The dispute clauses under FIDIC forms of Contract 1957 – 1999 edition (Clause 67 FIDIC, 1 Edition, Sub-Clauses 20.2 et seq. FIDIC 1999 edition, Clause 21 FIDIC 2017) provide for first dispute adjudication (until 1999 the Engineer had authority to give a decision) and second arbitration under the ICC rules. In 2017 FIDIC has adopted this concept also for the purposes of the FIDIC White Book (Client-Consultancy Agreement).

This approach is also known as a multi-tier dispute clause. It keeps every contract detail confidential and should avoid disclosure of Details unless both parties agree otherwise. Hence, only a small amount of cases are reported which discuss the meaning and application of FIDIC clauses. Mostly, FIDIC related case law is reported as a result of applications to enforece or to set aside arbitration awards or based on the call on performance securities. The ICC has published a minor quantity of ICC awards, predominantly awards concerning procedural matters and aspects.

  1. Court Decisions (worldwide) on FIDIC

Thus, court decisions on the interpretation and construction of FIDIC clauses from state courts are extremely rare. All the more so since the little amount of court authorities dealing with FIDIC clauses is important and at least very helpful. Below some of those decisions are reported. These decisions have dealt with:

  • Sub-Clause 2.5 FIDIC 1999 edition
  • Sub-Clause 4.2 FIDIC 1999 edition
  • Sub-Clause 20.1 FIDIC 1999 edition
  • Sub-Clauses 15.1 and 15.2 FIDIC 1999 edition
  • Sub-Clause 53.4 FIDIC 1987 edition
  • Sub-Clause 59.1 FIDIC 1987 edition
  • Clause 67 FIDIC 1987 edition
  • Sub-Clauses 20.4, 20.6, 20.7 FIDIC 1999 edition
  • Clause 14 FIDIC 1999 edition (Silver Book)
  • Sub-Clause 20.4 FIDIC 1999 edition
  • Sub-Clauses 20.6, 20.7 and 20.8 FIDIC 1999 edition
  • Sub-Clause 20.9, 1.1.53, 8.7 FIDIC Gold Book, 2008 edition
  • Sub-Clause 3.3 FIDIC Subcontract for Works

It is worth to note that the reported decisions have been made either in common law or in civil law jurisdictions. The reported cases are from Botswana, England, Falklands Islands, Kenya, Philippines, Singapore, South Africa, Trinidad and Tobago, Victoria (Australia) involving projects in Botswana, Brazil, Falklands Islands, Gibraltar, Indonesia, Kenya, Namibia, Philippines, South Africa, Trinidad and Tobago.

  • The case of Obrascon Huarte Lain SA v. Attorney-General for Gibraltar decided by the UK Technology and Construction Court on 16 April 2014,gives attention to a substantial contract for infrastructure works in Gibraltar carried out under the FIDIC Yellow Book 1999 edition. Anyone seeking a full narrative history of events may read the comprehensive judgment of the Justice Akenhead [2014] EWHC 1028 (TCC). In a subsequent decision given on 9 July 2015 the English Court of Appeal has unanimously dismissed the appeal by Obrascon against the decision of Justice Akenhead (Obrascon Huarte Lain SA v. HM Attorney General for Gibraltar [2015] EWCA Civ 712 (09 July 2015).The decisions highlight two major aspects under FIDIC forms of Contract. (1) The Courts discussed the rules of the game as to claims. (2) The Court took the opportunity to examine the meaning of the termination provisions in Clause 15.It is commonplace that Sub-Clause 20.1 FIDIC 1999 establishes a notice giving requirement which is a condition precedent of a successful claim under FIDIC. The court considered that this condition precedent in Sub-Clause 20.1 bites once there is either awareness by the contractor or the means of knowledge or awareness of the event or circumstances justifying a claim.  In its view the Sub-Clause is not to be construed strictly against the contractor but rather “reasonably broadly”, given its serious effect on any potential claim. Further, the court found that that there was no particular form called for in Sub-Clause 20.1 FIDIC 1999, but only that the notice
    • should be in writing
    • describing the event or circumstances relied on and
    • notify a claim.

The English TCC held on 16 April 2014 that there is no particular form called for in Sub-Clause 20.1 FIDIC 1999 Edition and one should construe it as permitting any claim provided that it is made by notice in writing to the Engineer, that the notice describes the event or circumstance relied on and that the notice is intended to notify a claim for extension (or for additional payment or both) under the Contract or in connection with it. It must be recognisable as a “claim”.The onus of proof is on the employer to establish that the notice was given too late.In the circumstances, the court held that one of the contractor’s claims (in relation to adverse weather) was time barred in that the delay for which the Contractor sought relief had occurred more than 28 days before the relevant notice was given.A second part of the decision elaborates how the termination Clause 15 should be construed. Sub-Clause 15.2 provides that the Employer is either

    • entitled to terminate the Contract if the Contractor fails to comply with an Engineer´s notice under Sub-Clause 15.1 to make good his failure to carry out any obligation under the contract, or
    • entitled to terminate the Contract if the Contractor plainly demonstrates an intention not to continue the performance of his obligations under the contract, or without reasonable excuse fails to proceed with the works in accordance with clause 8, that is to say with due expedition and without delay,

except that termination cannot legally occur if the contractor had been prevented or hindered by the employer from remedying the failure within the specified time, since a party cannot rely on its own wrong.

In the view of the Court Clause 15 must relate to more than insignificant contractual failures by the Contractor and those which are actual rather than prospective.  It added that the period for a notice to comply must be reasonable in all the circumstances.

In the circumstances, the court decided that the Employer was entitled to terminate the Contract.

  1. The judgment Attorney General for the Falkland Islands v. Gordon Forbes Construction (Falklands) Limited, rendered by the Falkland Islands Supreme Court on 14 March 2003, gives an account of building works in the Falkland Islands  performed under the FIDIC Red Book, 4 edition, 1987.The decision is a good authority for the Interpretation of the term contemporary records and the consequences of any failure to comply with the duty to Keep such records. Contemporary records in Clause 53.4 of the FIDIC Conditions, 4th Edition (1987), means original or primary documents, or copies thereof, produced or prepared at or about the time giving rise to the claim, whether by or for the Contractor or Employer. A second decision as to the construction of the similar wording in Sub-Clause 20.1 FIDIC 1999 edition is available from Trinidad and Tobago. In National Insurance Property Development Company Ltd (NIPD) v. NH International (Caribbean) Ltd (NHIC) the High Court of Trinidad and Tobago held on 21 October 2009 that the record keeping requirement under Sub-Clause 20.1 FIDIC 1999 Edition seeks to ensure that the Engineer has the ability to make a proper investigation of the claim by placing the responsibility for such record keeping on the Contractor as the person making the claim. The requirement here therefore does not address the making of the claim but rather the substantiation of the claim.In the view of the Court a failure to comply with the record keeping reuiqrement, that is, (a) the keeping of contemporary records; (b) allowing inspection of those records by the Engineer and (c) providing a detailed claim at least 14 days after the initial notice is only to be taken into consideration insofar as it may have prejudiced a proper investigation of the claim. In other words such breaches would only be relevant at the stage of an assessment of the claim.
  2. The case PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation (Indonesia) prompted four decisions by the Singaporean Courts (2010, 2011, 2014, 2015).The case relates to a contract for the design, the procurement, the installation, testing and pre-commissioning of a pipeline and an optical fibre cable in Indonesia carried out under the FIDIC Red Book, 1999 edition. A dispute arose between the parties over certain variation order proposals and requests for payments submitted by CRW.The parties referred the dispute to the DAB which had been appointed in accordance with the Contract. The DAB heard the dispute and made several decisions, all of which were accepted, save for one, which required PGN to pay CRW the sum of US$ 17,298,834.57 in respect of this DAB decision (n° 3) dated 25 November 2008 PGN submitted a Notice of Dissatisfaction (“NOD”) and refused to pay the relevant amount.CRW subsequently brought a first arbitration against PGN in an attempt to enforce the DAB decision. The arbitral tribunal comprising three arbitrators, gave a majority final award holding that the DAB decision in question was binding and that PGN had an obligation to make immediate payment for the sum of US$17,298,834.57 to CRW.Still the matter remained unresolved. Thus, CRW filed an application to the High Court of Singapore in order to register the award as a judgment in Singapore. In response, PGN applied to the Court to set aside the registration order. Moreover, PGN also applied to Court to set aside the arbitral award pursuant to Section 24 of the Singapore International Arbitration Act and Article 34(2) of the UNCITRAL Model Law.The High Court found on in favour of PGN and set aside the ICC award which had been obtained by CRW under Article 34(2)(a)(iii) of the UNCITRAL Model Law (PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation [2010] SGHC 202).Upon appeal of CRW the Court of Appeal of Singapore confirmed the decision given by the High Court (CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33).In 2011 CRW started a second arbitration by adjusting its approach specifically to meet PGN’s earlier argument. It did so by placing before the 2011 arbitral tribunal both, the primary dispute and the secondary dispute. In response, PGN adjusted its argument to meet CRW’s new approach. This time, PGN argued that the parties’ arbitration agreement and Singapore’s international arbitration legislation do not permit an arbitral tribunal to compel PGN to comply promptly with the DAB decision unless the same arbitral tribunal– in the same award and not merely in the same arbitration – also hears and determines the primary dispute on the merits.Again, also the 2011 tribunal has, by a majority decision, rejected PGN’s argument. It therefore issued an interim or partial award compelling PGN to comply with the DAB decision.Again PGN applies to set aside the (new) tribunal’s interim or partial award and, with it, the order permitting CRW to enforce that award.This time the High Court Singapore granted relief to CRW and dismissed PGN´s application to set the (second) ICC award aside (PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation (Indonesia) and another matter [2014] SGHC 146). By majority decision the Court of Appeal upheld this High Court decision (PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation [2015] SGCA 30).The first PGN case provides guidance on the distinction between Sub-Clause 20.6 and Sub-Clause 20.7. Whether a DAB decision should be enforced by means of arbitration under Sub-Clause 20.6 or Sub-Clause 20.7 currently depends on whether a valid Notice of Dissatisfaction had been submitted and consequently, whether the DAB decision is as referred to under FIDIC “final and binding” (which means that no NOD had been submitted) or merely “binding” (which means that a valid NOD had been submitted).The second PGN case demonstrates that properly applied the FIDIC form of Contract does not leave claimants alone as it had been argued sometimes. Actually there is not really a gap. Rather it was always and is still possible to enforce a binding DAB decision which has not yet become final through arbitration by means of an interim award (see ICC Award N° 10619). The High Court Singapore has clearly demonstrated on how a claimant should proceed in order to enforce a merely binding DAB decision (PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia) and another matter [2014] SGHC 146). The Court of Appeal confirmed that on no basis was the Interim Award as given a provisional award. On the contrary, it was a final determination of whether PGN had an immediate and enforceable contractual obligation to comply with DAB decision No 3 even though it had issued an NOD in respect of that decision.
  1. In the South African decision of Esor Africa (Pty) Ltd/Frankl Africa (Pty) Ltd JV and Bombela Civils JV (Pty) Ltd, SGHC case no. 12/7442, [2012] ZAGPJHC 54 (decided on 11 April 2012)a dispute arose in out of contract for certain piling and lateral support work on the Gautrain rapid rail link Project to be executed by Esor Africa (Pty) Ltd / Franki Africa (Pty) Ltd JV (the Contractor). The dispute was referred to a single member DAB in terms of Sub-Clause 20.4 of the FIDIC Conditions of Contract 1999 (First Edition). The DAB gave its decision which was in favour of the Contractor. The Employer refused to make payment in terms of the decision relying, inter alia, on the fact that it had given a notice of dissatisfaction. Subsequently  the Contractor approached the Court in order to seek for an order compelling compliance with the decision.The matter came before Spilg J who observed that he found the wording of the relevant contractual provisions to be clear and that their effect is that whilst the DAB decision is not final

           “the obligation to make payment or otherwise perform under it is…

In granting an order for specific performance Spilg J concluded that

“[I]n order to give effect to the DAB provisions of the contract the respondent cannot withhold payment of the amount determined by the adjudicator, and in my view is precluded by the terms of the provisions of clause 20 (and in particular clauses 20.4 and 20.6) from doing so pending the outcome of the Arbitration”.

The Court found the key to comprehending the intention and purpose of the DAB process to be the fact that neither payment nor performance can be withheld when the parties are in dispute:

“the DAB process ensures that the quid pro quo for continued performance of the contractor’s obligations even if dissatisfied with the DAB decision which it is required to give effect to is the employer’s obligation to make payment in terms of a DAB decision and that there will be a final reconciliation should either party be dissatisfied with the DAB decision…”

The court further held that the respondent was not entitled to withhold payment of the amount determined by the adjudicator and that he

“is precluded by the terms of the provisions of clause 20 (and in particular clauses 20.4 and 20.6 from doing so pending the outcome of the Arbitration.”

  1. The case of Tubular Holdings (Pty) Ltd v. DBT Technologies (Pty) Ltd decided by the South Gauteng High Court (Johannesburg) on 3 May 2013 concerned a similar case like the above.Once again a DAB had made a decision pursuant to Sub-Clause 20.4 of FIDIC 1999 edition which did not become final since one of the parties had expessed its dissastisfaction with the decision of the Dispute Adjudication Board handed down on 5 December 2012. The Court ordered that the respondent had to forthwith give effect to the DB decision ([2013] ZAGPJHC 155).Du Plessis AJ construed Sub-Clause 20.4 FIDIC 1999 edition as follows:

The effect of these provisions is that the decision shall be binding unless and until it has been revised as provided. There can be no doubt that the binding effect of the decision endures, at least, until it has been so revised. It is clear from the wording of clause 20.4 that the intention was that a decision is binding on the parties and only loses its binding effect if and when it is revised. The moment the decision is made the parties are required to “promptly” give effect to it. Given that a dissatisfied party has 28 days within which to give his notice of dissatisfaction it follows that the requirement to give prompt effect will precede any notice of dissatisfaction.

It is worth to note that South African Courts seem to continuously enforce merely binding DAB decisions. In a further case involving a JBCC contract relied on the previous case law in Tabular Holdings and Esor Africa (see Stefanutti Stocks (Pty) Ltd v. S8 Property (Pty) Ltd (20088/2013) [2013] ZAGPJHC 388 (23 October 2013)).

  1. The case Sedgman South Africa (Pty) Ltd & Others v. Discovery Copper Botswana (Pty) Ltd decided by the Queensland Supreme Court ((2013] QSC 105) on 30 April 2013 related to a contract for a new processing plant in Botswana 80km south west of the town of Maun carried out under the FIDIC Silver Book, 1999 edition.The lesson from the Sedgman case is that the FIDIC terms and conditions should be read together with the existing guidance provided by FIDIC, and against the genesis of the clauses. Further, jurisdictional issues should be dealt with in a way which gives effect to the Parties’ contractual bargain. Moreover, the Silver Book payment provisions do not need to be re-interpreted.
  1. The case of Hutuma-RSEA Joint Operations, INC., v. Citra Metro Manila Tollways Corporation decided by the Supreme Court  Manila on 24 April 2009, gives attention to a contract for a Skyway in Manila carried out under the FIDIC Silver Book 1999 edition.The Court held that that the adjudication Sub-Clause 20.4 was not enforceable. It found that
    • the incorporation of an arbitration clause in the EPCC is sufficient to vest the Construction Industry Arbitration Commission (CIAC) with jurisdiction over any construction controversy or claim between the parties.
    • the arbitration clause in the construction contract ipso facto vested the CIAC with jurisdiction and
    • this rule applies, regardless of whether the parties specifically choose another forum or make reference to another arbitral body.Therefore, the Court concluded that since the jurisdiction of CIAC is conferred by law, it cannot be subjected to any condition; nor can it be waived or diminished by the stipulation, act or omission of the parties, as long as the parties agreed to submit their construction contract dispute to arbitration, or if there is an arbitration clause in the construction contract. The parties will not be precluded from electing to submit their dispute to CIAC, because this right has been vested in each party by law.
  1. By contrast Kenyan Courts seem to strictly follow the FIDIC regime. In Midroc Water Drillining Co Ltd v. Cabinet Secretary, Ministry Of Environment, Water & Natural Resources & 2 others [2013] eKLR the High Court of Kenya at Nairobi made a decision on 17 December 2013 on a dispute which arose out of a FIDIC 1987 edition contract. The defendant argued that the suit was premature.In this regard, the court took the view that Clause 67 of the FIDIC Conditions of Contract, 1987 edition, is any other method of dispute resolution that is not excluded by Article 159 (2) (c) of the Constitution of Kenya. The said method of dispute resolution is also envisaged under Section 59 C of the Civil Procedure Act Cap 21 (laws of Kenya) which provides as follows:“(1) A suit may be referred to any other method of alternative dispute resolution where the parties agree or the court considers the case suitable for such referral (emphasis mine)
    (2) Any other method of alternative dispute resolution shall be governed by such procedure as the parties themselves agree to or as the Court may, in its discretion order.”It then continued to say:…, what cuts across all the editions of the FIDIC Conditions of Contract is that the dispute between the Employer and the Contractor must be referred to the Engineer when a dispute arises in the first instance.  The various editions provide for distinct methods of resolution of the disputes, firstly to the Engineer. If the parties are not satisfied with the decision of the engineer the matter may proceed for determination by way of amicable settlement and if a party is once again dissatisfied, the matter may be referred to Dispute Adjudication Boards and finally to arbitration as the last dispute resolution mechanism therein. The sequence really depends on the edition of the FIDIC Conditions of Contract.The Court finally made in order to stay and directed the pending proceedings be stayed and that parties commence settlement of their dispute in accordance with FIDIC Conditions of Contract as calling upon the court to intervene in the dispute between the plaintiff and the defendants was premature. In the view of the Court parties are at liberty to invoke the jurisdiction on this court only as has been provided by the Arbitration Act or any other relevant law as they clearly opted for a mode of settlement of their disputes in other fora other than the court, by their very execution of the FIDIC conditions of contract.
  2. The case Doosan Babcock Ltd v. Comercializadora De Equipos Y Materiales MABE Limitada ([2013] EWHC 3010 (TCC)) decided by the UK Technology and Construction Court on 11 October 2013 involved an application by the claimant for an interim injunction to restrain the respondent (“MABE”) from making demands for payment under two performance guarantees.The Contract was for the supply of two boilers for a power plant in Brazil. MABE relied on a provision in the contract which, it said, permitted it to withhold a Taking-Over Certificate where the unit has been used by the employer only as a temporary measure. In spite of the fact that the two units had, since they were taken into use, exported more than 7,500 hours of power at various loads to the local grid, MABE maintained that their current use was a temporary measure.The contract was based on the FIDIC form of contract with some modifications. Sub-Clause 20.2 provided that disputes shall be adjudicated by a Dispute Adjudication Board (“DAB”). It provided also (by amendment) that the DAB was to be appointed by the parties within 42 days of the contract Commencement Date, but the Court was told that this had not happened. The Court then observed that Sub-Clause 20.6 provides that in the case of any dispute in respect of which the DAB’s decision had not become final and binding, the dispute was to be finally settled by international arbitration. In the case at hands the place of arbitration was stated to be London. By clause 20.8, if no DAB been has been appointed, the dispute can be referred directly to arbitration.Sub-Clause 4.2 concerned the Performance Security. Here the entirety of the original wording of the FIDIC form had been deleted and new wording substituted. Under the wording of the FIDIC standard form the Employer can only make the claim under the performance guarantees in certain specified situations. Here, by the substituted wording these restrictions had been removed and so the Employer had an unfettered right to make a demand under the performance guarantees subject only to their terms. The form of the performance guarantees was provided in a schedule to the contract. There was a separate performance guarantee for each of the two units.By the terms of the guarantees the provider of the guarantee undertook to pay MABE:”… on receipt of your first demand on us in writing stating that [the Claimant] has not performed its obligations in conformity with the terms of the Contract.”When MABE gave reasons to the Contractor to believe that MABE planned to call the guarantees it applied for an injunction. It argued that the MABE was in breach of Contract since the Engineer withheld the Taking-Over Certificate which he was supposed to issue in accordance with Sub-Clause 10.2.The Court held, that in the circumstances the Claimant was entitled to interim relief, at least for a short period.
  3. The matter National Insurance Property Development Company Ltd (NIPD) v. NH International (Caribbean) Ltd (NHIC)relates to a Contract for the construction of the new Scarborough Hospital in Tobago. NIPD engaged NHIC to construct a new hospital in Tobago. The contract between the parties incorporated the standard FIDIC General Conditions of Contract for Construction 1999 (the “FIDIC Red Book, 1999”). A dispute arose as to the proper interpretation of two clauses in the FIDIC General Conditions of Contract for Construction 1999. The Parties referred the disputes to arvitration in accordance with the terms of the Contract.NIPDC and NHIC appealed the arbitrator’s findings as to Sub-Clauses 2.4 and 2.5 of the Red Book respectively. The appeals proceeded first through the High Court (decided by the Trinidad and Tobago High Court on 14 November 2008) and Court of Appeal in Trinidad and Tobago and ultimately to the Privy Council in the United Kingdom.The interesting part of the decisions dealt with the construction of Sub-Clause 2.4. The Sub-Clause reads as follows:The Employer shall submit, within 28 days after receiving any request from the Contractor, reasonable evidence that financial arrangements have been made and are being maintained which will enable the Employer to pay the Contract price (as estimated at that time) in accordance with Clause 14 [Contract Price and Payment]. If the Employer intends to make any material change to his financial arrangements, the Employer shall give notice to the Contractor with detailed particulars.
    Hence, Sub-Clause 2.4 of the Red Book required NIPD to submit, upon request by NHIC, “reasonable evidence that financial arrangements have been made and are being maintained which will enable [NIPDC] to pay the Contract Price”. Moreover Sub-Clause 2.5  provides:
    “If the Employer considers himself to be entitled to any payment under any Clause of these Conditions or otherwise in connection with the Contract … the Employer or the Engineer shall give notice and particulars to the Contractor. …
    The Notice shall be given as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim. … The particulars shall specify the Clause or other basis of the claim, and shall include substantiation of the amount and/or extension to which the Employer considers himself to be entitled in connection with the Contract.

    The Employer shall only be entitled to set off against or make any deduction from an amount certified in a Payment Certificate, or to otherwise claim against the Contractor, in accordance with this Sub-Clause.”
    On 28 April, 2005, NHIC invoked clause 2.4 and requested the evidence under Sub-Clause 2.4. Having claimed that it had not received the requested evidence, on the 31st May, 2005 NHIC issued a 21 day notice under clause 16.1 threatening NIPD to suspend/reduce work. NHIC claimed that it was therefore entitled to reduce its rate of work from the 23rd June, 2005, and did so.
    Clause 16 entitled NHIC to suspend work (or reduce the rate of work) under the Contract and to terminate the Contract if NHIC did not receive the reasonable evidence required by Sub-Clause 2.4 within a specified period of time subject to certain notice requirements being met. Hence, the question was whether NHIC was entitled to evidence that NIPD had made and maintained financial arrangements enabling NIPD to pay the Contract Price as estimated at that time.The initially involved arbitrator had held that such evidence was missing since NIPD omitted to provide NHIC with the evidence that relevant cabinet approval had been obtained. The arbitrator construed Sub-Clause 2.4 such that Sub-Clause 2.4 did not simply require evidence that the Employer was able to pay, but that financial arrangements had been made and were being maintained which would enable the Employer to pay. In his view, proper weight had to be given to all the words which were included in Sub-Clause 2.4. Then, the Arbitrator found that the mere fact that an Employer was wealthy was inadequate for the purposes of Sub-Clause 2.4. Accordingly, in his view the mere evidence that the Government of Trinidad and Tobago had very substantial funds did not by itself satisfy Sub-Clause 2.4.The arbitrator then continued to conclude that emerging from the evidence before him as regards the significance of Cabinet approval was that (quite properly and for very good public policy reasons), the Government cannot pay large sums of public money in respect of costs overruns on construction contracts unless Cabinet approval was given in advance, or perhaps, retrospectively. The issue of Cabinet approval therefore could not be ignored in respect of Sub-Clause 2.4. In the arbitrator´s view it was at some point an essential element of any arrangement to pay.The High Court held that NIPD failed to demonstrate that the Arbitrator proceeded on any wrong principle of law or construction.The Privy Council partially disagreed with the arbitrator and the Courts in Trinidad and Tobago. While the Privy Council endorsed the arbitrator’s view of Sub-Clause 2.4 and upheld his finding that NIPD’s failure to provide evidence of Cabinet approval entitled NHIC to terminate the contract it disagreed with the arbitrator finding with regard to Sub-Clause 2.5. In the view of the Privy Council Sub-Clause 2.5 does not only prohibit the Employer from setting off any sum against any amount certified in a Payment Certificate”, and therefore (dissenting from the previous views in arbitration and domestic litigation) prevents the Employer from exercising his right of set-off in any other way”, and in particular also “against amounts that are not certified”. The Privy Council held with regard to Sub-Clause 2.5: 

    “… Its purpose is to ensure that claims which an employer wishes to raise, whether or not they are intended to be relied on as set-offs or cross-claims, should not be allowed unless they have been the subject of a notice, which must have been given “as soon as practicable”. If the Employer could rely on claims which were first notified well after that, it is hard to see what the point of the first two parts of clause 2.5 was meant to be. Further, if an Employer’s claim is allowed to be made late, there would not appear to be any method by which it could be determined, as the Engineer’s function is linked to the particulars, which in turn must be contained in a notice, which in turn has to be served “as soon as practicable”.
    “… the natural effect of the closing part of clause of 2.5 is that, in order to be valid, any claim by an Employer must comply with the first two parts of the clause, and that this extends to, but, in the light of the word ‘otherwise’, is not limited to, set-offs and cross-claims.”


    Thus, it emerges from the Privy Council decision that Employers are recommended:

    • to give claim notices promptly
    • to be accompanied by particulars specifying the basis of the claim
  1. In the case Knowman Enterprises (Pty) Ltd v. China Jiangsu International Botswana (Pty) Ltd and Others involving a subcontract under FIDIC 1987 edition by notice of motion filed in the High Court of Botswana the subcontractor sought the following Order:that the Main Contractor be strictly restrained and enjoined itself or through its servants or agents directly or indirectly from terminating the sub-contract between the parties relating to … or from taking any action whereby the Subcontratcor is hindered or disturbed in its functions thereunder pending the final determination of all matters of dispute between the Subcontractor and the Main Contractor.The Subcontractor argued that since the Engineer approved the subcontract, the Sub-contractor was a nominated subcontractor as contemplated by Clause 59.1 FIDIC Red Book 1987, 4th edition of the Contract between the Employer and the Contractor. The Contractor on the other hand contended that, the the Subcontractor was not a nominated sub-contractor as contemplated by Clause 59.1 FIDIC 1987 but a mere domestic subcontractor who is governed by the conditions of the agreement under the subcontract. The Court ordered that the Engineer appeared for the purpose of clarifying the distinction between a nominated contractor and a domestic contractor.The Engineer explained that the only purpose for which the Engineer´s consent or approval is required in terms of Clause 4.1 FIDIC 1987, is to ensure that the sub-contractor chosen by the main contractor is competent to do the work. The Engineer specifically said his consent or approval of a domestic sub-contractor did not elevate such sub-contractor to the status of a nominated contractor. Moreover the Engineer revealed that if the Subcontractor were a nominated sub-contractor the termination of the Subcontractor´s contract would not lie within the power of the main contractor but with the employer and therefore an attempt to terminate by the main contractor would be of no legal consequence.Held by the High Court of Botswana (at Francistown) on 28 February 2007 (AHFT-000 005 of 2007) that on the balance of probabilities the Subcontractor was not a nominated sub-contractor as contemplated by Clause 59.1 of the FIDIC Contract.It should be noted that Clause 59.1 FIDIC 1987 as well as its homologue in Sub-Clause 5.1 FIDIC Red Book 1999 edition do not establish privity of contract between the employer and the any type of subcontractor. Such effect would require express wording and in principle a tripartite contract unless the law gives effect to a contract pour autrui (contract for the benefit of a third party or stipulatio alteri) . Actually the law may give effect to a contract whereunder a third party who is not a contracting party may enforce the contract. The general rule in Dutch-Roman law was that such stipulations were not enforceable (Hutchinson/Pretorius, The Law of Contract, 2nd edition, at page 226). However, South African Courts have shown their willingness to enforce such stipulation pur autrui (cf. Movie Camera Company (PTY) Ltd v. Van Wyk and Another (8333/2001, 2284/2002) [2002] ZAWCHC 72; Eldacc (Pty) Ltd v. Bidvest Properties (Pty) Ltd (682/10) [2011] ZASCA 144 (26 September 2011)). The authority in respect of subcontracting seems to be the case Lillicrap, Wassenaar and Partners v. Pilkington Brothers (Pty) Ltd 1985 (1) SA 475 (A) which involved a structural engineer and its liablity as a subcontractor. Here the Court held that the tripartite relationship between Pilkington (as employer), Salanc (as main contractor) and Lillicrap (as subcontractor) had its origin in contract. However Pilkington (the employer) had to follow the contractual chain via Salanc (main Contractor) to Lillicrap (subcontractor)
  2. The Swiss Supreme Court (Bundesgericht (German)-Tribunal federal (French)-Tribunale federale (Italian)) has held on 7 July 2014 (file number 4A_124/2014) that as a matter of principle FIDIC dispute adjudication clauses (20.2 to 20.4) are valid and enforceable. Therefore it concluded that the Parties have to refer the dispute to a DAB before they may involve an arbitral tribunal. In the view of the Court the mere fact that no Dispute Adjudication Agreement was signed does not justify the conclusion that there is no DAB in place as referred to in Sub-Clause 20.8 FIDIC 1999. However, in the light of the specific circumstances it upheld the decision of the Arbitral Tribunal to accept jurisdiction ratione temporis to address the request which the contractor had actually filed to arbitration.Actually the impatient and dissatisfied Contractor filed a request for arbitration without having referred the dispute to a DAB. In his view he was no longer supposed to comply with Sub-Clauses 20.2 et seq. FIDIC since until July 2012, thus after 15 months of exchange of communication between the Parties did not accomplish the appointment of an operational DAB. Actually, though in July 2012 the Parties were successful in appointing a three member DAB the DAB was not yet operational in that still no Dispute Adjudication Agreement was signed.The Supreme Court concluded that the wording in Sub-Clauses 20.2 et seq. do not suggest that the Parties are obliged to sign a DAA and that the Contractor did not act in bad faith when he referred the dispute to arbitration. Rather it held that after 15 months of unsuccessful negotiations the Employer was in bad faith to object the arbitral tribunal´s jurisdiction. Albeit the Court confirmed that Sub-Clauses 20.2 et seq. provide for mandatory adjudication it was of the view that Sub-Clause 20.8 suggests that exceptions are allowed. In the circumstances it therefore held that the arbitral tribunal had jurisdiction to decide on the dispute.From the practical point of view the award provides for guidance as to difficulties which may arise with regard to to the appointment of DAB mmebers and the execution of the DAA (Dispute Adjudication Agreement). For instance the Contractor failed for good reasons to mobilize FIDIC for the purpose of establishing the DAA. The FIDIC President  is avilable in accordance with Sub-Clause 20.3 to appoint DAB members. Thereafter it is within the exclusive competence of the parties and each DAB member to negotiate and agree on terms and conditions of the DAA. Ex parte Agreements may be admissible to the extent one of the parties transingently fails to cooperate.
  3. The English case of Peterborough City Council v. Enterprise Managed Services Ltd1) concerned contract based on the FIDIC Silver Book.The English TCC was involved in an application by the Defendant (“EMS”) for an order to stay the action brought in the court by the Claimant (“the Council”) in respect of a dispute arising out of a FIDIC Silver Book contract made between the Council and EMS by which EMS agreed to design, supply, install, test and commission a 1.5 MW solar energy plant on the roof of a building owned by the Council. The Conditions of Contract included the regular FIDIC dispute adjudication clause while the Parties substituted arbitration for litigation.Actually  the claimant commenced court proceedings in the English TCC arguing that it was entitled to in effect opt-out of the requirement in Sub-Clause 20.2 of the FIDIC Silver Book where it did not wish to have a dispute resolved by the DAB and to refer the dispute directly to court (which had been chosen by the parties as the final determination procedure, rather than arbitration).The Claimant argued that he was allowed to deviate from the FIDIC dispute resolution machinery in relying on Sub-Clause 20.8 which provides that a dispute may be referred directly to arbitration (or, in this case, litigation) in circumstances where “there is no [DAB] in place, whether by reason of the expiry of the [DAB’s] appointment or otherwise.” In his view the “or otherwise” part of Sub-Clause 20.8 was applicable. Moreover he relied on the argument that the parties could not be under a mandatory obligation to achieve the appointment of a DAB and that the phrase “or otherwise” was wide enough to include a state of affairs where a DAB was not in place because the Dispute Adjudication Agreement had not been concluded between the parties and the DAB, a position with which the Swiss Supreme Court2) recently concurred.The TCC held, that the Claimant´s action had to be stayed. Accordingly the Court left the Parties to resolve their dispute in accordance with the contractual machinery, a position which is perfectly in line with other English case law which typically upholds contractual Alternative Dispute Resolution clauses3). The Court confirmed that the FIDIC dispute resolution clauses are valid and enforceable. In the view of the Court Sub-Clause 20.8 should not be construed to widely.Rather, Mr Justice Edwards-Stewart concluded that the words “or otherwise” should be viewed narrowly with the effect that Sub-Clause 20.8 does not give either party “a unilateral right to opt out of the DAB process, save in a case where at the outset the parties have agreed to appoint a standing DAB and that, by the time when the dispute arose, that DAB had ceased to be in place, for whatever reason. In respect of other cases like in the case at hand the Court was of the view that a DAB is already in place once it has been appointed. For the Court it emerged clearly from the words “final and conclusive” in sub-clause 20.3 that the process of appointment is complete once the nominating body has “appointed” the adjudicator. The Court clarified that that must mean the identification of a particular person as the adjudicator because the appointing body cannot make the Dispute Adjudication Agreement for the parties. In the Court´s judgment, therefore, a DAB is already “in place” once its member or members have been duly appointed in this way because from that moment onwards a dispute can be referred to it. Moreover the Court rejected Claimant´s argument that the failure to agree on a Dispute Adjudication Agreement demands the application of Sub-Clause 20.8. Rather the Court could not see why a Party refusing to sign the Dispute Adjudication Agreement could not be compelled to do so by an order for specific performance at the suit of one or more of the other parties. It held that, in the absence of any agreement between the parties, the effect of incorporating the Appendix to the Conditions as the terms of the Dispute Adjudication Agreement was that all the relevant terms of that agreement would be in place save for agreement of the adjudicator’s fees.  In my view, there would be an implied term of that agreement – reflecting the common intention of the parties to it – that the adjudicator would be entitled to his or her reasonable fees and expenses.The TCC decision does not consider the recent Swiss Supreme Court decision but it clearly deviates from the Swiss views on the adjudication clauses.
  4. The English case Honeywell International Middle East Ltd v. Meydan Group Llc4) concerned various procedual aspects.The English TCC (HHJ Akenhead) held on 30 April 2014 for the reasons set out in the judgment that it did not consider that the aggrievd Party (Meydan = Employer) had raised any ground which had a real prospect of success in relation to its application to set aside the Order by which Honeywell (the Contractor) was given leave to enforce the Award in the same manner as a judgment or order of the court to the same effect. The case was decided on the following merits:On 17 September 2007 Meydan entered into a contract (“the Arabtec Contract”) with a main contractor Arabtec-WCT JV (“Arabtec”) under which Arabtec agreed to carry out certain works at the Meydan Racecourse, including an extra low-voltage (“ELV”) system in the hotel, grandstand, boat house and the Dubai Racing Club which were all located there. On 29 June 2008 Meydan nominated Honeywell as the nominated subcontractor to be appointed by Arabtec under the Arabtec Contract to install an ELV system. Honeywell was subsequently engaged as a sub-contractor by Arabtec although no formal written agreement was entered into. Honeywell commenced work at the site on 19 July 2008.The Arabtec contract was terminated in January 2009 but Honeywell continued to work at the Meydan Racecourse. In DIAC arbitration case 02/2009 Arabtec commenced proceedings against Meydan. On 10 March 2009 Meydan sent Honeywell a letter of acceptance informing them that they had been awarded a contract to execute and complete the supply, installation, testing and commissioning of the ELV system at the Racecourse. On 17 March 2009 Honeywell wrote to Meydan and confirmed their acceptance of the terms and conditions in the letter of acceptance but noted certain points arising out of those provisions. On 17 May 2009 TAK wrote to Honeywell, responding to the comments in Honeywell’s letter of 17 March 2009. The letter indicated that it was copied to Meydan.On 7 June 2009 an agreement incorportaing FIDIC Conditions of Contract was signed between Meydan and Honeywell for the execution and completion of the supply, installation, testing and commissioning of the ELV System at the Racecourse (“the Contract”). The Contract indicated that it was signed by Mr. Fakhri Valikarim above Honeywell’s seal or stamp.The FIDIC Contract incorporated at Clause 20.6 the following provision in relation to Arbitration:”Unless settled amicably, any dispute shall be settled by international arbitration. Unless otherwise agreed by both Parties:(a) the dispute shall be finally settled under the Rules of Commercial Conciliation and Arbitration 1994 of the Dubai International Arbitration Centre
    (b) the dispute shall be settled by three arbitrators appointed in accordance with these Rules,
    (c) the arbitration shall be conducted in the language for communication defined in Sub-Clause 1.4 [Law and Language], and
    (d) the venue of the arbitration shall be Dubai.”Under the Honeywell Contract Honeywell obtained a Dubai Arbitration Award issued on 1 March 2012. By Order made on 12 November 2012 Mr. Justice Akenhead gave a leave to enforce the Dubai Award. Subsequently Meydan submitted a request to set aside the Order. On 4 March Justice Ramsey informed the Parties that on the basis of the evidence and submissions he dismissed Meydan´s application to set the order aside.Among other things Meydan had submitted that in the absence of ratification by the Court of Appeal or the Court of Cassation in Dubai the arbitral Award was neither enforceable nor binding under UAE law. However, the English Court held that Honeywell was successful in ratifying the Award in the Dubai court of first instance and that the 1958 New York Convention does eliminate the “double Exequatur” requirement. Thus, there was no requirement “for anything to occur in the local Courts for an Award which is final and binding” under the Dubai Rules. A further issue was whether the Contract between the Parties was unenforceable as  a result of purported bribery. In this respect the English Court held that in accordance with English law bribery is clearly contrary to English public policy and therefore contracts to bribe are unenforceable while contracts which have been procured by bribes are not unenforceable. It therefore concluded that Meydan´s application had no real prospects to be successful.
  1. The Namibian case Roads Authority v. Kuchling (A 188/2015) [2016] NAHCMD 32 (22 February 2016) involved a road Project under the FIDIC Red Book.The Court very clearly observed what the role of the DAB is.  It shall  “resolve disputes between the parties to the agreement through adjudication proceedings”. Hence, the application which was brought to stop an internal and domestic adjudication proceedings from continuing before a duly established Dispute Adjudication Board (‘the DAB’) was about to fail.A DAB had been appointed and was in place. The court upheld an interim DAB decision which confirmed the DAB´s jurisdiction with regard to a dispute which the Contractor had referred to it. The Namibian High Court (Main Division, Windhoek) found that the DAB was entitled to make the interim decision on the preliminary issues. In the view of the Court the DAB did not misconceive its duty under the reference and did not breach any procedural rules under the agreement or rules of natural justice. Actually the Employer had brought an application for an order to refer DAB’s interim decision to Arbitration. A rule nisi was granted by agreement between the parties. Upon the return day court found that the interim decision has not brought finality to the dispute under the reference and so the decisional process under the DAB has not come to an end. The Court found further that the Employer had failed to establish that the DAB had violated procedural rules under the agreement when it refused to permit its interim decision to be referred to Arbitration. Form the Court´s perspective the DAB’s refusal could not be considered as violating its procedural duty to act fairly and to adopt procedures suitable to the dispute, avoiding unnecessary delay and expense.  Consequently, the Court concluded that Employer  had not established any contractual right which the court was ready to protect by stopping the internal adjudicating process and referring the interim decision to Arbitration. Rather the Court found that what the Emplyoer sought for will produce the very consequence the Employer’s counsel fears, namely, unnecessary delay and expense.  Consequently, rule nisi was discharged and the application was dismissed with costs.In the view of the Court, the following applies: if a dispute is referred to a DAB  to hear the dispute and the DAB takes a decision – an interim decision – relevant to the dispute, but has not yet decided on the dispute referred to it, it will be unacceptable to approach the Courts to stop the DAB proceedings and order a referral of the dispute to arbitration.
  1. The English case J Murphy & Sons Ltd v. Beckton Energy Ltd [2016] EWHC 607 (TCC) (18 March 2016) concerned the FIDIC Yellow Book, in particular a discusison of Sub-Clauses 2.5, 3.5 and 8.7.The case involved involved a threatened call on an “on-demand” performance bond under the FIDIC Conditions of Contract for Plant and Design Build for Electrical and Mechanical Plant and for Building and Engineering Works designed by the Contractor First Edition 1999 (“the FIDIC Yellow Book”). The contractor argued that the Employer was only entitled to payment of liquidated damages in accordance with Sub-Clause 8.7 subject to Sub-Clauses 2.5 and 3.5.The judge referred as to the width of Sub-Clause 2.5 to a preceding decision in NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd [2015] UKPC 37. There the question under consideration was whether or not a claim to set-off or cross-claim by the employer fell within the scope of an identical clause to Sub-Clause 2.5. Lord Neuberger said this at paragraph 40 :

…More generally, it seems to the Board that the structure of clause 2.5 is such that it applies to any claims which the Employer wishes to raise. First, “any payment under any clause of these Conditions or otherwise in connection with the Contract” are words of very wide scope indeed. Secondly, the clause makes it clear that, if the Employer wishes to raise such a claim, it must do so promptly and in a particularised form : that seems to follow from the linking of the Engineer’s role to the notice and particulars. Thirdly, the purpose of the final part of the clause is to emphasise that, where the Employer has failed to raise a claim as required by the earlier part of the clause, the back door of set-off or cross-claims is as firmly shut to it as the front door of an originating claim.

Unfortunately the case involved the interpretation of bespoke clauses. The Court was requested to consider the fact that Sub-Clause 8.7 was drafted specifically by the parties for the purposes of the Contract. Clause 2.5 remained simply unamended from the FIDIC Yellow Book. Since Sub-Clause 8.7 had been amended the issue was whether it should be given greater weight than Sub-Clause 2.5. Actually the Parties had deleted the words “subject to sub-clause 2.5” from Clause 8.7 which required a decision on whether this meant that prima facie the parties did not intend Sub-Clause 8.7 to be subject to Sub-Clause 2.5.

Held that in the circumstances, even without agreement or determination of the Engineer under Sub-Clauses 2.5 and 3.5 the Employer was entitled in good faith to assert breach on the part of the Contractor for delay and claim a sum of delay damages as a consequence of such breach for the purpose of the Bond.

Carr J refused to grant the declaratory and injunctive relief the contractor sought, finding that the employer was entitled to recover delay damages from the contractor and that the Engineer’s agreement or determination of the amount of the contractor’s liability for delay damages was a not a pre-requisite to this recovery [J Murphy & Sons Ltd v. Beckton Energy Ltd [2016] EWHC 607 (TCC)].

  1. An unreported German case involving a FIDIC contract related to the issue of ADR costs.ADR proceedings are not for free. It might become difficult to involve DABs and/or arbitral tribunals if the applicant is shortcoming in money.In the event of ICC proceedings the Parties shall first pay the requested fees to the ICC. Meanwhile it may hold the case in abeyance and fix an abeyance fee in accordance with Article 2(5) Appendix III. However, if the Parties fail to make the requested payments the ICC (the Secretary General) may –after consultation with the arbitral tribunal- suspend its work and set a time limit on the expiry of which the relevant claims shall be considered as withdrawn (Article 36(6) ICC Arbitration Rules).In Germany a contractor has suggested that he may deviate from the FIDIC multi-tier dispute clause arguing that he was impecunious and unable to make the advance payments as requested under ICC Arbitration Rules. He actually placed before the High Court Frankfurt a request to grant legal aid after having had initiated ICC proceedings in accordance with the contract. The court dismissed the application by concluding that the applicant had failed to submit evidence for its indigence and that the underlying arbitration clause was anyway binding and enforceable. Moreover the ICC emphasized that the ICC proceedings were merely held in abeyance and the principle of lis pendens, well established in the civil procedure rules of most civilian countries, applies (unreported decision by the High Court Frankfurt dated 3 June 2014).
  1. The Romanian Cassation Court, 21.11.2102, n° 4613 (S.Y.I.V.T. AS v. Satu Mare SA) concerns a contract for a wastewater treatment plant in Romania funded by the European Union under ISPA 2002 RO 16 P PE 019-05. The contractor (S.Y.I.V.T. AS) pursued a claim against the employer (Satu Mare SA). In August 2010 a Dispute Adjudication Agreement was signed with the sole adjudicator. In the subsequent DAB proceedings the Contractor obtained a DAB decision under Sub-Clause 20.4 FIDIC in respect of which the Employer issued a notice of dissatisfaction. Thereafter the Contractor applied at the Romanian court at Satu Mare to recognize and enforce the DAB award under the 1958 New York Convention. While this matter was pending he also referred the matter to ICC arbitration under Sub-Clause 20.7. The local court in Satu Mare, the Court of Appeal and the Cassation Court have rejected the application.The Cassation Court dismissed the application concluding that the merely binding DAB decision was not to be treated as a final arbitral award. Hence the merely binding DAB decision did not fall within the scope of application of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards see also the Report from V. Junger (
  1. Joint Venture between Aveng (Africa) (Pty) Ltd and Strabag International GmbH v. South African National Roads Agency Soc Ltd and Another (577/2019) [2020] ZASCA 146 (13 November 2020). This case helps to understand the pitfalls which are related to the call on the Performance Security.At the heart of this dispute was whether the Employer was restricted by the underlying contract between it and the Contractor, from demanding payment in terms of a performance guarantee issued in its favour by the guarantor, an insurance company. The guarantee was issued pursuant to a written construction contract comprising of the standard form Fédération Internationale des Ingénieurs-Conseils (<FIDIC>) Conditions of Contract for Construction for Building and Engineering Works designed by the Employer (1999), the so-called <FIDIC> Red Book, which contains general conditions, guidance for the preparation of particular conditions, and annexes: forms of letter of tender, contract agreement and dispute adjudication agreement, concluded between Contractor and the Employer in August 2017, for the construction of the Mtentu River Bridge on the N2 Wild Coast Toll Road in the Eastern Cape.A disagreement arose as to whether disruptions at the construction site as a result of civil unrest and commotion at the site constituted force majeure, which entitled the Contractor to terminate the contract. Following the unrest, on 30 January 2019 Contractor gave a notice to terminate the Contract under Sub-Clause 19.6 and subsequently the Employer denying the Contractor´s entitlement to terminate gave itself a notice on 5 February 2019 under Sub-Clause 15.2. A dispute was referred to arbitration in terms of Clause 20 of the General Conditions of the Contract.Pending the arbitration proceedings the Employer advised the Contractor that it intended to call up the performance guarantee. As a result, the Contractor applied to the Gauteng Division of the High Court, Pretoria, for an interlocutory interdict, restraining the Employer from calling up the guarantee, pending the outcome of the arbitration proceedings. The Contractor argued that the Employer’s call on the guarantee would be unlawful, as it had not met certain conditions in the underlying contract which limited its right to call up the guarantee. The Judge dismisses the Contractor’s application with costs concluding that, on the facts of the case, the Contractor had failed to make out a prima facie case that the disruption of the works constituted force majeure. On appeal of the Contractor the Supreme Court reminded the Parties of the general well settled law of South Africa on the nature and effect of letters of credit (which applies equally to performance guarantees), which firmly recognises the autonomy principle, ie the autonomy of the performance guarantee from the underlying contract. The Court found that the principle is best expressed in the oft-quoted passage from Lord Denning MR’s speech in the English case Edward Owen:[1]‘A bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contracted obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand if so stipulated, without proof or conditions. The only exception is where there is a clear fraud of which the bank has notice.’
    In the present case concerning the Contractor´s request to release an interlocutory interdict, restraining the Employer from calling up the guarantee the Contractor relied on the provisions of the underlying contract (incorporating the FIDIC Red Book 1999), i.e. Sub Clause 4.2, read with Sub-Clauses 2.5 FIDIC 1999 [Employer´s Claims] and 3.5 FIDIC 1999 [Determinations] thereof. Sub-Clause 4.2 regulates the circumstances in which Employer is permitted to call the performance guarantee. The relevant provisions of sub-clause 4.2 read as follows:

‘The employer shall not make a claim under the performance security, except for an amount to which the employer is entitled under the contract in the event of:

(a) failure by the contractor  to extend the validity of performance security as described in the preceding paragraph, in which event the employer may claim the full amount of the performance security;

(b) failure by the contractor to pay the employer an amount due, as either agreed by the contractor or determined under sub-clause 2.5 [employer’s claims] or clause 20 [claims, disputes and arbitration], within 42 days after this agreement or determination;

(c) failure by the contractor to remedy a default within 42 days after receiving the employer’s notice requiring the default to be remedied; or

(d) circumstances which entitle the employer to termination under sub-clause 15.2 [termination by employer], irrespective of whether notice of termination has been given.

The employer shall indemnify and hold the contractor harmless against and from all damages, losses and expenses (including legal fees and expenses) resulting from a claim under the performance security to the extent to which the employer was not entitled to make the claim.’

The Court found it being common cause that Sub-Clauses (a), (b) and (c) were not applicable. However, the Contractor relied in particular on Sub-Clause 4.2(d). The Contractor raised two contentions in relation thereto.

It submitted that the force of the Employer’s cancellation on 5 February 2019 was diminished by its own cancellation on 30 January 2019 on the basis that force majeure prevented the execution of the works. Thus, so went the submission, if it succeeded in an arbitration presently pending to prove force majeure, and the consequent lawfulness of its cancellation, the Employer would then have been precluded from being able to comply with Sub-Clause 4.2(d). This, according to the Contractor, would have been so because circumstances would never had existed which could have entitled the Contractor to cancel the contract in terms of Sub-Clause 15.2.

The Contractor also relied on the stipulation in Sub-Clause 4.2 that there must be ‘an amount to which the Employer is entitled under the contract’ for the Employer to make a call on the guarantee. The Contractor argued that ‘an amount’ can only accrue to SANRAL by way of clause 2.5 of the contract.

The Court disagreed with the Contractor´s views.

It found that “the entitlement that is referenced is not one established under the dispute resolution provisions of the contract.” In its view that would contradict “the clear wording in the indemnity in clause 4.2”. In accordance with the Court the indemnity wording in Sub-Clause 4.2 compels the interpretation that when Sub-Clause 4.2 refers to an entitlement it means no more than the employer’s claim to an entitlement under one or the other of (a)–(d). So interpreted, the Employer’s entitlement to claim under the performance security was met because there was in the view of the Court no dispute that the Employer claimed to be entitled to cancel the agreement. That the Joint Venture has contended otherwise by reason of force majeure entails no limitation of the Employer´s entitlement to enforce the performance security.

With regard to the second argument of the Contractor the South African Supreme Court of Appeal that weight should be given to the fact that Sub-Clause 4.2 contemplates that the Employer might make a demand in circumstances where it is subsequently established that it was not entitled to do so. It therefore concluded that, properly construed, Sub-Clause 4.2 does not need the Employer “to prove its entitlement to make the demand at the time such demand is made”. Rather, if it elects to make the demand, it does so at its own risk that it might subsequently be required to repay the Contractor. Any contrary construction would render the indemnity provision meaningless.

In my view in this scenario it is always worth to start with noting that Sub-Clause 4.2 FIDIC 1999 addresses the relation between the Employer and the Contractor [legal relationship n° 1] and that it does not at all address the relationship between the Employer and the guarantor (insurance or bank), herein referred to as legal relationship n° 2. In this relationship there will be privity of contract between the Employer and the guarantor only.

The entitlement of the employer to call upon the guarantee emerges from the guarantee itself (legal relation n° 2). Subject to a simple call the guarantor shall pay. It is established by the guarantee which is the basis of the legal relationship n° 2 between the employer and the guarantor.

However, as correctly quoted by the Supreme Court and stated in in Sugar Australia Pty Ltd v. Lend Lease Services Pty Ltd [2015] VSCA 98 at para. 25 the exercise of the right to call upon the guarantee may be subject to qualifications and limitations in the underlying contract (legal relationship n° 1):

‘The fact that a performance bond is intended to operate as a risk allocation device is not, of course, necessarily determinative of the right of a party to have recourse to it. It may be subject to a contractual qualification or limitation upon the circumstances in which recourse may be had.’

The wording establishes nothing else than the Employer´s qualified duty to refrain from calling the performance security. These qualifications and limitations are part of the legal relationship between the employer and the contractor [legal relationship n° 1]; if it had been part of legal relationship n° 2 the instrument would no longer have the very nature of an on demand guarantee, rather it would be a bond whereunder the entitlement of the beneficiary is contingent upon the evidence that the beneficiary is entitled to a payment in accordance with legal relationship n° 1 (the construction contract). Codified law in civil law countries classifies this instrument as Bürgschaft [Germany, Sect. 765 BGB], Cautionnement [France, Article 2288 Code Civil], Fiança [Portugal, Art. 627 in Nr.1 and 2 Código Civil], Borgtocht (Netherlands, Article 850 Burgerlijk Wetboek], Dengan Penanggungan [Indonesia, Article 1820 Burgerlijk Wetboek]. The characteristic element of this civil law feature is that the beneficiary´s entitlement is ancillary and contingent upon the existence of an entitlement arsing out legal relationship n° 1.

According to legal relationship n° 1 the Contractor obtains the guarantee whereunder the guarantor promises to the Employer to pay a certain amount of money [legal relationship n°2], usually subject to the demand of the employer. The Australian authority Sugar Australia Pty Ltd v. Lend Lease Services Pty Ltd [2015] VSCA 98 does therefore support the position that legal relationship n° 1 may establish qualifications or limitations on the right to call upon the guarantee with no effect on the guarantor´s duty to pay on demand.

The purpose of the indemnity wording in Sub-Clause 4.2 is plain. The wording does not become meaningless if evidence for an entitlement to an amount is requested. For instance, the Engineer´s determination regarding an Employer´s claim may become revised in adjudication or arbitration, but prima facie at the time of making the call there was an entitlement.

The present case concerned exclusively the legal relationship n° 1. In the present case the employer claimed to be entitled to terminate the contract under Sub-Clause 15.2. However the wording in Sub-Clause 4.2 (which forms part of legal relationship n° 1) is expressly limited to claim amounts to which the Employer is entitled under the Contract in the event of the four circumstances as listed therein.[2] As correctly stated by Baker/Mellors/Chalmers/Lavers the wording reminds the parties of the purpose of the Performance Security is to secure the Contractor´s liabilities.

In my view the South African Supreme Court did not receive support for its position from the indemnity wording in Sub-Clause 4.2, which merely constitutes a second safety belt against the premature call of the guarantee but which does not imply the conclusion that the employer is entitled to call the guarantee which he shall not do “except for an amount to which the employer is entitled under the contract in the event of” …

d) circumstances which entitle the employer to termination under sub-clause 15.2 [termination by employer], irrespective of whether notice of termination has been given.

Thus Sub-Clause 4.2 clearly compels the interpretation that when Sub-Clause 4.2 refers to an entitlement it means the entitlement to an “amount” due in the event of (a)-(d) and therefore more than the employer’s claim to an entitlement under one or the other of (a)–(d).

Unlike the Supreme Court believes, the English authority Simon Carves Ltd v. Ensus UK Ltd[22] as formulated by Justice Akenhead´s, does not support the Supreme Court´s view.

Simon Carves was employed by Ensus to construct a bioethanol plant. In terms of the contract, Simon Carves provided an unconditional, autonomous performance bond as security for its performance of the contract. A dispute arose between the parties in respect of the underlying contract. Simon Carves sought and obtained an injunction preventing Ensus from making a call on the bond. Justice Akenhead, held that unless fraud is established, a court will not prevent a bank from paying out on a demand bond provided the conditions of the bond itself have been complied with (such as formal notice in writing). But as the Supreme Court recognized, the learned judge also stated, that ‘fraud is not the only ground upon which a call on a bond can be restrained by injunction’. If the underlying contract clearly and expressly prevents the beneficiary from making a demand under the bond, it can be restrained by the court from making a demand under the bond.

Hence in my view, Sub-Clause 4.2 (the underlying contract) clearly and expressly imposes on the beneficiary a duty to abstain from making a demand under the constraint of the Performance Security unless the beneficiary (the employer) can show evidence that the employer is entitled under the contract in the event of Sub-Clause 4.2 (a)-(d). In my view the burden to show evidence that the employer is entitled to call the guarantee is on the employer because he shall not do so except he has a claim.

According to the English position the power of the court to grant an injunction where there is an express contractual limitation in the underlying contract which affects the ability to call the performance guarantee was considered by the Court of Appeal in Sirius.[3] There the Court of Appeal held that where the conditions of the underlying agreement had not been fulfilled, the claimant was not entitled to draw down and in appropriate cases the court would have granted an injunction restraining the drawdown on the letter of credit. The then House of Lords decided the appeal on the meaning of the contractual provisions and said it had not been necessary to examine issues regarding the so-called autonomy principle applicable to letters of credit issued by banks.

In the subsequent judgment of Ramsey J, whilst, as the Court of Appeal indicated in Sirius, a court might grant an injunction where there is an express term restricting the circumstances in which a party can draw on a letter of credit and where it is positively established that the party was not entitled to draw down, the same will not apply where there is only a serious, arguable case to that effect. Otherwise, the commercial effectiveness of letters of credit would be eroded.[4]

As confirmed by Stuart-Smith in MW High Tech[5], what should matter is whether the right to drawdown is clearly precluded by the terms of the underlying contract, whether they be express or implied. However, according to English authorities, usually it must be positively established that he was not entitled to draw down under the underlying contract – see the judgment of Ramsey J in Permasteelisa Japan KK v. Bouyguesstroi and Bank Intesa SpA [2007] EWHC 3508 (QB). Subsequent decisions of Akenhead J in Simon Carves v. Ensus [2011] EWHC 657 (TCC) or Edwards-Stuart J in Doosan Babcock v. Comercializadora de Equipos y Materiales Mabe Limitada [2013] EWHC 3201 (TCC) suggest that a less rigorous test is to be applied.

[1] Edward Owen Engineering Ltd v. Barclays Bank International Ltd  [1978] 1 All ER 976 (CA) 983b-d

[2] See Baker/Mellors/Chalmers/Lavers, at para. 7.211

[3] Sirius International Insurance Co v. FAI General Insurance Ltd and Ors [2003] 1 WLR 2214, which was subsequently reversed on appeal: see Sirius International Insurance Co v FAI General Insurance Ltd [2004] 1 WLR 3251

[4] Permasteelisa Japan KK v. Bouyguesstroi & Anor [2007] EWHC 3508 (TCC) (07 November 2007)

[5] MW High Tech Projects UK Ltd & Anor v. Biffa Waste Services Ltd [2015] EWHC 949 (TCC) (02 February 2015)

  1. The decision given by the High Court [EASTERN CAPE LOCAL DIVISION, PORT ELIZABETH] in Pro-Khaya Construction CC v Ashford and Others (1107/2020) [2021] ZAECPEHC 6 (19 January 2021) concerned the FIDIC Conditions of Sub-Contract for construction for building and engineering works designed by the Employer, first edition. However, the deicion deals predominantly with procedural issues.
  2. The decisions of Philippe Court of Appeal and the the Philippine Supreme Court concern a FIDIC 1987 contract with interesting conclusions on the notice giving requirements for claims (G.R. No. 235853, July 13, 2020).A contract was awarded for the 1) construction of 45.01 kilometers of concrete road; 2) improvement of drainage system; 3) construction of slope protection structures and countermeasure works against floods; 4) construction and replacement of nine bridges, one multi-barrel RCBC spillway type and three special-type RCBC; and 5) rehabilitation and repair of one existing bridge. The Contract incorporated Part I – General Conditions (Conditions of Contracts for Works of Civil Engineering Constructions [FIDIC], Fourth Edition 1987), and 1988 with Editorial Amendments and 1992 with further Amendments (FIDIC Conditions); and Part II – Conditions of Particular Application (COPA).A dispute regarding a claim for overrun earthwork quantities was brought before Philippine Construction Industry Arbitration Commission (CIAC). CIAC found that the Employer was liable for the Contractor´s claim for overrun earthwork quantities.According to CIAC, the Contractor´s claims were not barred by waiver, abandonment or estoppel despite its failure to comply with the notice requirement under the FIDIC and COPA. CIAC reasoned that the Contractor´s failure to comply with the notice requirement was mooted by the express provision under FIDIC which allows claims decided under arbitration even though a party failed to comply with timely notice and submission of contemporary records requirement.The Court of Appeal and the Supreme Court of the Philippines dismissed the Employer´s Petition for Review under Rules 43 and 45 of the Rules of Court before the G.R. No. 235853, July 13, 2020.The [Construction Industry Arbitration Law] was enacted to encourage the early and expeditious settlement cf disputes in the construction industry, a public policy the implementation of which is necessary and important for the realization of national development goals.The Courts found in line with previous authorities (see CE Construction Corp. v. Araneta Center, Inc., 816 Phil. 221 (2017)) an appeal should not undermine the integrity of arbitration or conveniently set aside the conclusions made by the arbitral tribunal. An appeal, is not an artifice for the parties to undermine the process they voluntarily elected to engage in.
  3. SA National Roads Agency SOC Limited v Fountain Civil Engineering (Pty) Ltd and Another (395/2020) [2021] ZASCA 118 (20 September 2021) concerning Sub-Clause 4.2 FIDIC 1999 in the event of termination under Sub-Clause 15.2 et seq. Red Book (1999)
  4. ICT-Works Proprietary Limited v. City of Cape Town (6582/2020) [2021] ZAWCHC 119 (18 June 2021)
  5. Pro-Khaya Construction CC v. Ashford and Others (1107/2020) [2021] ZAECPEHC 6 (19 January 2021) concerning the Conditions of Sub-contract for construction for building and engineering works designed by the employer, first edition, published 2011
  6. Universal Coal Development (Pty) Ltd v. Mineral Resources Development (Pty) Ltd (33182/2021) [2021] ZAGPPHC 839 (10 December 2021) concerning a FIDIC Gold Book [Sub-Clauses 1.1.53, 8.7]

II. ICSID Awards

Since ICSID Courts have confirmed that a construction contract may be dealt with as an investment under Bilateral Investment Treaties (BITs) it has become more and more popular to bring cases to ICSID courts.

ICSID Case ARB/03/29: In the case of Bayindir v. Pakistan a Turkish Contractor and the National Highway Authority of Pakistan had entered into a contract for the construction of a motorway under FIDICConditions 1987, under which disputes were to be referred to the Engineer and then to arbitration under the ICC Rules. The Employer argued that it had properly acted and terminated the Contract in accordance with the decisions of the Engineer. The Contractor objected by contending that the Employer had terminated the Contract for improper motives including external financial constraints. The first hearing of the case brought under the treaty was concerned with jurisdictional challenges. The Bayindir case was initiated in 2002 and effectively commenced in early 2004 while the ICSID decision on jurisdiction was given, in favour of the contractor, in November 2005. After a full hearing on the merits had taken place in May 2008 the Tribunal confirmed its jurisdiction and gave a final award in August 2009, by which all the claims were rejected based on the burden of proof rule.

ICSID Case ARB/08/2: The case ATA Construction, Industrial and Trading Company v. Hashemite Kingdom of Jordan, involved a contract for the construction of a dike on the Dead Sea incorporating a FIDIC form of Contract, 1987, governed by Jordanian lawA dispute arose when the dike collapsed after completion of the works when the Employer started to fill the dike with water.

The ICSID tribunal held that the majority of Contractor´s claims against Jordan related to disputes arising before the Turkey-Jordan bilateral investment treaty (BIT) entered into force and were therefore “inadmissible for lack of jurisdiction ratione temporis”. It therefore dismissed the majority of the claims. In making its award, the ICSID tribunal concurred with the restrictive approach in Empresas Lucchetti SA et al v. Republic of Peru (ICSID Case No ARB/03/4) decision.

However, the tribunal upheld ATA’s claim in respect of the foreclosure of the right to arbitration as a consequence of the annulment of the preceding arbitral award in the Jordanian Court of Cassation which allegedly had cancelled the arbitration agreement. This was held to be a breach of ATA’s legitimate expectations and of Jordan’s fair and equitable treatment obligation under the BIT, and this related dispute was considered to have arisen only after the BIT came into force.

The ICSID tribunal ordered Jordan to terminate ongoing court proceedings against ATA and the award gives ATA the right to restart its commercial arbitration against Arab Potash Company (APC).

III. Arbitral Awards

ICC has pusblished a number  of extracts from ICC awards which are relevant to daily construction contract practice. For instance:

      • ICC 19581: DAB member failed to disclose that his ex-wife was a decision maker and head of claims and disputes unit of Employer
      • ICC 6535, 16262: Tribunal may decline jurisdiction
      • ICC 16262 no valid appointment because appointing body did not consult with the parties properly
      • ICC 18320 no details in NOD necessary
      • ICC 10619: enforcement of Engineer´s decision under FIDIC 1987

In ICC Case 18096 it was common ground under a FIDIC Red Book contract that the Parties had established a DAB. Subsequently a dispute on the jurisdiction of the DAB arose when the Employer failed to comply with the first DAB decision and the Contractor initiated a second adjudication on this failure. Subsequently the Employer started the arbitration in which it applied the tribunal to find that the DAB missed jurisdiction to issue its second decision in that it was allegedly installed as an ad hoc DAB – rather than as a permanent DAB as recommended by the FIDIC Red Book.

It emerges from the reported facts that the Parties did not change the General Conditions of Contract for Works (Red Book, 1999 Edition). However the DAB was concluded six years after signing of the contract and the related DAA was for a lump sum in consideration of the adjudicator´s duty to decide on “one particular” dispute. Nevertheless the arbitrator found that the Parties did not explicitly derogate from the Red Book default rule providing for a permanent DAB.

Rather the tribunal concluded that pursuant to Clause 7 GCDAA (General Conditions of Dispute Adjudictaion Agreement – Red Book Version) in the absence of a mutual agreement in this respect the DAA remained unterminated (actually until the written discharge under Sub-Clause 14.12 GCC would have been issued). Held that in account of the fact that the Parties did not modify the pertinent provisions of the FIDIC Red Book, the DAA could only be terminated by mutual agreement of both Parties pursuant to Clause 7 GCDAA and that therefore the jurisdiction of the DAB did not end by issuance of the first DAB decision.

The award in ICC Case 18096 shows that it is crucial to establish clear and unambiguous terms of reference in the DAA. The slightest ambiguity may result in further disputes and related extra costs. The FIDIC framework is consistent and unambiguous if used without modifications and as suggested.  In the event of change diligence and care should be applied in order to adapt the FIDIC forms to the needs. It is worth to note that in practice also adjudicators believe that the late appointment of the DAB under the Red Book should result in an ad hoc appointment. This is obviously incorrect in that unlike an ad hoc DAB a permanent DAB  provides the Parties with a standby Service and has jurisdiction with regard to any dispute which may arise, even after termination of contract and/or completion of the Works. It is perfectly possible and suitable to appoint a standing DAB even at a late stage. Better to have it too late than not to have it!

In ICC Case 16984 the Contractor brought various disputes to the DAB. The DAB made inter alia decisions n° 2 and n° 3 which did not become final and binding because of the existing NODs. The Employer failed to comply with the merely binding DAB decisions and the Contractor referred this failure to the DAB. In these proceedings the DAB confirmed the Employer´s breach and made an award on damages. Both parties were dissatisfied with this DAB decision n° 4 (Contractor: regarding the award on damages; Employer: lack of jurisdiction of the DAB). The tribunal confirmed the Contractor´s views and held that the Employer was liable for damages as a consequence of its failure to comply with the merely binding DAB decisions.

ICC Awards on the enforceability of the multi-tier dispute resolution clause

ICC Case 14431: The decision involved a FIDIC Red Book contract whereunder the Engineer acted as the DAB. Held that Sub-Clauses 20.2 et seq. are to be regarded as mandatory and that under the specific circumstances the arbitration should be suspended while the parties proceeded with adjudication.

ICC Case 16155: This case related to a FIDIC Red Book contract. The majority decision held that the Employer had foregone its right to enforce the DAB appointment because it had ignored the Contractor´s efforts to establish a DAB during the performance of the contract.

ICC Case 16262: Under a FIDIC Yellow Book Contract the tribunal declined jurisdiction because the validly set up DAB was required to decide on the pending claims prior to arbitration as a condition precedent of arbitration.

ICC Case 16765: Held that Sub-Clauses 20.2 et seq. FIDIC Yellow Book create a multi-tier mechanism to be followed should a dispute arise between the Parties.

IV. Conclusions

As confirmed by Mr. Chris Seppälä international arbitral awards are not systematically reported (Seppälä, The development of a case law in construction disputes relating to FIDIC contractcs, in: Gailard/Banifatemi, Precedent in International Arbitration, 67, at page 68). On the other hand a substantial number of ICC cases have actually involved FIDIC forms of contract, such as ICC case n° 10619. Mr. Seppälä has observed about 40 awards interpreting FIDIC contracts (Seppälä, The development of a case law in construction disputes relating to FIDIC contratcs, in: Gailard/Banifatemi, Precedent in International Arbitration, 67, at pag 69). Further awards are referred to above (see also ICC Dispute Resolution Bulletin 2015, Issue 1.)

Unlike ICC awards court cases are -depending on the local environment-usually systematically reported. However, of course court cases may not really contribute to a lex mercatoria since the Courts are supposed to apply the law as determined by the conflict of laws rules without being required to look at international experience. Though the  reference to international experience may sometimes help to avoid mistakes, it is not a legal requirement.

But at least in developing countries guidance from other jurisditions may be used in order to “illustrate” what the law could be, albeit these decisions are far away from consituting a binding precedent or legal authority. In so far it might be helpful to know what the Swiss Federal Supreme Court Bundesgericht) has said with regard to the finding of justice (German: Rechtsfindung): In particular in traditional transborder legal relations an appropriate finding of justice and gap filling can not be put in place unless based on comparative law (BGE 126 III, 129, 138).

The inflated number of FIDIC related court decisions is unfortunately very much concentrating on jurisdictional issues. Guidance on substantial clauses and the interpretation thereof is still rarely available. But the number of interesting case law is continuously increasing. The intrepretation of contrat wording by courts and arbitral tribunals provides reliable guidance on the meaning of contractual wording and concepts.


WARNING: the material contained in these notes is a simplified guide to some of the major topics in international and German construction law. It is not intended as a substitute for legal advice on individual transactions, and does not necessarily stand on its own. Whilst the contents are believed to be correct, the authors cannot accept any responsibility for errors or omissions.

1) Peterborough City Council v. Enterprise Managed Services Ltd [2014] EWHC 3193 (TCC) (10 October 2014)
2) Swiss Supreme Court (Bundesgericht (German)-Tribunal federal (French)-Tribunale federale (Italian)) (7 July 2014 – file number 4A_124/2014), see above case 12
3) Tang v. Grant Thornton [2013] 1 All ER (Comm) 1226
4) [2014] EWHC 1344