There is a substantial difference between the payment provisions of the FIDIC 1999 Red and Yellow Books compared with the Silver Book. This article explores how a court in Queensland (Australia) dealt with the Silver Book’s provision. Contractors have good

There is a substantial difference between the payment provisions of the FIDIC 1999 Red and Yellow Books compared with the Silver Book. This article explores how a court in Queensland (Australia) dealt with the Silver Book’s provision. Contractors have good cause to be wary.

Role of Interim Payment Certificate

In Dawnays Ltd v F G Minter and Trollope & Colls Ltd,[1] the English Court of Appeal judge, Lord Denning, expressed the view that: “an interim certificate is to be regarded virtually as cash, like a bill of exchange.” This bold statement was however quickly rejected by the higher English courts.

Viscount Dilhorne of the House of Lords held in Gilbert Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd[2] that there was “no scintilla of authority” for Lord Denning’s opinion. Viscount Dilhorne went on to say that treating a certificate as conclusive could easily cause injustice. Lord Diplock added that, although a correctly issued interim certificate does create a debt due from the employer to the contractor, it does not stop the employer from raising a set-off or cross claim to the sum due.

The Irish judiciary was equally dismissive. In John Sisk & Son v Lawter Products BV[3] the Irish High Court disagreed with Lord Denning’s “dogmatic proposition” and considered that the correct approach was to ascertain whether the terms of the particular contract were inconsistent with the exercise of a right of set-off by the employer.

The position in England has since changed with the introduction of the payment provisions within the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009. Now a paying party must pay the notified sum unless it has served a “Pay Less Notice”. In summary, the payer must now give notice of what it intends to set off and loses its right of set off if the notice is not given. FIDIC’s Silver Book has a very different regime.

Set-Off and Deduction Under FIDIC

The payment provisions in FIDIC’s Red and Yellow Books are dealt with in Clause 14. The contractor submits an application for payment and the engineer, under Sub-Clause 14.6, “fairly” determines what is due. Sub-Clauses 14.6 (a) and (b) allow the engineer to make certain deductions where the work done is not in accordance with the Contract, or the contractor has failed to perform its obligations. Under Sub-Clause 14.7, the employer is required to pay the amount certified in each Interim Payment Certificate.

Under FIDIC’s 1999 Silver Book the contractor submits an application for payment and the employer is required to give notice to the contractor within 28 days of any item which he disagrees with. Similar to the Red and Yellow Books, Sub-Clauses 14.6(a) and (b) allows the employer to make certain deductions where the work done is not in accordance with the Contract or the contractor has failed to perform its obligations. Sub-Clause 14.6 then states, “Payments due shall not be withheld“.

Silver Book’s ‘Payment Due’ Provisions Under Court Scrutiny

In Sedgman South Africa (Pty) Ltd and Ors v Discovery Copper Botswana (Pty) Ltd,[4] the Supreme Court of Queensland analysed the meaning of Sub-Clause 14.6 of FIDIC’s Silver Book and, in particular, what was meant by the words “payments due”.

The facts of Sedgman were that Sedgman contracted to design and construct parts of the Boseto Copper Project in Botswana for Discovery Copper. The contract was under an amended FIDIC Silver Book. Sedgman applied for an interim payment of USD 20 million. Sub-Clause 14.6 (as amended) required Discovery Copper to give notice within seven days if they disagreed with any items in the application for payment. Discovery Copper failed to give the notice within seven days and did not contest the application until fourteen days later. Sedgman applied to the Court for payment of the sum claimed.

Discovery Copper challenged Sedgman’s right to payment on three grounds:

• The claim was not served in the format specified by the contract.
• According to the proper interpretation of the contract, the absence of a specific notice within seven days challenging the claim did not automatically entitle the applicants to the amount claimed.
• The application to the Court for payment should be stayed to arbitration as the contract contained an arbitration clause.

Sedgman sought to argue that it was clear that they were entitled to payment and that there could be no genuine dispute over the sum claimed.

Only payments ‘due’ need be paid

The Court dismissed Sedgman’s application for payment, holding that there was a genuine dispute which was apt for determination under the dispute resolution provisions and that Sedgman’s interpretation of the contract was incorrect. The Court held that:

“This contract did not entitle the applicants to be paid the sum which they now claim, simply from the fact that there was no response to their interim claim within the period of seven days stipulated in the contract.”

McMurdo J in his judgment considered the words “payments due shall not be withheld” at Sub-Clause 14.6 of the contract. The Judge stated that these words were “different from saying that a payment will become due if a notice of disagreement is not given,” as Sedgman contended. The Judge then held:

“The alternative view of Sub-Clause 14.6 is that it does not make a payment due. Rather, it governs payments which, by the operation of another term or terms, have [already] become due.”

The Judge stated in his reasoning that that operation of the various clauses of the contract to determine claims and variations could otherwise be displaced by the operation of Sub-Clause 14.6, if Sedgman were correct. If the contractor included a claim in his application for payment which was inconsistent with, for example, a DAB’s determination, and the employer did not give notice of disagreement, the outcome would be that the DAB’s determination would be displaced.

The conclusion reached by McMurdo J was that Sub-Clause 14.6 had to be read in the context of the whole contract. He fundamentally disagreed with the assertion by Sedgman that if the notice of disagreement was not given within seven days, then “everything that had occurred between the parties about these components of the present claim was made irrelevant.” The Judge therefore rejected the idea that claims which may have been disallowed or in contention between the parties could become debts simply because the notice was not given on time.

Silver Book payment provisions favour the employer

There is therefore a substantial difference between the payment provisions of the Red and Yellow Books compared with the Silver Book. While Sub-Clause 14.6 of the Red and Yellow Books obliges the employer to pay to the contractor the “amount certified in each interim payment certificate”, the Silver Book only requires the employer to pay “the amount which is due in respect of each statement.” The amount which is due is not the sum claimed by the contractor, but the sum which is determined by applying all the provisions relating to payment. The sum claimed is therefore open to dispute.

Conclusion

The decision in Sedgman has a number of practical consequences. One example relates to termination. Under Sub-Clause 16.2(c) of the Red and Yellow Books, a contractor may terminate the contract where it does not receive the amount due under an Interim

Payment Certificate. Under Sub-Clause 16.2 (b) of the Silver Book, the contractor may terminate where it does not receive the amount due in the period which payment is to be made.

However, a contractor must now be extremely careful because the amount due can only be determined by applying all the provisions relating to payment. Under the Silver Book, an employer is in a much stronger position if it wishes to withhold money. There is no quick way for the contractor to get paid without going through the dispute resolution provisions. If, as stated by Lord Denning, “cash flow” is the very “lifeblood” of the construction industry, then a contractor needs to be wary of the Silver Book’s payment provisions.

Please get in touch at victoria.tyson@howardkennedy.com with your thoughts or to discuss any concerns.

[1] [1971] 1 WLR 1205.

[2] [1973] 3 All ER 195.

[3] [1976-1977] 204.

[4] [2013] QSC 105.

Clause 1.15, previously in Sub-Clause 17.6 (1999 Edition), is now separated from Risk and Responsibility. It exempts parties from liability for loss, including loss of use, profit, or contracts, with exceptions for certain sub-clauses, notably Sub-Clauses 8.8 and 13.3.1(c).

The substance of this provision was already in Sub-Clause 17.6 in the 1999 Edition and has now been separated from other provisions dealing with Risk and Responsibility.

As before it generally exempts parties from liability to the other for “loss of use of any Works, loss of profit, loss of any contract or any indirect or consequential loss” except in respect of a list of identified Sub-Clauses. The list has been extended and several of the changes are very significant. It also limits liability to certain levels in some circumstances. Finally, it excludes parties from cover by the exemption and limits in certain circumstances. All three elements have changed.

Two additions are particularly noteworthy. The interaction between this Sub-Clause and Sub-Clause 8.8 insofar as it relates to the liability- limiting effect of Delay Damages is confusing, and it is very unclear what the final result should be taken to mean. There is also a similar lack of clarity in the way in which the Sub-Clause applies the exemption to Sub-Clause 13.3.1(c) (proposals for valuation of variations).

Exceptions to exemption from liability to the other party for loss of use of any Works, loss of profit, loss of any contract or any indirect or consequential loss

The list of exceptions to the exemptions from liability in the 1999 Edition extended to only 2 items (Payment on Termination and Indemnities). It is now extended to some additional items.

It should be noted that the wording of the Sub- Clause goes further than merely to negate the exemption from of liability for these items. It says that “neither party shall be liable for loss of profit” etc. … “other than under…”. Thus, if the party can show such loss, it confers an express right to claim such loss. Normal rules of the underlying law of the contract (unless mandatory) are thus excluded. Where the Sub-Clause to which the exception applies clearly sets out the loss

or damage which this exclusion from exemption refers to this does not raise an issue. However, there are issues in respect of the cross reference to Sub-Clauses 8.8 and 13.3.1(c).

The new items are:

• Sub-Clause 8.8 [Delay Damages]
• Sub-paragraph (c) of Sub-Clause 13.3.1 [Variation by Instruction]
• Sub-Clause 15.7 [Payment after Termination for Employer’s Convenience]
• Sub-Clause 16.4 [Payment after Termination by Contractor]
• Sub-Clause 17.3 [Intellectual and Industrial Property Rights]
• Limit on Total Liability
• Exclusion from Limits on Liability

Sub-Clause 8.8 [Delay Damages]

Sub Clause 8.8 already states that

“this Sub-Clause shall not limit the Contractor’s liability for Delay Damages in any case of fraud, gross negligence, deliberate default or reckless misconduct by the Contractor.”

Thus, if the Contractor is guilty of one of these types of misbehaviour, it will not be able to take advantage of the cap on Delay Damages. The lifting of the limitation in the Sub-Clause partly duplicates the last paragraph of Sub-Clause 1.15. This paragraph also lifts the limit in such circumstances, but goes further in allowing the general limit of liability under the Contract to be exceeded.

As noted above, Sub-Clause 1.15 is divided into two parts. The first lifts the exclusion of liability for loss of profit etc. The second lifts the limits of liability under the Contract.

The reference to Sub-Clause 8.8 in Sub-Clause 1.15 is under the first part and thus is intended to remove the exemption from liability for losses of profit when applying Delay Damages. Since Sub-Clause 8.8 provides that Delay Damages are the only damages due from the Contractor for failure to meet the Completion Date, except in the event of Termination under Sub-Clause 15.2 [Termination for Contractor’s Default] it would therefore seem that the exclusion is intended to prevent arguments that Delay Damages incorporate loss of profits and to allow for the possibility of loss of profit claims in the event that the Contractor is terminated for cause. If the latter were the case, one would have thought that Sub-Clause 1.15 would include Sub- Clause 15.2 (or more correctly Sub-Clause 15.4) in the list. There may however be an argument that an Employer is now entitled to claim loss of profit following termination for cause.

Sub-paragraph (c) of Sub-Clause 13.3.1 [Variation by Instruction]

13.3.1(c) is the provision which requires the Contractor, when carrying out a Variation instruction, to provide the Engineer with a proposal for adjustment of the Contract Price. It specifically sets out the right to include any costs resulting from the omission of any work. In particular it allows the Contractor to claim loss of profit, and other losses or damage it suffers, when it has agreed that work should be omitted to be carried out by others.

A simple reading would say that the exception to the normal exclusion is only intended to apply to the Contractor’s rights following an agreed omission in circumstances where the omission was ordered so that the work could be carried out by others. However, the exception is more widely expressed. It does not seem possible to read it down to prevent the Contractor claiming for loss of profit etc. as part of the costs it incurs in the case of any omission.

However Sub-Clause 13.3.1(c) does not only cover omissions. It also covers all adjustments to the Contract Price following variations. It would thus seem arguable that the Contractor is entitled to include loss of profit etc. in all its Variation valuation proposals, if there is a basis for it in the circumstances. For example, a very substantial Variation, which the Contractor is required to carry out on the basis of rates which cause it a loss, or which forces it to use resources that might have been more profitably employed elsewhere, might open the door to a claim for the loss of profit etc.

It is doubtful that it was FIDIC’s intention to open the door to such arguments. However, the reading of the Contract which leads to this conclusion is a reasonable one, and it is altogether possible that a tribunal confronted with the issue will reach this conclusion.

See comment on the last paragraph of 1.15 below for the consequences as regards non-consensual omissions intended to allow the Employer to have the work completed by others.

Sub-Clause 15.7 [Payment after Termination for Employer’s Convenience]

Sub-Clause 15.6 in the new Edition is a significant departure from the 1999 Edition, in that it gives the Contractor entitlement to claim “loss of profit and other losses and damages suffered by the Contractor as a result of this termination”. Sub-Clause 15.7 only refers to the obligation to pay the amount certified under Sub-Clause 15.6. The exception ought to have referred to Sub-Clause 15.6, though the intention is obvious. It is notable that 15.6 only refers to “loss of profit and other losses and damages”, whereas 1.15 allows claims for “loss of profit, loss of any contract or any indirect or consequential loss”. Thus, Sub-Clause 1.15 appears to have the effect of expanding the categories of loss which might have been claimable on a reading of Sub-Clause 15.6 standing alone.

Sub-Clause 16.4 [Payment after Termination by Contractor]

Sub-Clause 16.4 already includes a right to payment of loss of profit although it also refers only to “loss of profit or other losses or damages”. As with Sub-Clause 15.7, there may be scope for a wider claim.

Sub-Clause 17.3 [Intellectual and Industrial Property Rights]

Under Sub-Clause 17.3, the Employer and the Contractor each indemnify the other against any claims which may arise where the other faces a claim resulting from a breach of intellectual or industrial property rights caused by the other. The purpose of this exception is presumably to overcome any suggestion that the costs the indemnified party faces are excluded as indirect or consequential.

Limit on Total Liability

This provision was in the 1999 Edition and is to the same effect.

Exclusion from Limits on Liability

This provision prevents the parties escaping from liability in the case of fraud, gross negligence, deliberate default or reckless misconduct. The term “gross negligence” has been added to the 2017 Edition version.

This may have substantially different results depending on which Law applies to the contract.

In an interesting treatment of the subject recently presented to the Society for Construction Law in London,[1] the authors quoted a passage from the Court of Appeal in Armitage v Nurse[2] :

“It would be very surprising if our law drew the line between liability for ordinary negligence and liability for gross negligence. In this respect English law differs from civil law systems, for it has always drawn a sharp distinction between negligence, however gross, on the one hand and fraud bad faith and wilful misconduct on the other… we regard the difference between negligence and gross negligence as merely one of degree … civil systems draw the line in a different place. The doctrine is culpa lata dolo aequiparatur [gross negligence is equal to fraud]; and although the maxim itself is not Roman the principle is classical. There is no room for the maxim in the common law.”[3]

However as far as the English Law is concerned, the Courts will recognise an express contractual agreement that gross negligence (rather than mere negligence) will attract liability.

The distinction between ordinary and gross negligence is not easy to define in abstract terms, and the authors of the SCL paper after considering numerous authorities have suggested the following set of tests.

“52. However, where the term is not defined (which seems to be more usual), then we suggest the authorities identify the following seven factors as relevant to determining whether “gross” negligence has occurred:

1. Was the nature of the error serious, involving a high degree of risk?
2. Was the conduct undertaken with an appreciation of the risks, but with a blatant disregard of or indifference to an obvious risk?
3. That disregard or indifference need not be conscious, or deliberate; it is sufficient that the reasonably competent professional in the defendant’s position would have considered the action or inaction to amount to a blatant disregard of or indifference to the relevant risk. Conscious disregard/recklessness will however be a likely aggravating factor, and more likely to led to a finding of gross negligence.
4. Were the potential consequences of the action or inaction serious? The more serious the consequences, the more likely the negligence will be gross.
5. Had the same or similar consequences arisen out of the same or similar action or inaction before? In other words, was it a repeat error?
6. How likely was it that the consequence would occur? Again, the more objectively likely it was to occur, the more likely a finding of gross negligence.
7. What precautions were taken (if any) to prevent the consequence occurring? The more obvious and modest the steps, and the greater and more likely the risk, the more likely it is that the conduct in question will veer towards gross negligence.”

Thus, the test to be applied under common law systems before deciding whether a party can escape from liability differs considerably from that under civil systems. In the former, a high degree of negligence will make a party liable, but in the latter, only fraud will enable them to escape. It may well be that some common law and civil systems apply a different test, and parties will need to take local legal advice before deciding what the limitation on exclusion means in practice.[4]

Apart from this surprising change, it should be noted that the exclusion probably does not prevent a Contractor faced with a non-consensual omission by the Engineer to allow the Employer to have the works carried out by others from claiming loss of profit. Such an omission is forbidden under Sub-Clause 13.1, unless the Contractor agrees. It would therefore be a breach of contract on the Employer’s part: any loss would be recognised in damages. Since the breach would be deliberate, the Employer would not be entitled to protection from a claim for loss of profit.

Please get in touch at victoria.tyson@howardkennedy.com with your thoughts or to discuss any concerns.

[1] Exclusions from Immunity: Gross Negligence and Wilful Misconduct, James Pickavance and James Bowling SCL October 2017.

[2] [1997] EWCA Civ 1279, [1997] 2 All ER 705, [1997] 3 WLR 1046.

[3] Armitage v Nurse Note 14 [1997] 3 WLR 1046 para [254].

[4] In the Guidance included in the 2017 Edition FIDIC notes that “under a number of legal systems (notably in some common law jurisdictions) the term ‘gross negligence’ has no clear definition and, as such, is often avoided in legal documents.” In the general commentary on the definitions, it is suggested that a typical additional definition might be “Gross Negligence means any act or omission of a party which is contrary to the most elementary rules of diligence which a conscientious employer or contractor would have observed in similar circumstances, and /or which show serious reckless disregard for the consequences of such an act or omission. It involves materially more want of care than mere inadvertence or simple negligence.” Although one might wonder what the difference is between “serious reckless disregard” and “reckless disregard”, it would seem to be sensible to include a definition of what is meant by “gross negligence” and this definition has the benefit of improving the level of certainty.

Clause 14 outlines payment, certificates, and release from liability. While the methodology remains unchanged, procedural adjustments may delay payments but aim for prompt claim resolution. Some changes benefit contractors: e.g. claims are addressed during or shortly after the contract period.

This important clause sets out the method of payment, certificates, and release from liability.

The overall methodology has not changed, but there are several procedural adjustments and some inconsequential tidying. Some of the procedural changes will be welcomed by Contractors, but several will entail further delay in payment to the Contractor. There is a determined effort to ensure that all claims are dealt with during the contract period or very shortly thereafter.

Sub-Clause 14.2 – Advance Payment Guarantee

There is a new sub-clause specifically dealing with Advance Payment Guarantees. The most significant change (a very useful one for the Employer) is that where a guarantee has to be extended and the Contractor fails to do so, the Employer may call it in to the extent that any part of the advance payment has not been repaid.

The Advance Payment is to be made within 35 days of the Contractor’s providing their application together with the Performance Guarantee and Advance Payment Guarantee. This contrasts with 42 days under the 1999 Edition.

Sub-Clause 14.3 – Interim Payments

The 1999 Edition referred to applications for interim payment certificates (‘IPC’). This terminology is now gone. Now there is a Statement, which is then followed by the IPC (the term ‘IPC’ is used throughout).

The statement was formerly required in 6 paper copies. Only 1 hard “original” is now required, coupled with an electronic copy.

There then follows a list of the items which have to be included in the Statement. These have been expanded to include Provisional Sums, any release of Retention Money and the amount which the Employer is entitled to be paid for use of Temporary Utilities.

Presumably because Sub-Clause 21.4.3 requires that any money awarded by a DAAB shall be paid without the requirement for any certification or Notice, there is (in contrast to the 1999 Edition) no specific reference to such amounts in the list of items which are to be included in the Statement. Nonetheless, Contractors should include such amounts, as this will bring into effect the right to interest under Sub-Clause 14.8, running from the date of the decision. There is no provision for payment of interest unless a DAAB award is included in this way.

A new requirement has been added to the detail that the Contractor is required to provide. This is stated as “sufficient detail for the Engineer to investigate these amounts”. While this is obviously a useful and sensible requirement it has significant implications.

For the first time, an element of subjectivity is included in the requirements. It is quite possible that the Engineer and the Contractor will disagree about what is “sufficient” or what the Engineer needs to investigate any amounts claimed.

Should there be such a disagreement and the Engineer demands additional information, the time for payment under Sub-Clause 14.7 does not start to run until the relevant information has been received (there will arguably be a short-fall in the supporting documents). Not only may the Contractor be paid later than it would otherwise be entitled, it will also be limited in any claim for financing charges under Sub-Clause 14.8. Unfortunately, it is not uncommon for Engineers to be slow in issuing IPCs, especially when the Employer is having payment difficulties. The Contractor would be very unwise not to comply with any demands for additional information, even if it considers the demands unreasonable, but even then, there may be a consequent delay in payment.

It will be difficult for the Contractor to do anything to speed payment in these circumstances (a Notice under Sub-Clause 16.1 would be a drastic but possible remedy) but it will have the basis of a claim for Financing Charges. To gain these it will need to initiate a dispute under Sub-Clause 20.2 – a time-limited right, so notice needs to be given within 28 days of the Engineer wrongly refusing to accept additional information as sufficient for it to investigate.

However, it should be noted that Sub-Clause 14.6.2 requires the Engineer to issue an IPC even in the absence of such information, while making a suitable deduction to reflect his concerns (see also the discussion under 14.7).

Sub-Clause 14.4 – Schedule of Payments

Under the 1999 Edition, the Engineer was entitled to revise a payment schedule only if progress was less than expected. Now he may amend it if it “differs”. This opens the way to bringing payments forward if the Contractor is making better than expected progress. Unfortunately, there is no provision for the Contractor to trigger this correction process. However, the trigger date for the purposes of the Engineer’s Sub-Clause 3.7 process is when the difference is first “found by the Engineer”. Presumably the Contractor can tell the Engineer and thus makes sure he/she “finds” it.

Under Sub-Clause 3.7 however, the time allowed to the Engineer to make its decision is 42 days. The decision only starts the payment process, so it may be up to 70 days before a change takes effect.

Where the Engineer decides to invoke the process (most likely when progress is slower than that on which it considers the Schedule of Payments was based) the Contractor at least has the advantage that it is entitled to be consulted and that the Engineer must act neutrally and fairly.

There will be a question of how the Engineer can determine that progress differs from that on which the Schedule of Payments was based. If the Schedule simply provides for fixed payments on a monthly basis there will be the possibility of a dispute as to what progress was assumed in the Schedule of Payments. The Contractor’s principal obligation is to complete on time, not necessarily to conform to the programme. It is arguable that if the Contractor decides to change the way in which it will achieve timely completion, this does not mean that the agreed Schedule of Payments is inappropriate.

Where there is a Schedule of Payments, payments for Plant and Materials intended for the Works (see the next section on Sub-Clause 14.5) is disapplied. There is no equivalent provision in the 2017 Silver Book, and it is difficult to see how Sub-Clause 14.5 can work in this situation.

Sub-Clause 14.5 – Plant and Materials Intended for the Works

Like the 1999 Edition, the 2017 Edition allows the parties to agree that Plant and Materials may be paid for when shipped or delivered. The Contractor simply provides the evidence in his application for payment and the amount should then eventually be included in the IPC. Under the 1999 Edition, the term “determination” was used without cross reference to the (then) Clause 3.5. Once that determination was made the amount could be included. Presumably in the interests of clarification the clause now refers to Clause 3.7 [Determination].

This has the consequence that the Engineer has up to 84 days to make a decision, which previously would have been made immediately, and it will no longer be possible to include the amount in the next IPC. Even then there will be another 56 days delay before payment. In addition, the amount to be included in the IPC is only 80% of the value of the items.[1] It is thus probable that by the time the application is dealt with under Sub-Clause 3.7, the items will have been installed so this causes further cash-flow issues. The provision was intended to give the Contractor some early payment, but as amended, it achieves the opposite.

In a sensible and practical change, the requirement for a bank guarantee before the Engineer proceeds to determine a payment has been replaced with a promise of a guarantee, but with eventual payment being conditional on the guarantee being provided.

Note that (even if the parties have agreed to apply this provision) Sub-Clause 14.4 excludes its operation when payment is made against a Schedule of Payments rather than against measured interim payments.

Sub-Clause 14.6 – Issue of IPC

The Clause now provides, as a condition precedent, that the Contractor has appointed the Contractor’s Representative.

Sub-Clause 14.6.1 – Content of IPC

The Contractor is now entitled to a copy of each IPC and it is specified that the Engineer must explain any differences between the amount applied for and the amount Certified. Contractors will be very pleased to have an entitlement to this information.

It is interesting to note that the requirement for the Engineer remains to issue the Final Payment Certificate (‘FPC’) for such amount as he “fairly” considers due, so that while Sub- Clause 3.7 has moved from “fair” to “neutral”, the halfway house of fairness remains in place here. (Clause 14.13 includes the same requirement for issue of the FPC.

Sub-Clause 14.6.2 – Withholding (amounts in) an IPC

A further welcome addition from the point of view of Contractors is that the Engineer is now obliged to explain why amounts are withheld.

Where Engineers find significant errors or discrepancies in the Statement, they now have a right to adjust the amount certified to take account of the extent to which this has prejudiced or prevented a proper investigation. This does not amount to a licence simply not to include amounts in respect of items where there may have been such an error. All the Engineer is entitled to do is “take account” of the error. This must be something other than simply failing to consider material which contains errors. Presumably this is not intended to detract from the obligation to act fairly, but exactly what it will mean in practice remains to be seen.

The IPC also includes any amounts determined under Sub-Clause 3.7. Although there is no specific statement to this effect here, this provision in fact reflects another considerable improvement from the Contractor’s point of view. Virtually all employer claims now pass through the Sub-Clause 3.7 procedure, so the situation which prevails under the 1999 Edition (where a deduction is sometimes made for an Employer claim before the Contractor has the opportunity to argue the point) has now been remedied.

Sub-Clause 14.6.3 – Correction or modification of IPC

There is a welcome new provision setting out in detail what the Contractor is entitled to do if he does not agree with the IPC. Following the Contractor’s submissions, the Engineer has an opportunity to include corrections in the IPC. If he does not do so, or the Contractor still remains unhappy, he is entitled to entitled to ask the Engineer to deal with the matter under Sub-Clause 3.7. There is no time-limit on the Contractor making this request.

Although the 3.7 process is lengthy in the context of payment, the clear right for a Contractor to pursue this procedure in the face of a difficult Engineer will be welcomed by Contractors.

Sub-Clause 14.7 – Payment

As before the Employer’s time for payment runs from when the application is made by the Contractor. This is 56 days for all IPCs except the FPC. Confusingly the Sub-Clause includes two separate time limits for payment under IPCs – 56 days after Engineer receipt for normal ones and 28 days after Employer receipt where the IPC is issued as result of a Partially Agreed Final Statement under Clause 14.13. The FPC is payable 56 days after its receipt by the Employer.

Sub-Clause 14.8 – Delayed Payment

As before, interest is due on late payment. The rate is calculated at 3% above variously defined base rates which have been re-defined. Formerly the base was the discount rate of the central bank of the country of currency of payment. It is now based on the rates charged to borrowers at the place for payment or, if there is no such rate, the rate in country of the currency of payment (there may be some debate about what rate should be paid where the currency of payment is the Euro).

Payment is now to be made without any requirement for a notice from the Contractor of any sort. There is no time limit expressed and no provision for interest on late payment of such interest. Contractors who fear late payment of interest may be wise to include a claim in their next Statement for inclusion in an IPC.

Sub-Clause 14.9 – Release of Retention Money

This new provision marks a considerable negative change as far as Contractors are concerned. Under the 1999 Edition, payment was certified by the Engineer outside the normal IPC process and should have been made immediately. It is now to be included in a Statement for an IPC. This inevitably means at least a 56 day delay in refund.

Sub-Clause 14.10 – Statement at Completion

This has always been required to include any amounts the Contractor considers to be due. The particular categories are now spelled out in detail – including claims still being considered by the Engineer and the DAAB. These are only given as examples, but the list contains considerable gaps – for example, amounts where a NOD is likely to be issued, and amounts which are about to be challenged in arbitration.

Sub-Clause 14.11 – Draft Final Statement, Agreed Final Statement and Partially Agreed Final Statement

There are now three sub-clauses covering what was previously one, referring to the application for a Final Payment Certificate. As before the Sub-clause envisages a process under which the Engineer and the Contractor attempt to agree on the figures for the FPC.

The significant change is the introduction of the concept of a Partially Agreed Final Statement (PAFS). This is a Statement prepared by the Contractor identifying amounts which (after discussions with the Engineer) are agreed and those which are not agreed. This is a sensible additional provision to avoid the situation where there is disagreement over the content of the Final Statement and the Engineer is forced to make a decision as to what he includes in the FPC.

As with as Agreed Final Statement, the consequence of a PAFS is that the Engineer proceeds to issue an FPC (14.13). However, the payment consequences are different. In the case of an FPC, Clause 14.7 requires payment 56 days after receipt by the Employer. A PAFS does not lead to an FPC, but to an IPC which is to be paid 28 days after receipt by the Employer.

Sub-Clause 14.12 – Discharge

The 1999 Edition provided for a full and final discharge by the Contractor, which only took effect once all outstanding claims had been satisfied. This has now been limited in that the discharge covers all agreed amounts but can only exclude limited elements of the Contractor’s claims.

The excluded items may only be items in respect of which a DAAB or arbitration is “in progress”. Thus, claims still being dealt with by the Engineer under Clause 3.7 cannot be excluded, nor can those which, while still live, have not yet been made the subject of a DAAB or arbitration (notice not yet given, proceedings not yet commenced, etc). Contractors ought to be very reluctant to issue such a discharge, but it is a condition precedent to issue of the Final Payment Certificate. The discharge will be deemed to have been submitted and will be effective even if the Contractor fails to provide it so long as the amount certified in the Final Payment Certificate has been paid and the Performance Security returned.  Given that the FPC cannot be issued until the discharge is provided this provision is unworkable.

Sub-Clause 14.13 – Issue of FPC

The FPC is issued 28 days after the Final Statement or Partially Agreed Final Statement. This is as in the 1999 Edition, but the content of the statement now includes credit for any amounts paid under the Performance Security and any balance due from the Employer.

The Sub-Clause now contains additional wording to deal with the situation where there is a Partially Agreed Final Statement (or the Engineer considers that the draft final Statement submitted is in fact a Partially Agreed Final Statement).

Unfortunately (perhaps due to a drafting error) there are two alternative approaches included, with no indication as to which is to apply.

The opening words provide that following a Partially Agreed Final Statement, a Final Payment Certificate is to be issued.

However, the final paragraph provides that in the same case, no FPC is to be issued, but there is to be another IPC. As noted above, if this approach is followed, this IPC (unlike other IPCs) is to be paid 28 days after receipt by the Employer, rather than 56 days after its receipt by the Engineer.

Sub-Clause 14.14 – Cessation of Employer’s Liability

As in the 1999 Edition, the Employer’s liability is limited by reference to what is included in the Final Statement, unless something new arises after the work is completed.

The 2017 Edition contains an additional exemption for the Employer. Unless reference has been made in the Final Statement or Partially Agreed Final Statement, the Employer is absolved from any amounts which the Contractor might wish to claim, unless he makes a claim under 20.2 within 56 days of receiving the Final Payment Certificate. Under the 1999 Edition, no such cut-off was provided. Contractors will have to be sure to start all their claims immediately.

As with the 1999 Edition, the cessation of the Employer’s liability does not apply in the case of his indemnification obligations, or in case of fraud, deliberate default, or reckless misconduct. “[G]ross negligence” has now been added to this list (to the Contractor’s possible advantage) .

The addition of “gross negligence” may have substantially different results depending on which Law applies to the contract.

In a very interesting treatment of the subject recently presented to the Society for Construction Law in London,[2] the authors quoted a passage from a Court of Appeal case Armitage v Nurse[3] as follows:

“It would be very surprising if our law drew the line between liability for ordinary negligence and liability for gross negligence. In this respect English law differs from civil law systems, for it has always drawn a sharp distinction between negligence, however gross, on the one hand and fraud bad faith and wilful misconduct on the other

“… we regard the difference between negligence and gross negligence as merely one of degree … civil systems draw the line in a different place. The doctrine is culpa lata dolo aequiparatur [gross negligence is equal to fraud]; and although the maxim itself is not Roman the principle is classical. There is no room for the maxim in the common law.”[4]

On this basis it seems that, in common law jurisdictions, all significant negligence prevents parties from escaping from liability, and under civil systems, only fraud will enable them to escape.

Sub-Clause 14.15 – Currencies of Payment

This adds two provisions to those in the 1999 Edition. One provides for the way in which currencies are to be allocated in valuing variations (there is a comment on this in our treatment of Clause 13). The other deals with the currencies in which Performance Damages are to be paid.

Please get in touch at victoria.tyson@howardkennedy.com with your thoughts or to discuss any concerns.

[1] Note that under Sub-Clause 7.7 property in Materials and Plant does not pass until they are fully paid for, so this 80% provision means that the Contractor retains ownership far longer than one might expect.

[2] Exclusions from Immunity: Gross Negligence and Wilful Misconduct, James Pickavance and James Bowling SCL October 2017.

[3] [1997] EWCA Civ 1279, [1997] 2 All ER 705, [1997] 3 WLR 1046.

[4] Armitage v Nurse Note 14 [1997] 3 WLR 1046 para [254].

FIDIC 1999 is a re-measurement contract, with the Employer bearing the risk of quantity variations. Clause 12 covers measurement, evaluation of rates, and valuation of omissions. It lacks a standard measurement method, which has been criticized.

FIDIC 1999 is a re-measurement contract, so that the Employer takes the risk of variations to the quantities and, in certain cases, to the rates and prices which may be applied for the work executed. If the Employer wishes to employ a Contractor on a lump-sum or cost-plus basis, then this clause needs to be deleted.

• Sub-Clause 12.1 deals with the measurement of the works.
• Sub-Clause 12.2 does not include a reference to any standard method of measurement but states that the works are to be measured in accordance with the Bill of Quantities or other applicable Schedules. The lack of reference to a particular standard method of measurement has been criticised.[1]
• Sub-Clause 12.3 deals with evaluating the appropriate rate or price for the works. There are three methods of evaluating the works:
• The rate or price specified for such item in the Contract; but if there is no such item,
• The rate or price specified for similar
• However, in certain specified circumstances, a new rate or price shall be appropriate.
• Sub-Clause 12.4 deals with the valuation of omissions from the works.

As this is a re-measurement contract, there is no warranty that the quantities measured in the Bill of Quantities are accurate. Nael Bunni suggests that when quantities within the Bill of Quantities are exceeded then payment should be at the rates set out in the Bill.[2] There have been some cases where the courts have adopted differing approaches; in those cases, the wording of the re-measurement clause differed to that within FIDIC. These decisions have been described by Dr. Bunni as controversial.

Origin of Clause

The clause has its origins in Sub-Clauses 52, 56, and 57.1 of FIDIC 4^th Edition, which in turn were also found in the 3^rd Edition.

Cross-References

Reference to clause 12 or “measurement” is found in the following  clauses:

• Sub-Clause 7.3 [Inspection]
• Sub-Clause 7.5 [Rejection]
• Sub-Clause 13.3 [Variation Procedure]
• Sub-Clause 14.1 [The Contract Price]

The Purpose of The Clause

Sub-Clause 14.1 provides that the quantities, which may be set out in the Bill of Quantities or other Schedule, are estimated quantities and are not to be taken as the actual and correct quantities for the purposes of Clause 12 [Measurement and Evaluation]. Clause 12 is based upon the principle that the Works are to be valued by measuring the quantity of each item of work under Sub-Clause 12.2 and then applying the appropriate rate per unit quantity or the appropriate lump-sum price under Sub-Clause 12.3.

If the Employer prefers to have a lump-sum contract, then Clause 12 needs to be deleted. In the Guidance for the Preparation of Particular Conditions there is an example of a “Lump Sum Contract.”

The Contractor should check the substantive law of the contract to ensure that it allows for the re-measurement of work, without additional notices being given. Certain laws place prohibitions or restrictions on additional payments of more than the contract sum. For example, under Article 886(1) of the Federal Law No 5 of 1985 of the UAE, the following applies:

“If a contract is made under an itemized list on the basis of unit prices, the contractor must immediately notify the employer thereof, setting out the increased price expected, and if he does not do so he shall lose his right to recover the excess cost over and above the value of the itemized list.”

While it remains unclear whether this Article of Federal Law No 5 would have the effect of displacing Sub-Clause 12.3, it has been argued that it may have a very significant impact.[3] The suggestion is that the re-measurement provisions of FIDIC 1999 would fall foul of Article 886(1), as there is no provision within FIDIC to give a notice if the estimated quantities are to be exceeded.

Sub-Clause 12.1 – Works to Be Measured

Sub-Clause 12.1 describes the procedure for measuring the quantity of each item of work. Quantities should preferably be agreed between the representatives of the Engineer and the Contractor, as a continuing process, and as the execution of the Works proceeds. Although the second paragraph empowers the Engineer to take the initiative in requiring a measurement to be made, this activity should be regarded as a joint activity.

The contract does not specify any particular time in which measurements are to be taken. The Sub-Clause refers only to when the Engineer requires the works to be measured and then he must give reasonable notice. Once reasonable notice has been given, the Contractor’s representative (or other representative) is required to attend and assist the Engineer and provide any particulars requested. Although it is the Engineer that is obliged to measure the works, this often does not happen in practice. The Contractor is often more likely to be in a better position to measure the works itself, and often does measure the works rather than merely assist the Engineer. The Engineer then checks and confirms the Contractor’s measurement.

If the Contractor fails to attend or send a representative, the measurement made by (or on behalf of) the Engineer shall be considered to be accurate. The Contractor will not be able to open up, review or revise this measurement at a later stage, because the Engineer does not make a determination regarding the measurement. Instead, the Contract deems the measurement to be accurate. Similarly, where the measurement is made from records, and the Contractor does not attend and does not dispute the records, then these records will be considered to be accurate. If the Contractor disagrees with the records, then it must give notice to the Engineer within 14 days or, again, the records will be accepted as being accurate.

In the case of Norwest Holst Construction v Co-operative Wholesale Society,[4] the parties failed to measure the works as it progressed and at the end of the job it became impractical to re-measure. The Employer sought to argue that the works should be measured from a schematic drawing within the tender drawings and that any bends or deviations amounted to uninstructed work and therefore should be ignored for the re-measure. The arbitrator referred to this as nonsense and concluded that the works to be valued were the works which had been undertaken.

Sub-Clause 12.2 – Method of Measurement

These two sub-paragraphs describe what is typically referred to as the “method of measurement” applicable to the Works. This method relates primarily to what quantities are to be applicable to the evaluation, rather than to the measuring techniques (although they may also be described) and plays an important part in the whole evaluation of the Contract Price.

Sub-paragraph (a) states that measurement shall be made of the net actual quantity. The meaning of this phrase is far from settled, particularly in the absence of a Standard Method of Measurement being referred to within the contract.[5]

This method (or principles) of measurement may comprise of:

• principles for measurement which are specified in a preamble to the Bill of Quantities,
• a publication which specifies principles of measurement, and which is incorporated (by reference) into the Bill of Quantities, or
• for a contract which does not contain many or complex items of work, principles included in each of the item descriptions in the Bill of

The FIDIC Guide states that:

“each item of the Works is to be measured in accordance with such principles/method of measurement, which takes precedence over the general principle described in sub-paragraph (a) of this Sub-Clause.”

However, there is nothing which indicates this within the Contract, as sub-paragraphs (a) and (b) are conjoined with the word “and.”

A Bill of Quantities has been defined as:[6]

“The product specification that details the operations required to build a standard construction project. It covers the costs of inputs (labour, materials, and plant), subcontracting, preliminaries and overheads. It also covers contractor’s profit or loss, architect’s and engineer’s fees and non-deductible taxes. A bill of quantities is structured to provide a weighted price for each component specified which, when summed across components, provide the purchasers’ price for the standard construction project described.”

The Contractor must always take care to verify that the Bill of Quantities contains all item descriptions of work within the Drawings or Specification. The Bill of Quantities should have been made up from a detailed analysis of the design calculations, Specifications, and Drawings. The works are then divided into separate trades or types of activity and a brief description of the activity is then provided. Quantities are then inserted – these quantities may be either estimated or calculated precisely.

The rates within the Bill of Quantities are often a single rate compounded from the costs of labour and materials. The rates may not consider all the main costs incurred by a Contractor such as temporary works. Bills of Quantities have therefore been criticized[7] as not reflecting real cost in the event that there are changes to the scope of the works.[8] For this reason the British Research Establishment has developed operational bills which it considers more accurately reflect the real costs.

In England, the use of a Bill of Quantities is on the decline, with more lump sum contracts and the NEC Engineering and Construction Contract using priced-activity schedules.

The FIDIC Guide suggests that where there are omissions within the Bill of Quantities, which are discovered during the course of the works, then disputes may arise as to whether an additional item ought to be included. The FIDIC Guide suggests that Clause 12 ought to be read as follows:

• If the Bill of Quantities includes (either incorporated by reference or specified) principles of measurement which clearly require that an item of work be measured, and if the Bill of Quantities contains no such item, then an additional Bill item will be required in order to satisfy the requirement for measurement in accordance with such
• If the Bill of Quantities includes (either incorporated by reference or specified) principles of measurement which do not clearly require that a particular item of work be measured, and the work was as described in the Contract and did not arise from a Variation, then measurement in accordance with such principles does not require the addition of a new Bill
• If the Bill of Quantities does not include principles of measurement for a particular item of work, and the work was as described in the Contract and did not arise from a Variation, then measurement in accordance with such principles does not require the addition of a new Bill

Sub-Clause 12.3 – Evaluation

The Engineer is required to agree or determine the value of each item of work, applying measured quantities to rates and prices in accordance with this Sub-Clause. The second paragraph confirms that, for each item, the appropriate rate or price shall be:

1. The rate or price specified for such item in the Contract; or
2. If there is no such item, the rate or price specified for similar works.
3. However, in certain defined circumstances, a new rate or price shall be specified.

Each of the grounds, as set out above, is looked at individually.

Ground (a)

Sub-Clause 12.3 requires that the parties start by ascertaining whether there is a rate or price specified for such item in the Contract. The difficulty comes when considering the words “specified for such item in the Contract.” The works as set out in the Specifications and Drawings are therefore valued in accordance with the rates and prices in the Contract. Additional quantities should also be valued in accordance with this ground where the work was specified in the Contract.[9]

It is less clear when a variation should be valued in accordance with this ground as the varied work is not work specified in the Contract. It should also be noted that there are fundamental differences in the wording of FIDIC 4^th Red Book Clause 52, compared to Sub-Clause 12.3 of FIDIC 1999. Clause 52 of FIDIC 4^th Red Book specified that a ground (a) type evaluation was to be used as a basis for valuing variations.

Sub-Clause 12.3 of FIDIC 1999 is less obvious. However, having regard to ground (c) below, it seems clear that the drafters of this clause intended ground (a) to be used for valuing Variations and it is the norm that where an Engineer instructs varied work (for example more piles) and there is a bill item for the particular type of piles used, then the Engineer will value the work using bill rates.

Ground (b)

Ground (b) applies where there is no specified item for the work in the Contract and therefore a rate is used for similar work. The FIDIC Guide suggests that to determine whether there is “similarity of work” the Engineer should consider the description in sub-paragraph 12.3(b)(iii), which refers to similarity in terms of work being of similar character and executed under similar conditions.

“Similar character” and “similar conditions” are not always easy terms to define. Where the contract foresees large areas of soil replacement then if, for example, there are lots of small additional areas where ground improvement works have to be undertaken, this will not fall within ground (b). The works may well be of a similar character as foreseen in the Contract but will not be carried out under similar conditions.

There are numerous circumstances which may arise where the Contractor may claim that works were not carried out under similar conditions. For example, there may be winter working rather than summer working; night rather than day working; the discovery of antiquities may change the way the works are executed; and so on. However, a change in economic conditions is not considered a change under ground (b). This issue was considered in Henry Boot Ltd v Alstom Combined Cycles Ltd[10] where Judge Humphrey Lloyd held that:

“The words ‘executed under similar conditions’ do not of course refer to economic or financial conditions or considerations … Intrinsic profitability or otherwise of the rate or price is not therefore a relevant consideration to be taken into account in the application of the principle set out in clause 52(1)(a) …. The work is not executed under dissimilar conditions simply because the applicable rate may result in the contractor being paid markedly more or less than that which might be regarded as ‘fair’, e.g. more or less than actual or reasonable cost-plus profit and overheads.”

Ground (c)

Ground (c) applies only in specific circumstances. It applies to mitigate the effects of grounds (a) and (b) if certain criteria are met. Where a contractor submits a global claim, ground (c) should not be used to value the claim if parts of the claim should be properly valued underground (a) or (b).[11]

Sub-paragraph (a) specifies four criteria which are applicable without reference to Clause 13, and a new rate shall only be appropriate if all four criteria are satisfied. Therefore, it is possible for the Contractor to claim a new rate under Sub-Clause 12.3 on the basis of additional quantities. The four criteria are:

• The measured quantity of the item of work must be less than 90%, or more than 110%, of the quantity stated in the Bill of Quantities. This criterion is consistent with the principle that Bill of Quantities provides only an estimate – see Sub-Clause 1(c).
• When the difference in quantity (namely, the difference between the Measured Quantity and quantity in the Bill of Quantities) is multiplied by the rate per unit quantity stated in the Bill of Quantities, the result must be more than 0.01% of the Accepted Contract Amount. This criterion is specified in order to avoid adjusting a rate if the adjustment will have little effect on the final Contract
• The difference in quantity (namely, the difference between the Measured Quantity and quantity in the Bill of Quantities) must have affected the “Cost per unit quantity”, which is the Cost incurred executing the work covered by the item, divided by the quantity of the item as measurable in accordance with the applicable method of measurement.
• The Contract must not have used phrase “fixed rate item” in relation to the item in the Bill.

If the four criteria are met, the Bill rate would typically be changed in proportion to such change in Cost per unit quantity which was the direct result of the change in quantity.

Sub-paragraph (b) specifies criteria relating to work instructed under Clause 13, which includes Variations, work under Provisional Sums, and (possibly) some types of work valued under the provisions in the Daywork Schedule. In these cases, a new rate or price will be considered appropriate if there is no Bill rate or price for work of similar character and executed under similar conditions. In other words where there is a Variation, then evaluation under ground (c) occurs only when the works (i.e. the subject of the variation) cannot be evaluated under grounds (a) or (b). If a new rate or price is to be assessed, it may be derived from relevant rates and/or prices in the Bill of Quantities or other appropriate Schedules, and/or from reasonable Costs. Where the rate is to be built up then this is often termed as a “star rate”.

Galliford (UK) Ltd v Aldi Stores Ltd[12] illustrates that these provisions of the contract can have a significant effect on the costs of undertaking the works. In Galliford, Judge Bowsher KC had to consider a claim for additional payment by the Contractor, where it had written £0.00 in its Bill of Quantities for removal of contaminated material. A variation had been instructed by which the Contractor had to move a significant quantity of contaminated material. The Employer claimed that the Contractor was not entitled to recover anything. The court agreed and held that the Contractor could recover nothing as it had not proven that the works were not carried out under similar conditions, or that there had been a significant change in the quantity of the work.

Similarly, Lord Lloyd, in Henry Boot Construction v Alston Combined Cycles,[13] stated that there were limited exceptions which would allow an Engineer to correct the rates in a contract. The Engineer could not make a correction just because they were too high or too low or inserted by mistake. His lordship then stated:[14]

“If the Engineer were free to open up the rates at the request of one party or the other because they were inserted in the Bill of Quantities by mistake, it would not only unsettle the basis of competitive tendering, but also create the sort of uncertainty in the administration of building contracts which should be avoided at all costs.”

However, where the mistake does not reflect the common intention of the parties, then the courts may be able to interpret the contract to remove an ambiguity in drafting or rectify the contract. The difference between contractual interpretation and rectification is however important. Lord Neuberger in Marley v Rawlings[15] (a case on wills) held:

“At first sight, it might seem to be a rather dry question whether a particular approach is one of interpretation or rectification. However, it is by no means simply an academic issue of categorisation. If it is a question of interpretation, then the document in question has, and has always had, the meaning and effect as determined by the court, and that is the end of the matter. On the other hand, if it is a question of rectification, then the document, as rectified, has a different meaning from that which it appears to have on its face, and the court would have jurisdiction to refuse rectification or to grant it on terms (e.g. If there had been delay, change of position, or c third party reliance).”

Rectification is therefore a discretionary remedy, while interpreting the contract is simply finding the true meaning of the parties within the contract. While a DAB can interpret the contract, it is extremely doubtful whether it has the power to rectify a contract, as this would involve changing the “Contract” as defined at Sub-Clause 1.1.1.1. In contradistinction, when dealing with contractual interpretation the DAB should seek to ascertain the intention of the parties;

“from the language they have used interpreted in the light of the relevant factual situation in which the contract was made. But the poorer the quality of the drafting, the less willing any court should be to be driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention, if the language used, whatever it may lack in precision, is reasonably capable of an interpretation which attributes to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis.” [16]

This statement was recently approved by the Supreme Court in Rainy Sky SA & Orsd v Kookmin Bank.[17]

In most cases, where there has been an error in the Bill of Quantities, then the task will be one of rectification rather than contractual interpretation. It will however be an extremely rare case where the courts decide to rectify the Bill of Quantities.[18]

Sub-Clause 12.4 – Omissions

Sub-Clause 12.4 must be read alongside Sub-Clause 13.1 and 13.3. As a general principle of law, a contract for the execution of work confers on the contractor not only the duty to carry out the work, but also the corresponding right to complete the work which it contracted to carry out. To take away or vary the work is an intrusion into and an infringement of that right entitling the contractor to damages unless the contract provides for work to be varied or omitted.

Reasonably clear words are needed in order to remove work from the contractor to have it done by somebody else. It is implicit in most contracts that an employer who exercises a power to omit work must genuinely require the work not to be done at all, and it cannot exercise such power with a view to obtain having the work undertaken by another at a cheaper price.[19]^, [20] This is the position within FIDIC 1999: i.e., that the Employer can omit work but cannot do so in order to have the work done by another.

It is accepted that an Employer can omit work and have that work done by another contractor only if there are clear words in the contract. In Multiplex Construction (UK) Limited v Cleveland Bridge UK Limited and Cleveland Bridge Dorman Long Engineering Limited[21] Jackson J held that:

“A variation clause entitles the employer to omit work which he no longer requires. Absent specific provision to that effect, a variation clause does not entitle the employer to omit work for the purpose of giving it to another contractor”.

Where the Employer does omit work and the valuation of that work is not agreed, then Sub-Clause 12.4 is applicable. This provision entitles the Contractor to compensation for the costs reasonably incurred in the expectation of carrying out work subsequently omitted. It should be noted that the Sub-Clause refers to “cost” rather than to “Cost”. The Engineer is obliged to determine the cost in accordance with Sub-Clause 3.5 and the sum determined will be added to the Contract Price.

Please get in touch at victoria.tyson@howardkennedy.com with your thoughts or to discuss any concerns.

[1] Jaeger & Hök, FIDIC – A Guide for practitioners (2010) p.297.

[2] Nael Bunni, The FIDIC Form of Contract, (2005) 3^rd Edition Blackwell.

[3] Chris Larkin Quantity Clause Needs Update – http://cmguide.org/archives/1365/print

[4] [1998] All ER (D) 61.

[5] EC Corbett, FIDIC 4^th A Practical Legal Guide, page 344.

[6] Definition from the Stat Extracts of the Organisation for Economic Co-operation and Development (OECD).

[7] Ian Duncan-Wallace, Construction Contracts: Principles and Policies in Tort and Contract at paragraph 26-16.

[8] In contrast John Molloy Civil Engineering Measurement Claims in Hong Kong http://www.fig.net/pub/fig2007/papers/ts_3g/ts03g_02_molloy_1664.pdf advocated the use of Bills of Quantity.

[9]Grinaker Construction (TVL) (PTY) Ltd v Transvall Provincial Administration (1982) S.A.R 78.

[10] [1999] EWHC Technology 263.

[11] Final Award in Case 5634, ICC International Court of Arbitration Bulletin Vol 2, No 1 page 22; and Crosby & Sons Ltd v Portland UDC (1967) 5 BLR 121.

[12] [2000] All ER (D) 302.

[13] [2000] EWCA Civ 99.

[14] Ibid at page 8.

[15] [2015] AC 129 at para 40.

[16] Mitsui Construction Co Ltd v AG of Hong Kong [1986] 33 Build LR 1 at 14 per Lord Bridge.

[17] [2011] UKSC 50.

[18] See, for example, Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71.

[19] Abbey Developments Limited v PP Brickwork Limited [2003] EWHC 1987.

[20] Stratfield Saye Estate Trustees v AHL Construction Ltd [2004] EWHC 3286.

[21] [2008] EWHC 2220 (TCC) at para 1553.

Could provisions in FIDIC contracts giving relief for ‘Force Majeure’ or ‘Exceptional Events’ provide relief to contractors suffering as a result of price escalation? It is well documented that construction and engineering projects around the globe are being affected by extreme and sometimes unprecedented price escalation. This is for many reasons including the Covid-19 pandemic and the Russo-Ukrainian conflict.

Could provisions in FIDIC contracts giving relief for ‘Force Majeure’ or ‘Exceptional Events’ provide relief to contractors suffering as a result of price escalation?

Global construction costs in 2022

It is well documented that construction and engineering projects around the globe are being affected by extreme and sometimes unprecedented price escalation. This is for many reasons including the Covid-19 pandemic and the Russo-Ukrainian conflict.[1]

Contractors are looking to their contracts and the governing law of those contracts to find ways to avoid, spread or share the risk of this price escalation.

For contracts based on FIDIC conditions, the provisions in Sub-Clause 13.7 [Adjustments for Changes in Legislation] and/or Sub-Clause 13.8 [Adjustments for Changes in Cost] could be an answer.[2] This article focuses, however, on whether an (another?) answer may be found in the ‘Force Majeure’ or ‘Exceptional Events’ provisions.

Force Majeure under FIDIC 1999

Under the FIDIC 1999 forms of contract, if either party is prevented from performance of its obligations by Force Majeure (‘FM’) then, subject to giving notice, it may be excused performance of those obligations. The contractor may also be entitled to an extension of time and/or cost.

Definition of FM

Sub-Clause 19.1 contains a definition of FM. It is ‘an exceptional event or circumstance (a) which is beyond a Party’s control, (b) which such Party could not reasonably have provided against before entering into the Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party’.

For the definition to be met, these five criteria (‘exceptional event or circumstance’ plus the criteria (a) to (d)) must be satisfied.

The ‘exceptional event or circumstance’ might be the price escalation itself or something else, such as the Russo-Ukrainian conflict or Covid-19, the effect of which is price escalation, and there is scope for argument on this point.

It has been noted in respect of current price escalation in the construction sector that for some countries ‘these are some of the highest rates of inflation we have seen in decades, yet not in the hyperinflationary territory of the Weimar Republic in Germany following World War I, or Zimbabwe from 2007 to 2009’ and ‘Whilst the definition of hyperinflation is loose, for it to materialise, we’d expect significant increases to inflation on a month-on-month basis, above double-digit growth.’[3]   On this basis, it could be argued for some countries that price escalation as currently seen is not exceptional.

If price escalation is the ‘exceptional event or circumstance’, it seems likely that (a) and (d) above will also be satisfied unless, for example, the party in question is a Government with control over or responsibility for the price escalation. Regarding (b) above, the provisions that a contractor can make before entering the contract are generally limited to price and planning and in Sub-Clause 19.1 are expressly limited to what is ‘reasonable’. Foreseeability is not part of the definition. The fact that a contractor may be able to foresee price escalation before entering the contract will not be relevant if nonetheless the contractor could not reasonably have provided against it. Item (c) above, which refers to the event having arisen not being ‘reasonably … avoided or overcome’, appears to exclude from FM an event/circumstance whose effect could reasonably be completely negated. The fact that the effects of an event/circumstance can (or should – see below) be mitigated does not mean that the event cannot be FM.[4]

Sub-Clause 19.1(i) to (v) contains a list of example events or circumstances which, if they otherwise satisfy the definition, could constitute FM. Price escalation (or volatility) does not appear on this list but this is not fatal if it otherwise satisfies the definition. The real significance of this list is that four of the events listed may (subject to other criteria) give the contractor entitlement to money as well as time. If an event – such as price escalation – is not listed there will be no monetary compensation for it (see below).

The requirement for prevention

If the price escalation in question were to satisfy the definition of FM, it would only have contractual effect – and so be of use to the affected party – if it were also to prevent the affected party from performing any of its obligations under the contract.

This requirement for prevention is set out in two provisions.

Sub-Clause 19.2 provides that if a party ‘is or will be prevented from performing any of its obligations under the Contract’ by FM, it shall give notice and ‘shall specify the obligations, the performance of which is or will be prevented’. Having given notice, the party shall ‘be excused performance of such obligations for so long as such [FM] prevents it from performing them’.[5]

Sub-Clause 19.4 provides that if the contractor ‘is prevented from performing any of his obligations under the Contract by [FM] of which notice has been given [under Sub-Clause 19.2] and suffers delay and/or incurs Cost by reason of such [FM]’ then the contractor shall be entitled subject to Sub-Clause 20.1 to an extension of time for any such delay and, in limited circumstances, to additional cost.

These provisions refer to the prevention of ‘any’ obligations[6] so a shutdown of the whole project is not necessary.

If the price escalation falls within the definition of FM set out above, are there circumstances in which it might prevent performance? It is easy enough to see how price escalation may make it more onerous for a contractor to perform its obligations or may cause delay or disruption but at what point can it be said that the price escalation is preventing the contractor’s performance?

In English law, prevention has been interpreted in the context of force majeure as meaning physical or legal prevention and not mere economic unprofitability.[7]  The position may be different in other jurisdictions.

What if the scale of the loss resulting from the price escalation means that a contractor cannot continue to trade? Clearly there is scope for argument about the tipping point after which prevention may occur and that point will be different in each case. It is suggested, however, that it will usually be difficult to show prevention because of price escalation alone.

Entitlement to time and/or cost?

If a contractor is prevented from performing obligations under the contract by FM, has given notice, and suffers delay or incurs Cost by reason of such FM, Sub-Clause 19.4 provides that the contractor shall be entitled subject to Sub-Clause 20.1 to an extension of time and – if the event or circumstance is of the kind listed in Sub-Clause 19.1 sub-paragraphs (i) to (iv) (and in the case of sub-paragraphs (ii) to (iv) occurs in the Country[8]) – to payment of such Cost.

In other words, FM and prevention will only entitle the contractor to an extension of time, unless the FM is on the list of causes giving rise to Cost. These causes include war and, if it occurs in the Country, terrorism, strikes, munitions of war (etc).[9]

A contractor may therefore be entitled to an extension of time for delay caused by price escalation (or Covid-19) if this otherwise satisfies the definition of FM and prevents the contractor, but not to payment of Cost, which would only be available (in the context of the present article) if the contractor can show instead that the FM is war.

Mitigation

Sub-Clause 19.3 requires each party to use ‘reasonable endeavours’ to minimise delay resulting from FM. It does not require mitigation of any other consequence, although most legal systems will require mitigation as a general principle. In terms of price escalation, were this to constitute FM, ‘reasonable endeavours’ might include changing suppliers or transport options, although of course that may not be possible or may have no effect if there is price escalation across the board. The usual rule, subject to the governing law, is that mitigation does not require a party to incur additional cost. The parties may agree, in the interests of the project, to overcome price escalation by changing for example the physical works to avoid, reduce or share the impact of costly items.

No FM but obligations unlawful or impossible

Sub-Clause 19.7 provides that if an event/circumstance outside the control of the parties, which is not necessarily FM, makes it impossible or unlawful for either or both parties to fulfil its/their contractual obligations or which, under the governing law allows the parties to be released from further performance of the contract then, upon notice, the parties shall be discharged from further performance.

It is difficult to see how price escalation could make it unlawful for a party to fulfil its contractual obligations.[10]  Whether price escalation makes it impossible for a party to fulfil its obligations may depend on the meaning given to the word ‘impossible’ in the relevant jurisdiction (it may for example, encompass impracticability because of extreme and unreasonable expense or loss[11]) and the facts (in respect of which there may be a tipping point as mentioned above).

The governing law

A key consideration with price escalation is likely to be the governing law, which should specifically be considered in the context of Sub-Clause 19.7 and also in general, since it may provide relief from performance in case of price escalation under a variety of principles. These may include exceptional (or changed) circumstances,[12]  hardship[13] or impracticability[14]. The law of some jurisdictions may consider run-away inflation to be a frustrating event which may be remedied by release from performance.[15]  Again, each case will be considered on its merits. A court (tribunal) may consider price escalation to be a normal business risk such that relief is not available.

Exceptional Events under FIDIC 2017

In the 2017 forms, FIDIC does not use the term ‘Force Majeure’ and instead uses the term ‘Exceptional Events’.[16]  The requirement for the event or circumstance to be ‘exceptional’ no longer features in the definition. Apart from this, the provisions in FIDIC 2017 are largely similar to those in FIDIC 1999 and so the considerations identified above will continue to apply.

Conclusion

Whether price escalation affecting a contract based on the FIDIC conditions constitutes FM or an Exceptional Event will need to be assessed on the wording of the relevant provisions (which may include amendments to the standard FIDIC wording) and the facts of each case. Even if price escalation were to fall within the contractual definition of FM, a contractor may struggle to show that it has been prevented from performing its obligations under the contract by FM rather than performance of those obligations simply being rendered more onerous. Even then, as price escalation is not on the list in Sub-Clause 19.1, the contractor will not be entitled to compensation for it (i.e., payment of Cost) but only (if the contractor suffers delay) to an extension of time.[17]  Parties to construction and engineering contracts that are affected by price escalation should take advice on the governing law of their contract as that may provide relief in case of exceptional circumstances or similar. For future contracts, parties will wish to address the issue of price escalation up front, including by considering their supply chain and procurement strategies, and by drafting contractual provisions to address this risk as necessary.

[1]   For information about the various causes and effects see the Turner & Townsend report on its ‘International construction market survey 2022’ here: https://www.turnerandtownsend.com/en/perspectives/international-construction-market-survey-2022/ (last visited 21 July 2022). The report states that, in the 2022 survey results, 38 geographical construction markets suggested that they experienced inflation of 10% or more. Also ‘Rising building material costs have been one of the key drivers of higher construction cost inflation over the last 12 months. Global supply-chain disruptions, high commodity prices, higher shipping costs, and supply shortages have caused this strong price growth. Some of the key materials [with] significant price increases include structural steel beams, reinforcing steel, softwood timber for framing, copper pipe and copper cable.’

[2]   The equivalent provisions in FIDIC 2017 are at Sub-Clauses 13.6 and 13.7 respectively.

[3]   See the Turner & Townsend survey report at footnote 1 above in the section ‘Global economic outlook’.

[4]   See further ‘FIDIC 2017: A Practical Legal Guide’ (2020) Clause 18.

[5]   This excuse from performance does not apply to the obligation of either party to make payments to the other party under the contract.

[6]   Sub-Clause 19.4 of the MDB Harmonised Edition (June 2010) refers to ‘substantial obligations’.

[7]   Tennants (Lancashire) Ltd v. G.S. Wilson & Co Ltd [1917] AC 495.

[8]   ‘Country’ is defined in Sub-Clause 1.1.6.2 as the ‘country in which the Site (or most of it) is located, where the Permanent Works are to be executed’.

[9]  See Sub-Clause 19.1 for the complete list.

[10] Although unlawfulness might arise if, for example, one party to a contract is prohibited from continuing a contractual relationship with the other party as a result of sanctions.

[11] See Knutson ‘FIDIC An Analysis of International Construction Contracts’ (Kluwer Law, 2005) at p237 in relation to the law of Malaysia and the reference to Kung Swee Heng v. Paritam Kaur [1948] M.L.J. 170 in which Hill J referred to the definition adopted by the American Law Institute: ‘Impossibility means not strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury or loss.’

[12] Meaning events or circumstances which, without rendering the performance of an obligation impossible, make it excessively onerous to a point of breaking the economic equilibrium of a contract. In this case, the court (tribunal) may reduce the obligation in question to reasonable limits. See Knutson ‘FIDIC An Analysis of International Construction Contracts’ (Kluwer Law, 2005) at p34 in relation to the law of Egypt.

[13] See Klee ‘International Construction Contract Law’ (Wiley, 2015) at p40 in relation to the law of Brazil and Germany.

[14] See Klee ‘International Construction Contract Law’ (Wiley, 2015) at p41 in relation to US cases.

[15] See Knutson ‘FIDIC An Analysis of International Construction Contracts’ (Kluwer Law, 2005) at p183 in relation to the law of India.

[16] Clause 18 of the Red Book 2017.

[17] Subject to compliance with notice requirements.

The English Commercial Court has now confirmed in two separate decisions that an arbitral tribunal may award a winning claimant its third party funding costs. How significant are these decisions and it is time to rethink the potential reward and risk of international arbitration?

Introduction

The English Commercial Court has now confirmed in two separate decisions that an arbitral tribunal may award a winning claimant its third party funding costs. How significant are these decisions and it is time to rethink the potential reward and risk of international arbitration?

The First Decision – Essar v. Norscot (2016)[1]

This case concerned an ICC arbitration with a seat in England. The tribunal awarded Norscot its funding costs, i.e., the sum that Norscot owed to a third party funder for advancing sums for the purposes of the arbitration.

The tribunal found that provisions in the English Arbitration Act 1996 (including section 59(1)(c) which defines the ‘costs of the arbitration’ to include ‘the legal or other costs of the parties’) and the ICC rules of arbitration (article 31(1) of the applicable rules which defined the ‘costs of the arbitration’ to include the ‘reasonable legal and other costs incurred by the parties for the arbitration’) gave it a wide discretion as to what costs it could award to the winning party. In light of Essar’s conduct, of which the tribunal was critical, these included Norscot’s funding costs as reasonable ‘other costs’.

Essar applied to the English court to set aside the award under section 68 of the English Arbitration Act 1996 on the grounds that the arbitral tribunal exceeded its powers by awarding the funding costs and this constituted a serious irregularity. The English Commercial Court dismissed the application. It found that the tribunal had the power to award funding costs because as a matter of language, context and logic they fell within the definition of ‘other costs’ and the decision whether or not to award such costs then fell within the tribunal’s general costs discretion.

The decision in Essar raised a number of questions regarding the recovery of funding costs in arbitration including: how significant is a party’s conduct to this recovery (for example, does the conduct have to lead to the other party’s impecuniosity?), whether a tribunal may exercise its discretion if the funding was not strictly necessary to bring the claim (for example, where the claimant has sufficient funds to pay its arbitration costs but chooses to obtain third party funding for commercial reasons, such as to ease cash flow or hedge risk) and at what stage the funding should be disclosed.

The ICCA-Queen Mary Report on Third Party Funding in International Arbitration (2018)[2]

This Report was published after Essar v. Norscot and considers many questions relating to third party funding in international arbitration in light of its rapid evolution. The Report notes that there were (in 2018) very few reported cases dealing with the award of funding costs[3] and that, under the majority of arbitration rules, a party may recover costs which it has ‘reasonably’ incurred in the arbitration, with three caveats.[4] First, the tribunal may not in fact have the power under the applicable laws (or rules) to award funding costs. Second, the amount of funding costs must generally be reasonable and this will depend on the circumstances. Third, if a tribunal decides to award funding costs, this should ordinarily be possible only if details of the funding costs are disclosed from the outset of the arbitration or at an early stage because ‘ordering an unsuccessful respondent to pay funding costs constitutes a significant shift in the risk associated with the outcome of the arbitration’.[5]

Disclosure of Funding Arrangements: Revisions to Arbitral Rules

Various arbitral institutions have amended their rules to require parties to disclose the existence of a third party funding arrangement. For example, Article 11(7) of the 2021 ICC Rules requires parties, in the context of assisting arbitrators with their duties regarding conflicts of interests, to ‘promptly inform the Secretariat, the arbitral tribunal and the other parties, of the existence and identity of any non-party which has entered into an arrangement for the funding of claims or defences and under which it has an economic interest in the outcome of the arbitration’.[6]

The Second Decision – Tenke v. Katanga (2021)[7]

In this case, Katanga commenced an arbitration against Tenke in respect of claims arising from contracts[8] for services at a mine in the Democratic Republic of the Congo. The contracts and the arbitration clauses were subject to English law and the arbitration proceeded under ICC arbitration rules with a seat in London. Katanga obtained funding for the arbitration from a related company (Logos Agvet Limited which was controlled by a shareholder of Katanga) on terms which included payment of a success fee. Katanga disclosed the existence of this funding only in the cost submissions stage of the arbitration and sought to recover the success fee as part of its costs in the arbitration.

The tribunal accepted that the funding costs were ‘other costs’ by virtue of section 59(1) of the English Arbitration Act. The tribunal considered whether the funding costs were reasonable because of the inter-company nature of the funding and also as to the amount.[9] It considered that the funding choice was not inherently unreasonable in the circumstances and awarded Katanga its funding costs.

Tenke challenged the award under section 68 of the Arbitration Act 1996 on the grounds of serious irregularity.[10] This included a challenge to the award of funding costs as being an excess of power (section 68(2)(a)).

Tenke made a number of arguments in respect of its challenge to the award of funding costs.[11] These included that, when the Arbitration Act 1996 was passed, it could never have been intended that ‘costs of the arbitration’ or the ‘legal or other costs of the parties’ (as these phrases appear in the Act) would encompass a fee paid to a funder or costs relating to a loan taken out to pay for legal fees; a fee payable to a funder is not recoverable in English court litigation and there is no reason to think that Parliament intended a different rule to apply to arbitration; the decision in Essar was wrong and met with surprise and concern in the field of international arbitration; but the present case was much worse because the funding was not even provided by a regulated third party funder but by a company related to Katanga; there was no finding that Katanga needed the funding to pursue the arbitration; and, if the award was permitted to stand, it would encourage claimants to take out shareholder loans so that shareholders could recover ‘fees’ safe in the knowledge that (unlike third party funders in court litigation) they were beyond the reach of the arbitral tribunal and courts if the claimant did not win the arbitration.

The English Commercial Court was not persuaded. It followed the reasoning in Essar and rejected Tenke’s challenge.[12]

A Rethink of Reward and Risk?

Increasingly claimants are seeking third party funding either so that they have the money to bring the claim in the first place or for other commercial reasons such as hedging risk. Where a specialised funder is concerned, the basic arrangement usually involves the funder providing funding to the claimant for a return, which may be a fixed percentage share of around 30-50% of monies recovered, or a multiple of around two to four of the funding to be provided, or a combination of both. The cost of the third party funding to the claimant can therefore be significant.

In the Tenke and Essar decisions summarised above, the English Commercial Court upheld the award of funding costs by two arbitral tribunals with very different facts. Accordingly, it seems there is an argument, at least in English law and provided the applicable arbitration rules permit it, that a winning claimant may recover from a losing respondent its funding costs as an ‘other cost’ if it can persuade the tribunal that (1) it was reasonable for that party to have recourse to the particular type of funding in the circumstances of the case, and (2) the amount of the funding costs was reasonable.

For the losing respondent, this may constitute a significant and highly unwelcome shift in the risk associated with the outcome of the arbitration in particular if the funding arrangement is disclosed by the claimant only towards the end of the arbitration.

Conclusion

Third party funding is increasingly a feature of international arbitration. As the cases above show, a winning claimant may be awarded its funding costs and a losing respondent may be liable for those funding costs, even if the funding arrangement is not disclosed until late in the arbitration, subject only to a test of reasonableness. The funding costs may be significant. Parties should therefore consider and monitor the possibility of third party funding during the course of any international arbitration.

[1] Essar Oilfields Services Limited v. Norscot Rig Management PVT Limited [2016] EWHC 2361 (Comm). See also the article ‘A Surprise Award of Third Party Funding Costs’ published in our newsletter of February 2017.

[2] International Council for Commercial Arbitration and Queen Mary University of London, ‘Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration’, April 2018. This 272-page Report contains a wealth of discussion and information on the subject of third party funding.

[3] Report, p151. In addition to Essar v. Norscot, the Report mentions ICC Case No. 7006, ICSID Case No. ARB/08/2, ICSID Case No. ARB/05/15, and SCC Arbitration No. 24/2007.

[4] Report, p158.

[5] Report, p158 to p159.

[6] See also for example the SIAC Investment Arbitration Rules (2017) which at article 24(l) give the tribunal the power in certain circumstances to ‘order the disclosure of the existence of a Party’s third-party funding arrangement and/or the identity of the third-party funder and, where appropriate, details of the third-party funder’s interest in the outcome of the proceedings, and/or whether or not the third-party funder has committed to undertake adverse costs liability.’ See also the HKIAC Administered Arbitration Rules (2018) which require the Notice of Arbitration and Answer and any Request for Joinder and Answer to include ‘the existence of any funding agreement and the identity of any third party funder …’ (articles 4.3, 5.1, 27.6 and 27.7) and sets out further provisions regarding the notice that is required if a funding agreement is made (article 44).

[7] Tenke Fungurume Mining SA v. Katanga Contracting Services S.A.S. [2021] EWHC 3301 (Comm).

[8] Katanga commenced two arbitrations but these were later consolidated.

[9] [2021] EWHC 3301 at para 68.

[10] Tenke advanced four grounds for its challenge; failure to adjourn the arbitration to allow a visit to the construction site; failure to adjourn the arbitration notwithstanding the illness of its leading counsel, the costs award; and the award of compound interest.

[11] [2021] EWHC 3301 at para 76.

[12] [2021] EWHC 3301 at para 92. The court noted that in light of Willers v Joyce, the court should ‘generally follow a decision of a court of co-ordinate jurisdiction unless there is a powerful reason for not doing so’.  It agreed with the court in Essar that, at its highest, the award of funding costs would be an erroneous exercise of an available power and so not susceptible to challenge under section 68. If there had been an error of law, there was a remedy under section 69, but in the present case that remedy had been excluded by agreement. [2021] EWHC 3301 at para 95.