by Larry Lin
Increasingly, when a dispute arises between two contracting parties, they are strongly encouraged to settle the dispute in question through various types of resolution methods available. Such methods are collectively called alternative dispute resolution (ADR), and include negotiation, mediation or adjudication and should be used before the dispute is escalated into arbitration or litigation. …
by Fattah Aderinto
Estimators and project administrators often administer preliminaries as either function of project cost, project duration or adjudication parameters. Also, most contracts in the Middle East often include an item under preambles, indicating a fixed method of administering preliminaries. These approaches do not agree with the logic of preliminaries and in the long run, are to the disadvantage of both the client and the contractor. …
by Matthias Scherer
Contractors and suppliers operating abroad often conclude contracts with agents, consultants and other intermediaries who assist them in tender processes as well as in negotiating and performing contracts. Typically, these consultancy agreements provide that disputes are to be submitted to arbitration. Most disputes concern the consultants’ entitlement to a fee. In these disputes, the principal often argues that the contract was illegal under the applicable law. This notably occurred in two cases which led to two recent decisions of the Swiss Federal Supreme Court on applications to set aside or revise arbitral awards.
In the first case, a Swiss and a Taiwanese party had entered into a consultancy agreement in respect of a contract which the Swiss party wished to obtain for managing and maintaining an electricity plant in Taiwan. On the basis of the agreement, the Taiwanese consultant later initiated arbitration under the Swiss Rules of International Arbitration to obtain payment of his fees. The arbitral tribunal found in a partial award that the consultancy agreement was valid.
The Swiss principal applied to the Swiss Federal Supreme Court for revision of the partial award, the time limit for the setting aside of the award, which would have been the ordinary remedy in such a case, having already expired. The principal contended before the Supreme Court that the agreement had an illegal content as it contemplated bribery, and produced new evidence to support its claim. The Court denied the request, as the prerequisites under Swiss law for a review of the award were not met. Indeed, according to the Court, the evidence could have been produced in the arbitration and was therefore not new. The arbitration resumed and the arbitrators eventually rendered a final award in favour of the consultant.
The principal sought to have the final award set aside on the grounds that it breached public policy, relying on the same evidence on which it had previously sought to rely in its request for review of the partial award. The principal further argued that the Supreme Court must examine the alleged nullity of a contract on its own motion. The Court however dismissed the application. It found that the principal could and should have produced the evidence purportedly showing bribery during the arbitration. The Court also ruled that it would not review on its own motion the validity of private law contracts.
The principal again raised its public policy defence in the subsequent enforcement proceedings in Switzerland. The competent cantonal court however ruled that arguments which could have been raised in setting aside proceedings could no longer be raised at the enforcement stage.
In another dispute between a consultant and a principal, the Swiss Federal Supreme Court admitted the principal’s request to set aside an arbitral award due to procedural fraud. In the highly publicized Thales v Frontier AG matter, the award was annulled and the matter remanded to the arbitrators. The facts of the case are summarised below.
In 1989, France authorised the export of new F-3000 frigates to Taiwan. Mainland China objected to the export and a few months later, upon request of a French minister, France withdrew the export authorisation. In 1990, Thomson CSF (which later became Thales), the manufacturer of the frigates, entered into an agreement with Frontier, a Swiss company, to act as its agent. According to the agreement, Frontier was to receive remuneration amounting to 1% of the value of Thomson CSF’s contract with Taiwan for its assistance in relation to the sale of the warships. Behind Frontier was Alfred Sirven, a high ranking manager with the French oil company Elf Aquitaine. Subsequently, in 1991, the French government reversed its previous position and gave its final approval for the sale of the ships. The contract between Thomson and Taiwan was concluded on 31 August 1991 for a purchase price of approximately USD 2.5 billion.
Thomson however refused to pay Frontier, which initiated ICC arbitration as a result. In the arbitration, Thomson contended that the objective of the contract was in fact for Frontier to solicit the services of Edmond Kwan, a consultant of Elf Aquitaine in China, in order that he use his political connections to persuade the Chinese to cease their opposition to the sale of the warships to Taiwan. Thomson argued that the contract was void as its object was influence peddling. Messrs Sirven and Kwan, as well as other witnesses, were heard by the arbitral tribunal.
In 1996, the tribunal rendered its award, ordering Thomson to pay the contractual fee to Frontier. The tribunal found that Frontier had provided the services which were due under the contract by assisting Thomson, through Edmond Kwan, to appease Chinese opposition to the sale. The tribunal admitted that influence peddling was unlawful but found that it had not been proven that influence peddling had occurred. Thomson subsequently initiated criminal proceedings in France against Mr. Kwan and others for giving false testimony before the arbitral tribunal. On 1 October 2008, the French authorities ceased their investigation as a result of Mr. Sirven’s death and because there was insufficient evidence against the other actors. The French authorities however concluded that Sirven had indeed given false testimony during the arbitration.
On 17 December 2008, Thales (formerly Thomson) brought a request for review of the 1996 arbitral award before the Swiss Federal Supreme Court on the basis of the findings of the French authorities. The French investigation had shown that the real objective of the contract between Thomson and Frontier was not to lobby for the sale of the warships in China, but rather to persuade a French minister, who wanted to avoid retaliation measures by Mainland China, to reconsider his objections to the sale. Commissions had therefore been paid by Frontier to Mr. Sirven and a woman who had privileged relations with the minister. Mr. Sirven had represented to the arbitral tribunal that Mr. Kwan had been the only beneficiary of a commission, however it was uncovered that he had implicated Mr. Kwan merely for the purposes of the arbitration. The Swiss Supreme Court ruled that it had been established that Mr. Sirven had orchestrated an influence peddling scheme to the detriment of the French authorities. He had misled the arbitral tribunal and was therefore guilty of procedural fraud. In the opinion of the Supreme Court, Mr. Sirven’s untruthful testimony had had a direct influence on the tribunal’s award. Consequently, the Supreme Court annulled the award and remanded the matter to the original arbitral tribunal or a new tribunal to be constituted in accordance with the ICC Rules.
Conclusions
Several conclusions can be drawn from these two cases. The first is that arbitral tribunals and the Swiss Supreme Court will not uphold contracts that are flawed by illegality. However, it is for the party which alleges an illegality to prove it. Another conclusion to be drawn is that if evidence of illegality exists at the time of the arbitration, it must imperatively be produced in the arbitral proceedings. A party therefore cannot hold back evidence, even if it is self-incriminating, and rely on it in subsequent annulment or enforcement proceedings in the event of an unfavourable outcome of the arbitral proceedings. On the other hand, if a party misleads the arbitral tribunal, as could be uncovered in subsequent criminal proceedings, an arbitral award may not stand.
By Matthias Scherer and Sam Moss
Kluwer Construction Blog
One may curse, whine, pray or plead but there still seems to be no escape from the after effects of the financial downturn. But before this recession monster starts gulping down our hard-earned savings, let’s attack it using some time-tested strategies and tools. The following habits combined with your indomitable spirit will ensure that you are left with plenty of cash to meet your needs and more: …
Building projects are often completed late. This may be due to delay on the part of the contractor, suspension of works, non-payment or other delays caused by the employer, or circumstances outside the control of both parties. MARTIN PRESTON* takes a look at what remedies may be available in such situations. …
AMMAN – The vast majority of new buildings constructed in the Kingdom, excluding the capital, do not comply with the National Building Code (NBC), according to the Jordan Engineers Association (JEA).
Stressing that failure to follow regulations puts the safety of buildings at risk in the event of major earthquakes, Mahmoud Subhi, head of the JEA’s technical affairs and engineering supervision committee, told The Jordan Times in a recent interview that citizens are obligated to comply with the NBC. …
Majority of new buildings do not follow building code – JEARead More »
by Conrad Egbert
Last week, following extensive chats with developers, contractors and suppliers, it was clear that most of the industry is renegotiating contracts to better suit the current market conditions. Now, even though this may seem like the best option (and it probably is) to kick-start the construction industry, a couple of things that Besix’s Philippe Dessoy and Arabtec’s Tom Barry pointed out, painted a different picture. …
by Mark Raymont
In recent years, the Middle East has proved to be one of the most attractive construction and engineering markets in the world for international contractors. Notwithstanding the present global economic climate, parts of the Middle East continue to present significant opportunities and many global construction contractors are active in the region. Among the most prominent are construction contractors who are head-quartered in the Asia Pacific area, as is illustrated by some of the more high-profile projects in the Middle East, where construction contractor consortia have include many of the major Japanese and South Korean construction firms. …
The emergence of Asian construction contractors in the Middle EastRead More »
The Gulf’s construction clients are struggling to make up their minds. Governments may be busy issuing tenders for new projects, but few awards are following once bids come in. For contractors, this presents serious problems, as they do not know if or when they will get any new work.
In Abu Dhabi, for instance, the first tenders have been issued for the MGM development at Mina Zayed, and contractors have been told to submit bids in May for a new 60,000-seat stadium in the Capital City area. But at the same time, the tender for Tawam hospital has been cancelled and contractors and consultants have been waiting for months for awards on a sewage tunnel programme and a metro system. …
by Sarah Thomas
In this, the second of my New Year updates, I would like to discuss two interesting cases which have recently been decided by the UK courts. The first is the UK Court of Appeal upholding of a first instance judgment and the comments that the Court made on the recoverability of damages under English contract law.
The case is Supershield Limited v Siemens Building Technologies FE Ltd. As a reminder, the basic test under English law is that a party will recover losses flowing from the breach that (i) arise naturally, in the usual course of things, or (ii) are losses which the parties may reasonably be taken to have contemplated when entering into the contract (the “Hadley v. Baxendale” test, often known as the “remoteness” test). A previous recent development of this area resulted from the House of Lord’s decision in the Achilleas case which suggests that a defendant will not be liable for losses – even those which are not unusual and therefore potentially not too “remote” – which he cannot reasonably be regarded as having assumed responsibility for.
The facts of the Supershield case (whether Siemens could recover from its defaulting subcontractor the losses flowing from a series of failures in a water sprinkler system and in particular, the amount that Siemens had settled for a claim upstream with the main contractor) are not so important as what the Court said about the current interpretation of this remoteness rule. It held that Hadley v. Baxendale remains the standard rule and reflects “the expectation or intention reasonably to be imputed to the parties”. The Court went on to say that this can be interpreted so that “…if on the proper analysis of the Contract against its commercial background, the loss was within the scope of duty (i.e. what was within the contract breaker’s duty to prevent under the Contract) it cannot be regarded as too remote, even if it would not have occurred in ordinary circumstances”.
This means that under English law, a contract breaker can still be liable for damages even if those damages would have been considered unlikely by the parties when entering into the contract. Thus this judgment is important for its distinction between what “intention can be imputed between the parties” as to what damages should be covered and likelihood/foreseeability.
Another case, from a Scottish court, provides an interesting example of notice bars in a construction contract being strictly enforced in the UK. The case in question, Education 4 Ayrshire v South Ayrshire Council involved a contractor who had contracted to design and build six schools for the South Ayrshire Council under a PPP contract. During the works, asbestos that had not been revealed by a previous survey was discovered. This qualified as a “Works Compensation Event” under the contract, for which the Contractor might be entitled to an extension of time, payment of compensation and/or relief from its obligations but provided that the proper procedure was followed.
The Authority rejected the contractor’s claim for an extension of time and compensation on the basis that the contractor had failed to give the required notice in accordance with Clause 17 of the contract.
The judge agreed that the Contractor had not in fact complied with clause 17. He explained that once it is accepted that compliance with the notice clause is a condition precedent (and both parties agreed that it was), the question is simply, “what does the clause require?” In this case the clause required the Contractor to give notice of its claim. What the Contractor’s letter to the Authority about the delay actually said was “We will submit our full claim in accordance with clause 17.6 (…)”. This was held not to be valid notice under clause 17.6. A number of readers, particularly those from non-common law jurisdictions, will be surprised by this, as the Contractor had indeed flagged to the employer that a claim was being sought. But it just goes to show how strictly these notice provisions may be interpreted under English law and the need to follow ‘the letter of the contract’. You may recall that I answered a query on notices from a project manager recently (see Ask the Expert, February 2010) and warned of the need to check that the notice strictly complied with all formalities.
“But how is this equitable?” a number of you will cry. In the case, the judge said that the whole purpose of the clause is to give certainty – the Authority should not have to infer or assume from correspondence that a claim will be made. In this case, in accordance with the contractual notice provisions, the chief executive of the Authority was entitled to formal notification of a claim. The fact that those “on the ground” at the Authority may have been aware of the situation (the Authority was sent a copy of the survey report, attended a meeting to discuss its implications and had been provided with a copy of the Sub-Contractor’s claim against the Contractor in relation to the same event) was irrelevant.
Food for thought….
Please let me know if any of you have come across similar situations.
Leave a comment on New decade, new development of the remoteness rule
Kluwer Construction Blog
by Joel Heard
The tendering and procurement process in Canada has traditionally been treated by the courts as a special area of contract law in which fairness and protecting the integrity of the tender process have been guiding principles. Courts have implied terms into contract “A” bid contracts that have obliged owners to act fairly, and wide discretionary clauses have been interpreted narrowly to ensure the integrity of the tendering process. …
The Procurement Process in Canada after the Supreme Court of Canada Tercon Decision*Read More »
by Vincent Connor
Opening the mailbox at my Hong Kong apartment block brings the usual array of bills, more bills, flyers and…what appear to be ‘notices’ (usually from my landlord): but as we know from the world of construction law, often it is argued that what is intended to be a ‘notice’ fails to meet up to the strict requirements of the contract.
Yet, how many reported cases are there where the notice provision is strictly enforced? Most commentators struggle to point to a decision where a contractor was deprived of his ability to claim an extension of time solely on the basis of non-compliance with a notice provision. The point sometimes seems more of academic interest than practical application.
The good news for the academics is that this struggle may now be partially over. In the Scottish case of Education 4 Ayrshire Limited v South Ayrshire Council , a contractor tried to claim an extension of time due to the discovery of asbestos. This was a “neutral event”, outside the control of the parties, but one which entitled the contractor to bring a claim.
The court “was minded to dismiss” a claim by a contractor who got into a bit of a contractual and semantic muddle with its notices. (Instead of being actually dismissed, the case was “put out By Order”, a Scottish procedure whereby the case is “returned” to the parties for further consideration in light of the court’s decision.)
The contractual muddle arose in that the contractor gave notice under clause 17.1 of the relevant contract, when it should perhaps have given notice under clause 17.6.1 as well. In terms of semantics, the contractor said “we will submit our full claim in accordance with clause 17.6 of the project agreement”, instead of saying something along the lines of “we hereby give notice of our claim”.
It was accepted by both parties that compliance with the notice requirements was a condition precedent to the right to bring a claim.
The bad news for contractors is that the Judge held that this condition precedent had not been complied with, despite the clear intention of the contractor’s letter.
Most pieces on notices conclude with the usual sage advice about getting notices right. This piece is no exception. In Education 4 Ayrshire the parties accepted that the employer was fully aware of the position regarding the asbestos. He was sent a survey report and attended a meeting to discuss its implications. The employer was also aware that the sub-contractor had claimed an extension of time against the contractor as a result of the same event. Yet the Judge still held the contractor to a very exacting standard regarding the provision of notices.
This was despite the fact that the basic commercial intention of the notice provisions had been satisfied. The employer suffered no prejudice as result of any muddle which the contractor may have got into, semantic or otherwise. However, that did not change the outcome of the case. Just when we were getting our heads round the application of the UK (Technology & Construction Court’s) 2007 decision in Steria Limited v Sigma Wireless Communications Limited, it seems that we are back in the danger zone if there is not strict compliance with contract terms regarding notices’ provisions.
So, just how bad is the news for contractors? As mentioned above, this case concerned a “neutral event”. Had a court reached the same decision following a delay caused by an employer breach or act of prevention, the news for contractors would be worse. It would certainly be very bad news for contractors if decisions like this were handed down by those courts or tribunals in Hong Kong who deal regularly with construction matters. But surely, that would never happen. Or would it…?
With that thought, just as I’m discarding the detritus from my mailbox into the trashcan, I stop: maybe that carelessly-drafted note from my landlord does deserve greater scrutiny, after all…Or maybe on the strength of Education 4 Ayrshire I am safe to ‘bin’ it, with impunity?!
Kluwer Construction Blog
