Europe – Page 6 – Construction Law

Welcome to the 28th Edition of Arbitration World

Jan 23 2015

Welcome to the 28th edition of Arbitration World, a publication from K&L Gates’ International Arbitration Group that highlights significant developments and issues in international and domestic arbitration for executives and in-house counsel with responsibility for dispute resolution.

To view Arbitration World, click here.

To download a printable PDF of the publication, open the link above and click on the fourth icon from the right in the magazine toolbar at the top of the page

In this edition, we summarise the key provisions of the new LCIA Rules, which came into effect on 1 October 2014, including provisions as to emergency relief and consolidation of arbitrations. We explore some of the issues related to “mediation/arbitration” or “med/arb” as an alternative approach to dispute resolution, and we continue our series on the growth of third-party funding in international arbitration. We include an article about a French court decision with important implications for parties in arbitration who face impecunious respondents or counterclaimants. We examine recent caselaw from Singapore on a gap in the dispute resolution procedures within the FIDIC Conditions of Contract. In a continuation of our series on tiered arbitration clauses, we look at recent developments in England. We analyse an ongoing debate in Australia about the use of investor-state dispute resolution clauses in bilateral investment treaties and look at a recent case in Australia regarding the courts’ approach to the question of when third parties can be bound by an arbitration agreement.

We also provide our usual update on developments from around the globe in international arbitration and investment treaty arbitration.

We hope you find this edition of Arbitration World of interest and we welcome any feedback (e-mail ian.meredith@klgates.com or peter.morton@klgates.com).

Recent English Court Case on FIDIC – Stay Permitted to Allow Mandatory DAB Referral under FIDIC Silver Book

Jan 14 2015

By Mike Stewart and Camilla de Moraes, K&L Gates, London

Following on from our recent blog post discussing the case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) (which can be found here), there has been another recent decision in the English courts regarding the International Federation of Consulting Engineers (FIDIC) suite of contracts. The case of Peterborough City Council v Enterprise Managed Services Ltd [2014] EWHC 3193 has confirmed that the referral of a dispute to a Dispute Adjudication Board (DAB) under FIDIC is mandatory and operates as a condition precedent to the dispute being referred to arbitration or litigation for final resolution. The case also discusses the well know “gap” in the provisions of clause 20 of the FIDIC conditions where arbitration is chosen as the final method of dispute resolution.

Facts

Under the terms of the contract, Enterprise Managed Services Ltd (EMS) agreed to design, supply, install, test and commission a 1.5 MW solar energy plant on the roof of a building owned by Peterborough City Council (the “Council”).

The form of contract was the FIDIC General Conditions of Contract for EPC/Turnkey Projects (the “Silver Book”). The works were completed in late 2011, and the Council alleged that the plant failed to reach the required output of 55kW. Disputes then arose between the parties as to the value of EMS’s executed work and whether or not liquidated damages were payable to the Council for failure to meet the required output.

On 21 July 2014, EMS gave notice under the contract of its intention to refer the dispute to adjudication. Despite this, on 11 August 2014, the Council issued proceedings. Shortly afterwards, the Council wrote to EMS disputing that it was obliged to refer the dispute to the DAB. On 27 August 2014, EMS issued an application to the court for an order to stay the action brought by the Council.

The Contract

Clauses 20.2–20.7 of the contract set out the procedure for dispute resolution by a DAB to be appointed on an ad hoc basis after any dispute has arisen. Clause 20.8 stated that if at the time a dispute arose there was no DAB in place, “whether by reason of the expiry of the DAB’s appointment or otherwise”, then either party could proceed to litigation.

The Issues

The issues to be decided were:

i) Whether the contract required a dispute to be referred to adjudication by a DAB as a condition precedent to issuing court proceedings; and

ii) If so, should the court exercise its discretion and order that the proceedings commenced by the Council should be stayed?

In relation to the first issue, the Council argued that Clause 20.8 operated as an “opt-out” from DAB adjudication. However, even if such a reference was mandatory, the Council argued that it would be a time consuming, expensive and ultimately unproductive exercise to conduct an adjudication which would almost certainly provoke a notice of dissatisfaction from one or other of the parties, and therefore, a stay should not be granted.

The Decision

In respect of the Council’s argument that Clause 20.8 operated as an ‘opt-out’ from DAB adjudication, the judge held that Clause 20.8 would “probably” only grant the parties a unilateral right to opt out of the DAB adjudication if the parties had agreed to appoint a standing DAB at the outset. This was because an ad hoc DAB would only ever be appointed after a dispute had arisen. Otherwise, Clauses 20.2 and 20.3 would have no application because, under those sub-clauses, there had to be a dispute before the process of appointing a DAB began. Given that Clause 20.2 provided for ad hoc DAB appointments and on the Council’s argument Clauses 20.2–20.7 would have been rendered meaningless, the judge accepted EMS’s argument that the contract required disputes to be resolved by way of DAB adjudication prior to litigation.

As to the Council’s submission that the “rough and ready” process of adjudication was entirely unsuitable to resolve the dispute between the parties, although the judge agreed, he stated that this was an inherent feature of adjudication. The judge, however, referred to the presumption that parties should be left to resolve their disputes in the manner provided for in their contract. He stated that the factors and rival scenarios between the parties were finely balanced, and that the Council had failed to make out a sufficiently compelling case to displace the presumption and, accordingly, had failed to make out a sufficient case for resisting a stay.

It was held that the parties must be left to resolve their dispute in accordance with the contractual mechanism, namely adjudication.

“Gap” in FIDIC Clause 20

As part of its submissions, the Council argued that there is a gap in Clauses 20.4–20.7, such that these clauses should be unenforceable for lack of certainty. This so-called “gap” has been the subject of much commentary.

Clause 20.4 of the FIDIC conditions provides that, where a party gives a notice of dissatisfaction after a DAB decision, then the decision must be given effect to (pending final determination). It is therefore binding, but it is not final and binding. The Council argued that if the unsuccessful party subsequently failed to comply with the DAB’s decision, then the only remedy for the successful party would be to refer the refusal to comply to a DAB. The fact that the unsuccessful party is left without an effective remedy (other than to refer the original dispute to arbitration or litigation) is the “gap” which the Council argued rendered the particular clauses unenforceable.

The judge rejected the Council’s argument that Clauses 20.4–20.7 were unenforceable for lack of certainty. The judge held that although the “gap” point was arguable if the contract contained an arbitration clause, it fell away if litigation was the forum for final dispute resolution. This was because a court could intervene and order specific performance of the obligation to comply with the DAB’s decision (something which an arbitrator may not have jurisdiction to do).

Interestingly, there has been a recent case heard by the Swiss Federal Supreme Court where it was decided that, although the DAB procedure was a condition precedent to arbitration, the parties did not have to go through the process if doing so would amount to an abuse of rights/breach of the principle of good faith. Given that there is no underlying principle of good faith in English law, it would be unlikely if such arguments were deployed before the English courts to rebut the presumption that parties should be left to resolve their disputes in the manner provided for in their contract.

How’s the Weather? Construction Contracts Should Be Prepared for Any Answer.

Jan 12 2015

By Ryan D. DeMotte, K&L Gates, Pittsburgh

Mother Nature can often be an unwelcome intruder on a construction project. Heavy rains, snow, ice, wind, extreme cold, extreme heat; there are any number of weather events that can delay a project. While parties to a construction contract cannot control the weather, they can and should anticipate the possibility of adverse weather and address it in their contracts. Prudent contract provisions addressing bad weather events can help owners and contractors minimize the disputes that can develop when rain, snow, ice, and other weather events delay the project.

A common approach is to give contractors additional time but not costs for weather delays. Many commonly-used contract forms provide for weather-based time extensions if the weather event was “abnormal, “unforeseeable,” or “not reasonably anticipated.” Thus, in order to evaluate a request for a time extension based on adverse weather, the parties must first establish the appropriate weather baseline against which to measure the weather event at issue. Was the rainfall unusually heavy during a particular month? Was the temperature colder than previous years? If the contract itself does not define the baseline weather measurement, this can often be a point of dispute between parties. Some parties may try to minimize these disputes by providing detailed provisions for baseline weather measurements in the contract in the form of 10-year averages or other objective measures. Whether or not these types of provisions are useful depends on the project and its sensitivity to weather variations.

The parties must also determine how the weather caused the delay. Did cold temperatures delay paving work? Did heavy winds or sandstorms prevent the delivery and installation of sensitive equipment? In trying to answer these types of questions, the parties may dispute whether the delays were the result of the abnormal weather or the result of other causes.

Finally, owners and contractors need to consider why certain work was being performed during the adverse weather. For example, if, through a contractor’s own early delays it is still working outdoors at a time when it initially planned to be completing the interior of a building, an owner may be able to argue that the contractor is not entitled to an extension for any weather-related delays to its outdoor work. Conversely, if a contractor’s work is delayed by the owner’s delays, it may have a strong argument for any delays it incurs as it tries to complete the work in less-than-optimal weather conditions. A contractor may also be able to claim costs if it is pushed by owner delays into bad weather.

Given the inherent uncertainty of the weather, some parties decide to build into the contract and project schedule a certain number of extra days to absorb any weather delays.

As the above issues demonstrate, owners and contractors should give careful thought to the various types of weather risks their project may face when negotiating a construction contract and creating the project schedule.

General Contract Law Update

Dec 15 2014

As part of K&L Gates’ commitment to continuing professional development, the lawyers in our London office’s Energy, Infrastructure and Resources group regularly provide presentations and seminars on a wide range of legal issues.

The attached slides are taken from a presentation by Matthew Smith, Inga Hall and Daniel Lopez de Arroyabe on the subject of recent developments in contract law. The presentation looked at cases on general commercial and contractual issues, as well as focussing more particularly on those relating specifically to construction law matters.

To view the presentation, click here.

Adjudicator Has No Jurisdiction Because Of “A Very Strong Prima Facie” Case Of Fraudulent Misrepresentation At Appointment Stage

Nov 12 2014

By Mike R. Stewart and Mary E. Lindsay, K&L Gates, London

Eurocom Limited v Siemens PLC

[2014] EWHC 3710 (TCC)

http://www.bailii.org/ew/cases/EWHC/TCC/2014/3710.html

It is never easy to resist an action for enforcement of an adjudicator’s decision. Speed and certainty are central tenets to the adjudication mechanism provided by the Housing Grants Construction and Regeneration Act 1996. However, the judgment in the recent case of Eurocom Limited v Siemens PLC shows that the courts will not put enforcement of the adjudicator’s decision above basic legal principles.

The dispute arose in relation to a sub-contract allowing for the installation of communication systems in the London Underground. Siemens terminated the sub-contract in August 2012. A first adjudication took place and the decision made on 27 September 2012. That decision provided that a net sum was due from Eurocom to Siemens. Eurocom served a second notice of adjudication on 21 November 2013 and it was that adjudication that gave rise to these enforcement proceedings.

In the enforcement proceedings the judge considered, amongst other things, whether appointment of the second adjudicator was valid.

The adjudicator was appointed under the RICS’s nomination procedure. This required Knowles, acting for Eurocom, to complete a form in which it was asked to identify “any Adjudicators who would have a conflict of interest” in the case (who would not thereby be appointed). A number of adjudicators, the adjudicator in the first adjudication (who might very well and sensibly have been appointed as adjudicator in the second adjudication) and a firm of solicitors were listed in this section of the form. The form was not initially shared with Siemens.

However, it subsequently came to light and it transpired that the adjudicators identified did not in fact have a conflict of interest in the case. Knowles accepted they did not “properly” answer the question asked by the RICS about conflicts of interest, but merely referred to people without any conflicts who they did not want to be appointed.

Siemens’ primary case was as follows:

The application form sent to the RICS by Knowles seeking the appointment of an adjudicator misrepresented to the RICS that a number of individuals had a conflict of interest;
This was a false statement, made deliberately and/or recklessly by Knowles; and
A nomination based upon such a fraudulent misrepresentation is invalid and a nullity, such that the adjudicator has no jurisdiction.

The Court decided the point as follows (at para 65 of the judgment):

“… there is a very strong prima facie case that [Knowles] deliberately or recklessly answered the question “Are there any Adjudicators who would have a conflict in this case?” falsely and that therefore he made a fraudulent representation to the RICS as the adjudicator nominating body.”

The Court said that the consequence of this was as follows (at para 75 of the judgment):

“… I conclude that the fraudulent misrepresentation would invalidate the process of appointment and make the appointment a nullity so that the adjudicator would not have jurisdiction.”

The Court also agreed with Siemens’ alternative case that the completion of the form gave rise to a breach of an implied term to act honestly. Here the Court referred to the judgment in Makers v Camden (at [29(7)]) that there might be an implied term “by which the party seeking a nomination should not suborn the system of nomination”. Eurocom, through its advisors, had sought through fraudulent misrepresentation to influence the discretion to be applied by the appointing body, the RICS. Eurocom should not benefit from this benefit and the appointment of the adjudicator was invalid.

The ramifications of this decision will be keenly monitored by the industry.

Preliminary court injunction or adjudication−new legal tools to avoid excessive duration of con-struction court proceedings in Germany?

Oct 01 2014

By Kristina Fischer, Eva Hugo and Christoph Mank, K&L Gates, Berlin

In general, German court proceedings relating to construction and engineering matters can take between three to six years and sometimes up to ten years, until a final, binding judgment is obtained. The reasons for such excessive duration in construction court proceedings are manifold: Courts may be overloaded by the number of disputes brought before them, judges may not have the necessary technical or judicial experience or expertise and the clarification of the facts of the case may be time-consuming and not be possible without one or more experts´ opinions. In addition, the losing party generally exhausts all court instances before a case is finally settled. The excessive duration of construction court proceedings is expensive; and often, it even poses a threat to one or both parties´ economic existence.

The call for a reform of the current procedural law for construction disputes is getting louder: Working groups, organizations and experts demand that a new−accelerated−procedure for the resolution of construction disputes must urgently be introduced into the German legal system.

Biggest Risk of Corruption in The Construction Industry: The Global Picture

Sep 18 2014

By Elizabeth Robertson, Laura Atherton and Dylan G. Moses, K&L Gates, London

The construction industry is big business. A recent study[1] has predicted that global construction output will increase by more than 70%, to US$15 trillion per year worldwide, by 2025. The dominant sources of this growth will be three countries in particular, China, India and the U.S., with much of the remainder in the emerging markets.

This growth is a cause for celebration, but it will not come without challenges[2]. Some of those countries where the highest growth is predicted are also perceived as having the highest levels of corruption[3].

To read the full Whitepaper, click here.

1 The Global Construction 2025 by Global Perspectives and Oxford Economics.

2 The Chartered Institute of Buildings found that 49% of respondents to a 2013 survey thought that corruption was common within the UK construction industry.

3 China is listed at number 80 and India is listed at number 94 out 177 countries ranked by Transparency International on their corruption perceptions index in 2013.

The Perennial Question of Concurrent Delay – The English Viewpoint

Jul 30 2014

By Mike R. Stewart and Mary E. Lindsay, K&L Gates, London

Concurrent delay remains a perennial issue in construction contracts and the disputes arising out of those contracts. The classic situation of “concurrent delay” occurs when both a contractor and the employer allege that the other is causing delay, where the delay caused by each impacts the project at the same time.The key authorities on the topic remain the same, in our view (all emphasis added).

“MINT” Countries Focus in Arbitration World – July 2014

Jul 24 2014

Welcome to the 27th edition of Arbitration World, a publication from K&L Gates’ International Arbitration Group that highlights significant developments and issues in international and domestic arbitration for executives and in-house counsel with responsibility for dispute resolution.

To view Arbitration World, click here.

To download a printable PDF of the publication, open the link above and click on the fourth icon from the right in the magazine toolbar at the top of the page.

In this edition, we include articles specifically relevant to the “MINT” countries of Mexico, Indonesia, Nigeria and Turkey, tipped as the next economic giants by ex-Goldman Sachs economist Jim O’Neill who coined the term “BRIC ” countries back in 2001. We look at energy reform in Mexico and its potential impact on commercial and investor-state dispute resolution and a recent decision regarding threshold jurisdictional requirements applicable to bilateral investment treaty (BIT) claims, with particular reference to Indonesia. We review some recent decisions of the Nigerian courts which offer support for arbitration, and current trends and future prospects for arbitration in Turkey.

More generally, we survey the tricky issues that can arise with respect to corruption and bribery in international arbitration. We examine the recent ruling by the Supreme Court of India in the Enercon India case and its implications on the drafting of arbitration agreements. We report on a recent case from Texas regarding the implications of allowing the deadline for rendering an arbitration award to pass. We also provide our usual update on developments from around the globe in international arbitration and investment treaty arbitration.

We hope you find this edition of Arbitration World of interest and we welcome any feedback (e-mail ian.meredith@klgates.com or peter.morton@klgates.com).

No Compensation for Clandestine Employment in Germany!

Jun 30 2014

By Christoph Mank and Kristina Fischer, K&L Gates, Berlin

In Germany, it is prohibited by law to hire clandestine workers. But what happens if a principal nevertheless hires a clandestine worker and does not pay the agreed compensation? Is the clandestine worker entitled to claim his compensation before court? In a recent judgment dated 10 April 2014, the German Federal Court of Justice (“Bundesgerichtshof“) said “no“ and decided that clandestine employment must not be compensated.

The defendant was building serial houses; the plaintiff was instructed by the defendant to do electrical installations. As compensation, plaintiff and defendant had agreed that the defendant would pay a lump-sum of EUR 13,800 including VAT and another EUR 5,000 cash and without invoice. From the agreed amount of EUR 5,000, the defendant had paid EUR 2,300 but refused to pay the remaining EUR 2,700. The claim with which the plaintiff (inter alia) requested payment of these EUR 2,700 was, however, dismissed:

The agreement between the parties, obliging the defendant to pay the cash amount of EUR 5,000, is null and void. According to Section 134 of the German Civil Code, an agreement which violates a statutory prohibition is void, unless the statute leads to a different conclusion. In this case, the parties´ understanding has violated Section 1 no. 2 (2) of the German Act to Combat Clandestine Employment (“Schwarzarbeitsbekämp-fungsgesetz“), which classifies as clandestine employment the nonfulfilment of statutory tax liabilities. According to the Court, it was evident that the parties´ agreement to provide works without an invoice was meant to conceal the plaintiff´s turnovers from German tax authorities and to provide a price advantage for the defendant. Even if the „cash understanding“ referred to only a part of the agreement, the violation of Section 1 no. 2 (2) of the Act leads to a nullity of the entire agreement. As a consequence, the clandestine worker was not able to claim the agreed compensation from the principal.

What makes the decision of the German Federal Court of Justice particular? In a former decision of 1990, the Court had decided that although the agreement between principal and contractor was violating the (former) Law on Clandestine Employment the contractor was nevertheless entitled to claim restitution according to the value of his work. The Court argued that the principal who mostly is the economically stronger party, would otherwise be in unjust advantage if he was allowed to keep the clandestine worker´s performance without any consideration. Since 1990, the Laws on Clandestine Employment have tightened. Accordingly, in 2013, the Court heralded a change of its case law and ruled that a principal has no warranty claims against a clandestine worker, if the worker´s performance was poor, inadequate or insufficient. With its 2014 decision, the Court emphasized the importance to enforce the Laws on Clandestine Employment effectively: A person who deliberately violates the Law does not deserve to be protected by civil law. By denying the principal´s warranty claims on the one hand and the clandestine worker´s claim for compensation on the other hand, parties shall be restrained from concluding a prohibited clandestine agreement. Whether or not this judgment will have the expected deterrent effect on clandestine contractors and principals remains to be seen.

Catagory:Europe

Facts

The Contract

The Issues

The Decision

“Gap” in FIDIC Clause 20