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Principles to consider when using FIDIC

7 November 2017, Hanoi


01 OVERVIEW OF RAJAH & TANN ASIA

Presentation 02 USE OF STANDARD FORM CONTRACTS


Agenda

03 AMBIGUITIES / DISCREPANICIES

CASE STUDIES
04

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OVERVIEW OF

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OVERVIEW OF RAJAH & TANN SINGAPORE

One of the largest law firms


in Singapore and South
East Asia

Full service firm with the


largest regional footprint

Most Innovative Law Firm


in ASEAN
FT Innovative Lawyers 2016

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OVERVIEW OF RAJAH & TANN ASIA

REGIONAL OFFICES REGIONAL


AND ASSOCIATE JAPAN
DESKS
FIRMS CHINA
• Japan
• Cambodia • South Asia
• China LAOS

• Indonesia SOUTH ASIA


MYANMAR
VIETNAM

• Lao PDR CAMBODIA PHILIPPINES

• Malaysia THAILAND

• Myanmar MALAYSIA

• Philippines SINGAPORE

• Singapore
INDONESIA
• Thailand
• Vietnam

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Use of Standard Forms

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INTRODUCTION

Q: Why use standard conditions?

Q: Do standard conditions benefit from an independent review process


and commentary?

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SKELETAL INDEX – (1)

1.General provisions
2.The employer
3.The employer’s administration
4.The contractor
5.Design
6.Staff and labour
7.Plant, materials and workmanship
8.Commencement, delays and suspension
9.Tests on completion
10.Employers taking over

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SKELETAL INDEX – (2)

11.Defects liability
12.Tests after completion
13.Variations and adjustments
14.Contract price and payment
15.Termination by employer
16.Suspension and termination by contractor
17.Risk and responsibility
18.Insurance
19.Force Majeure
20.Claims, disputes and arbitration

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FIDIC – SCOPE FOR CHANGES

Clause Title Language

1.13 Compliance with Laws “Unless otherwise stated in the Particular


Conditions, ….[Employer / Contractor bears defined risk and
responsibilities eg planning permissions, obtaining permits, tax
and duties]”

4.11 Sufficiency of Contract Price “Unless otherwise stated in the Contract, the
Contract Price covers ….”

4.12 Unforeseeable Difficulties “Except as otherwise stated in the Contract, the


Contractor [bears certain risk and responsibilities] …”

8.1 Commencement Date “Unless otherwise stated in the Contract


Agreement, … [default periods apply]…”

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CONSIDERATIONS FOR CHANGES?

Golden Principles to be enshrined in FIDIC?


http://www.eic-federation.eu/media/uploads/fidic_conference_2016/donald_charrett_-fidic_golden_principles.pdf

Do you agree with this criticism:

FIDIC forms of contract form part of an international “lex mercatoria


contructionis”. This cannot be said of customized FIDIC contracts which
actually bear the name of FIDIC but miss the fundamental and characteristic
content. Such contracts should not be headed as a FIDIC contract.”
http://www.dr-hoek.de/EN/beitrag.asp?t=Fundamental_FIDIC_Principles_Gold

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RISK PROFILE?

A contract allocates risk between Contractor and Employer. What is


the intention?

Q) Is there an optimal, fair and equitable risk allocation?

Q) Do fair and balanced risk allocation enhance the prospect of


successful contracts?

Q) Particular conditions or bespoke contracts generally alter the risk


allocation in favour of the Employer (i.e this involves the Contractor
accepting more risk than “normal”)?

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TYPES OF RISKS / MITIGATING TOOLS?

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ONE-SIDED CONTRACTS?

https://www.jica.go.jp/activities/schemes/finance_co/procedure/guidelin
e/pdf/check_e.pdf

Checklist for one-sided contracts?

Note the research from JICA is in the context of the FIDIC Red Book The MDB Edition is a
further revision of the 1999 Edition for projects to be financed by the Multilateral
Development Banks. It has basically the same structure as the 1999 Edition. The name “Red
Book” is associated with the colour of its binding cover which is basically red.

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ONE-SIDED CONTRACTS?

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EACH PROJECT IS UNIQUE

Q: What are some motivations that depart from a balanced view?

(i) lack of the Employer’s understanding about the terms and conditions
including appropriate allocation of rights and obligations

(ii) the Employer’s lack of budget?

(iii) lack of the time and cost required for creating the Contract Documents;
and

(i) attention to domestic laws, regulations and procedures?

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Case study:
bespoke force majeure clauses

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FIDIC ILLUSTRATION – FORCE MAJUERE

Clause 19.1:

“In this Clause, “Force Majeure” means: an exceptional event or circumstance

(a) which is beyond a Party’s control,

(b) which such Party could not reasonably have provided against before entering into
the Contract,

(c) which, having arisen, such Party could not reasonably have avoided or overcome,
and

(d) which is not substantially attributable to the other Party.”

A non-exhaustive list is then stated.

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OPERATION OF FORCE MAJEURE IN COMMON LAW JURISDICTIONS

Drafting of force majeure clause

”Event
“Event hindering
preventing performance of
performance
Drafting of contract”
of contract” the clause is Rendering
Rendering performance
performance KEY more or less
impossible difficult, but not
impossible

From Holcim (Singapore) Pte Ltd v Precise Development Pte Ltd


[2011] 2 SLR 106 (“Holcim”) at [51] and [56].
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CASE STUDIES OF FORCE MAJEURE CLAUSES

Shortage of raw materials / increase in costs


Force majeure
Case Facts Successful? Judgment
clause
Contract for supply of ready- (in obiter)
mixed concrete. (“RMC”)
Force majeure not
“…or due to any
RDC Concrete RDC Concrete Pte Ltd (“RDC operative.
cause beyond
Pte Ltd v Sato Concrete”) failed on ≥ 42
[RDC
Kogyo (S) Pte occasions to supply concrete Shortage of cement
Ltd [2007] 4
SLR 413
(“RDC
ordered by Sato Kogyo (S) Pte
Ltd (“Sato Kogyo”).
Concrete]’s
control, such as
market
material
raw
X was not “beyond
[RDC
control”:
Concrete]’s
such
Concrete”) RDC Concrete sought to invoke cement could still
shortages…”
force majeure clause, claiming a have been
shortage of cement needed to obtained, albeit at a
supply RMC. higher price

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CASE STUDIES OF FORCE MAJEURE CLAUSES

Breakdown of production facilities


Force majeure
Case Facts Successful? Judgment
clause
The shortage of materials
for RMC which was
Contract for supply of ready-
caused by the plant
mixed concrete. (“RMC”)
breakdown was not
beyond its control.
RDC Concrete failed on ≥ 42 “…or due to any
occasions to supply concrete cause beyond the
RDC Concrete had the
RDC Concrete
ordered by Sato Kogyo.

RDC Concrete also sought


to invoke the force majeure
[RDC Concrete]’s
control, such as…
unforeseen plant
breakdowns”
X option of seeking
regulatory approval to use
its other two plants but it
did not. This was even
clause on the basis of its
though a plant breakdown
only working plant breaking
was a foreseeable event,
down.
especially when only one
plant was being utilized.
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CASE STUDIES OF FORCE MAJEURE CLAUSES

Shortage of raw materials / increase in costs


Force majeure
Case Facts Successful? Judgment
clause

“Disrupted”: Includes events


which would render continued
Holcim (Singapore) Pte Ltd “…if the said supply performance commercially
(“Holcim”) entered into a contract has been disrupted impractical, need not


with Precise Development Pte by virtue of… necessarily render
Ltd (“Precise Development”) to shortage of performance impossible.
Holcim supply RMC, but was deprived of material… or any
sand required to make RMC other factors… Courts found that the contract
when the Indonesian government beyond the control of had been disrupted, given that
banned sand exports in 2007. the Supplier.” Holcim faced several
(emphasis added) difficulties which would place it
in a “commercially
impracticable situation”.

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CONCLUSION

1 Applicable Law? Civil vs Common Law?

Black Letter Approach? Draft clauses with clarity and


2 precision, paying attention to how they are worded

31. Most disputes arise from ambiguity in drafting

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THANK YOU

SOH Lip San


Rajah & Tann Singapore LLP
9 Battery Road #25-01
Singapore 049910
+65 6232 0228

lip.san.soh@rajahtann.com

www.rajahtannasia.com

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