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Construction & Engineering London Legal Update
Issue 63May 2012
Page
1. In this issue.
2. International arbitration:
• India - Supreme Court faces big decision on future of arbitration;
• What’s new in the 2012 ICC rules?
• International arbitration in Sub-Saharan Africa – the Quick Reference Guide.
8. Middle East: Libya: now for the three commercial ghosts.
10. Afghanistan – a matter of construction.
12. Hurdling your way into Vietnam.
14. Oral “construction contracts” – what about your writes?
16. Extras.
20. Keeping the project up to speed – or not?
22. What’s been happening @ Mayer Brown?
23. Procurement: new Government recipes for a lean future.
25. The clock only goes one way.
26. Case notes.
mayer brown 1
In this issue
Welcome to issue 63.
If you haven’t yet booked your holidays, we can offer a wide choice of destinations.
How about Afghanistan? Jon Olson-Welsh and Tamsin Travers check out the legal
regime that will govern commercial activity. Or perhaps India, where the Supreme
Court has to decide if arbitration has a serious future in the country. Vietnam?
Kevin Hawkins and Matthew Williams in the Mayer Brown JSM Ho Chi Minh City
officelookatdoingbusinessinVietnam.OrLibya?RaidAbu-MannehandWisam
Sirhan consider the commercial reality - past, present and future. And our Africa
team have produced a rather handy Quick Reference Guide to international
arbitration in Sub-Saharan Africa.
VennaChengfromtheMayerBrownJSMHongKongofficehasproducedahelpful
guide to the changes to the ICC Arbitration Rules and, with one eye on the new age of
oral Construction Act contracts, we look at two cases on the unexciting, but
potentially crucial, virtue of putting contracts in writing – and accurately. We
preview some new Government procurement recipes, we discover whether
contractors have to proceed “regularly and diligently” and discuss the importance of
time limits. And then there are some case notes, contract updates and other news to
complete the mix.
We hope you enjoy the contents.
2 Construction & Engineering London Legal Update
International Arbitration
ARBITRATION IN INDIA
Supreme Court faces big decision on future of arbitrationArbitration is the popular way forward for international disputes. No getting caught
in queues in local courts that may lack the necessary expertise, no judicial
interference and the reassurance (in the majority of countries) of enforceability under
the New York Convention. Look at the enthusiasm for arbitration centres – Dubai,
Ghana, Nigeria, enthusiasm that you might expect to see in the BRIC countries, the
stars of the future, if not today. But all is not well with arbitration in India (see issue
61). The Indian Supreme Court has a big decision to make in the coming months (or
even years) which could have a seriously big impact on the future of international
arbitration in India. And India, as they say, has history on this topic.
The story so far...In 1994, in Renusagar Power Co. v General Electric Ltd under the old, 1940, law,
before the arrival of the 1996 Arbitration & Conciliation Act, the Supreme Court
ruled that a foreign award would, as a matter of public policy, not be enforced if it was
contrary to the fundamental policy of Indian law, the interests of India, or justice or
morality.AndthatconfirmedtheyearsofcaselawfromIndiancourtsthatwerenot
shytorefusetoenforcearbitrationawardsthathadachievedfinality,eventhough
India had signed up to the New York Convention in 1960.
Fast forward eight years and soon after the 1996 Arbitration & Conciliation Act came
into force, in Narayan Prasad Lohia v Nikunj Kumar Lohia, the Supreme Court
said that, if an award had been made in accordance with the agreement of the parties,
it could not be set aside by the court. Arbitration awards in India were back on track.
But not for long. Barely a year later the Supreme Court set off in the opposite
direction in ONGC v Saw Pipes, giving a wide interpretation to the public policy
groundforsettingasideanawardunderthe1996Act.Anawardthatconflictedwith
Indian law would be contrary to public policy and therefore unenforceable. And its
decisions in Bhatia International v Bulk Trading SA and Venture Global Engineering v. Satyam Computer Services Ltd, opened the door to parties to
challenge “ foreign awards” (i.e., awards in arbitrations outside India) in Indian
courtsiftheywereinconflictwithIndianstatutoryprovisionsandsocontraryto
Indian public policy, unless the parties had, by their contract, excluded or limited
judicial intervention.
Arbitration & Conciliation (Amendment) BillTheIndianParliamentdidattempttorestorearbitration’sfinalityandcommercial
attractions. The Arbitration & Conciliation (Amendment) Bill offered a number of
solutions, including provisions to stay court proceedings where a matter had been
referred to arbitration, to end the automatic stay of enforcement of an arbitration
awardwhenachallengehadbeenfiledandtoprovideforfasttrackandtime-limited
arbitrations. But that was in 2003 and the Bill was eventually withdrawn from
Parliament with a view to reintroducing it with certain changes. The Ministry of Law
& Justice did subsequently initiate a consultation on amendments to the 1996 Act,
but that was in April 2010.
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And now, the Bharat Aluminium appealWhich brings us to Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc. In hearing an appeal by Bharat Aluminium, a two-judge Supreme
Court expressed its reservations about the decisions in Bhatia and Venture Global and referred the matter to a three-judge Supreme Court that included the Chief
Justice of India.
The three-judge Supreme Court agreed that Bhatia and Venture Global should be
reconsidered,forwhichafive-judgeSupremeCourtwasarranged.Anumberofother
appeals, raising similar issues, are to be heard by the same judges, with respondents
including Australian metal producer White Industries, Dutch bank Rabobank, Coal
India and Ferrostaal. The Court has also invited amici curiae briefs from leading
arbitral institutions operating in India, notably LCIA India and SIAC.
There may even be omens. Only a few weeks ago, the Indian Ministry of Law and
Justice declared the People’s Republic of China to be a state to which the New York
Convention applies, thereby enabling PRC awards to be enforced in India. And now
the Delhi High Court has refused to set aside an award in favour of a German
engineering company against the Steel Authority of India Ltd., despite the latter’s
claim that it was deprived of an opportunity to defend itself.
Whether or not the omens are propitious, the Supreme Court has a massive
opportunitytoinfluencethefutureofarbitrationanditsenforcement,inIndia,for
better or worse. Will it follow the lead of Dubai, Ghana and Nigeria – or not? The
business community will be watching.
Raid Abu-Manneh Chetna L Gulati-Kapoor
RAbu-Manneh@mayerbrown.com CGulati-Kapoor@mayerbrown.com
Construction&EngineeringGroup IndiaQualifiedAdvocate
4 Construction & Engineering London Legal Update
WHAT’S NEW IN THE 2012 ICC RULES?
The new Rules of Arbitration of the International Chamber of Commerce (ICC) took
effect on 1 January 2012. They replace the previous Rules which have been in use
since 1998.
Unless otherwise agreed by the parties, the 2012 Rules apply to all ICC arbitrations
commenced on or after 1 January 2012. These are the key changes in the 2012 Rules:
Role of ICC Court • The ICC Court becomes the only body authorised to administer ICC
arbitrations. By agreeing to arbitrate in accordance with the 2012
Rules, the parties accept that the ICC Court will administer the
arbitration - Articles 1(2) and 6(2)
• The implication is that an arbitration clause which provides for
administration of arbitration under ICC Rules by an institution other
than the ICC (such as the clause in Insigma Technology Co Ltd v
Alstom Technology Ltd [2009] SGCA 24) will no longer be valid
New provision
on emergency
arbitrator
• Oneofthemostsignificantchangesisthenewprovisiononthe
appointment of an emergency arbitrator before a tribunal is
constituted. Their role is to deal with applications for urgent interim
or conservatory measures - Article 29
• An application for an emergency arbitrator must be made before the
filehasbeensenttothearbitraltribunal,andcanbemadebeforethe
filingoftheRequest-Article29(1)
• The emergency arbitrator will normally be appointed within two days
of receipt by the ICC of the application and the arbitrator must make
anOrderwithin15daysfromreceiptofthefile-Articles2and4of
Appendix V
The emergency arbitrator provisions will not apply if:
1. the arbitration agreement was concluded before 1 January 2012;
2. the parties have agreed to opt out of them; or
3. the parties have agreed to another pre-arbitral procedure that provides
for conservatory, interim or similar measures - Article 29(6)
The arbitral tribunal is not bound by (and may modify, terminate or annul)
any order made by the emergency arbitrator - Article 29(3)
The pre-arbitral referee procedure is not affected by the introduction of the
emergency arbitrator provisions
New provision
on joinder of
additional parties
• A party may make an application to the Secretariat to join an
additional party to the arbitration. Unless otherwise agreed by all
parties, a joinder application must be submitted before the tribunal is
constituted - Article 7
New provision on
multiple parties
• Where there are multiple parties to an arbitration, claims may be
made by any party against any other party - Article 8
New provision on
multiple contracts
• Claims arising out of, or in connection with, more than one contract
may be made in a single arbitration - Article 9
Communication
by the Secretariat
and the tribunal
• Toreflectdevelopmentsintechnology,referencestotelegrams,telex
and facsimile transmission are replaced by email and “any other
means of telecommunication that provides a record of sending” -
Article 3(2)
mayer brown 5
Request for
Arbitration
• ARequestcanbesenttotheSecretariatatanyoftheofficesspecified
in the Internal Rules - Article 4(1)
• TheRequestmustcontaintheadditionalinformationspecifiedin
Article4(3),e.g.theamountofanyquantifiedclaim,anestimateofthe
monetary value of any other claims and the claimant’s observations
and proposals on the number and choice of arbitrators, place of
arbitration etc.
Filing fee • Advance payment of administrative expenses is replaced by the
paymentofafilingfee-Article4(4)
Answer to the
Request and
Counterclaim
• ACounterclaimmustcontaintheadditionalinformationspecifiedin
Article5(5),e.g.theamountsofanyquantifiedcounterclaimsandan
estimate of the monetary value of any other counterclaims etc.
• The respondent may submit other documents with its Answer or
Counterclaim - Articles 5(1) and 5(5)
Challenges to
the existence,
validity and scope
of arbitration
agreements
• Unless the Secretariat refers the matter to the ICC Court, the tribunal
will make decisions on jurisdictional issues - Articles 6(3) and 6(4)
Consolidation of
arbitrations
• The ICC Court’s power to consolidate two or more arbitrations at any
stage of the proceedings is broadened to include situations where:
1. the parties have agreed to the consolidation;
2. all the claims are made under the same arbitration agreement; or
3. if the claims are made under more than one arbitration agreement,
the arbitrations are between the same parties, the disputes arise in
connectionwiththesamelegalrelationshipandtheICCCourtfinds
the arbitration agreements to be “compatible” - Article 10
Impartiality
and disclosure
obligations of
arbitrators
• Arbitrators must be impartial and independent (rather than just being
independent) and must sign a statement of acceptance, availability,
impartiality and independence - Article 11(1)
• A party may challenge the appointment of an arbitrator on the ground
of a lack of impartiality - Article 14(1)
• In addition to the disclosure obligations set out in the 1998 Rules, an
arbitrator must also disclose any circumstances that could give rise to
reasonable doubts as to their impartiality - Article 11(2)
Appointment of
arbitrators where
one party is a state
or state entity
• Where one or more of the parties is a state or claims to be a state
entity, the ICC Court may appoint an arbitrator directly rather than
following a proposal by an ICC National Committee or Group - Article
13(4)
6 Construction & Engineering London Legal Update
New provision on
proof of authority
• The arbitral tribunal or the Secretariat may require proof of the
authority of any party representatives - Article 17
New provisions to
ensure efficiency
and cost-effective
case management
• Both the tribunal and the parties are required to make every effort to
conduct the arbitration in an expeditious and cost-effective manner -
Article 22(1)
• Toensureefficiencyandcost-effectiveness,thetribunal:
1. may, after consulting the parties, adopt such procedural measures as
it considers appropriate - Article 22(2)
2. must convene a case management conference with the parties when
drawing up the Terms of Reference or as soon as possible after
doing so - Article 24(1)
3. may conduct further case management conferences or consultation
with the parties - Article 24(3)
4. is required to inform not only the Secretariat but also the parties of
the date by which it expects to submit its draft award to the ICC
Court for approval - Article 27
Power to make
confidential
orders
• The tribunal may, if requested by a party, make orders concerning the
confidentialityoftheproceedingsandtakemeasuresforprotecting
tradesecretsandconfidentiality-Article22(3)
Costs sanction • The tribunal is entitled to take into account the parties’ conduct when
dealing with costs, including the extent to which the parties have
conducted the arbitration expeditiously and cost-effectively - Article
37(5)
Effects of the 2012 Rules on Dispute Resolution in Hong Kong and AsiaInadditiontothenewprovisionsdescribedabove,whichenhancetheefficiencyand
cost effectiveness of conducting arbitration proceedings pursuant to the ICC Rules, a
requestforanICCarbitrationcannowbesubmittedtotheSecretariat’sofficein
Hong Kong, pursuant to Article 4(1). It is therefore no longer necessary for parties
basedinAsia(orelsewhere)tofilearequestforarbitrationattheICCinParis.This
could no doubt encourage Asian based parties to consider prescribing the ICC Rules
in their arbitration agreements, which will avoid the administrative and logistical
disadvantages which existed before the new Rules came into effect. The new Rules
will therefore provide contract draftsmen with further options in addition to the
Arbitration Rules produced by regional arbitration institutions such as the Hong
Kong International Arbitration Centre and the Singapore International Arbitration
Centre.
Venna Cheng
Construction & Engineering Group
Mayer Brown JSM, Hong Kong.
mayer brown 7
International Arbitration
INTERNATIONAL ARBITRATION IN SUB-SAHARAN AFRICA – THE QUICK REFERENCE GUIDE
Our Africa practice group has produced a quick reference guide to key facts on
international arbitration in Sub-Saharan Africa. It is designed as a good place to
start when considering arbitration issues - such as the seat of the arbitration,
enforcement options/risks and any protection afforded by bilateral investment
treaties.
Which countries does it cover?Angola Benin Botswana
Burkina Faso Burundi Cameroon
Cape Verde Central African Republic Chad
The Comoros Democratic Republic of the Congo Republic of the Congo
Côte d’Ivoire Djibouti Equatorial Guinea
Eritrea Ethiopia Gabon
The Gambia Ghana Guinea
Guinea-Bissau Kenya Lesotho
Liberia Madagascar Malawi
Mali Mauritania Mauritius
Mozambique Namibia Niger
Nigeria Rwanda Sao Tome and Principe
Senegal The Seychelles Sierra Leone
Somalia South Africa South Sudan
Sudan Swaziland United Republic of Tanzania
Togo Uganda Zambia
Zimbabwe
What information does it provide?• New York Convention: Has a country acceded to the New York Convention? If
so, on what basis and when?
• ICSID Convention: Has a country acceded - and when?
• Inter African conventions: Is a country signatory to any of the relevant
conventions?
• Local arbitration law: What is the arbitration law of each country? When was it
enacted?
• Local arbitral institutions: Does a country have a local arbitration institution?
• Bilateral investment treaties: What bilateral investment treaties has each
country entered into?
• ICSID Cases: the number of pending and concluded cases.
If you would like a copy please contact:
Kwadwo Sarkodie
KSarkodie@mayerbrown.com
+44 20 3130 3335
Construction & Engineering Group
8 Construction & Engineering London Legal Update
Middle East
LIBYA : NOW FOR THE THREE COMMERCIAL GHOSTS
Rather like Dickens’ Mr Scrooge, Libya under new management has, commercially,
to confront three ghosts – Contracts Past, Present and Yet to Come. Tough decisions
have to be made about them and those with business interests in Libya need to think
hard about what the answers might be. So, legally, does the way things were provide
a likely practical solution for the new Libya and its contracts or might the new
commercial landscape be something completely different?
Contracts Past (a case of force majeure?)TherecentupheavalinLibyawillhavehadasignificantimpactontheperformance
ofcontractsenteredintoundertheoldGaddafiregime.Thecontractsthattreatcivil
war or insurrection as an event of force majeure will have contractual machinery to
dealwiththeconsequences,butthosecontractsthatdon’tmayfindsomehelpinthe
Libyan Civil Code.
Article 360 (Impossibility of Performance) of the Code says that:
“An obligation is extinguished if the debtor establishes that its performance has
become impossible by reason of causes beyond his control”.
If impossibility can be shown then, as a matter of law, the obligation to perform the
contract is terminated but it is not necessarily an easy test to satisfy. It is
impossibility that must be shown. This may also be the case if the force majeure
clause in the contract is ambiguous.
Contracts Present (Libyan law now is...?)Like many Arab laws, including that of the UAE, the Libyan Civil Code of 1953 is
based almost entirely on the Egyptian Civil Code. In fact Sanhouri, who was
responsible for drafting the Egyptian Civil Code, combining some of the Shari’a with
the then modern Western codes (primarily the French Civil Code), chaired the
Committee which wrote the Libyan Civil Code. Despite the similarities between
UAE and Libyan law, however, those negotiating contracts to which Libyan law is to
apply should not assume that current Libyan law will be identical and they will need
toobtainspecificadviceonitsapplication.Where,forexample,thecontractiswith
the Libyan Government, administrative and public procurement laws may apply to
the project and these need to be carefully considered.
If there are problems on a project the Libyan courts, from experience generally, have
agoodreputationbutcanbeexpectedtohaveasignificantbacklogofcases.Inany
event they are unlikely to be able to cope with a large and complex project dispute.
ThisgapisnormallyfilledbyarbitrationbutLibyadoesnotyethaveaseparate
arbitrationlawandallawardscurrentlyhavetoberatifiedbythecourtsbeforethey
can be enforced. In addition, because Libya is not a signatory to the New York
Convention on the Recognition and Enforcement of Foreign Awards, even if
arbitration awards are recognised by the Libyan courts, parties are often able to
appeal and so delay the process of enforcement.
mayer brown 9
Effective contract management may, of course, avoid disputes but, as a deterrent to
disputes, it is important to ensure that contracts therefore include reference to
arbitration in an established venue such as London or Paris. This is particularly
effective where the employer has assets outside Libya against which the contractor
could execute an award.
Contracts Yet to Come (Reassertion of Shari’a?)This is the most uncertain of them all, and one ghost whose exact form remains
undefined.Whatisclearisthatthereisadesireforchangeand,reportedly,fora
reassertion of the Shari’a.
In October 2011, Libya’s National Transitional Council leader, Mustafa Abdul-Jalil,
told a rally in Benghazi that, as a Muslim country, the Shari’a will be the main source
of law in Libya, and any law that contradicts the Shari’a will be “null and void
legally”.
If this is indeed the future for Libyan law it raises a number of questions about the
shape of Libya’s future legal system. Will the new system be based, for instance, on
the Saudi system where Shari’a is the only source of law, or will its legal system be
more like its new ally Qatar, where Shari’a is the main source of law? Will Libya sign
up to the New York Convention?
It is, of course, too early for answers as these are unlikely to come until after this
year’s elections, but should the Ghost of Yet to Come turn out to be Shari’a, it is a
ghost to be understood commercially, rather than to be feared. Shari’a, with its
underpinning theme of good faith, can be a good friend to a contractor in a time of
need.
Raid Abu-Manneh Wisam Sirhan
RAbu-Manneh@mayerbrown.com WSirhan@mayerbrown.com
Construction & Engineering Group
ThisarticlefirstappearedinaslightlydifferentforminBuilding.
10 Construction & Engineering London Legal Update
Afghanistan – a matter of construction
Away from the front page headlines, Afghanistan is taking steps to move forwards
– commercially. Its considerable mineral wealth is to be mined to provide for its
economicdevelopment.Thismeanssignificantconstructionandinfrastructure
projects are needed - new roads, railways, power and water plants, schools, hospitals
and housing, and that adds up to opportunities for foreign contractors and suppliers.
But just what sort of legal regime might those contractors and suppliers face?
Constitution and Shari’aThe starting point is the Afghanistan Constitution of 2004. It says that the courts
must apply the provisions of any enacted law but, if there is none, they must decide
issues according to Shari’a (Islamic) law. Any laws or decrees that are contrary to the
Afghan Constitution are expressly invalid, and no law may contravene the principles
of Islam. An example could be a law prescribing the payment of interest, something
which is forbidden under Islamic principles.
ProcurementAfghanistan has a number of laws relevant to construction projects. The 2008
Procurement Law (as amended) regulates procurement of works, services and goods
by Government entities (but not procurement by private entities) and is intended to
provide a transparent basis for Government procurement. Those wishing to bid for
Government contracts can expect to have to follow these procedures, which set out
the tender process in some detail and provide review procedures in the event of a
breach by the Government.
ContractThe 1955 Law of Commerce and the 1977 Civil Law regulate general contractual and
commercial law matters. They deal with key contractual issues - who is entitled to
enter into a contract, what is required for a contract to come into existence and what
happens if contractual relations between the parties break down? The Civil Law goes
on to deal in more detail with the performance of works and the supply of goods and
services. It includes a statutory defects liability period for defective work and design
and a right for the employer to terminate the works at any time, subject to
compensatingthecontractorforexpenditure,wagesandtheprofitthatwould
ordinarily result from the works.
Licences and permitsTo do business in Afghanistan, contractors and suppliers need to register with the
Afghanistan Investment Support Agency and/or the Ministry of Commerce and
Industry. Although this is a relatively simple process, in practice further licences and
permitsarelikelytoberequired,dependingonthespecificactivity.Forexample,
construction companies may be required to obtain a construction licence from the
Ministry of Urban Development. The 2006 Private Investment Law also comes into
play on construction activities by foreign entities as it promotes and protects private
investments and businesses.
mayer brown 11
Environment, tax and briberyThe 2007 Environmental Law regulates environmental matters and the National
Environmental Protection Agency deals with the licences and permits required by
contractors and suppliers. The 2009 Income Tax Law and 2005 Customs Law are the
relevant tax and customs laws and the latest published Customs Tariffs list the
detailed rates payable on the import and export of goods into Afghanistan, including
machinery and equipment.
Bribery and money laundering are prohibited; the latter, on conviction, carrying a
twotofiveyearprisonsentenceand/orafine.
Dispute ResolutionFor disputes, there are three levels of courts - the Primary Courts, the Courts of
AppealandtheSupremeCourt.Anydisputesfiledbeforethecourtswouldfollow
this route, but perhaps more attractive for foreign contractors and suppliers is
arbitration, for which the 2007 Commercial Arbitration Law provides. Afghanistan
has also signed up to the New York Convention on the Recognition and Enforcement
of Foreign Arbitral Awards, which is good news for enforcement. The laws also
recognise that parties may try to resolve disputes through mediation.
In addition to the formal legal system, Afghanistan also has an “informal” legal
system which applies Shari’a law and custom, mainly to resolve local issues and
disputes through traditional institutions such as Shura (local councils) and Jirgas
(gatherings of elders).
Help with the homework?It is, of course, vital for contractors and suppliers wishing to do business in
Afghanistan to get up to speed with all the legal requirements and issues relevant to
the proposed project and the Afghanistan Investment Support Agency may be
helpful. Set up by the Government to facilitate foreign investment, it can be a useful
gateway to doing business in Afghanistan (http://www.aisa.org.af/).
Jonathan Olson-Welsh Tamsin Travers
JOlson-Welsh@mayerbrown.com TTravers@mayerbrown.com
Construction & Engineering Group
ThisarticlefirstappearedinaslightlydifferentforminBuilding.
Jonathan and Tamsin are part of the Mayer Brown team working on developing
Afghanistan’s mining sector for the Government of Afghanistan and the US
Department of Defense.
12 Construction & Engineering London Legal Update
Hurdling your way into Vietnam
Vietnam – a great place for an exotic holiday but what about doing business there?
What legal hurdles might international engineering and construction companies
have to jump to do business in the Socialist Republic of Vietnam?
Since 2006, life has become easier for companies carrying on business in Vietnam.
With the introduction of the Laws on Investments and Laws on Enterprises, and, a
year later, accession to the World Trade Organisation, the Government of Vietnam
has been attempting to increase foreign investment and make it easier for companies
to set up in Vietnam and carry on business. Unfortunately, the rules are not uniform
and differ according to the type of services a foreign entity wishes to provide.
Foreign Contractor’s Licence Foreign companies wishing to provide integrated engineering services in Vietnam (e.g.
advisory services, M&E, design or EPC works or turnkey projects), or to undertake general
building and civil engineering works, can do so without establishing a commercial or
corporate presence in Vietnam if a Foreign Contractor’s Licence (‘FCL’) is issued.
Themaindifficulty,however,isthattheforeigncompanymusthavewonatenderor
have been shortlisted in a tender process before an FCL can be awarded and a
prospective Employer may be reluctant to award a tender on this conditional basis. It
is possible, in certain circumstances, and should not deter companies from applying
toundertakeworkbutitisadifficultythatmustberecognised.
Additionally, to obtain an FCL, a foreign company must establish a partnership with
a Vietnamese contractor or employ a Vietnamese sub-contractor in the works.
Applications for an FCL are processed by the Ministry or Department of
Construction within 15 days of the application being submitted.
Establishing a corporate presence Cross-border supply is not the only option for companies looking to provide
construction and engineering services. While the rules of accession to the World
TradeOrganisationdonotpermitcompaniestoopenabranchofficetoundertake
integrated engineering services, a more long-term business solution for companies is
to establish a corporate presence within Vietnam, either in the form of a Wholly
Foreign Owned Enterprise (‘WFOE’) or through a joint venture (‘JV’). There are pros
and cons to both approaches but where local know-how and knowledge are
considered useful then setting up a JV may be the way forward.
Investment CertificateWhatever form of corporate presence a foreign entity wishes to establish, the lead
time is between three and four months. Setting up a holding company or shell
company is simply not possible in Vietnam. From the outset, the company must have
a ‘project’ such as the ‘provision of engineering services for domestic and foreign
enterprises within Vietnam’ and the foreign entity must apply to the relevant licence
issuingbodyforanInvestmentCertificate(‘IC’).
Acompanyisrequiredtohaveanofficeandemployees,andcapitalmustbeinjected,
within 36 months from the date of the IC. Once issued, the IC is both the business
registrationcertificateandapprovaltoundertaketherelevantinvestmentprojectand
thebusinesscanundertakeworkforforeignanddomesticfirmsalike.
mayer brown 13
The branch office optionFor foreign companies wishing to undertake general building and civil engineering
works,abranchofficeisanoptionnotavailabletofirmsprovidingintegrated
engineering services. Establishing a branch is much less onerous, the documentation
is far more straightforward and the lead-in time can be as little as one month.
Vietnam standard form building contractOnce established, a company providing construction services needs to familiarise
itself with the standard form building contract used in Vietnam. This form is used by
organisations and individuals procuring construction services where 30% or more of
State capital is used to fund the Works. Use of this standard form is also encouraged
in other circumstances.
It will come as no surprise that the standard form is Employer friendly but it does not
leave the Contractor completely without rights of redress. The Contractor is given the
right to claim extensions of time and to seek additional compensation in terms
similar to those of standard form construction contracts in use in other jurisdictions.
While legal hurdles exist in establishing a business in Vietnam, they can be overcome
and, unlike many other jurisdictions, security is not a problem for businesses and
their employees. With the foreign investment now being poured into Vietnam,
making the initial effort to clear the legal hurdles presented can often bring great
rewards to those who try.
Kevin Hawkins
Matthew Williams
Construction & Engineering Group
Mayer Brown JSM, Ho Chi Minh City
ThisarticlefirstappearedinaslightlydifferentforminBuilding.
14 Construction & Engineering London Legal Update
Oral “construction contracts” – what about your writes?
We live in the new age of oral Construction Act contracts. No more worrying about
whether all the terms were in writing. But when, inevitably, arguments surface as to
whether there was an oral agreement, how will an adjudicator or court deal with
them?
A telephone call one Friday afternoon in September, MD to MD, and a court
appointment in October, conveniently provide a curtain raiser to the Construction
Act oral contract arguments that may be just round the corner. The MDs were, as
you might guess, trying to resolve their companies’ dispute, on the last day for
acceptance of an offer. But by the following Monday they were disagreeing as to
whether a deal had been done. There were no other witnesses to the call so how did
the court approach the issue?
The judge looked at the evidence objectively, applying the conventional analysis of
offer and acceptance. But what evidence? Where there is a disputed oral agreement,
especially one not made face to face but in a telephone call, the court also looks at
what was said and done after the discussion, to see whether it is consistent with there
being an agreement.
AnemailwassentbyoneoftheMDsminutesafterthephonecall,confirmingan
agreement - acceptance of the offer on the table plus a procedure to deal with a
possible increase. That email, sent so soon after the conversation, was, said the judge,
consistentwiththeneedtoconfirmasettlementagreementand“inherently more
likely to record what happened”. And, after reviewing all the subsequent
correspondence, the judge decided that agreement had indeed been reached.
Confirmatoryemailscanbeveryhelpful.
Of course the problem would never have arisen if the parties had put their agreement
in writing – or would it? Even with a reassuring written document there can be
problems. What if the parties do the hard part and sign a contract, only to discover
later that what was written down is not in fact what was agreed. Is it game over?
Notnecessarily.Anothercaseafewdaysearlierremindedusthatacourtcanfixthe
problem. It can rectify the contract, where there is common or unilateral mistake.
Common mistake, on which the case was decided, requires a common intention on
an issue in the contract, again looking at the facts objectively, that continues until the
document is executed, but is wrongly recorded. The potentially tricky part, however,
is working out just what, objectively, that common intention was.
The case involved a decision on the rather important question of the parties’ common
intentionastowhowastomakegooda£2.4millionpensionfunddeficit.TheCourt
of Appeal split 2 to 1 on the question, which was complicated by unusual facts,
including the “disreputable” conduct of one party’s agent, who wrongly permitted
both parties to be misled.
mayer brown 15
All of which reminds us of the boring old virtues of recording your contracts carefully
andmakingsurethatwrittencontractdocumentsreflectwhatboth parties really did
understand to have been agreed. And if you want to pre-empt the possibility of a
premature oral contract there’s the magic label “subject to contract”, designed to
postpone a binding contractual relationship until a formal contract is signed
(although the magic isn’t always effective).
The refurbished Construction Act may no longer require the terms of “construction
contracts” (other than the adjudication provisions) to be put in writing but that
doesn’t mean that it’s not a seriously good idea.
Richard Craven Tamsin Travers
RCraven@mayerbrown.com TTravers@mayerbrown.com
Construction & Engineering Group
ThisarticlefirstappearedinaslightlydifferentforminConstruction News.
16 Construction & Engineering London Legal Update
Extras
CONSTRUCTION ACT CONVERSION KITS
In case you do not yet have all the Construction Act conversion kits that you need, the
NEC3, ACA, RIBA and IChemE amendments to convert their contract forms to
comply with the amended Construction Act can be downloaded, free, from these
websites:
NEC3: http://www.neccontract.com/documents/NEC3_Local_Democracy_
Economic_Development_and_Construction_Act_October_2009_Amendments.pdf
PPC 2000: http://www.ppc2000.co.uk/pdfs/PPCAmended08HGCRAUpdates.pdf
SPC 2000: http://www.ppc2000.co.uk/pdfs/SPC2000HGCRAUpdates.pdf
RIBA (see Amendment 1): http://www.ribabookshops.com/item/
riba-agreements-2010-complete-reference-set/72709/
IChemE: http://www.icheme.co.uk/media_centre/news/2011/forms%20of%20
contract%20amended.aspx
JCT PUBLIC SECTOR SUPPLEMENT
Again, in case you do not already have a copy, the JCT Public Sector Supplement can be
obtained through this link: http://www.jctltd.co.uk/public-sector-supplement-form.aspx
Designed for public sector clients and their contract administrators, the supplement
can be used with JCT contracts in public sector procurement projects. It incorporates
key features from the Government’s Construction Strategy, including provisions to
ensure alignment with the Government’s Fair Payment guidelines, a model clause
authorising disclosures by public sector clients in accordance with the Freedom of
Information Act 2000 and the Government’s Transparency Policy and reference to
any agreed BIM protocol.
CDM SHAKE-UP
The HSE has announced that it will be redrafting the CDM Regulations, for reissue
in 2014. Details will not be known until an HSE Board Paper is presented in
December, but the HSE has indicated that the new Regulations will be based much
more closely on the requirements of the EU Temporary Mobile Construction Sites
Directive.
FIDIC SUBCONTRACT
There is now a FIDIC subcontract for use with the FIDIC Conditions of Contract for
Construction, 1st Edition 1999 (Red Book). See:
http://www1.fidic.org/resources/contracts/describe/FC-RB-U-AA-10.asp?back=/
bookshop/prod_page.asp&ProductCode=FC-RB-U-AA-10&price=30
mayer brown 17
EU COMMISSION PUBLIC PROCUREMENT UPDATE PLANS
The European Commission proposals to modernise the EU procurement rules
include the adoption of a directive on concessions. Key features of the plan to make
proceduressimplerandmoreflexibleareincreaseduseofnegotiation,cuttingdown
on documents, a target of full electronic communication in public procurement two
years from the new Directive’s implementation deadline, shorter deadlines and
reduced publication requirements.
The proposals go to the EU Council and the European Parliament for negotiation and
adoption. If adopted by the end of this year, they will have to be implemented by
Member States by 30 June 2014. See: http://ec.europa.eu/internal_market/
publicprocurement/modernising_rules/reform_proposals_en.htm
MOJ BIM PILOTS TO TAKE OFF
TheMinistryofJusticeisinvolvedinthefirstGovernmentconstructionpilotprojects
to use Building Information Modelling. Full ‘level 2’ BIM has been selected for new
building and refurbishment projects at HMP Cookham Wood in Kent and at HMP
Chelmsford in Essex. The MoJ is also piloting the Construction Operations Building
Information Exchange (COBie) data drop point 4 (handover information) on two
projects currently under way at Oakwood prison in Staffordshire and a new court in
Aberystwyth.
18 Construction & Engineering London Legal Update
NO MORE SWaMPS
The government is to tear up the Site Waste Management Plans Regulations. It says
that evidence and feedback suggests that the regulations are ineffective. There have
beennoprosecutions,enforcementisinconsistentandoftenpoorandlandfilltaxis
by far the most powerful driver for construction companies to deal effectively with
their waste. It considers that much of the industry would still produce site waste
management plans even if the regulations were removed, but in a way that minimises
burdens.
NEW ARRIVAL - D.O.B. 27 MARCH 2012: NPPF
Afterthefiercepublicdebate,theGovernment’sNationalPlanningPolicyFramework
is in force. The NPPF, which replaced more than a thousand pages of national policy
withjustfifty-nine,mustbetakenintoaccountinpreparinglocalandneighbourhood
plans and is a material consideration in planning decisions. Its key ingredient is a
presumption in favour of sustainable development.
See: http://www.communities.gov.uk/documents/planningandbuilding/pdf/2116950.pdf
HSE COST RECOVERY SCHEME LOOKS AT AUTUMN START
The start date for the HSE Fee for Intervention scheme has been put back. The
scheme, designed to recover the HSE’s costs of resolving, investigating and enforcing
health and safety issues from those who break the health and safety laws, will now be
introduced at the next available opportunity, which is likely to be October this year,
instead of the original April target.
Discussions are still taking place on the technical details of the scheme and the HSE
is working with businesses to improve their understanding of FFI and how it will
affect them. Detailed guidance for employers and organisations will be available on
the HSE’s website ahead of implementation.
HELLO NRM 1 & 2 AND GOODBYE, NEXT YEAR, TO SMM7
The RICS has issued an updated version of New rules of management (NRM) 1,
Order of cost estimating and cost planning for capital building works, and new NRM
2, Detailed measurement for building works. NRM 2 is to replace SMM7, which will
be ‘switched off ’ from July 2013. The new editions update quantity surveying
standards and now cover the full costs of a construction project including additional
items such as marketing and fees.
NRM 3, Order of cost estimating and cost planning for building maintenance works,
is expected to be available later this year. See: http://www.rics.org/nrm
DOM1 AND DOM2 MAKEOVER AND THE JCT NAMED SPECIALIST OPTION
2011 Editions of the DOM1 and DOM2 Domestic Sub-Contracts, for use with the JCT
2011 Standard Building Contract and Design and Build Contract respectively, are being
published. DOM 1 is here and DOM 2 is expected soon. See: http://www.cip-books.
com/product-details.aspx?productID=2293 and http://www.cip-books.com/product-
details.aspx?productID=2295
mayer brown 19
The JCT new Named Specialist option can be incorporated in all versions of the
Standard Building Contract 2011 (With and Without Quantities, and With
Approximate Quantities).
The option enables the employer to name individual specialists as domestic sub-
contractorsforidentifiedpartsoftheworkseitherinthecontractdocumentsorinan
instruction for expenditure of a provisional sum. Named Specialist Update for SBC 2011
ASBESTOS REGULATIONS UPDATE
Changes to the asbestos regulations mean that some types of non-licensed work with
asbestos now have additional requirements:
• some non-licensed work now needs to be notified to the relevant enforcing
authority;
• briefwrittenrecordsshouldbekeptofnotifiablenon-licensedwork;and
• byApril2015,allworkers/self-employedcarryingoutnotifiablenon-licensed
asbestos work must be under health surveillance by a doctor.
See: http://www.hse.gov.uk/asbestos/regulations.htm?ebul=gd-cons/apr12&cr=11
20 Construction & Engineering London Legal Update
Keeping the project up to speed – or not?
It may not be one of Hogwarts’ Dark Arts but contract interpretation might as well
be. Take, for instance, the mantra “proceed regularly and diligently” – wording that
has been part of the JCT contract furniture for decades. If you don’t, the other party
to the contract can take steps that may lead to its termination. But is this veteran
phrase also a contract obligation so that if, say, you fail to comply with an activity
schedule, you may be liable for damages before the contract completion date?
Main contractor Mulalley said that it was. And that the way to check that Leander,
their subcontractor, had complied with the alleged obligation was to check progress
against an activity schedule. Leander’s progress, said Mulalley, did not comply with
the schedule and therefore Leander was in breach of contract. Mulalley could
therefore deduct damages – not liquidated damages for delayed completion but
unliquidated damages for not getting a move on with the works prior to the
completion date. On the strength of that argument Mulalley withheld money from
Leander. Leander, understandably, objected and Mr Justice Coulson had to decide
who was right.
Was there an implied term that that Leander would “proceed regularly and
diligently”? No , said the judge. A term will generally only be implied if it is
necessary to make a contract work and the courts are generally slow to imply terms,
particularly where there are already detailed terms and conditions. The Leander
subcontract worked perfectly well without the alleged term.
In addition, in the previous case law, the courts had declined to imply a term
imposing interim obligations as to rate of progress and detailed performance. In
those cases they had repeatedly given priority to the principle that, provided that the
main contractual obligation is an obligation to complete by a certain date, it is
unnecessary and unhelpful to impose other interim progress obligations on a
contractor or subcontractor.
Features of the subcontract drafting also led to the conclusion that there was no need
for the alleged implied term. Just because failure to proceed “regularly and
diligently” was a ground for termination did not automatically mean that there was a
similar separate contractual obligation. Some of the grounds were breaches and
some, e.g. insolvency, were not.
The fact that the contractor did have an express contract entitlement to terminate for
failure to proceed “regularly and diligently” in fact pointed in the opposite direction.
This was not a case where the parties had failed to consider and allow for the alleged
failure. They had decided that the issue was best dealt with by a “hurry-up notice”, as
the judge called it, with termination, rather than damages, as the sanction.
And, just supposing that there was this alleged implied term, that would also bring
withitanumberofstartandfinishdatesforphasesoractivitiesbut,astherewas
only one subcontract completion date and the contract machinery was only designed
to cope with that, additional extension of time machinery would then need to be
implied to deal with the individual construction phases or activities.
mayer brown 21
Besides which, Mulalley already had the ability, through express and implied terms,
to exercise considerable control over Leander’s works, for instance through Leander’s
obligation to comply with instructions and generally to co-operate. No more were
needed.
All of which meant that there was no freestanding obligation to proceed “regularly
and diligently” and no unliquidated damages for not doing so. Just the (not
insignificant)threatofterminationinstead.
Richard Craven Debbi Simon
RCraven@mayerbrown.com DSimon@mayerbrown.com
Construction & Engineering Group
22 Construction & Engineering London Legal Update
What’s been happening @ Mayer Brown?
• Chris Fellowes and Jon Olson-Welsh were part of the Mayer Brown team that
was awarded a top tier “stand-out” ranking in the “Legal Innovation in Finance”
category of the 2011 Financial Times Innovative Lawyers (Europe) report.
This accolade was awarded for the work, led by global head of Mining Ian Coles,
undertaken to develop the mining industry in Afghanistan. The Mayer Brown
work was described as “instrumental in developing a legal framework to attract
sophisticated investment into the country’s mining sector, which is potentially
valued at $3,000 billion.”
• ABA Houston Forum on the Construction Industry
In early February Raid Abu-Manneh was one of the speakers at the ABA Forum
on the Construction Industry in Houston “Innovative legal strategies developed
from challenging projects”. Raid’s talk focused on dispute resolution in the
Middle East.
• The Arab Spring one year on
Raid was also the speaker at the end of March at the Mayer Brown seminar on the
Arab Spring. His talk included an overview of key issues of contract law in Arab
countries and looked at the application and effect of Shari’a law, key
distinguishing features between Arab Civil Codes and English law and force
majeure under local Arab laws.
• Contracts & Dispute Management Conference 2012
Raid and Kwadwo Sarkodie were speakers at the IBC Legal 4th Annual
Construction Law: Contracts & Dispute Management Conference 2012, on Risk
Management and Dispute Resolution in, respectively, the Middle East and Africa.
• South Africa Indaba mining conference
On the mining front, Jonathan Hosie and Jon Olson-Welsh attended the Indaba
mining conference in South Africa in February as part of a six-strong Mayer
Brown Indaba team. The conference attracts mining companies, investors,
governments and suppliers from around the globe and focuses on the mining
industry in Africa.
• PDAC mining conference in Toronto
In March Jon Olson-Welsh also attended the Toronto PDAC mining conference,
one of the largest mining conferences in the world, attracting nearly 30,000
attendees. Jon attended as part of the transaction adviser team to the Ministry of
Mines of Afghanistan.
mayer brown 23
Procurement: new Government recipes for a lean future
The Government is worried about putting on the pounds. It wants to slim down
public sector construction expenditure by 15% to 20% by 2015. As part of the new
financialdiet,theappropriately-namedGovernmentProcurementandLeanClient
Task Group has come up with three new public sector procurement recipes.
• Cost-Led Procurement:
Two or three integrated supply chain teams from the client’s framework are
invited to develop proposals to deliver a project within the client’s cost ceiling.
Successful completion of the project by the selected team would lead to it being
offered similar projects, but with the expectation of lower cost, achieved through
continuous improvement.
• Integrated project insurance:
Again an integrated project team, selected through a competition, has to meet the
specificationwithinacostceilingbutthewholeprojectiscoveredbyasingle
insurance policy which includes cover for any cost overruns above an agreed
‘pain-share’ threshold. Estimated likely cost of this overrun cover is 2.5% of the
project sum, but the expectation is that it will be matched by the saving from
having just one project policy.
• Two-Stage Open Book:
Integrated teams selected from a framework bid against an outline brief and cost
benchmark. The winning team then works up a full proposal to meet the cost
ceiling and functional outcome with the client on an open book cost basis, with
independentverificationatstage-gatereviews.
The contracts recommended for trials of the new recipes are JCT Constructing
Excellence, PPC 2000 and NEC3 Option C, with only minor amendments and
subject to certain rules, for example, no retentions in the supply chain and use of
projectbankaccounts.NEC3,inparticular,hasbeenchosenforcurrenthighprofile
projects, notably CrossRail, though with substantial amendments.
So might the new procurement approaches produce the savings that the Government
wants? Construction contracts should give effect to the parties’ risk allocation, even
if it takes a court to work out what that was, and the risk allocation obviously affects
thefinalfinancialoutcome.Thecontractcontainsthepriceandriskrecipe.Thenew
options could therefore make a difference, but life is rarely as simple as that and the
Task Group has warned that technical reform efforts “...must be supported by
behavioural change within the industry...”
As a start it has mapped out the DNA of “the intelligent client”, identifying the “... commercial and behavioural competencies that must be instilled within public
clients...” to achieve 20% cost savings on the pilot projects.
The draft list of these competencies currently includes:
• consistency in the procurement models used;
• strong leadership;
• development of collaborative culture within the client;
24 Construction & Engineering London Legal Update
• focus on early supply chain involvement;
• ensuring supplier engagement based on ability to collaborate;
• establishing mutual objectives;
• commitment to continuous improvement;
• transparent issue resolution; and
• opportunity to innovate throughout project development and implementation.
The list might look ambitious, but the Task Group has asked the government to roll
out professional development within public sector clients so that their staff can
deliver the competencies. It also recommends a similar push in industry to encourage
equivalent best practice to be promoted within the whole supply chain.
And there is, of course, that word “integrated” that recurs in the descriptions of the
teams in the three new procurement models. Successful integration is another
challenge.
In addition, the Task Group has been looking at the effectiveness of public sector
framework agreements and has developed a scorecard of attributes by which future
agreements can be judged, with a Framework Quality Mark awarded to those that
meet the required characteristics.
It has also raised the possibility (for consideration by the Government Procurement
Service) of cross government collaboration on procurement, to achieve savings
through aggregation of goods and services, i.e. mobilising the collective bargaining
power of public sector bodies.
It’s not going to be easy, but then slimming regimes rarely are. As they say, no pain,
no gain.
Richard Craven Wisam Sirhan
RCraven@mayerbrown.com WSirhan@mayerbrown.com
Construction & Engineering Group
mayer brown 25
The clock only goes one way
Time limits can be seriously unforgiving. You need to be the right side of the line – or else. Take, for example, those routine, and, you might say, unexciting, clauses in construction warranties or third party rights schedules that say no action may be started more than 6 or 12 years after practical completion. Dull they might seem but potentially fatal also, if you issue your claim even one day late.
And if 6 or 12 years sounds too generous (or even mean), you can agree your own limitation period. One year was the period agreed in a contract recently before the Court of Appeal. The contract said that no proceedings should be brought against the contractor more than one year after practical completion or, where practical completion did not occur, one year after the contractor last performed “Services in relation to the Project”.
The parties disagreed as to whether practical completion had been achieved and the argument then came down to whether the claimant had issued proceedings within a year of performing the “Services”. The proceedings had been issued 22 months after the defendant completed certain snagging items but, after the snagging, there had been an on-site meeting, inspection and production of a report prepared by the contractor, all on a without prejudice basis for the purpose of negotiations for a possible settlement. Without prejudice protection for the correspondence was subsequently waived. Were these activities then a continuation of the contractor’s services or was the employer’s claim consequently too late?
Too late, was the court’s answer, by some ten months.
In another court battle about time limits, the contract said that, where an adjudicator gave a decision after the date of the Final Account and Final Statement, a party wishing to determine that dispute by legal proceedings “may” commence the proceedings within 28 days of the date of the adjudicator’s decision. The contractor commenced proceedings after this 28 day period. Was the adjudicator’s decision therefore binding?
Although the clause did not say that the adjudicator’s decision would be binding if the contractor commenced proceedings outside the 28 day period, the court said that it was. Setting a time limit was the purpose of the clause and to decide otherwise would make the clause redundant and meaningless.
That was not the only time trap in the contract issues before the court; the JCT Design and Build form provided that the Contractor’s Final Account and Final Statement would become conclusive after a given period except to the extent disputed by the employer before the period had expired. The court found that the employer had, in fact, served a valid notice, in time, disputing the Final Account and Final Statement. It was the right side of the line.
MORAL OF THE STORY?
No prizes for guessing the moral of the story. Contractual and statutory time limits regulate performance of certain obligations and provide certainty. Complying with those time limits requires watchful contract administration. We can’t turn the clock back, however much we wish we could.
Ryan Fordham RFordham@mayerbrown.com
Construction & Engineering Group
26 Construction & Engineering London Legal Update
Case notes
ADJUDICATION DISPUTES – PASS THE CALCULATOR
Adjudication disputes are rationed. No more than one dispute per adjudication
(without agreement); probably because of the breathtaking pace of an off-the-shelf
adjudication. So how you tot up the disputes is crucial, a piece of arithmetic that
divided the parties in Witney Town Council v Beam Construction (Cheltenham) Ltd, an adjudication about the construction of a community hall. The contractor’s
claimsinvolvedtwofinalaccounts,aclaimforinterestonretentionandaclaimfor
the retention, based on repudiatory breach. So was that four disputes or one?
In summarising the legal principles, the judge said that what is a dispute will be a
question of fact, although the facts may need to be interpreted. Courts should not
adopt an over legalistic analysis of what the dispute is and the notice of adjudication
and referral notice do not necessarily determine what is the true dispute, or if there is
more than one. One also looks at the background facts. If there is a clear link between
two or more arguably separate claims or assertions, that may point to there being one
dispute. A useful if not invariable rule of thumb is that, if disputed claim No 1 cannot
be decided without deciding all or parts of disputed claim No 2, that establishes such
a clear link and points to there being only one dispute.
The judge decided that there was just one dispute - what was due and owing to the
contractor.
Witney Town Council v Beam Construction (Cheltenham) Ltd [2011] EWHC 2332
IMPARTIALITY: KEEPING UP APPEARANCES
Adjudicators, arbitrators and judges must be impartial - and appear impartial, but
how do you tell if there is apparent, rather than actual, bias? In A v B and X Leading
Counsel who had been appointed arbitrator had not realised that, after his
appointment, he had resumed acting in an entirely separate case in which the
solicitors instructing him were also solicitors for a party in the arbitration. Was that
apparent bias so that the arbitrator could be removed?
The test, according to the courts, is whether the fair-minded and informed observer,
having considered the facts, would conclude that there was a real possibility that the
tribunal was biased. In this case, the judge emphasised three aspects of the test. It is
objective and not dependent on the characteristics of the parties. It also assumes that
that the impartial observer is “ fair-minded” and “informed”, i.e. in possession of all
the facts relevant to the question whether there was a real possibility that the
arbitrator was biased. The third, and particularly relevant, aspect, was that although
the observer is not to be regarded as a lawyer, they are expected to be aware of the
way in which the legal profession in this country operates.
On the facts before the court, the judge decided that the fair-minded and informed
observer would conclude that there was no real possibility of apparent or unconscious
bias.
A & Ors v B & Anor [2011] EWHC 2345 (Comm)
mayer brown 27
WHODUNNIT? AND WHO’S GOING TO PAY FOR IT?
Like Inspector Morse, judges often have to disentangle competing allegations to work
out what happened. In Hi-Lite Electrical Ltd v Wolseley UK Ltd, Mr Justice
Ramseyhadtodecidethecauseofafireinasubmersiblesumppumpina
hairdressing salon. The pump installers, already found liable to the salon owners in
other proceedings, sued the pump suppliers who joined the manufacturers in the
proceedings. Different causes were put forward but the judge said that the claimant
must always prove the cause of the damage on the balance of probabilities. He found
thatthecausewasdamagetothefloatswitchcablebysalonstaffbuthealsodecided
thataresidualcurrentdeviceshouldhavebeenfittedbytheinstallersandwouldhave
preventedthefire.If,however,thepumpsupplierhadbeenliableundertheSaleof
GoodsAct,wouldthenegligentfailuretofitanRCDhavebrokenthechainof
causation, reduced the damages or made an apportionment of liability appropriate?
No,wastheanswer.ThefailuretofittheRCDoccurredbeforethefireandthe
assumedbreachofcontractwasstillaneffectivecause,evenifthefailuretofitthe
RCDwasalsoacause.Thedamagewasnottooremote,becauseanelectricalfirewas
not unlikely to result from an electrical cable defect, and there were no grounds for
apportionment. Contributory negligence is not a defence to strict contractual liability
and in the absence of an ability to apportion damages under the Civil Liability
(Contribution) Act 1978 (where parties are both liable to a third party for the same
damage) there is no other general ability to apportion damages.
Hi-Lite Electrical Ltd v Wolseley UK Ltd [2011] EWHC 2153
MUST YOU PAY FOR AN ADJUDICATION AWARD THAT DOESN’T WORK?
The story so far:Asteelfixingsubcontractorsucceedsinitsadjudicationclaimfor
retention but the award is unenforceable. Without hearing argument from the
parties, the adjudicator decided that he could not deal with the main contractor’s
finalaccountdefence,thatthesubcontractorhadbeenoverpaidandnomorewas
due, and so the award is in breach of the rules of natural justice. But then the
company that employed the adjudicator sues the main contractor for his fees. Can it
do that, when the award is defective?
The court’s answer depended on whether there had been a total failure of
consideration, or performance, but that, in turn, depended on what the contractual
performance should have been. The judge said that it was the provision of the role of
adjudicator, which not only covered the production of the decision but also the
conduct of the adjudication up to the decision. There had therefore been partial
performance, which meant that the main contractor had to pay the fees.
Systech International Ltd v PC Harrington Contractors Ltd [2011] EWHC 2722
HOW TO FIND INVISIBLE CONTRACT TERMS
In any written contract there can be two types of terms – those you can see and those
you can’t. And while the parties and courts can agonise over what the terms written
down might mean, implied terms can be at least as troublesome. So where do they
come from and how do you know if you have them?
28 Construction & Engineering London Legal Update
In Estafnous v LLBCL, an estate agent introduced a prospective buyer to a company
property owner, and the agent and owner entered into an agreement which said that
commissionwaspayableonthesaleoftheproperty.Thetransactionthatfinallywent
through, however, was structured as a sale of shares in the owner’s ultimate holding
company. The express terms of the commission agreement did not cover the share
sale but could a term be implied to save the agent’s commission? No, said the Court
of Appeal. An implied term is not an addition to the contract; it only spells out what
it means. The question is whether such a term would spell out what the contract, read
against the relevant background, would reasonably be understood to mean. The
parties had not thought about what should happen if the property sale was
restructured as a share sale, so there was no implied term and no commission.
Estafnous v London & Leeds Business Centres Ltd [2011] EWCA Civ 1157
SUPREME COURT SAYS COMMON SENSE IS THE ANSWER
The law and common sense do not always coincide but in Rainy Sky S. A. v Kookmin Bank they did. A dispute about refund guarantees given by a shipbuilder
in six shipbuilding contracts ended up in the Supreme Court, which had to decide
what they meant.
Where the parties have used unambiguous language, said Lord Clarke, the court
must apply it. If, however, a term of a contract is open to more than one
interpretation, it is generally appropriate to adopt the interpretation which is most
consistent with “business common sense”. He also noted that it is not necessary to
conclude that a particular construction would produce an absurd or irrational result
before having regard to the commercial purpose of the agreement. What “business
common sense” dictates, in a relevant case, may not, however, be as straightforward
as it sounds.
Rainy Sky SA & Orsd v Kookmin Bank [2011] UKSC 50
ADJUDICATION DISPUTES - ONCE IS ENOUGH
It took 8 years and £320,000 for Mr Smith to put together an adjudication claim.
The adjudicator awarded Mr Smith about 80% of the £1million plus that he claimed,
the adjudicator’s costs were over £60,000 and the adjudication costs likely to exceed
£100,000. But, after all that, there was a potential glitch. Was the dispute the same,
or “substantially the same”, as that decided in a previous adjudication in 2003?
Indecidingthequestion,MrJusticeAkenheadidentifiedseveralfactors.Onehadto
consider the scope of the disputed claims, taking a reasonably broad brush approach
in determining what they were. Different or additional evidence or arguments would
notusuallyaltertheessentialdisputeanddifferentquantumorquantificationdoes
not necessarily point to a substantial difference. Particular caution is required not to
be “over-awed” by the bulk of a claim’s attachments, one can look at the stated
motivation and reasons for the later claim and must bear in mind that notices of
adjudication and referral notices do not have to be strictly interpreted. One strong
pointer is whether essentially the same causes of action are relied on in both the
earlier and later notices of adjudication and referral notices.
mayer brown 29
The judge decided that Mr Smith’s claim was the same or “substantially the same” as
the2003adjudicationclaim.Itwasanattempttofixthegapsthatcausedthe
previous claim to fail. After all that, the later adjudication award was unenforceable.
Carillion Construction Ltd. v Stephen Andrew Smith [2011] EWHC 2910
PICK YOUR OWN ADJUDICATOR – HOW COOL IS THAT?
Allowing one contracting party to choose the adjudicator might look attractive to the
appointor but does it work? The London Borough of Camden had just such a clause
in its contract with building consultants and in a fee dispute the court had to decide
not only if the construction contract was in writing, and just how the Scheme
adjudication provisions should apply if the contract arrangements did not comply
with the Construction Act, but also whether Camden was really entitled to appoint
the adjudicator in its own dispute.
Mr Justice Akenhead decided that the contract was all in writing, so that the
unamended Construction Act applied, but a contract clause suspending an
adjudicator’s decision as to payment meant the adjudication provisions were non-
compliant. But were they completely replaced by the Scheme’s provisions or was just
therelevantSchemeprovisionusedtofixtheproblem?Thejudgeconfirmedthat,if
the contract has just one material non-compliance, all the Scheme adjudication
provisions apply instead. And the contract clause allowing Camden to choose the
adjudicator did not work, not only because the contract adjudication provisions were
to be disregarded but it was also inherently unsound and contrary to the HGCRA
policy of having impartial adjudicators for the contract to specify that one side should
nominate the adjudicator.
Sprunt Ltd v London Borough of Camden [2011] EWHC 3191
ADJUDICATION AWARD – WHY THE JUDGE SAID HE WOULDN’T STAY
Adjudication awards must be honoured, in the short term, even if the losing party
wants to go to litigation or arbitration to get a different result. But what if the
successfulclaimantisinfinancialdifficultiesandinsolvencymightswallowany
money handed over, so that any reversal of the original outcome would be futile? If a
claimant would probably be unable to repay the judgment sum after subsequent
litigation or arbitration, the court can stay enforcement of an adjudicator’s award,
and will usually do so if the claimant is in insolvent liquidation or there is no dispute
on the evidence that it is. But even if the evidence suggests that the claimant would
be unable to repay the judgment sum, a stay will not usually be granted if the
claimant’sfinancialpositionissimilartowhatitwaswhentherelevantcontractwas
made or it is due, wholly or partly, to the defendant’s failure to pay the sums awarded.
In Partner Projects Ltd v Corinthian Nominees Ltd the court refused a stay
becausetheclaimant’sfinancialpositionhadbeenbroughtabout“to a significant
extent” by the default of Corinthian and because of Corinthian’s conduct generally
- which had itself previously traded while insolvent. The judge said that the claimant
genuinely wished to try and trade itself out of its indebtedness but it could only do so
if it received payment of the sum awarded.
Partner Projects Ltd v Corinthian Nominees Ltd [2011] EWHC 2989
30 Construction & Engineering London Legal Update
ADJUDICATOR SHOPPING GETS THE ALL CLEAR – AGAIN
Lastyear’sdisputeaboutare-roofingandglazingsubcontractforaNetworkRail
infrastructure depot has gone back to the courts. Question 1 for the Court of Appeal
was whether a claimant can go adjudicator shopping. Can it let an adjudication
lapse, if it doesn’t like the appointed adjudicator, start another adjudication and get a
different adjudicator? Not an appealing proposition, said the Court, but adjudicator
shopping is legitimate. Sometimes adjudications need to be restarted and, unlike
arbitration, an adjudicator has no powers until there has been a referral. Even if
there has, a head of claim can be dropped and raised in a later adjudication.
Question 2 was whether the adjudicator’s 35 page “Preliminary Views”, produced for
the parties’ comments before seeing the response to the referral, meant his decision
was a nullity because of apparent bias. No, said the Court. A judge can set out a
provisional view at an early stage, for the parties to correct any errors or concentrate
onmattersapparentlyinfluencingthejudge.Ajudgemustnotreachafinaldecision
prematurely but that is different from reaching a provisional view that is disclosed to
help the parties, which is what had happened in this case. The courts are reluctant to
strike down adjudication decisions for breach of natural justice or on similar
grounds, unless the complainant’s case is clearly made out.
Lanes Group Plc v Galliford Try Infrastructure Ltd [2011] EWCA Civ 1617
COURT UNHAPPY WITH DUTY TO REVIEW OLD COMMISSIONS
The scope of a professional’s duty to review old commissions has been worrying Mr
Justice Akenhead. In a recent Technology & Construction Court case he said there
was “something commercially and professionally worrying” if professional people
were to be held responsible for reviewing all previous advice or services.
Hedistinguishedaspecificretainerthatimposedacontinuingdutytokeepearlier
advice or services under review and some sort of obligation to review and revise
previous advice or services provided on completed commissions. If architects or
engineers had the former retainer and discovered (or should have discovered) during
the defects liability period that the design adopted was defective, the retainer might
at least require them to raise this with the client. The fact that they had a number of
commissions with the client would not mean, however, that they must review the
designs on completed commissions. Different considerations might apply if the
professional actually knew or became aware that their earlier work was, or had
become,insomewaydeficient.Eventhatmightbesubjecttotimeconstraintsand
notanindefiniteresponsibility.Inadditiontherewasthecosttoconsider.Ifan
obligationtoreviewcontinuedindefinitelyoratleastforalongtime,isthe
professional entitled to be paid for time spent reviewing and advising on any changes
required?
Shepherd Construction Ltd v Pinsent Masons LLP [2012] EWHC 43
mayer brown 31
FOR MOST, ARBITRATION HAS NO APPEAL
Like holy matrimony, arbitration should not be undertaken lightly. Whatever its plus
orminuspointsintermsofspeed,cost,simplicityorconfidentiality,arbitration
providesanalmostbullet-prooffinality,astheCourtofAppealremindedusinHMV UK v Propinvest Friar Ltd Partnership.
Rights of appeal from an arbitration award, under the 1996 Arbitration Act, are
severely restricted. An arguable error on a point of law or the fact that an appeal
judge might have come up with a different answer is not enough to justify an appeal.
If the alleged error is not one of general public importance, it has to be “obviously
wrong” or even, as one judge previously said, the arbitrator must have had “a major
intellectual aberration”. The error must be transparent and clear and it must be “ just
and proper” for the court to deal with the issue, despite the arbitration agreement. It
is part of the statutory policy that arbitration should be speedy and, where possible,
cheaper than court proceedings and the court will only intervene if it can be
demonstrated quickly and easily that the arbitrator was plainly wrong.
HMV UK v Propinvest Friar Ltd Partnership [2011] EWCA Civ 1708
ADJUDICATOR’S FROLIC WRECKS AWARD
It’s hard to stop enforcement of an adjudicator’s award. The courts take a robust line
onchallenges.Inafinalaccountdisputeoveracontracttoremoveasunkenship
from Dover harbour, the adjudicator used a method of assessing the amount awarded
that neither party had argued and on which he gave them no chance to comment.
Was that enough to sink the award?
Mr Justice Akenhead said that it was. The adjudicator had gone off “on a frolic of his
own” in using an assessment method that was not part of the dispute and without
giving the parties an opportunity to comment. That might not be enough to prevent
enforcement if the “ frolic” made no material difference to the outcome, but the
adjudicator’s approach meant that the claimant was effectively awarded more than
£350,000 more than was being claimed. His breach of the rules of natural justice
was therefore material and enough to doom the award.
Herbosh -Kiere Marine Contractors Ltd v Dover Harbour Board [2012] EWHC 84
(TCC) (26 January 2012)
MEANWHILE, NORTH OF THE BORDER...
Another adjudicator in a natural justice tangle. Asked to deal with a claim about a
defective runway on Shetland, the adjudicator telephoned a Scottish QC for ‘ freebie’
advice on interpretation of clause 41.3 of the NEC Professional Services Contract. He
didn’t tell the parties, who only learned of the call by accident, after the adjudicator’s
decision.Wasitabreachofnaturaljusticesufficienttobringdowntheaward?
The Scottish court said that a peripheral or irrelevant breach of natural justice, not of
potential importance, would not taint an adjudicator’s decision and make it
unenforceable.Whethertheissuewasofsufficientimportancewasaquestionof
32 Construction & Engineering London Legal Update
degreetobeassessedbythecourt.Heretheissuewascentraltoquantificationofthe
largest part of the award and so of considerable potential importance. But could the
tainted part of the award be severed, saving the remainder? Not in this case. This
was a single issue dispute and it was not possible to sever the good from the bad.
Highlands & Islands Authority Ltd v Shetland Islands Council [2012] ScotCS
CSOH_12
DRIVING A BARGAIN TOO HARD?
Drivingahardbargainisfine,butwhendoescommercialpressurespilloverinto
economic duress and make a contract voidable? In Progress Bulk Carriers v Tube City ship owners repudiated a charter to carry shredded scrap to China, by
chartering the ship to another party. They then promised the original charterer an
alternative vessel and full compensation for their losses. The charterers, relying on
these assurances, did not look elsewhere for an alternative ship but, after
negotiations, the owners made a “take it or leave it” offer which, going back on their
promise of compensation, included a waiver of all claims by the charterers. Now
desperatetofulfiltheirsalecontractsintime,thecharterersacceptedtheofferunder
protest. Hard bargain or economic duress?
Economic duress in English law requires “illegitimate pressure” but does that have to
be unlawful, e.g. by threatening a breach of contract? The court said that illegitimate
pressure could be created by conduct that was not itself unlawful, although that
would be an unusual case, particularly in a commercial transaction, or by a past
unlawful act, as well as the threat of a future unlawful act. The pressure created by
the owners’ demand for a waiver of rights had to be seen in the light of their
repudiatory breach and their subsequent conduct, including their refusal to honour
their previous assurances as to a substitute vessel and paying full compensation. In
these circumstances, the refusal to supply the substitute vessel, unless the charterers
waived their rights, was “illegitimate pressure”.
Progress Bulk Carriers Ltd v Tube City IMS LLC [2012] EWHC 273 (Comm)
REPUDIATION – THEY THOUGHT IT WAS ALL OVER
Repudiation should have a health warning on the packet. You can accept what you
think is a repudiation and stop further performance of a contract but, in cases where
there is any doubt, only a judge can say for sure if you made the right call. Getting it
wrong can be expensive but what if (just to raise the stress levels) you made the
wrong call but, unknown to you at the time, the other party had done something else
that was a repudiation that you could have accepted? Happy ending after all?
This was a key issue in Leofelis v Lonsdale, where the court gave three answers to
the puzzle. It ruled that the wronged party could rely on the previously unknown
repudiatory breach, to defeat any claim by the wrongdoer for damages for the original
wrongful termination, and to bring its own claim for damages for the breach. What it
could not recover, however, was damages for loss caused by the termination. That had
occurred in ignorance of the wrongdoer’s real default, which had therefore not been
thecauseofthetermination,orofanylossflowingfromit.
Leofelis SA & Anor v Lonsdale Sports Ltd & Ors [2012] EWHC 485 (Ch)
mayer brown 33
COURT SAYS CLAIMS CONSULTANTS MUST DISCLOSE LEGAL ADVICE
Thelegaladvicegivenbyprofessionallyqualifiedlawyers,solicitorsandbarristers,
does not have to be disclosed in litigation because the protection of legal advice
privilege applies. But does that protection extend to lawyers employed by claims
consultants?
No, said the court in Walter Lilly & Company Ltd v Mackay. The claims
consultants in question had been retained to give claims and project handling advice,
and not as barristers. The protection of privilege does not extend to the relationship
betweenapersonandsomeonewhoisnotaqualified,practisinglawyer,otherthanin
exceptional circumstances. The decision did not, however, deal with the separate
issue of litigation privilege and the position, on privilege, of claims consultants in
adjudication proceedings.
Walter Lilly & Company Ltd v Mackay & Anor [2012] EWHC 649 (TCC)
THE PROJECT AT THE END OF TIME
Block M looked abandoned – site locked and marketing suite inaccessible. The
original contractor had gone into administration and work only restarted more than
fourteen months later but the developer had entered into off-plan sales of the
apartments. Purchasers said the delay was a repudiation, which they accepted, and
asked for their deposits back.
There was no completion date, and, as in building contracts (unless the contract says
otherwise), time was not “of the essence” so that delay gave no entitlement to
terminate. But was it an implied term that the developer would complete the
apartments in a reasonable time? The developer’s counsel conceded that it was; the
salecontract’sspecificexclusionsofliabilityfordelayonlymadesenseifitwasbut
there was, in any event, an express obligation to complete “with all due diligence”.
So what was a reasonable time for completion after the contractor’s administration?
The court could not say a reasonable time had expired by the time the alleged
repudiation was accepted but delay alone was not a repudiation. That required
conduct that showed an intention no longer to be bound by the contract. The site
apparentlyabandoned,whilethedeveloperreviewedthedevelopment’sfinancial
viability and decided if it would ever build the apartments, showed this intention and
that meant the developer had repudiated and the purchasers could get their deposits
back.
Rashpal Singh Bhat v Masshouse Developments Ltd (No link yet available)
3 4 Construction & Engineering London Legal Update
COURT FINDS BLACK HOLE IS NOT A DEAD LOSS
It’s a bit like losing your car keys. If a cause of action, the right to sue for, say,
damages for defects, becomes detached from the property to which it relates, the
owner of the property gets the bill but no longer has the right to sue. The person with
the right but without the property has suffered no loss. A car without keys won’t go
anywhere but does a claim for the defects – or does it fall into a black hole?
In Pegasus v Ernst & Young, negligence was alleged against accountants who
advised on a scheme to protect against capital gains tax liability. On liquidation, the
claimant company, Pegasus, had transferred its cause of action and substantially all
its assets to another company on a voluntary basis, as part of a reorganisation of the
business. The accountants said Pegasus had therefore suffered no loss so the claim
must fail. The court disagreed, saying that, where a wrong has been committed in
relation to property, and loss may result, the fact of an assignment, whether for value
or not, does not mean that the assignor can be said to have suffered no loss. The
consequent loss can and should still be treated as a loss of the assignor which they
can recover. Black holes are to be avoided where possible.
Pegasus v Ernst & Young [2012] EWHC 738 (Ch)
CO-OPERATION, GOOD FAITH AND THE OUT OF DATE KETCHUP
Like the opening sentiments of NEC3, an obligation to co-operate in good faith may
soundfineatthehoneymoonstageofacontractbut,ifitallendsintears,what
exactly does it mean? A catering company’s contract with an NHS Trust included
such an obligation and provided for deductions from payments where there were
“service failure points” but the Trust made “absurd” calculations of the points,
including 30,860 service failure points and a deduction of £46,320 for out of date
ketchup found in a cupboard. The court ruled that these calculations and deductions,
and the Trust’s failure to respond positively to the company’s attempts to resolve the
dispute, were breaches of the good faith obligation.
It also said that the precise scope of the duty to co-operate will depend on the
circumstances and nature of the contract. In a long-term contract of the sort it was
considering, the duty necessarily required the parties to work together constantly, at
all levels of the relationship, including working together to resolve the problems that
would almost certainly occur from time to time. It also necessarily required the
parties not to take unreasonable actions that might damage their working
relationship.
Compass Group UK and Ireland Ltd (t/a Medirest) v Mid Essex Hospital Services
NHS Trust [2012] EWHC 781 (QB)
mayer brown 35
BEST ENDEAVOURS BUDGET FLIGHT DISPUTE LANDS IN COURT OF APPEAL
“Best endeavours”, “reasonable endeavours” and “all reasonable endeavours” – handy
phrases to resolve contract negotiation issues but a real challenge to interpret - even
for the Court of Appeal. Jet2.com Ltd, a budget airline, has a 15-year contract with
Blackpool Airport Limited that requires both parties to use “best endeavours” to
promote Jet2’s low cost services from the airport. For years Jet2, with BAL’s support,
operatedregularflightsoutsidetheairport’snormaloperatinghours,eventhough
this cost BAL money, but, after a change of ownership, BAL said it would no longer
acceptflightsoutsidenormaloperatinghours.Wasthisabreachofthebest
endeavours clause?
By 2-1, the Court of Appeal said that it was. In general, a “best endeavours”, or “all
reasonable endeavours” obligation, is not in itself regarded as too uncertain to be
enforceable,providedtheobjectoftheendeavourscanbeascertainedwithsufficient
certainty. The content of an obligation to use best endeavours to promote another
person’s business is not so uncertain as to be incapable of giving rise to a legally
bindingobligation,althoughitmaybedifficulttodetermineinanygivencase
whether there has been a breach of it. Whether, and to what extent, a person who has
undertakentousebestendeavourscanhaveregardtotheirownfinancialinterests
will depend very much on the nature and terms of the contract in question.
Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417)
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