to Sub-Clause 20.1…to an extension of the Time for Completion if and to the extent that the completion for the purposes of Sub-Clause 10.1…is or will be delayed by any of the following causes…’

This led the judge to conclude that the entitlement to an extension of time arises if, and to the extent that, the completion ‘is or will be delayed’ by the various events. He said that the extension of time can be claimed either when it is clear that there will be delay (a prospective delay) or when the delay has at least started to be incurred (a retrospective delay).

He explained (through the use of an example) that the wording in clause 8.4 is not ‘is or will be delayed whichever is the earliest’ so that notice does not have to be given for the purpose of clause 20.1 until there is actually delay although the contractor may give notice with impunity when it reasonably believes that it will be delayed. Determining when delay is actually suffered should not be difficult where a critical path programme is used.

His view on this point favours the contractor and may not be shared by employers. If a contractor is ‘clear that the Works overall will be delayed’ and considers it will be entitled to an extension of time, why should that contractor refrain from giving notice until there is actual delay? Clause 20.1 expressly states that notice be given ‘as soon as reasonably practicable, and not later than 28 days after the Contractor became aware, or should have become aware of the event or circumstance’. Arguably, knowing that delay will occur but waiting until it has actually been incurred runs contrary to this requirement and will defeat the advantages to the employer of the early warning.

The judge was considering an extension of time claim but the logic would seem to apply equally to the money: the event or circumstance can mean either the incident or the incurring of cost which results or will inevitably result from the incident. Where an incident gives rise to both delay and cost which occur at different times would notice have to be given within 28 days of the occurrence of whichever came first? If that opportunity was missed, would a notice when the second consequence occurred save the contractor’s ability to claim in relation to the second consequence, both consequences, or neither?

Clause 20.1 does not stipulate any particular form and the judge said one should construe it as permitting any claim provided that it is (i) made by notice in writing to the engineer, (ii) the notice describes the event or circumstance relied on, (iii) the notice is intended to notify a claim for extension of time (or for additional payment or both) under the contract or in connection with it, and (iv) it is recognisable as a ‘claim’. It is worth noting here that under the express wording of clause 20.1 the notice is of the contractor’s entitlement to time and/or money with a description of the event or circumstance giving rise to the claim. It is not the claim itself which follows later.

Conclusion text

This case is a useful reminder of the powers available to employers under the FIDIC Yellow Book to terminate the contracts of contractors who drag their feet. It gives common sense advice on the address for service of notices and provides useful, albeit brief and possibly controversial, guidance on clause 20.1 notices.

It is to be hoped that more foreign parties will bring their disputes to the specialist expertise of the Technology and Construction Court for resolution in the future.

² Paragraph 322.

³ Twelfth Edition at para 8.056.