VOL 23

NUMBER 2
2012

extract
 ICC International Court of Arbitration Bulletin
Vol 23/NUMBER 2 – 2012

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 ICC INTERNATIONAL COURT OF ARBITRATION BULLETIN
VOL 23/NUMBER 2 – 2012 23

International Construction Contract

Disputes: Third Commentary on ICC
Awards Dealing Primarily with FIDIC
Contracts
By Christopher R. Seppälä*

This commentary on eight ICC arbitral awards avec des commentaires sur leur signification.
rendered between 2003 and 2006 examines Parmi les sujets abordés figurent la question de
issues that have arisen in disputes relating to la compétence, la devise de paiement, le droit
international construction contracts based on the à des intérêts avant jugement, les ajustements
FIDIC Conditions of Contract for Works of Civil de prix, les ordres de modification, la résiliation
Engineering Construction (4th ed., 1987) or the du contrat principal et du contrat de sous-
FIDIC Conditions of Subcontract for Works of Civil traitance, le respect des dispositions en matière de
Engineering Construction (1st ed., 1994). It also notification, la prolongation des délais et les frais
comments on an award that resolved a dispute supplémentaires, les perturbations et l’accélération
related to a non-FIDIC engineering, procurement des travaux, la prise de possession tardive du
and commissioning contract. In relation to each chantier, les frais supplémentaires engendrés par
award, the author presents the issues facing the une guerre civile, le non remboursement d’impôts,
arbitral tribunal, the tribunal’s decisions on those les dommages-intérêts pour préjudice futur, le
issues and comments on their significance. The recouvrement des frais de personnel interne au
specific questions covered include the following: titre des frais de l’arbitrage et le plafonnement des
jurisdictional issues; currency of payment; right to dommages-intérêts.
pre-judgment interest; price adjustments;
variation orders; termination of contract and
subcontract; compliance with notice provisions;
extension of time and additional costs; disruption En esta exposición de ocho laudos arbitrales de
and acceleration claims; late possession of the la CCI dictados entre 2003 y 2006 se examinan
site; claims for additional costs on account of civil diversos asuntos surgidos en las controversias
war; claims for non-reimbursement of taxes; relacionadas con contractos de construcción
claims for future damages; recovery of in-house internacionales basados en las condiciones
staff costs as costs of the arbitration; and capping contractuales para trabajos de construcción de
of damages. ingeniería civil de la FIDIC (4ª ed., 1987) o en
las condiciones para subcontratar trabajos de
construcción de ingeniería civil de la FIDIC (1ª ed.,
1994). También se hace referencia a un laudo que
Ce commentaire de huit sentences arbitrales de solucionó una controversia relativa a un contrato
la CCI rendues entre 2003 et 2006 porte sur des de ingeniería, suministro y puesta en servicio
questions soulevées lors de litiges nés de contrats que no incluía las condiciones de la FIDIC. Para
de construction internationaux fondés sur les cada laudo, el autor presenta los problemas a
Conditions de contrat applicables aux marchés los que se ve confrontado el tribunal arbitral y
de travaux de génie civil de la FIDIC (4e éd., las decisiones del tribunal sobre tales problemas
* Member of the New York and
1987) ou les Conditions de contrat de sous- y formula observaciones sobre su significado.
Paris Bars; partner, White & traitance applicables aux marchés de travaux de Se abordaron cuestiones específicas como los
Case LLP, resident in Paris; génie civil de la FIDIC (1re éd., 1994). On trouvera aspectos jurisdiccionales, la moneda de los pagos,
Legal Advisor to the FIDIC
Contracts Committee; également dans le lot une sentence tranchant el derecho a interés anterior a la resolución de la
VicePresident Emeritus of un différend relatif à un contrat d’ingénierie, controversia, los ajustes de precios, las órdenes
the ICC International Court
of Arbitration. The views d’approvisionnement et de mise en service, sans de modificación, la rescisión de contratos y
expressed herein are the lien avec les conditions de la FIDIC. Pour chaque subcontratos, el cumplimiento de las disposiciones
author’s own and do not
necessarily reflect those of
sentence, l’auteur présente les questions soumises sobre la notificación, las prórrogas y los costes
any firm or organization with au tribunal arbitral et les décisions de ce dernier, adicionales, las reclamaciones por perturbación
which he is affiliated.
24 ICC INTERNATIONAL COURT OF ARBITRATION BULLETIN
VOL 23/NUMBER 2 – 2012

y aceleración de los trabajos, la posesión At the same time, the precedential value of
tardía del emplazamiento, la reclamación de awards dealing with older editions of the FIDIC
costes adicionales por causa de guerra civil, las Conditions should not be underestimated. First,
reclamaciones por el no reembolso de impuestos, because the older editions continue to be in use in
las reclamaciones por daños y perjuicios futuros, certain parts of the world (notably, the Arabian
la recuperación de los gastos en concepto del Gulf) and, consequently, are likely to be the
personal de plantilla como costas del arbitraje y subject of disputes and arbitrations for years to
la limitación de daños y perjuicios. come. Second, because, while the prearbitral
procedure for the resolution of disputes by the
Engineer under Clause 67 of those editions was
replaced in 1999 by the requirement that disputes
I. Introduction be submitted to a Dispute Adjudication Board
(‘DAB’), the disputes clause in the 1999 FIDIC
This article is a brief commentary on extracts from
Books (Clause 20) is similar to that in the older
eight ICC awards dealing with disputes that have
editions (Clause 67) and thus awards relating to
arisen in relation primarily to the FIDIC 1 Conditions
the resolution of disputes by the Engineer may
of Contract for Works of Civil Engineering
well remain relevant to the procedure for the
Construction, fourth edition, 1987 (the ‘Red Book,
resolution of disputes by the DAB. A good
Fourth Edition’) and the FIDIC Conditions of
example was the interim award in Case 10619 in
Subcontract for Works of Civil Engineering
2001 discussed in Volume 19, No. 2 of this Bulletin
Construction, first edition, 1994 (the ‘Red Book
in 2008, page 52. In that case, the arbitrators’
Subcontract, 1994’), published in this issue of the
decision in their award to enforce a ‘binding’—but
Bulletin. 2
not ‘final’—decision of the Engineer under
Clause 67 of the Red Book, Fourth Edition, is
The various FIDIC Conditions of Contract are the
directly applicable to the enforcement of a
best known and probably most widely used
‘binding’—but not ‘final’—decision of a DAB under
international standard forms of construction
Clause 20 of the 1999 FIDIC Books. Thus, awards
contract conditions. The first edition of the Red 1 ‘FIDIC’ refers to the
dealing with the earlier editions of the FIDIC Fédération Internationale des
Book, published in 1957, was based on an English Ingénieurs-Conseils or (in
Conditions may continue to be instructive in
domestic standard form: the then current edition English) the International
relation to the 1999 FIDIC Books. Federation of Consulting
of the English Institution of Civil Engineers (‘ICE’) Engineers, whose Secretariat
conditions. Even today, the official and authentic is in Geneva, Switzerland, see
A first series of extracts from ICC awards dealing FIDIC’s website:
text of this form of contract is the version written
with construction contracts referring to the FIDIC [Link].
in the English language. However, in subsequent
Conditions was published in Volume 2, No. 1, of 2 The author gratefully
editions, the FIDIC Conditions have become acknowledges the assistance
this Bulletin in 1991; a second series was published
progressively more ‘international’ in style and of Luka Kristovic Blazevic, a
in Volume 9, Nos. 1 and 2, of this Bulletin in 1998, senior associate at White &
content and are widely used in civil law, as well as
accompanied by a commentary by the present Case LLP, Paris, in the
common law, jurisdictions. preparation of this article.
author in Volume 9, No. 2; and a third series was
3 e.g. (i) Collection of ICC
published in Volume 19, No. 2 of this Bulletin in Arbitral Awards, 1974−85
Due to the long time lag (10 to 20 years or more)
2008, accompanied by a second commentary by (Vol. I), 1986−90 (Vol. II),
between when a new edition of the FIDIC 1991−95 (Vol. III), 1996−2000
the present author in the same volume. Extracts
Conditions is introduced and when it comes into (Vol. IV) and 2001−2007
from ICC awards dealing with the FIDIC (Vol. V), prepared by various
general use internationally and is, then, the editors and published by ICC/
Conditions have also been published elsewhere. 3
subject of disputes that go to arbitration, as well Kluwer; (ii) The International
However, until the last series of awards dealing Construction Law Review
as ICC practice with regard to the publication of
with the FIDIC Conditions was published in this (‘ICL’), Vols. 1 to 3 (1983−86)
awards, there are as yet no extracts of awards and Vol. 6 (1989), published
Bulletin in 2008, this author had found no more by Lloyds of London Press;
dealing with the latest suite of FIDIC construction
than 40 published arbitral awards interpreting and (iii) the Yearbook
contracts for major works which were published in Commercial Arbitration,
them,4 which is a cause for regret—it would be
1999, namely, the ‘Red’ (for civil engineering published by Kluwer.
helpful to the industry if more were published.
construction), ‘Yellow’ (for plant and designbuild 4 See C.R. Seppälä, ‘The
Development Of A Case Law
works) and ‘Silver’ (for EPC/turnkey construction
The awards relating to the various FIDIC In Construction Disputes
works) Books (the ‘1999 FIDIC Books’). Relating To FIDIC Contracts’
Conditions in this commentary will be discussed, in E. Gaillard & Y. Banifatemi,
first, by reference to the Red Book, Fourth Edition, eds., Precedent in
International Arbitration
and, then, by reference to the Red Book (Huntington, NY: Juris, 2008).
Subcontract, 1994. This discussion will be followed A somewhat revised version
by a brief comment on an award under a non- of this article was
subsequently published in
FIDIC engineering, procurement and construction C.R. Seppälä, ‘The
contract. Development of a Case Law
in Construction Disputes
Relating to FIDIC Contracts’
(2009) 26 ICLR 105.
 ICC INTERNATIONAL COURT OF ARBITRATION BULLETIN
VOL 23/NUMBER 2 – 2012 25

II. FIDIC Conditions of Contract - whether the Tribunal should adhere to the
court decision (Issue 2 below);
for Works of Civil Engineering
Construction (Red Book) Fourth - whether the Employer/Respondent’s
allegations of fraud prevented the Tribunal
Edition (1987) from hearing the case (Issue 3 below); and

A.1 First Partial Award in Case - whether the Tribunal could hear
counterclaims made by the Employer/
12048 (2003) Respondent that had not previously been
u Relevant FIDIC Clause: 67 submitted to the Engineer under Clause 67
(Issue 4 below).
The Contractor/Claimant, a European road
construction company, entered into a contract Issue 1: Has the Tribunal retained authority to
with the Employer/Respondent, a State agency in consider its own jurisdiction?
State C, for the provision of an asphaltic concrete
overlay of a road in State C. The governing law The Tribunal first considered whether it had
was the law of an African country (State C) with retained authority to consider its own jurisdiction
an English common law legal system and the and decided that, despite the local court’s
place of arbitration was in State C. decision, not only did it retain authority to do so
but that it had the duty under the ICC Rules of
The Contractor/Claimant commenced an Arbitration (of 1998) to consider and decide the
arbitration in order to recover the amounts matter of its jurisdiction.10
awarded by the Engineer under Clause 67, which
had not been objected to by the Employer/ The Tribunal noted, among other things, that it
Respondent and were thus ‘final and binding’, as had been appointed not by sovereign authority
well as to claim further sums that the Engineer but by the ICC International Court of Arbitration in
had denied. 5 accordance with the ICC Rules and, thus, derived
its authority from those Rules. In accepting his
The Employer/Respondent applied to a local appointment, each of the arbitrators had agreed,
court in State C to revoke the authority of the by Article 7(5), to perform his duties under and in
Arbitral Tribunal on the basis of the local accordance with the ICC Rules, which include,
arbitration statute empowering a court to revoke under Article 6(2), the duty to decide upon the
the authority of an arbitrator where the question Tribunal’s jurisdiction if this were contested by one
of fraud arises (the Employer/Respondent had of the parties (as was the case here). The Tribunal
alleged that the Contractor/Claimant was guilty of also noted that Article 6(2) did not recognize the
fraud).6 The local court granted this application authority of a State court to prevent or otherwise
5 §§ 8−11 of the Award. and ‘revoked the authority of the Arbitral Tribunal release the arbitrators from deciding upon the
6 § 36 of the Award. in its entirety’.7 matter of their own jurisdiction. Thus, the Tribunal
7 § 38 of the Award.
concluded that it was ‘duty-bound’ to rule on its
The Contractor/Claimant argued that the Tribunal jurisdiction.11
8 §§ 38−40 of the Award.
9 §§ 41−42 of the Award. continued to have jurisdiction over, at least, its
claims and that the arbitration should continue. Issue 2: Should the Tribunal adhere to the
10 § 43 of the Award.
The Contractor/Claimant also appealed the court decision?
11 §§ 44−48 of the Award.
12 §§125−127 of the Award.
court’s judgment to a higher court of State C and
the appeal was still pending at the time of this The Tribunal then examined, among other things,
13 A section of the State C whether it should adhere to or was bound by the
Arbitration Act stated award. 8
that where an agreement court judgment in State C revoking its jurisdiction.
between parties provides
In a first interim award, the Tribunal considered The Tribunal held that the starting point for
that disputes between
them shall be referred to principally whether it had retained jurisdiction considering the issue of its jurisdiction as an
arbitration, and a dispute
over the dispute, given, among other things, the ‘independent and autonomous international
which arises involves the
issue of whether a party local court decision.9 arbitral tribunal’ was the agreement of the parties
has been guilty of fraud, in its entirety, i.e. comprising both the arbitration
the relevant court would clause and the agreement on the governing law.12
have the power to order In this connection, the Tribunal considered four
that the arbitration issues, as follows:
agreement would cease After holding that the parties’ arbitration
to have effect and to
revoke the authority of - whether the Tribunal retained authority to agreement was governed by the law of State C,
any arbitrator by virtue of
consider its own jurisdiction (Issue 1 below); which included its Arbitration Act,13 upon which
the arbitration
agreement.
the local court had relied in purporting to revoke
26 ICC INTERNATIONAL COURT OF ARBITRATION BULLETIN
VOL 23/NUMBER 2 – 2012

this Arbitral Tribunal’s authority and the parties’ The Tribunal then examined what international
underlying agreement to arbitrate,14 the Tribunal convention, enacted into State C’s law, was
considered how such law was to be applied, and relevant to the ruling of the local court and found
whether the Tribunal was bound to apply the this to be the United Nations Convention on the
judgment of a local court applying that law: Recognition and Enforcement of Foreign Arbitral
Awards (New York 1958) (the ‘New York
in agreeing that the [arbitration statute] should Convention’). The Tribunal then examined Article
govern the present arbitration proceedings, a II of the New York Convention which provides that
majority of the Arbitral Tribunal considers that the each Contracting State shall recognize an
Claimant did not give the Respondent license to
agreement to arbitrate and that State courts
invoke the provisions of that [statute] arbitrarily for
seized of a dispute which the parties had agreed
the purpose of subverting the parties’ arbitration
agreement. Indeed, as a State entity, the to arbitrate shall refer the parties to arbitration
Respondent arguably has a special duty not to unless the arbitration agreement is null and void.
abuse its position by improperly using the judicial A majority then found that: 14 § 128 of the Award.
apparatus of the State to avoid arbitrating claims 15 Footnote to the Award: The
that it freely agreed to arbitrate as part of the in exercising their responsibilities under Article II of duty of a State party not to
use its own judiciary to
bargain that it struck when entering into the the New York Convention, the [State C] courts
subvert improperly a prior
Contract.15 should be expected to do so in a manner that agreement to arbitrate has
comports with the applicable rules of customary been the subject of recent
international law. . . . Indeed, customary international arbitral jurisprudence. See,
Nor, in
 the view of the majority of the Tribunal’s
e.g., in particular, Himpurna
members, does it follow from the Arbitral Tribunal’s law imposes on States an obligation ‘to maintain California Energy Limited
finding that the [arbitration statute] applies to the and make available to aliens a fair and effective (Bermuda) v. PT (Persero)
parties’ arbitration agreement that this Arbitral system of justice’. 20 As a former President of the Perusahaan Listruik Negara
(Republic of Indonesia),
Tribunal, which is a creature of that arbitration International Court of Justice has noted:
(2000) 15 YCA 13, para.21:
agreement rather than the emanation of any State ‘It is one thing for a party to
authority, is automatically bound to recognize and 
. . . a State denies justice when its courts are seek to avail itself of such
remedies it believes to be at
apply decisions of local judicial authorities that are closed to foreign nationals or render judgments
its disposal once an award has
manifestly unfounded, arbitrary or otherwise against foreign nationals that are arbitrary. In been rendered. It is quite
contrary to internationally accepted standards of modern international law, a State denies justice another for instrumentalities
judicial propriety.16 Were this Arbitral Tribunal to do no less when it refuses or fails to arbitrate with a of a party [under international
law] to be used to prevent the
so, it could well breach the duty that it also has in foreign national when it is legally bound to do so, implementation of a pending
this case, as discussed further below, to ensure that or when it, whether by executive, legislative or procedure to which it
the parties’ arbitration agreement is not improperly judicial action, frustrates or endeavors to has agreed.’
subverted and, thus, consecrate a ‘denial of justice’ frustrate international arbitral processes in which 16 Footnote to the Award: See,
as that principle is understood in international it is bound to participate. 21 (Emphasis added) e.g., Partasides, ‘Solutions
Offered by Transnational
law.17 18 Rules in Case of Interference

An international arbitral tribunal, such as the present by the Courts of the Seat’,
A majority of the Tribunal considered that, given one, may itself, thus, consecrate a denial of justice OGEL, vol. 1, issue no. 4
(September 2003).
the existence of a contract with a State party, as by recognizing and giving effect to a State court
decision purporting to revoke its authority where 17 Footnote to the Award: See,
was the case here, it could rely on international e.g., Schwebel, Three Salient
that decision does not comport with international
arbitral jurisprudence and imperatives of Problems (Grotius 1987), p.61
standards. 22 et seq. See also The Loewen
international law to bring the contract within the Group, Inc. and another v.
sphere of protection of international law, as such United States of America,
A majority of the Tribunal then held that it would <[Link].
norms were incorporated into the laws of
consecrate a denial of justice if they were to give com>. and the authorities
State C.19 cited therein at paras.130−133.
effect to a local court decision purporting to
18 §§ 129−130 of the Award.
revoke its authority contrary to international
Thus, by reference to international legal principles, 19 §§ 131−132 of the Award.
standards. At the same time, the Tribunal
the Tribunal found that the Respondent, as an 20 Footnote to the Award: see
emphasized that this was an exceptional case and
agency of State C, could not abuse the local law Loewen, supra, note [17] at
that decisions of local courts should only be para. 129.
governing the parties’ agreement nor the judicial
disregarded when they are manifestly contrary to 21 Footnote to the Award: See
apparatus of the State to subvert the parties’
international standards, as the Tribunal found was Schwebel, ‘Injunction of
arbitration agreement and to avoid arbitrating Arbitral Proceedings and
true here. 23 Truncation of the Tribunal’,
disputes it had agreed to arbitrate. The Tribunal
18 Mealy’s International
further found that therefore, being a creature of Arbitration Report, No. 4
that arbitration agreement, it was not (April 2003), p. 33. Similarly, it
was held in Himpurna, supra.,
automatically bound by the decisions of the note [15], that ‘… a State is
local courts. responsible for the actions of
its courts, and one of the
areas of state liability in this
connection is precisely that of
a denial of justice’, para. 184.
22 §§ 134−135 of the Award.
23 §§ 133−139 of the Award.
 ICC INTERNATIONAL COURT OF ARBITRATION BULLETIN
VOL 23/NUMBER 2 – 2012 27

Issue 3: Do the allegations of fraud prevent the The Contractor/Claimant offered to permit the
Tribunal from hearing the case? Tribunal to hear the Employer/Respondent’s
counterclaims if the Employer/Respondent
The Employer/Respondent argued that, under the submitted itself to the Tribunal’s jurisdiction.
local arbitration statute, the Arbitral Tribunal was However, the Employer/Respondent would not do
without jurisdiction to proceed as the Employer/ so and, accordingly, the Arbitral Tribunal found
Respondent had raised allegations of fraud. 24 A that it had no jurisdiction over the Respondent’s
majority of the Tribunal rejected this argument counterclaims. 29
finding that:
Comment:
The Respondent has, to be sure, advanced
counterclaims against the Claimant that, according The Arbitral Tribunal’s ruling in this respect is
to the Respondent, involve questions of ‘fraud’, but clearly correct. Under Clause 67 of the Red Book,
. . . the Arbitral Tribunal has no jurisdiction over any
Fourth Edition, an arbitral tribunal only has
of those claims [as they had not satisfied the
jurisdiction over ‘disputes’ (resulting from claims)
requirements of Clause 6725]. Moreover, there has
been no showing by the Respondent that, in that had previously been submitted to the
considering the Claimant’s claims, this Arbitral Engineer for decision under that Clause. The same
Tribunal will be required to decide any questions of is true of Clause 20 of the 1999 FIDIC Books
‘fraud’, whether of a criminal or civil nature. 26 (which corresponds to Clause 67 of the Red Book,
Fourth Edition) except that the DAB has now
A majority of the Tribunal held that the mere fact replaced the Engineer as the decision-maker. 30
that fraud allegations had been made against one
party did not prevent the operation of an
arbitration agreement that the party has entered
A.2 Second Partial Award in Case
into. For the jurisdiction of an arbitral tribunal to 12048 (2004)
be challenged on this basis under the local
u Relevant FIDIC Clauses: 53.1, 60.2, 60.10, 67
arbitration statute, the issue of fraud must,
according to the majority of the Tribunal, be
In this second partial award, the Tribunal
directly related to the dispute that is the subject of
considered:
the arbitration and over which the Arbitral
Tribunal has jurisdiction, which was not the case
(1) whether the Contractor/Claimant was entitled
here. Hence, the local court’s decision was found
to the sums decided in a final and binding decision
to be arbitrary. 27
of the Engineer (Issue 1 below);
Issue 4: Could the Tribunal hear counterclaims
(2) whether the Contractor/Claimant was entitled
that had not previously been submitted to the
to payment of the claimed amount in its preferred
Engineer under Clause 67?
currency, euros (Issue 2 below); and
The Tribunal then considered whether it had
(3) whether the Contractor/Claimant was entitled
jurisdiction over counterclaims of the Employer/
to interest after the cut-off date for interest
Respondent which had not previously been
decided in the Engineer’s decision (Issue 3 below).
submitted to the Engineer under Clause 67 and
concluded that it could not do so:
Issue 1: Is the Employer/Respondent entitled to
Although Clause 67 is a broad clause that expressly
the sums decided in final and binding decisions
embraces all disputes ‘of any kind whatsoever’ of the Engineer?
arising between the Claimant and the Respondent
‘in connection with’ the Contract, it is equally u Relevant FIDIC Clauses: 60.2, 67
explicit that, before such claims may be referred to
arbitration, whether they arise ‘during the execution After the Tribunal found in the preceding partial
of the works or after their completion and whether award that it had jurisdiction over the Contractor/
24 § 56 of the Award.
before or after repudiation or other termination of Claimant’s claims (but not over the Employer/
25 § 84 of the Award. the Contract’, they must ‘in the first place, be
26 § 140 of the Award.
Respondent’s counterclaims as they had not been
referred in writing to the Engineer, with a copy to
referred under Clause 67), the Contractor/
27 § 149 of the Award. the other party’. Pursuant to the express terms of
Clause 67, therefore, this Arbitral Tribunal has no Claimant requested a partial award in respect of
28 § 83 of the Award.
jurisdiction to consider any claims that have not the Engineer’s final and binding decision under
29 § 84 of the Award.
been so referred, and it has neither been shown or Clause 67 (that is, one which the Employer/
30 See the present author’s
‘The Arbitration Clause in even argued that Clause 67 should not be applied in Respondent had not disputed within the time
FIDIC Contracts for Major this case in accordance with its terms. 28 allowed under that Clause), on which the Tribunal
Works’ [2005] ICLR 4 at
6−9.
had deferred deciding in its first partial award.
28 ICC INTERNATIONAL COURT OF ARBITRATION BULLETIN
VOL 23/NUMBER 2 – 2012

This decision related principally to amounts in Comment:

interim payment certificates of the Engineer which
the Employer/Respondent had failed to pay. By The Tribunal’s decision to order the payment by
the Engineer’s decision under Clause 67, the an arbitral award of a final and binding decision of
Engineer had decided that the Contractor/ the Engineer is consistent with established
Claimant was entitled to a total sum in German precedent. 36
marks ‘to be paid as denominated in the
currencies certified by the Engineer’. 31 Issue 2: Is the Contractor/Claimant entitled to
payment of the claimed amount in euros, its
The Employer/Respondent had resisted the preferred currency?
Engineer’s decision claiming a right to set off its
own claims (which had not been referred under As indicated above, in his decision the Engineer
Clause 67) and that the Contractor/Claimant had had found that the Contractor/Claimant was
failed to rectify defects in the contract works and entitled to be paid the full amount of the overdue
had breached Sub-Clause 53.1 requiring claims to certificates, together with interest, ‘as
be notified within 28 days. 32 denominated in the currencies certified by the
Engineer’. The certified amount was subdivided
However, the Tribunal dismissed all of the into amounts expressed in two currencies: the
arguments of the Employer/Respondent: local State C currency and German marks. The
Contractor/Claimant’s claim in the arbitration was,
In this regard, it is evident, first of all, that, pursuant however, expressed entirely in euros (which had
to the express terms of Clause 67.1 of the Contract’s replaced German marks) presumably because,
General Conditions, decisions of the Engineer that being based in Europe and the works having been
have not been disputed by either of the parties
completed, the Contractor/Claimant no longer
within the time stipulated in that provision become
had any use for the currency of State C. 37
‘final and binding’ upon the parties and are no
longer capable of being opened up or set aside. It is
undisputed that neither party has contested the The Tribunal held that as the Engineer had
Engineer’s determination, in its letter . . ., that the decided that the Contractor/Claimant was only
Claimant is entitled to the payment of [amount], entitled to the payment of the German mark
including interest as of [date], in respect of overdue amount in euros, whereas the local currency
certificates (in the currencies certified by the amount had to be paid in local currency, the
Engineer). It is also not disputed that neither party Tribunal was bound to adhere to this position in its
has contested the Engineer’s decision in the same
award. 38
letter that the Claimant is entitled to design fees in
respect of the 5-kilometer dual carriageway
variation. Comment:

The Respondent, meanwhile, has failed to provide After construction works have been completed, a
any legitimate reason why the Engineer’s decision contractor working in a foreign country may no
should not be found to be ‘final and binding’ by the longer be incurring costs in that country and,
Arbitral Tribunal in respect of the above matters hence, may have no need for the local currency of
and, accordingly, why the decision should not be that country. Moreover, if the foreign country is a
ordered to be performed by the Respondent. 33 developing one, its currency may be relatively
weak and be subject to relatively rapid
The Tribunal then rejected the Respondent’s depreciation. Nevertheless, unless there is a
argument that it had a right of set-off under 31 § 10 of the Award.
provision in the arbitration clause or the
Sub-Clause 60.2 and other contractual 32 § 26 of the Award.
applicable arbitration law to authorize the arbitral
defenses stating: tribunal to order payment to be made in another
33 §§ 30−31 of the Award.
34 § 33 of the Award.
currency (see, e.g., section 48(4) of the English
Once, as in this case, a decision of the Engineer has 35 § 35 of the Award.
Arbitration Act 1996), the arbitral tribunal will
become final and binding under Clause 67, an 36 See ICC Case
normally be bound to order payment in the
Arbitral Tribunal no longer has any authority under 3790/3902/4050/4051/4054
the express terms of that provision to reconsider currency or currencies of payment of the relevant (joined cases), also referred to
possible contractual defenses to the claims that contract which will often include a local currency simply as ICC Case 3790,
(1986) XI ICCA Yearbook
were the subject of the decision. 34 component. For other cases where this same Commercial Arbitration 119,
issue arose, see the ICC arbitration award also summarized in
A.H. El-Ahdab, Arbitration with
The Arbitral Tribunal then ordered the discussed in the English House of Lords decision, the Arab Countries (Deventer:
Respondent to pay to the Claimant the amounts Lesotho Highlands Development Authority v. Kluwer, 1990) at 889−91.
in the Engineer’s final and binding decision. 35 Impregilo39 (where the arbitral tribunal, sitting in 37 §§ 38−39 of the Award.
London, relied on section 48(4) of the English 38 § 42 of the Award.
Arbitration Act to make an award in the 39 [2005] UKHL 43, [2006] 1
A.C. 221 and [2005] B.L.R. 351.
 ICC INTERNATIONAL COURT OF ARBITRATION BULLETIN
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contractor’s preferred currencies) and the interim maintained that it was entitled to a price
award in ICC Case No. 10619 (where the arbitral adjustment under Sub-Clause 52.3 to compensate
tribunal, sitting in Paris, denied the contractor’s it for unrecovered overhead and equipment costs
request to make the award in the contractor’s included in the ECP.43
preferred currency).40
When the Claimant originally submitted its
Issue 3: Is the Contractor/Claimant entitled to Sub-Clause 52.3 claim to the Engineer for a
interest after the cut-off date for interest determination pursuant to Clause 67, the Engineer
decided in the Engineer’s decision rejected the claim on the ground that the Claimant
had overstated the amount of the ECP. In the
u Relevant FIDIC Clause: 60.10 arbitration, the Employer/Respondent endorsed
the position of the Engineer44 and the Contractor/
The Engineer’s decision comprised interest until a Claimant characterized the issue presented to the
specific date (approximately four months before Arbitral Tribunal as one of straightforward
the date of the decision) in respect of most of the interpretation of the figures in the BOQ. However,
Contractor/Claimant’s claims that had been the the Arbitral Tribunal disagreed that the issue was
subject of its final and binding decision under one of contractual interpretation, having regard to
Clause 67. The Contractor/Claimant also claimed the purpose of Sub-Clause 52.3:
for interest accrued after the specific date in the
Engineer’s decision to a recent date at the time of the parties are in agreement that the purpose of the
the Tribunal’s deliberations and then thereafter, price adjustment for which Clause 52.3 provides,
based on Sub-Clause 60.10 of the General when the actual quantities are less than the estimated
quantities, is ‘to compensate the Contractor for
Conditions of Contract. The Tribunal awarded
under-recovery of overhead (due to lower than
such interest to the Contractor/Claimant noting
expected quantities)’ . . . Thus, Clause 52.3 does not
that the Engineer had explicitly accepted in its mandate a price adjustment whenever the 15 per cent
decision that interest continued to accrue after threshold is exceeded. Rather, in the absence of party
the specific date in the decision.41 agreement on an appropriate adjustment, Clause 52.3
only provides for a ‘determin[ation] by the Engineer
Comment: having regard to the Contractor’s Site and general
overhead costs’.
This is correct and requires no comment. It follows, in the view of the Tribunal, that in order to
prevail on a claim for a Contract price addition under
A.3 Final Award in Case 12048 Clause 52.3, the Claimant must establish that it was
prevented from recovering the jobsite and general
(2006) overhead costs included in the BOQ due to the
decrease in the actual quantities of work performed.45
u Relevant FIDIC Clauses: 52.3, 67.3
However, the Claimant had failed to establish the
This final award obliged the Tribunal to consider, amount of the jobsite and general overhead costs
among other things: included in the BOQ. Accordingly, the Claimant’s
claim was rejected.46
(1) whether Sub-Clause 52.3 mandates a price
adjustment whenever the 15% threshold provided Comment:
for therein is exceeded (Issue 1 below); and
While the answer may not be obvious from a first
(2) whether the Contractor/Claimant was entitled reading of SubClause 52.3, the Tribunal’s
to pre-judgment interest (Issue 2 below). interpretation is undoubtedly correct having
regard to the purpose of that provision.
Issue 1: Does Sub-Clause 52.3 mandate a price Interestingly, there appears to be no counterpart
adjustment whenever the 15% threshold to Sub-Clause 52.3 in the 1999 FIDIC Books.
provided for therein is exceeded?
40 See (2008) 19:2 ICC Issue 2: Is the Contractor/Claimant entitled to
ICArb. Bull. 89, Interim
Award, § 24. The Contractor/Claimant maintained that the pre-judgment interest?
41 §§ 43−45 of the Award. ‘Effective Contract Price’ (‘ECP’) under Sub-
Clause 52.3 of the General Conditions (that is, the The Contractor/Claimant requested the Tribunal
42 See § 155 of the Award.
estimated value of the works under the bill of to award it interest on any amounts found to be
43 § 156 of the Award.
quantities or ‘BOQ’, excluding provisional sums)42 due to it from the date it submitted its request for
44 § 158 of the Award.
exceeded by more than 15% the price for the a Clause 67 decision to the Engineer.47
45 §§ 160−161 of the Award.
46 § 162 of the Award.
quantity of work actually performed.
47 § 163 of the Award.
Consequently, the Contractor/Claimant
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The Tribunal held that where the contract is silent should have been certified by the Engineer. In the
about pre-judgment interest (as it was in the Red Tribunal’s view, the Engineer could not have been
Book, Fourth Edition, with respect to sums not expected to certify for payment any of the sums
awarded herein until the Claimant produced
certified by the Engineer), the Tribunal should look
satisfactory evidence in support of its extended
to the applicable law, rejecting the Respondent’s
overhead costs claim. The Claimant did not do so,
argument that, as the Contract only provides for however, until July 8, 2005, when it for the first time
interest in respect of the late payment of sums produced supporting project records. The Tribunal,
certified by the Engineer, pre-judgment interest is by a majority of its members, therefore finds that the
‘flatly barred’ under the Contract in respect of Claimant is entitled to the pre-judgment interest on
sums that have not been certified by the the amount awarded as from September 3, 2005 (i.e.
Engineer.48 57 days later).

As regards the rate of interest to be applied as from

The Tribunal then found that nothing in the law of that date, the Tribunal’s majority considers that it
State C (an African country with a common law would be appropriate to apply the rate for late
legal system) deprived it ‘of the power to provide payment set forth in the Contract, given that that is
the Claimant with full relief for the losses incurred the rate that would have been applied had the sums
by it due to the time that has been required for in question been certified by the Engineer . . . 50
the resolution of the parties’ dispute’.49 Comment:

The Tribunal then explained in a well-reasoned The Tribunal’s reasoning leading to the award of
decision the basis on which the Contractor/ pre-judgment interest in respect of amounts
Claimant should be entitled to interest on sums which the Engineer failed to certify but should (in
which had not been certified by the Engineer but the Tribunal’s opinion) have certified is correct
which a majority of the Tribunal awarded: and consistent, among other things, with
Article 7.4.9(1) (Interest for failure to pay money)
in deciding whether to award interest, the Tribunal’s of the UNIDROIT Principles of International
majority considers that it should be guided by the
Commercial Contracts, 2010, which provides that:
question of whether there has been avoidable delay
in the payment of the sum awarded herein and, if so,
If a party does not pay a sum of money when it falls
the extent of the Claimant’s loss.
due the aggrieved party is entitled to interest upon
In considering whether there has been avoidable that sum from the time when payment is due to the
delay, the Tribunal’s majority has taken into account time of payment . . .
that, under the Contract, the Respondent is not
obligated to make any payments until the
corresponding sums have been certified by the B. Partial Award in Case 13258
Engineer. Moreover, under Clause 67.1 of the
Contract’s General Conditions, the parties are bound
(2005)
to give effect to every decision of the Engineer unless u Relevant FIDIC Clauses: 51.1, 63.1
and until the same shall be revised. In the present
case, the Engineer not only did not certify the sums in The Contractor/Claimant, a joint venture
question but determined that no sums were due.
composed of three companies of different
Nonetheless, under Clause 67.3, the Tribunal has the nationalities, entered into a contract for the
authority to open up, review and revise any decision construction of a portion of the civil works, called
on certificates of the Engineer. In deciding that the Lot I-1, for a hydropower project (the ‘Project’)
Claimant is entitled to the sums being awarded with the Employer/Respondent, a company
herein, the Tribunal is therefore at the same time
owned by an African State (‘ F’). The governing
determining that those sums should have been
certified by the Engineer. Although the Respondent
substantive law was the law of State F which was
cannot be criticized for abiding by the Engineer’s based on English common law.
Clause 67 determination, it should not procure a
benefit either from the Engineer’s failure to certify for The Project was to be financed by loans from a
payment sums to which the Claimant is entitled. Thus, foreign financial institution. 51 A first loan, which
the Tribunal considers that it is appropriate for it to was drawn down, was to cover most of the costs
exercise its discretion to award interest on the sums of Lot I-1. A second loan was to cover most of the
awarded herein as from the date they would have costs of the remaining lots. Completion of Lot I-1
attracted interest under the Contract had they been
was dependent upon the completion of the
properly and in due time certified by the Engineer.
remaining lots which were to be financed by the 48 §§ 169−171 of the Award.
Under Clause 60.10 of the Contract, the Respondent second loan. 52
49 §§ 173−175 of the Award.
was obligated to pay the Claimant within 56 days
after the issuance of any certificates. Thus, interest 50 §§ 177−181 of the Award.
should accrue in this case as from the 57th day 51 §§ 62−64 of the Award.
following the date upon which the sums awarded 52 § 75 of the Award.
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While the Contractor/Claimant completed most of (2) whether the Employer/Respondent validly
Lot I-1, it was unable to complete all its work terminated the contract in accordance with
because, due to the suspension of loans to State F Sub-Clause 63.1 (Issue 2 below).
by international funding agencies, the second loan
could not be made at this time, 53 with the Issue 1: Was VO4 a breach of contract?
consequence that the contracts for the
construction of the remaining lots could not enter The Contractor/Claimant argued that the
into force. 54 Engineer was not authorized to omit work by a
variation order for the purpose of giving it in due
Accordingly, in order to permit Lot I-1 to be course to another contractor for completion.62 On
completed notwithstanding the unavailability of the other hand, the Employer/Respondent argued
the financing for the remaining lots, the Engineer that VO4 was issued not in order to give the
issued a variation order no. 4 (‘VO4’) to omit from works to another contractor but to allow the
Lot I-1 the works which could only be done after contract to be completed.63
the completion of the remaining lots (called the
‘interfacing works’). 55 It was envisaged that such The Tribunal held that VO4 was a breach of
omitted works, which represented roughly 3% of contract as it was issued without contractual
the Contract Price, 56 would be included in the authority but that it did not constitute a
contracts for the remaining lots should they fundamental breach amounting to repudiation of
proceed in the future. 57 the contract:

However, the Contractor/Claimant considered the Arbitral Tribunal shares the view of the Engineer
that the omission of works by VO4 was a breach that the omission of works which could not be
of General Specification (‘GS’) 1.5 of the contract completed until after other contractors would
complete their own works presented a useful solution
and a repudiation of the contract by the
to the serious problem created by the lack of the
Employer/Respondent or, alternatively, a breach
interfacing works due to the unfulfilled contingency
of a fundamental term entitling Claimant to of the Phase II financing. For the reasons given below,
rescind the contract, and requested an Engineer’s however, the omission of such works could not in this
decision under Sub-Clause 67.1. 58 GS 1.5 provided, instance be validly effected without the consent of
in relevant part, as follows: the Contractor.

The controlling consideration is that the proviso to

The Employer will arrange for works necessary for
FIDIC/GC 51.1(b) limited the Engineer’s authority to
the completion of the Project other than that covered
omit works. The fact that the works identified in
by this Contract to be executed by other contractors.
Variation Order No. 4 were omitted from the Contract
The Contractor shall cooperate with the Employer
but were not intended to be omitted from the Project
and other contractors for the following separate
means that Variation Order No. 4 was given without
contracts to ensure the satisfactory completion of the
contractual authority.
Project as a whole. 59
..........
The Engineer decided that there had been no The Tribunal therefore concludes that Variation Order
breach of contract as ‘the omission of the work No. 4 was a breach of FIDIC/GC 51.1(b). However . . .,
was necessary and appropriate and permitted Variation Order No. 4 is a breach of contract
under FIDIC GC 51.1(b) since the Employer had not sounding in damages only; it thus did not constitute a
carried out the work itself or awarded it to fundamental breach amounting to a repudiation of
another contractor’.60 the Contract or otherwise afford the Contractor with
a right of rescission.64
Dissatisfied with the Engineer’s decision, the
Contractor/Claimant commenced arbitration (the Comment:
53 §§ 79 and 91 of the Award.
54 § 83 of the Award.
place of arbitration was Geneva, Switzerland) and
ceased further work. The Engineer considered the While this was a close question, the Tribunal’s
55 § 252 of the Award.
Contractor/Claimant’s cessation of work to be a ruling appears sound. Although the decision of
56 Ibid. the Employer and the Engineer to omit the work
breach of contract and certified under Sub-
57 § 244 of the Award. concerned was, in the circumstances,
Clause 63.1 that the Contractor/Claimant had
58 § 153 of the Award.
repudiated the contract. The Employer/ understandable, it was nevertheless a breach of
59 § 216 of the Award.
Respondent subsequently terminated the contract as it was contemplated that the omitted
60 § 167 of the Award.
contract on this ground.61 work would eventually be carried out by
61 §§ 174−198 of the Award. another contractor.
62 § 220(i) of the Award. In the partial award, the Tribunal considered:
63 § 220(i)−(iv) of the Award. (1) whether VO4 was a breach of contract (Issue 1
64 §§ 274−275 and 278 of below); and
the Award.
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Issue 2: Did the Employer/Respondent validly there remained obligations for the Contractor to
terminate the contract in accordance with perform, specifically during the Defects Liability
Sub-Clause 63.1? Period in relation to already completed work.

While the parties had discussed the In the 1999 FIDIC Books, FIDIC dispensed with the
demobilization of the Contractor for the period term ‘repudiat[ion]’, as this is a common law legal
during which interfacing works would be term whose legal meaning will be unfamiliar to
performed by other contractors, the parties had laymen and substituted the words ‘plainly
failed to agree on this issue.65 Nevertheless, demonstrates the intention not to perform his [the
claiming that the contract was rescinded, the Contractor’s] obligations under the contract’ as
Contractor/Claimant demobilized and ceased this was felt to be more readily understandable to
work.66 Accordingly, the Engineer certified to the users of the contract (see, e.g., Sub-Clause 15.2(b)
Employer/Respondent that in his opinion the of the 1999 Red Book).
Contractor/Claimant’s demobilization and
cessation to work amounted to a repudiation of
the Contract.67 On the basis of this certificate, the
C. First Interim Award in Case
Employer/Respondent terminated the Contractor/ 10847 (2003)
Claimant’s employment, pursuant to Sub-
u Relevant FIDIC Clauses: 12.2, 44.1, 44.2, 51, 53.1
Clause 63.1, which provides that the Employer
may terminate the Contractor’s employment, after
The Contractor/Claimant, a joint venture
giving 14 days’ notice, if the Engineer certifies that
comprising two European construction
the Contractor has repudiated the Contract.68 The
companies, had entered into a contract for the
Contractor/Claimant claimed that the Engineer’s
construction of the main civil engineering works
certification of repudiation of the contract was
for a hydroelectric project in an African country
null and void.69
(‘State A’) with a company from State A, the
Employer/Respondent. The governing substantive
The Tribunal held that the Employer had validly
law was the law of State A and the place of
terminated the contract under Sub-Clause 63.1 on
arbitration was London, UK.
account of the Contractor’s cessation of work as
the Contractor ‘remained contractually
The Claimant alleged that several unforeseen
responsible for the works until the issuance of a
events caused by the Respondent or for which it
Taking-Over Certificate’ which would trigger the
was liable had delayed the Claimant’s progress
performance of further obligations during the
and caused additional costs, and that the
Defects Liability Period:70
Engineer had wrongly rejected the Claimant’s
claims for extensions of time and related costs.
The trouble with the Contractor’s position . . . stems
from the view that the improper omission of works
operated by Variation Order No. 4 somehow obviated In a first interim award, the Tribunal considered:
the very possibility of a Taking-Over Certificate ever
being issued, thus starting the Defects (1) the notice provisions of Sub-Clauses 44.2 and
Liability Period. 53.1 (Issue 1 below);
.........
(2) the claims for extensions of time and
the Arbitral Tribunal considers that a reasonable additional costs (Issue 2 below); and
person could come to the conclusion on the basis of
the Contractor’s conduct . . . that the Contractor did
(3) the interest to be applied on the sums
not intend to perform the Contract any further.
Accordingly, the contractual repudiation awarded (Issue 3 below).
contemplated by FIDIC/GC 63.1 and certified by the
Engineer . . . was clearly established and the analysis
can stop there . . .71 [Emphasis in original]

Comment: 65 § 342 of the Award.

66 § 342 of the Award.
Finding that the Contractor was unjustified in 67 §§ 180 and 365 of
rescinding the contract, it was understandable the Award.

that the Tribunal found that, by manifesting the 68 § 198 of the Award.
intention not to perform the contract any further, 69 §§ 201 and 369 of
the Award.
the Contractor had repudiated the contract as
70 § 384 of the Award.
71 §§ 386 and 390 of the
Award.
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Issue 1: Did the Claimant comply with the notice (b) How is recovery of additional costs limited
provisions in Sub-Clause 44.2 and is recovery of in case of failure to comply with the notice
additional costs limited in case of failure to provisions of Sub-Clause 53.1?
comply with the notice provisions of Sub-
Clause 53.1? The Respondent argued that the Claimant had
failed to comply with the notice requirements in
u Relevant FIDIC Clauses: 44.2, 53.1 respect of its claims for additional costs as
required by Sub-Clause 53.1, which provides
(a) Did the Claimant have to comply with the as follows:
notice provisions in Sub-Clause 44.2?
Notwithstanding any other provision of the Contract,
The Claimant argued that, under Sub-Clause 44.2 if the Contractor intends to claim any additional
of the Contract, failure to notify an event for payment pursuant to any Clause of these Conditions
or otherwise, he shall give notice of his intention to
which an extension of time is sought does not
the Engineer, with a copy to the Employer, within
result in the forfeiture of the claim.72
28 days after the event giving rise to the claim has
first arisen.
Sub-Clause 44.2 provides, in relevant part,
as follows: The Respondent also argued that the Claimant
failed to supply any contemporary records in
the Engineer is not bound to make any determination support of its claims as required by Sub-
unless the Contractor has Clause 53.4, which provides as follows:
(a) within 28 days after such event has first arisen
If the Contractor fails to comply with any of the
notified the Engineer with a copy to the Employer,
provisions of this Clause in respect of any claim which
and
he seeks to make, his entitlement to payment in
(b) within 28 days or such other reasonable time as respect thereof shall not exceed such amount as the
may be agreed by the Engineer after such Engineer or any arbitrator or arbitrators appointed
notification submitted to the Engineer detailed pursuant to Sub-Clause 67.3 assessing the claim
particulars of any extension of time to which he considers to be verified by contemporary records
might consider himself entitled in order that such (whether or not such records were brought to the
submission may be investigated at the time. Engineer’s notice as required under Sub-Clauses 53.2
and 53.3).
The Claimant argued that the Engineer ‘is, by this
Clause, given a discretion to allow such claims in Consequently, the Respondent maintained no
the event of a failure to notify’ and: payments were contractually due.

as the Engineer has decided to respond to all the The Tribunal considered that the purpose of
claims put to him by the Claimant without demur, the Sub-Clause 53.1 was to put the Engineer (and the
discretion has thus been exercised in favour of the Respondent) on alert insofar as circumstances
Claimant and that is the end of the matter. In such occurring on site could result in additional costs to
circumstances the Tribunal cannot open up this
the Respondent75 and that Sub-Clause 53.1 was
discretion of the Engineer and, accordingly, must
not a condition precedent, but in the event of
determine the claims as advanced.73
failure by the Claimant to notify properly, Sub-
The Tribunal agreed stating that it was free to Clause 53.4 limited the recovery by the Claimant
exercise its own discretion over whether to to amounts verified by contemporary records.76
consider the Contractor’s claim and was not
bound by what the Engineer had done (or Comment:
not done):
The Tribunal correctly held that Sub-Clause 42.2
in any case where the Engineer has not exercised his gave discretion to the Engineer in respect of
discretion to make a determination (where there is an claims for an extension of time which have not
alleged failure by the Claimant to give due notice) or been properly notified thereunder and that, in any
where the Engineer has, in determining the merits of
case, where the Engineer had not exercised that
a Clause 44 claim, chosen to reserve his position on
discretion, the Tribunal was entitled to do so.
granting discretion, the Tribunal can exercise its own
discretion as to whether the claim should be Further, under Sub-Clause 53.4, a failure to notify
determined.74 a claim for additional payment does not bar the
72 § 3.1.2 of the Award.
claim for additional costs but limits the amount
The Tribunal then held that its discretion would be that can be decided or awarded by the Engineer
73 § 3.1.4 of the Award. exercised in favour of the Claimant pursuant to or an Arbitral Tribunal, respectively, to sums, if
74 § 3.1.5 of the Award. Sub-Clause 44.2 and thus the Tribunal proceeded any, which can be verified by ‘contemporary
75 § 3.1.9 of the Award. with the determination of the claim on its merits. records’. ‘Contemporary records’ have been held
76 § 3.1.11 of the Award.
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to mean records produced or prepared at the The Tribunal then considered the Claimant’s
time of the event giving rise to the claim, whether individual claims, as follows.
by or for the Contractor or the Employer.77 As a
practical matter, this means that, in such a case, a (a) Telephone system
party cannot rely on witness testimony only to
substantiate such a claim but must be able to The Claimant argued that the Respondent
justify it by means of contemporary records. breached its obligation timely to provide a
telephone connection and that, when it did
Issue 2: Specific entitlements to extensions of provide one, the telephone system rendered poor
time and additional costs quality and unreliable service.79 The Claimant
claimed additional costs and an extension of time
u Relevant FIDIC Clauses: 12.2, 44.1, 51, 53 on these accounts.

Sub-Clause 44.1 provides, as follows: While the Tribunal agreed that the Respondent
was late in supplying a telephone system80 and
In the event of: that this would have caused disruption to the
(a) the amount or nature of extra or additional work, Claimant, 81 the Tribunal held that the Claimant
(b) any cause of delay referred to in these Conditions, could not expect service on a par with that in
(c) exceptionally adverse climatic conditions,
Western Europe or the USA:
(d) any delay, impediment or prevention by the
Employer, or
In a developing country such as [State A], the Tribunal
(e) other special circumstances which may occur,
considers that expectations in the quality of such
other than through a default of or breach of
things as telephone services should be
contract by the Contractor or for which he
commensurate with the nation’s development. In
is responsible,
other words, foreign organisations working in
being such as fairly to entitle the Contractor to an
[State A] should not expect telephone services to be
extension of the Time for Completion of the Works, or
on a par with Western Europe or the USA. The
any Section or part thereof, the Engineer shall, after
inevitable differences between systems in developed
due consultation with the Employer and the
countries and developing countries should, in the
Contractor, determine the amount of such extension
Tribunal’s experience, have been taken into account
and shall notify the Contractor accordingly, with a
by the contractors during the tendering period. 82
copy to the Employer.
Consequently, the Tribunal denied the Claimant an
Before examining the Claimant’s individual claims
extension of time and costs on account of the
for extension of time and additional costs, the
quality of the telephone service. 83
Tribunal made the following useful ‘general
comment’ on Sub-Clause 44.1:
Comment:
the Tribunal interprets Clause 44.1 as providing an
entitlement only in a situation where the Claimant can Accordingly, the Contractor should have, at the
demonstrate that the delay caused by the event . . . tender stage, taken account of the particular
did actually contribute to a real and unavoidable circumstances in the country where the contract
delay to the critical path activities leading to was to be performed. In this case, the Claimant
completion. Thus a direct impact on the Claimant’s should have taken into account that the telephone
ability to complete by the contractual Date for system in State A, a developing country, could not
Completion would need to be demonstrated in order
be of the same quality as in developed countries
for Clause 44.1 to operate and for an entitlement to
by making appropriate allowance for this in its
be justified. Delay to an activity or sequence of events 77 See the English case
that are not critical activities or critical sequences do tender price. Attorney General for the
Falklands Islands v.
not fairly entitle the Claimant to an extension of Gordon Forbes
time.78 (b) Delayed issuance of powerhouse design Construction (Falklands)
drawings Limited (No. 2), [2003]
Comment: T.C.L.R. 9, [2003] B.L.R.
280.
The Claimant claimed an extension of time and 78 § 3.2 of the Award.
The Tribunal interpreted Sub-Clause 44.1, when it
additional costs due to the alleged late issue of
referred to circumstances which ‘fairly… entitle the 79 § 3.3.1 of the Award.
design drawings for the powerhouse. While the
Contractor’ to a time extension, as providing that 80 § 3.4.1, first paragraph, of
Claimant admitted that it was responsible for the Award.
the delay must be on the critical path of
overlapping delay (in excavating the powerhouse 81 § 3.4.1, third paragraph, of
construction, that is, the delay must cause a delay
complex), it claimed ‘that such concurrency the Award.
to completion. Although this was not stated
should not affect the Claimant’s entitlement to 82 § 3.4.2, first paragraph, of
explicitly in Clause 44 of the Red Book, Fourth the Award.
extensions of time arising from delays attributable
Edition, this was later done in Sub-Clause 8.4 of 83 § 3.4.2, second paragraph,
to the Respondent’. 84
the 1999 Red Book. of the Award.
84 § 3.5.4 of the Award.
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The Respondent argued that, due to the the Red Book, Fourth Edition and obliged the
Claimant’s delayed excavation works, the Respondent to pay interest at a specified rate on
drawings were supplied in their final state in sums certified but not paid—was the Contractor’s
good time: sole remedy for late payment (aside from the
remedies of termination or suspension under
Consequently, there was no actual delay caused to Clause 69). 88
the Claimant by reason of alleged late issue of
Construction Drawings. The fact that the Engineer Sub-Clause 60.10 of the Red Book, Fourth Edition,
made good use of the time during which the Claimant
provides:
was continuing its excavation to further develop and
refine Construction Drawings in light of the electro-
The amount due to the Contractor under any Interim
mechanical contractors [sic] ongoing input should
Payment Certificate issued by the Engineer pursuant
not be seen as giving rise to an entitlement for
to this Clause, or to any other term of the Contract,
additional time. No critical delay was caused by the
shall, subject to Clause 47, be paid by the Employer to
alleged delay to drawings issue. 85
the Contractor within 28 days after such Interim
The Tribunal dismissed the Claimant’s claim on the Certificate has been delivered to the Employer or, in
basis of the Claimant’s ‘pre-existing’ delay in the the case of the Final Payment Certificate referred to
powerhouse excavation works which was on the in Sub-Clause 60.8, within 56 days after such Final
Payment Certificate has been delivered to the
critical path:
Employer. In the event of failure of the Employer to
make payment within the times stated, the Employer
The Tribunal, whilst accepting that the issue of
shall pay to the Contractor interest at the rate stated
drawings was not a model example of how the
in the Appendix to Tender upon all sums unpaid from
Contract provisions could operate, holds the view
the date by which the same should have been paid . . .
that the Works were not delayed by late drawing
issue because of the pre-existing delays in The Tribunal agreed, finding that termination and
Powerhouse excavation which was on the critical suspension aside, ‘the contractual remedy
path. It cannot therefore be said that a fair provided under Sub-Clause 60.8 [Sub-
entitlement exists to an extension pursuant to Clause
Clause 60.10] is exhaustive insofar as cost
44. The Tribunal does not subscribe to the view that
recovery is concerned’. 89
an event that caused no delay to an activity on the
critical path to the date for completion of the Works
can be the basis of an extension of time. 86 Comment:

Comment: This may be a harsh result for the Contractor but

was a defensible one under the Red Book,
The Tribunal considered whether the claimed Fourth Edition.
delay (in the issuance of drawings) affected the
critical path and concluded that, given the d) Electricity supply claim
concurrent delay for which the Claimant was
responsible (the late excavation of the The Claimant claimed that, throughout the period
powerhouse), the critical path was not affected of the Works, it suffered power outages which
and, therefore, denied a time extension. However, caused disruption and delayed completion. The
opinion is divided on this issue. Thus, the UK Claimant alleged that the Respondent was
Society of Construction Law’s well-respected responsible for the same under the contract,
Delay and Disruption Protocol (October 2002, including Sub-Clause 12.2 which entitles a
October 2004 reprint), section 1.4.7, takes a Contractor who encounters unforeseeable
different position: ‘physical obstructions or physical conditions’ to an
extension of time and recovery of its
Where Employer Risk Events and Contractor Risk
additional costs:
Events occur sequentially but have concurrent
effects, here again any Contractor Delay should not
If, however, during the execution of the Works the
reduce the amount of EOT [extension of time] due to
Contractor encounters physical obstructions or
the Contractor as a result of the Employer Delay.
physical conditions, other than climatic conditions on
(c) Advance payment claim the Site, which obstructions or conditions were, in his
opinion, not foreseeable by an experienced
The Claimant claimed an extension of time and contractor, the Contractor shall forthwith give notice
thereof to the Engineer, with a copy to the Employer.
costs arising from the alleged late payment of the
On receipt of such notice, the Engineer shall, if in his
85 § 3.5.6 of the Award. foreign portion of the Advance Payment, 87 the
opinion such obstructions or conditions could not
86 § 3.6.1 of the Award. payment of which was to be made pursuant to a have been reasonably foreseen by an experienced
87 § 3.7.1 of the Award. separate certification by the Engineer. The contractor, after due consultation with the Employer
88 § 3.7.5 of the Award. Respondent argued that Sub-Clause 60.8—which and the Contractor, determine:
89 § 3.8.6 of the Award. appeared to be identical to Sub-Clause 60.10 of
36 ICC INTERNATIONAL COURT OF ARBITRATION BULLETIN
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(a) any extension of time to which the Contractor is Comment:

entitled under Clause 44, and

(b) the amount of any costs which may have been As with its approach to the telephone system, the
incurred by the Contractor by reason of such Tribunal held that the quality of electricity supply
obstructions or conditions having been encountered, in State A should not be expected to be the same
which shall be added to the Contract Price, as that in developed countries.
and shall notify the Contractor accordingly, with a
copy to the Employer. Such determination shall take As regards Sub-Clause 12.2, the Tribunal adopted
account of any instruction which the Engineer may the conventional interpretation that power
issue to the Contractor in connection therewith, and outages could not be considered as ‘physical
any proper and reasonable measures acceptable to conditions’ or ‘physical obstructions’. Those terms
the Engineer which the Contractor may take in the refer to natural conditions on the Site
absence of specific instructions from the Engineer. (hydrological, ground, sub-surface conditions,
The Tribunal first held that, as with respect to the etc.) and not to industrial conditions such as
telephone system (see Issue 2(a) above), the electricity supply. This interpretation is consistent
standards applied to the quality of service with the position taken by an ICC arbitral tribunal
regarding electricity supply depended on the in relation to the Red Book, Third Edition.94
country considered:
(e) Disruption and acceleration costs
The Tribunal’s view on this claim is that the level and
quality of service in a developing nation such as The Claimant claimed for an extension of time and
[State A] should not be equated to that in developed additional costs arising from a significant general
countries in other parts of the world . . . Accordingly, increase in quantities which resulted from the
the Tribunal is of the opinion that the obligation Claimant’s purported acceleration of the Works.
placed on the Respondent to provide and maintain
The Claimant claimed the increase in quantities
power transmission lines imposes no greater an
as a variation under Sub-Clause 51.1 and the
obligation than to provide the level of service that
could reasonably be expected at the Site location.90 extension of time pursuant to Sub-Clause
44.1(a).95
The Tribunal also clarified that Sub-Clause 12.2
related to physical conditions or obstructions The Tribunal considered that, while no formal
found or encountered on the Site and that notice of claim had been given, the Employer had
therefore power outages were outside the scope adequate notice of the claim under Clauses 44.1,
of this provision: 51 and 53 because:

Sub-Clause 12.2 is concerned with physical conditions The Engineer would have been aware of the increase
or physical obstructions. The Tribunal’s interpretation in quantities on a monthly basis because he was
of this sub-clause is that the conditions or certifying payment for them at the Bill of Quantities
obstructions should be of a nature that are to be rates. The Engineer had contemporaneous records of
‘found’ or ‘encountered’ on the Site and this is these increases. Finally the Engineer issued Decisions
reflected in the words of the sub-clause. 4 and 5 in relation to claim submissions which
Consequently, power outages would not, in the expressly notified the general increase in quantities.96
Tribunal’s opinion, be properly classified as physical
conditions or physical obstructions pursuant to Thus, while no actual notice had been given, the
Sub-Clause 12.2. Consequently, the Tribunal rules out Tribunal deemed the notice provision to have
any entitlement for time and costs arising under this been satisfied because the Engineer ‘would have
sub-clause.91 been aware of’ the increase in quantities at the
90 § 3.10.1 of the Award.
However, the Tribunal found that the power time they incurred and had contemporary records
91 § 3.10.3 of the Award.
outages that occurred were worse than could of them.
92 See quote under Issue
have reasonably been expected and that, while 2 above.
the Claimant had not shown the actual effect of The Tribunal then held that for the acceleration
93 §§ 3.10.4−3.10.6 of
such outages on the progress of the works, claim to succeed, the Claimant had to the Award.
they adversely affected the Claimant’s progress demonstrate that it had in fact accelerated 94 See the present author’s
and gave rise to an entitlement under because it had been denied its entitlement to a ‘Second Commentary on
ICC Awards Dealing
Sub‑Clause 44.1(e)92 and awarded the Claimant time extension and not merely that the Claimant Primarily with FIDIC
an extension of time.93 had brought additional resources to the Site.97 Contracts’ (2008) 19:2 ICC
ICArb. Bull. 41 at 48−51,
discussing the Partial
Award in ICC Case 11499.
95 §§ 3.12.1, 3.12.2 and 3.12.3
of the Award.
96 § 3.13.5 of the Award.
97 § 3.13.11 of the Award.
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Comment: Issue 3: Should the rate of interest provided in

the contract to apply to overdue certified
The Tribunal adopted a pragmatic approach in amounts be applied to the sums awarded by
considering that, while the Claimant had given no the Tribunal?
notice of claim, the Tribunal deemed the notice
provision satisfied as the Engineer ‘would have The parties disagreed over the rate of interest to
been aware of’ the underlying facts. In respect of be applied to the sums awarded by the Tribunal.
the Claimant’s acceleration claim, unsurprisingly, While the Claimant argued that the Tribunal was
the Tribunal found that the mere presence of bound by the interest rate in the parties’
additional resources did not evidence agreement (Sub-Clause 60.8 in this case),103 the
acceleration. This should have been demonstrated Respondent argued that the Tribunal had
by specific records of how the resources were discretion as to the rate and nature of interest to
used and permitted acceleration of the progress be applied and that the rate of interest established
of the works. by Sub-Clause 60.8 did not constitute an
agreement between the parties under section 49
(f) Taking Over Certificate (‘Interest’) of the UK Arbitration Act 1996.104

The Claimant claimed that the Works met the The Tribunal held that the rate of interest provided
requirements for the issuance of a Taking Over in the contract was binding on the Tribunal when
Certificate at a particular date in that ‘they were awarding interest on sums found due in the award
capable of being used for the purpose for which as the Tribunal was effectively acting in the place
they had been conceived’.98 The Engineer had of the Engineer:
refused to issue the Taking Over Certificate at that
date on the basis that certain finishing works were Since the Tribunal [is] effectively acting in the position
outstanding and that certain items prevented of the Engineer, the sums awarded should have been
some testing and commissioning operations.99 certified by the Engineer and, if not paid, would have
borne interest at the rate established by Clause 60.8.
The Tribunal has concluded that the rate of interest
The Tribunal declared that for the issuance of the
established by Clause 60.8 does constitute an
Taking Over Certificate, the Works must be at a agreement between the parties on the application of
stage so as to allow the ‘beneficial use of the interest, which binds the Tribunal.105
facility’ being constructed:
The Tribunal thus considered that the rate of
The Tribunal holds the view that, for a contractor to interest established by the contract constituted an
be entitled to a certificate of substantial completion, agreement under section 49(1) of the UK
the Works must be in a state of completion that Arbitration Act 1996, which was binding on the
enables the Respondent to enjoy beneficial use of the Tribunal. Section 49 (‘Interest’) of the UK
facility constructed. In the Tribunal’s opinion, such use Arbitration Act 1996 provides:
was not available to the Respondent in December
1999. . . . In the Tribunal’s opinion, the items of work
(1) The parties are free to agree on the powers of the
that can properly be undertaken after issue of the
tribunal as regards the award of interest.
Taking Over Certificate are items that do not interfere
with the Respondent’s beneficial use, such as (2) Unless otherwise agreed by the parties the
98 § 3.16.1 of the Award. architectural finishing works, repair work, fencing, following provisions apply.
99 § 3.16.2 of the Award. landscaping and demobilisation.100
(3) The tribunal may award simple or compound
100 § 3.17.1 of the Award. On this basis, the Tribunal saw no reason to interest from such dates, at such rates and with such
101 § 3.17.2 of the Award. overturn the Engineer’s decision and dismissed rests as it considers meets the justice of the case−
102 See Hudson’s Building the Contractor’s claim that the Taking Over (a) on the whole or part of any amount awarded by
and Engineering
Contracts, 12th ed.
Certificate should have been issued on an earlier the tribunal, in respect of any period up to the
(London: Sweet and date.101 date of the award;
Maxwell, 2010) at para.
3-070. (b) on the whole or part of any amount claimed in
Comment: the arbitration and outstanding at the
103 This rate was the
published overdraft rate commencement of the arbitral proceedings but
for local currency and The Tribunal’s ‘beneficial use’ standard is paid before the award was made, in respect of
three per cent above
the discount rate of the consistent with the generally accepted ‘substantial any period up to the date of payment.
central bank of the completion’ or ‘practical completion’ standard for
country of foreign (4) The tribunal may award simple or compound
currency (see
the issuance of Taking Over Certificates.102 interest from the date of the award (or any later date)
paragraph 3.23.3 of the until payment, at such rates and with such rests as it
Award).
considers meets the justice of the case, on the
104 § 3.23.2 of the Award.
105 § 3.23.5 of the First
Interim Award.
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outstanding amount of any award (including any (2) whether the Contractor/Claimant was entitled
award of interest under subsection (3) and any award to compensation for the increase of its costs
as to costs). under Sub-Clause 65.5 owing to delays which
(5) References in this section to an amount awarded were the consequence or result of a crisis in a
by the tribunal include an amount payable in nearby region (Issue 2 below); and
consequence of a declaratory award by the tribunal.

(6) The above provisions do not affect any other (3) whether the Contractor/Claimant could claim
power of the tribunal to award interest. for financial losses arising from the non-
reimbursement of taxes that it was not under a
The Tribunal did not find the Sub-Clause 60.8 rate duty to pay, including any penalty imposed for the
of interest to be unrealistic or unreasonable and late payment of VAT (Issue 3 below).
would, in any event, have applied this rate as a
matter of discretion.106 Issue 1: Was the Respondent late in giving
possession of the Site, did the Claimant cause
Comment: the Respondent to be late, and is the Claimant
entitled to compensation under Sub-Clause 42.2?
For a contrary position in relation to interest on
uncertified amounts found to be due to a The Contractor/Claimant argued that it was not
Contractor under the Red Book, Fourth Edition, given possession of the site in due time because
see the award of the ICC arbitral tribunal which the Employer was late in expropriating and
was the subject of the decision of the English evacuating the necessary plots of land.108 On the
House of Lords in Lesotho Highlands Development other hand, the Employer/Respondent argued
Authority v. Impregilo.107 In that case, the House of that the Contractor/Claimant had not submitted
Lords let stand the arbitral tribunal’s decision to the final design for the road on time which
award interest pursuant to section 49(3) of the prevented the Employer/Respondent from
English Arbitration Act 1996, the arbitral tribunal expropriating the land necessary to give the
finding that the parties had not ‘otherwise agreed’ Contractor/Claimant possession.109
on interest on such amounts in their contract.
The Arbitral Tribunal began its analysis by setting
D. Final Award in Case 12654 forth ‘some basic rules regarding delay claims,
which—although obvious—deserve to be put on
(2005) record’:110
u Relevant FIDIC Clauses: 19.1, 20.3, 20.4, 22.2,
22.3, 42.1, 42.2, 44.1, 53.3, 65.2, 65.5 If a contractor is delayed in completing the work, its
cost of performance increases simply because those
elements of its costs that are dependent on time
The Contractor/Claimant, a joint venture of two require an extended period of time. For example, the
European companies which was incorporated into contractor is likely to have field overhead costs for its
a limited liability company of a country in the field offices, telephones and field supervision, costs
Balkans, ‘State E’ (upon being awarded the which are directly time-related and which represent
contract), entered into a contract for the building ‘pure’ delay costs.
of a two-lane road with the Employer/ In addition to the purely time-related delay costs, the
Respondent, the Ministry of Transport, General contractor’s cost of performance may increase
Roads Directorate, of State E. The governing law because delayed work itself is completed in an
under the contract was the law of State E. The unproductive manner or may cause subsequent
project was financed by the European related work to be done out of sequence or on a
Commission by means of a grant awarded to the piecemeal basis instead of an uninterrupted sequence
Respondent. as planned. Labour productivity rates may suffer as a
result, causing the contractor’s costs to increase.
Although these so-called disruption costs may, in the
A dispute arose between the parties regarding
proper circumstances, be compensable elements of
delay and disruption on the project and, in this delay damages in that they are incurred as the result
connection, the Tribunal considered: of delay, they may be caused by factors unrelated to
delay.
(1) whether the Employer/Respondent was late in
However, in order to recover its additional costs, it is
giving possession of the Site, whether the 106 § 3.23.6 of the Award.
not enough for the contractor to show that work was
Contractor/Claimant caused the Employer/ completed later than planned and that the contractor 107 [2005] UKHL 43, [2006]
Respondent to be late, and whether the experienced coincident cost increases. To
1 A.C. 221, [2005] B.L.R.
351.
Contractor/Claimant is entitled to compensation demonstrate its entitlement to compensation for
108 § 136 of the Award.
under Sub-Clause 42.2 (Issue 1 below); delay damages, the contractor must demonstrate
109 § 139 of the Award.
that under the governing contractual provisions the
110 § 149 of the Award.
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delay is excusable—that is, the delay was of a type for Issue 2: Was the Contractor/Claimant entitled to
which the contractor is not contractually liable – and compensation for the increase of its costs under
that delay is also compensable—that is, the delay was Sub-Clause 65.5 due to delays which were the
of a type which entitles the contractor to
consequence or result of a crisis in a
compensation and not just an extension of time to
nearby region?
perform the work. Having established its entitlement
to damages, the contractor must then demonstrate
the quantum of its resulting damages. The Contractor/Claimant argued that a crisis (in
fact a civil war) in a neighbouring territory and the
Stated simply, excusable delays are those delays from
Employer/Respondent’s invitation to a foreign
which the contractor is ‘excused’ from liability. As a
military authority to allow it to station a major part
general rule, a contractor is excused from liability for
delays that are the result of causes beyond the of its forces in the Employer/Respondent’s
contractor’s control and delays which are the result of country fell within the definition of the Employer’s
causes that were not foreseeable. risks and entitled the Contractor/Claimant to costs
associated with delay resulting from the presence
The contractor is entitled to compensation if it can
of such military authority’s troops in the specific
show that it did not concurrently cause the delay and
if it can quantify its damages with reasonable area of the project. The Contractor/Claimant
certainty. Once the contractor has established that argued that:
the individual delay for which an extension of time is
sought is excusable and, if compensation is sought, The [war] and [State E]’s formal invitation [for foreign
compensable as well, it is necessary to determine military forces to be stationed on its territory] clearly
whether or not the contractor was independently falls within the definition of Employer’s Risks provided
delaying the work. If the contractor would have been for by cl. 20.4 (a) and constitutes an unforeseen
delayed in any event by causes within its control, that subsequent special circumstance, which may not be
is, if there was a concurrent non-excusable delay, the contractually attributed to [Claimant]. Therefore,
general rule is that it would be inequitable to grant [Claimant] is entitled to costs associated with the
the contractor either an extension of time or delays in the progress of the Works caused by the
additional compensation, unless the contractor can presence of the [foreign military] troops in the axis of
segregate the portion of the delay which is excusable the Project.114
and/or compensable from that which is not.
The Employer/Respondent rejected the
The contractor bears the burden of proving the Contractor/Claimant’s claim arguing that the
extent of the delays for which it seeks compensation country of the Employer/Respondent (that is,
and, in addition, the burden of proving damages
State E) was not in a state of war nor was it a
incurred as a result of such delays.
party to any other risk listed in Sub-Clause 20.4.115
For purposes of determining whether the Project was However, the Tribunal held that the crisis in the
delayed and for purposes of apportioning delay, only neighbouring territory fell under both the risks
delays on the critical path of the Project figure in the identified in Sub-Clause 20.4(a) and (b) and,
analysis because, by definition, delays not on the
consequently, the Contractor/Claimant was
critical path will not delay the completion of the
entitled to recover its increased costs pursuant to
Project.111 [Emphasis in original]
Sub-Clause 65.5:
Comment:
Cl. 20.4 defines the Employer’s Risks. These are in the
The foregoing is an excellent summary of the FIDIC terminology, cl. 65.2 ‘Special Risks’ and include,
principles applicable to claims for delay. The inter alia, according to cl. 20.4 (a) war, hostilities,
Tribunal ultimately concluded that part of the invasion, act of foreign enemies, which the Arbitral
Tribunal understands is not solely related to the
delay in giving possession of the site was due to
country in which the Works are executed, and,
the Employer and awarded the Contractor part of according to cl. 20.4 (b) rebellion, revolution,
its claimed costs.112 The Tribunal adopted a similar insurrection or military or usurped power or civil war,
position regarding the Contractor’s concurrent insofar as these relate to the country in which the
delay claim to that of the tribunal in ICC works are to be executed.
Case 10847 (contrary to the position in the UK
The Arbitral Tribunal qualifies the crisis . . . as
Society of Construction Law’s Delay and belonging to both the categories of cl. 20.4 (a) and
Disruption Protocol) examined above,113 but in this (b) since it started as a civil war and turned into a
case the Contractor was able to demonstrate state of war, or at least hostilities resulting in the
111 §§ 150−156 of the Award. entitlement to some compensation. invasion of [foreign military] forces into [the
112 §§ 218−221 of the Award. neighbouring territory].
113 See Section II.C, Issue 2, Cl. 65.5 deals with increased costs arising from the
(b) (‘Delayed issuance of
powerhouse design Special Risks and allocates the liability for any
drawings’) above. increase in such cost of the Works to the Employer. In
114 § 288 of the Award. this regard, the wording of cl. 65.5 is extremely wide
115 §§ 289−291 of the Award.
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in that any increase in cost ‘consequent on or the out of its own funds for many months to follow. [The
result of or in any way whatsoever connected with Contractor/Claimant]’s cash flow was severely
the said special risks’ is allocated to the Employer. burdened, not only through the VAT payments
themselves but also through the imposed penalties
The Arbitral Tribunal concludes that [Claimant] is
and associated interest.
entitled to be compensated by the Employer for the
increase of its costs owing to the delays related to the .........
execution of the Works (other than repair of Works
The Arbitral Tribunal cannot accept the Employer’s
executed) which were a consequence or the result of
argument . . . that the dispute does not concern the
the [war].116
Respondent—the Ministry of Transport, [the
Employer’s representative]—but is the responsibility
Comment: of the Ministry of Finance. The Respondent in the
present arbitration and the contracting party is [State
The Tribunal correctly interpreted E] acting through its Ministry of Public Works and
Sub-Clause 65.5, when read in conjunction with Road Transport. The EEC, as a provider of the grant,
Sub-Clause 20.4. In the 1999 Red Book, did not finance the taxes, customs and import duties
Sub-Clause 65.5, when read with Sub-Clause 20.4 of the Project. Therefore [State E]—acting through its
of the Red Book, Fourth Edition, have been Ministry of Public Works and Road Transport—as a
beneficiary of such a grant, was obliged to finance
effectively replaced by Clause 19 (Force Majeure)
such taxes, customs and import duties of the Project.
and, specifically, by Sub-Clause 19.4
(Consequences of Force Majeure). However, the .........
wording of Clause 19 is not the same as that of . . . the Respondent has not contested the tax-exempt
Clause 65. nature of the Contract. The Employer was obliged to
hold [the Contractor/Claimant] ‘save and harmless’
Issue 3: Can the Contractor/Claimant claim for [sic] against any tax payment.120
financial losses arising from the non-
reimbursement of taxes that it was not under a Comment:
duty to pay?
In the case of international construction contracts,
The Contractor/Claimant claimed for financial it is not unusual for the ministry of a State for
losses arising from the non-reimbursement by the which construction work is being performed to
Employer/Respondent of taxes which the disclaim responsibility for the actions of other
Contractor/Claimant argued that it was not under ministries of the same State such as the ministry
a duty to pay117 because the contract was funded responsible for tax administration. However, a
by the European Community and stated that it State is ordinarily regarded as a single (sovereign)
was free of taxes.118 legal entity which acts through its ministries with
the consequence that one ministry (here the
The Employer/Respondent argued that the Ministry of Transport) cannot simply disclaim
Contractor/Claimant should have requested the responsibility for the actions of another ministry
tax reimbursements from the relevant Ministry in (here the Ministry of Finance). Moreover, here the
State E (the Ministry of Finances) and that this contract provision was clear that the Employer
was not the concern of the Employer/Respondent (the Ministry of Transport) was bound to save the
(the Ministry of Transport, General Roads Contractor harmless from local taxes and, thus,
Directorate).119 could not avoid that responsibility—indeed, that
contractual obligation which it had expressly
The Tribunal upheld the Contractor/Claimant’s assumed—by referring the Contractor to another
claim: ministry of the same State.

The Contract, on its second page, clearly states that

the total contract amount is ‘FREE OF TAXES’ and
‘TAXES EXEMPT’ . . . In addition, according to the Bill
of Quantities, Section 4, the Contractor shall benefit
from the tax and other facilities granted pursuant to
the General Conditions. Reference is made to Article
13 of the Financial Memorandum, attached to the Bill
of Quantities. The tax exemption became a part of
the Contract . . . 116 §§ 302−305 of the Award.
Despite the repeated queries and requests by [the 117 § 586 of the Award.
Contractor/Claimant] to that effect and assurances 118 §§ 566−567 of the Award.
by the Employer, VAT refunds were made late, 119 §§ 578−579 of the Award.
imposing a financial burden on [the Contractor/
120 §§ 590−591, 593 and 595
Claimant] which financed the corresponding amounts of the Award.
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III. FIDIC Conditions of Subcontract and that, under Sub-Clause 18.1, read in
conjunction with Swiss law, the termination was
for Works of Civil Engineering unjustified.121
Construction (Red Book
Sub-Clause 18.1 provides that the Contractor is
Subcontract) First Edition (1994)— entitled to terminate the Subcontractor’s
Final Award in Case 10951 (2005) employment for default in the following situations,
among others:
u Relevant FIDIC Clause: 18.1
If:

The General Contractor/Respondent, a European .........

construction company, entered into a main c) the Subcontractor without reasonable excuse has
contract with an Employer for the construction of failed to commence or proceed with the Subcontract
a university campus in a Middle-Eastern country Works in accordance with [the Subcontract],
(‘State B’). The Contractor/Respondent then
d) the Subcontractor refuses or neglects to remove
subcontracted certain work under the main
defective materials or remedy defective work after
contract to the Subcontractor/Claimant, a being instructed so to do by the Contractor under
construction company from State B. The this Sub-Clause,
governing substantive law under the subcontract
was Swiss law (the main contract was governed e) the Subcontractor, despite previous warning from
the Contractor in writing, is otherwise persistently or
by the law of State B) and the place of arbitration
flagrantly neglecting to comply with any of his
was Bern, Switzerland. obligations under the Subcontract,

After the termination by the General Contractor/ .........

Respondent of the subcontract because of the g) the Contractor is required by the Engineer to
Subcontractor/Claimant’s alleged default, the remove the Subcontractor from the Main Works after
Subcontractor/Claimant initiated an arbitration due notice in writing from the Engineer to the
claiming, among other things, that the termination Contractor in accordance with the Main Contract,
of the subcontract was unjustified. The General
then in any such event, and without prejudice to any
Contractor/Respondent counterclaimed for other rights or remedies, the Contractor may by
damages caused by the Subcontractor/Claimant. notice to the Subcontractor forthwith terminate the
Subcontractor’s employment under the Subcontract
During the proceedings, the Tribunal appointed its and thereupon the Contractor may take possession of
own expert to assist it with factual determinations. all materials, Subcontractor’s Equipment and other
The parties agreed that this expert could things whatsoever brought on to the Site by the
participate in the hearings and write a report, Subcontractor and may by himself . . . use them for
which was shared with both the Tribunal and the purpose of executing and completing the
Subcontract Works and remedying any defects
the parties.
therein and may, if he thinks fit, sell all or any of them
and apply the proceeds in or towards the satisfaction
In its award, the Tribunal considered numerous of monies otherwise due to him from
issues including the following: the Subcontractor.
(1) whether the termination of the Subcontractor/
Claimant for default was justified (Issue 1 below); The Tribunal held that Swiss law places the burden
and on the Contractor to prove that it was justified in
terminating the Subcontract for cause,122 and, on
(2) the costs of the arbitration and whether the basis of the Tribunal-appointed expert’s
in-house staff costs were recoverable conclusions, found that:
(Issue 2 below).
(1) the General Contractor/Respondent was
Issue 1: Was the termination of the responsible, to some extent, for delays in the
Subcontractor/Claimant for default justified? handover of the site to the Subcontractor/
Claimant;123
u Relevant FIDIC Clause: 18.1 (2) the General Contractor/Respondent was also
partially responsible for delays in the handover of
121 § 543 of the Award.
The Subcontractor/Claimant argued that the the drawings;124
122 §§ 457−459 of the Award.
General Contractor/Respondent had not
complied with Sub-Clause 18.1 of the Subcontract (3) the Subcontractor/Claimant was responsible
123 § 488 of the Award. for the lack of resources and equipment at the site
124 §§540-541 of the Award. and for slow progress of the works.125
125 § 542 of the Award.
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As regards the various bases for termination, the subcontract was justified under any ground in
Tribunal found that termination was unjustified Sub-Clause 18.1 and concluded with a compromise
under each of the following grounds in Sub- result as to damages applying Swiss substantive
Clause 18.1: law.

(1) Sub-Clause 18.1(c)—as each party was Issue 2: Costs of the arbitration and the
responsible for part of the delays which had recoverability of in-house staff costs
occurred.126
Following what the Tribunal referred to as the basic
(2) Sub-Clause 18.1(d)—as the existence of defects principles of Swiss law, the Tribunal applied the
is not enough to justify termination: there must be ‘costs follow the event’ rule (as interpreted by the
requests to remedy the defects and a showing Tribunal).133
that those requests went unheeded and this
showing was not demonstrated.127 As part of the costs incurred by the parties, the
Tribunal accepted, in principle, the costs of
(3) Sub-Clause 18.1(e)—as it had not been in-house staff for the Subcontractor/Claimant but
established that, despite previous warning from did not find them fully substantiated:
the Contractor in writing, the Subcontractor
‘persistently or flagrantly neglec[ts] to comply Although the ICC Rules [the 1998 Rules] do not
with [its] obligation under the Subcontract’.128 contain a definition of the ‘other costs incurred’ by
the Parties, it has become more and more accepted
over the years that ‘other costs’ may also include the
(4) Sub-Clause 18.1(g)—the Engineer’s instruction
costs which a party incurred for in-house staff
to the Contractor that the Subcontractor’s
specifically appointed to prepare and support
employment is to be terminated must be proceedings before an arbitral tribunal. In the case at
‘coercive’ in order for Sub-Clause 18.1(g) to be hand, however, the evidence on record does not
invoked and, in this case, the Engineer’s enable the Arbitral Tribunal to accept the full amount
instructions constituted merely reproaches and of salaries claimed. The Arbitral Tribunal is neither in a
could not justify a Sub-Clause 18.1(g) position to find out how much time the above-
termination.129 mentioned persons effectively dedicated to the
preparation and support of the proceedings, nor to
review whether the salaries claimed correspond to
Having so concluded, the Tribunal held that
their employment agreements. On the other hand,
Article 377 of the Swiss Code of Obligations
the Arbitral Tribunal is aware that those persons in
applied and that the General Contractor/ fact played a considerable role on [the
Respondent should be deemed to have exercised Subcontractor/Claimant]’s side. All in all, the Arbitral
its right thereunder to terminate the Subcontract Tribunal finds it appropriate to cut the total amount . .
for convenience.130 Under that article, the General . down to 50% . . .134
Contractor/Respondent was obliged to indemnify
The Tribunal found the Subcontractor/Claimant’s
the Subcontractor/Claimant not only for all the
costs (after reducing its in-house staff costs by
usable work completed to date of termination but
50%, as stated above) to be reasonable in view of
also for the lost profits.131
the total amount in dispute:
However, the Tribunal found that the terminating In view of the total amount in dispute . . ., the
party should not be liable for the total damage complexity of the case and the time spent, the
without taking into consideration the other party’s Arbitral Tribunal finds that the aforementioned
liabilities and then apportioned the responsibility amount . . . represents reasonable legal and other
for damages between the parties based on the costs incurred by [the Subcontractor/Claimant] in
findings of the expert.132 terms of Article 31 al. 1 ICC Rules.135

Comment: Comment:
126 § 545 of the Award.

This is an example of a case where an arbitral It is instructive that the Tribunal found, where a 127 §§ 554-557 of the Award.

tribunal places reliance on a tribunal-appointed Claimant’s adjusted costs represent approximately 128 §§ 575−578 of the Award.
expert to decide the responsibility for delay four per cent of the amount in dispute, that this 129 §§ 583−585 of the Award.
between the parties—in effect a legal question— was reasonable. This seems to be a 130 § 594 of the Award.
which, at least in the common law tradition, would fair conclusion. 131 § 595 of the Award.
be exclusively for judges or arbitrators to decide. 132 §§ 597 and 600 of
As the expert here found that both parties were But, in order to recover its full in-house staff costs, the Award.

substantially responsible for delays, the Tribunal the Subcontractor/Claimant should have provided 133 § 1293 of the Award

was unable to find that the termination of the the appropriate evidence, which in this instance 134 § 1304 of the Award.
135 § 1306 of the Award.
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the Tribunal found to be: (i) evidence of the time Issue 1: Was the Contractor/Respondent
effectively spent by in-house staff on the responsible (as the Claimants maintained) for
preparation and support of the arbitration; and delivering site-appropriate WTGs?
(ii) evidence, such as employment agreements, of
the salaries claimed. Thus, this case provides The Contractor/Respondent argued that, based
support for the proposition that, in order to permit on its past dealings with the Principal (where its
the full recovery of the costs of in-house staff responsibility had been limited to the supply of
working on an arbitration, such staff should (like equipment components only), it was only
lawyers in outside law firms) keep time sheets and responsible for supplying ‘standard’ turbines and
record their time on a daily basis. These should that it was not responsible for investigating wind
then be submitted, if necessary, to support any conditions at the site:
claim for the recovery of in-house staff costs.
[The Contractor/Respondent]’s case, to put it simply,
is that, in accordance with the modus operandi
established from past dealings [with the Principal], its
IV. Non-FIDIC EPC Construction responsibility was to supply its ‘standard’ turbines. It
Contract—Final Award in was not [the Contractor/Respondent]’s responsibility
to study the site conditions. The site was chosen
Case 12090 (2004) entirely by [the founder of the First Claimant
(Principal) and a company of which he was a partner],
who must be taken as having satisfied themselves
The Purchaser/Second Claimant, a company,
that the WTGs to be supplied by [the Contractor/
entered into an engineering, procurement and
Respondent] would be suitable for the site.137
commissioning (‘EPC’) contract with the
Contractor/Respondent, another company, for However, the Tribunal found that, according to the
‘the supply, installation and commissioning’ by the EPC contract, the Contractor/Respondent was
Contractor/Respondent of eighty wind turbine responsible for supplying site-appropriate
generators (‘WTGs’) for a wind farm project. The turbines as the contract referred specifically to
governing substantive law was the law of the particular conditions at the site, including wind
country ‘D’, which applies English common law data in several places.138
principles, and the place of arbitration was
Singapore. The First Claimant, a company, relied In light of these provisions, the Tribunal
on an assignment agreement it entered into with found that:
the Purchaser ‘for its rights to claim as well as its
status as a claimant’.136 A Principal, the founder of [the Contractor/Respondent] cannot say, in effect,
the First Claimant, was the driving force behind all that its responsibility was to supply its ‘standard’
WTGs, and that the selection of the site suitable for
the entities involved in dealing with the
the WTGs was the responsibility of [the founder of
Contractor/Respondent which led to the
the First Claimant (Principal) and a company of which
EPC contract. he was a partner] or anyone else. The true position
according to the contract is the other way round. It
Within five years following installation, most of the was for [the Contractor/Respondent] to design and
WTGs ceased functioning due to high wind supply the WTGs that would suit the site, and it was
turbulence and a high rate of grid failures at the also for [the Contractor/Respondent] to ensure that it
site (although designed for a life of 20 years). had all the relevant data about the site, and to make
Consequently, the Claimants commenced an appropriate use of the data, in order to ensure that
the WTGs supplied would fulfill the requirements of
arbitration against the Contractor/Respondent.
the contract. This applies to the wind conditions, the
characteristics of the terrain, the electrical grid
In its final award the Tribunal considered: characteristics (including the outage frequencies),
and everything else about the site that any WTG
(1) whether the Contractor/Respondent was designer would need to take into account.
responsible (as the Claimants maintained) for
[The Contractor/Respondent] clearly failed to fulfill
delivering site-appropriate WTGs (Issue 1 below);
the obligations which it undertook by the contract to
supply WTGs of the kind specified in the contract. To
(2) the calculation of future damages (Issue 2 say that its obligation was to supply its ‘standard’
below); and turbines, is to admit a breach of contract of a gross
order.139
(3) the capping of damages (Issue 3 below).
136 § 9 of the Award.
137 § 75 of the Award.
138 §§ 76−80 of the Award.
139 §§ 82−83 of the Award.
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Comment: the works, provided that under no circumstances

shall such reduction exceed 18.5% of the Contract
The Contractor/Respondent sought to avoid Price.
liability for the failure of its WTGs by referring b. Where the defect is so substantial as to
(1) not only to its past dealings with the same significantly deprive the Purchaser of the benefit of
principal (the Principal) where its responsibility the Contract, the Purchaser may terminate the
had been limited to the supply of equipment contract by notice to the contractor in writing. The
components specified by the Principal and where Purchaser is then entitled to compensation for the
loss he has suffered up to a maximum of 18.5% of the
the sites had been chosen by the Principal, but
contract price.143
also (2) to an expert report to the effect that the
high wind turbulence and high rate of grid failures Notwithstanding the seriousness of the defect
(incompatible with the WTGs) at the site chosen (only 35 of the 80 WTGs were functioning after
by the Principal were so extraordinary that the five years of operation),144 the Tribunal found, on
Contractor/Respondent could not have been the basis of English common law, that the cap was
expected to have provided for them. However, the nevertheless applicable to damages resulting
Sole Arbitrator decided that the allocation of from the Contractor/Respondent’s breach:
responsibility provided for by the EPC contract
(as the Sole Arbitrator interpreted it) prevailed Counsel for Claimants submits that the breaches are
over these considerations. so serious that they constitute a fundamental breach
of the contract, and that for that reason 49(b) is not
applicable. Counsel for [the Contractor/Respondent],
As the EPC contract was expressly ‘for the supply,
on the other hand, submits that there is no rule of law
installation and commissioning’ 140 (emphasis
that an exception or exclusion clause is nullified by a
added) of WTGs, it could also be argued that the so-called fundamental breach of contract. In support,
Contractor/Respondent impliedly accepted he refers to the English cases of Suisse Atlantique
responsibility for site conditions although the Sole Societe D’Armement Maritime S.A. vs N.V.
Arbitrator does not seem to mention this. Rotterdamsche Kolen Centrale [1996] 2 All E R 61, and
Photo Production Ltd vs Securicor Transport Ltd
Issue 2: Calculation of future damages [1980] A C 82.

We accept the submission of counsel for [the

The Claimants presented their claim for future loss Contractor/Respondent]. The position in English
on the basis of prospective loss of revenue, i.e. common law, which has been accepted by the courts
how much revenue would have been generated if in [State D], is that there is no such rule of law, and
the WTGs were to produce the total amount that the question in all cases is whether an exclusion
projected in the contract over their 20-year or limitation clause, on its true construction, extends
to cover the obligation or liability which is sought to
design life. The Claimants claimed future loss for a
be excluded or restricted. . . . We accept that Clause
16-year period (the remaining design life for the
49(b) applies, in that the defects are so substantial as
WTGs envisaged by the contract).141 The Tribunal to deprive the purchaser of the benefit of the
attempted to come to a fair conclusion (based on contract, and the purchaser’s remedy is as provided
no precise calculation) by making an award for in the clause. In particular, the purchaser is entitled to
future loss equal to an amount twice as large as claim compensation for the loss it has suffered, but
past loss. Thus, as the past loss of revenue had only up to a maximum of 18.5% of the contract
been calculated over a 52 month period (four price.145
years and four months), the Tribunal made an
award for future loss that was equivalent to Comment: 140 § 1 of the Award.

104 months (52 months x 2) of revenue calculated 141 § 142 of the Award.
on the same basis.142 The 1999 FIDIC Books also contain a limitation on 142 §§ 145−146 of the Award.
each party’s liability, namely Sub-Clause 17.6 143 § 112 of the Award.
Issue 3: Capping of damages which, however, provides for an express exception 144 § 47 of the Award.
in the case of ‘fraud, deliberate default or reckless 145 §§ 115−116 of the Award.
The contract contained a provision capping misconduct by the defaulting Party’. Possibly, this 146 M. Fontaine & F. De Ly,
damages in case of a defect which could not be exception (notably ‘reckless misconduct’) would Drafting International
Contracts: An Analysis of
remedied at 18.5% of the Contract Price have applied in this case. Indeed, according to one Contract Clauses,
(Clause 49.b). Clause 49 provides: authority, unlike the position under English law (Transnational, 2006) at
described in the above case, ‘most legal systems’ 362, last paragraph. The
Arbitral Tribunal’s
Where the defect has not been successfully would not enforce a clause limiting a party’s decision is consistent with
remedied, over and above the rights under liability in case of a breach resulting from fraud or English law, as illustrated
in a more recent case,
this agreement: gross negligence.146 Decoma UK v. Haden
Drysys International
a. The Purchaser is entitled to a reduction of the
([2006] CILL 2303 TCC
Contract Price in proportion to the reduced value of and [2005] 103 Con LR
54 TCC).