FULL GAR Guide To Construction 15 43 00

Global Arbitration Review
The Guide to
Construction
Arbitration
Editors
Stavros Brekoulakis and David Brynmor Thomas
The Guide to
Construction
Arbitration
Editors
gar
Publisher
David Samuels
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Acknowledgements
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assistance throughout the preparation of this book:
4 NEW SQUARE
39 ESSEX CHAMBERS
3 VERULAM BUILDINGS
ADVOKATFIRMAN RUNELAND AB
CENTRE FOR COMMERCIAL LAW STUDIES,
QUEEN MARY UNIVERSITY OF LONDON
CLIFFORD CHANCE
CLYDE & CO
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DECHERT (PARIS) LLP
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PAKSOY
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WHITE & CASE LLP
ZULFICAR & PARTNERS LAW FIRM
i
Contents
Introduction�� 1
Part I: International Construction Contracts

1 The Contract: the Foundation of Construction Projects�� 7
Aisha Nadar
2 Parties to a Construction Contract�� 18

Scott Stiegler
3 Bonds and Guarantees�� 27

Christopher Harris and Jane Davies Evans
4 Introduction to the FIDIC Suite of Contracts�� 38

Ellis Baker and Anthony Lavers
5 Allocation of Risk in Construction Contracts�� 51

Ellis Baker, Luke Robottom and Anthony Lavers
6 Contractors’ Claims, Remedies and Reliefs�� 63

James Bremen and Leith Ben Ammar
7 Employers’ Claims and Remedies�� 72

James Bremen and Mark Grasso
iii
Contents
Part II: International Arbitration for Construction Disputes

8 Suitability of Arbitration Rules for Construction Disputes�� 81
David Kiefer and Adrian Cole
9 Subcontracts and Multiparty Arbitration in Construction Disputes�� 87

Stavros Brekoulakis and Ahmed El Far
10 Interim Relief, including Emergency Arbitration, in Construction

Arbitration��100
Peter Hirst and David Brown
11 Organisation of the Proceedings in Construction Arbitrations: General

Considerations and Special Issues��109
Tim Chelmick and George Spalton
12 Documents in Construction Disputes��118

Bartosz Krużewski and Robert Moj
13 Awards��128
Roger ter Haar QC, Crispin Winser and Maurice Holmes
Part III: Select Topics on Construction Arbitration

14 Construction Disputes in Investment Treaty Arbitration��143
Erin Miller Rankin, Sami Tannous and Matei Purice
15 Construction Arbitrations in the Nuclear Sector��161

Jane Davies Evans
iv
Contents
16 Construction Disputes in the Energy Sector��173

Mark Beeley
17 Construction Arbitration and Concession Contracts��182

Philip Dunham and José Manuel García Represa
18 Construction Arbitration and Turnkey Projects��194

James Doe, David Nitek and Michael Mendelblat
Part IV: Regional Construction Arbitration

19 Construction Arbitration in Australia��205
Andrew Stephenson and Lindsay Hogan
20 Turkey��219
Serdar Paksoy and Simel Sarıalioğlu
21 The Nuts and Bolts of Construction Arbitration in the MENA: Principles

and Practice��230
Mohamed S Abdel Wahab
About the Authors��251
Contact Details��265
v
Introduction
Stavros Brekoulakis and David Brynmor Thomas1
The construction industry is a major contributor to economic growth worldwide. In

the UK alone, it is estimated that every £1 investment in construction output generates
£2.84 in total economic activity.2
The industry covers a wide range of different types of projects, from the construction
of buildings such as offices, factories and warehouses, shopping malls, hotels and homes
to major infrastructure projects that involve more complex civil engineering works such
as construction of harbours, railroads, mines, highways and bridges. Other construction
projects involve specialist engineering works such as shipbuilding and bespoke plants, and
machinery such as turbines, generators and aircraft engines, or works that aim to support
energy projects such as upstream oil and gas projects or renewables (wind, wave, solar) and
nuclear plants.
These complex construction projects are rarely completed without giving rise to dis-
putes, the majority of which (possibly the vast majority) are submitted to alternative dispute
resolution (ADR) processes and eventually arbitration.The reasons that construction parties
tend to choose ADR and arbitration owe as much to the (perceived or real) inefficiencies of
national courts as to the (perceived or real) advantages of out-of-court dispute resolution.
For example, with few notable exceptions such as the Technology and Construction Court
in the UK, most national courts lack construction specialist departments or judges with
construction expertise and experience. Arbitration, on the other hand, allows construction
parties to appoint arbitrators with the necessary specialised knowledge and understanding
of complex construction projects. Importantly, arbitration allows construction parties to
‘design and build’ (to stay in tune with the theme of The Guide to Construction Arbitration)
1 Stavros Brekoulakis is a professor at the Centre for Commercial Law Studies, Queen Mary University of
London. David Brynmor Thomas is a barrister at 39 Essex Chambers and visiting professor at Queen Mary
University of London.
2 Report of Economic Consultants LEK for the UK Contractors Group.
1
Introduction
the dispute resolution procedure in a way that addresses a number of procedural challenges
in construction arbitrations, including the typically large volume of documentary evidence,
the most effective use of (delay and quantum) experts and programme analysis. While the
use of some ADR methods such as dispute adjudication boards has spread relatively recent-
ly,3 arbitration has traditionally been included as the default dispute resolution mechanism
for disputes arising out of international construction contracts.4
A question that often arises is: What is special about international construction disputes
that they require specialist arbitration knowledge? In the first place, construction projects
are associated with considerably more risks than any other typical commercial transaction.
Because of their nature and typically long duration, construction projects are conducive
to the realisation of a wide range of risks, including risks related to unexpected ground,
underground and climatic conditions, industrial accidents, fluctuation in the price of mate-
rials, political risks (such as political riots, governmental interventions and strikes) and legal
risks (such as amendments in law or failure to secure legal permits and licences).
Further, time is very often of the essence in construction projects. If an Olympic Games
stadium, for example, is not delivered before a certain hard deadline, or if a shopping mall
is not ready for the commercially busy Christmas period, the employer may lose the com-
mercial benefit of the project.
Moreover, the vast majority of disputes in construction projects involve questions of
delay and causation arguments that are typically complex. Many phases of a construction
project can run concurrently, which often makes it difficult to identify the origins and
cause of a delay. Legal concepts such as concurrent delay, critical path and global claims are
unique in construction disputes.
Equally, the involvement of a wide number of parties with different capacities and
divergent interests adds to the complexity of construction disputes. A typical construction
project may involve not only an employer and a contractor, but several subcontractors, a
project manager, an engineer and architect, specialist professionals such as civil or structural
engineers, mechanical engineers, consultants such as acoustic and energy consultants, lend-
ers, insurers and suppliers. A dispute arising out of the main construction contract may have
financial and legal implications on many of the above parties – this often gives rise to issues
about third-party participation in arbitration proceedings.
Another important feature of construction disputes is the widespread use of standard
forms, such as the FIDIC or the ICE conditions of construction contracts. Efficient dispute
resolution requires familiarity and understanding of the, often nuanced, risk allocation
arrangements in these standard forms. Good knowledge of construction-specific legislation
is necessary too. While the resolution of most construction disputes will depend on the
factual circumstances and the provisions of the contractual agreement of the parties, legal
issues may often arise in relation to statutory (frequently mandatory) warranty and limita-
tion periods for construction claims, statutory direct claims by subcontractors against the
3 Dispute adjudication boards were first introduced in FIDIC contracts (in the Orange Book) in 1995 and in
ICE contracts as recently as in 2005.
4 Arbitration has been included in FIDIC contracts since the publication of the first FIDC contract in 1957.
2
Introduction
employers,5 statutory prohibition of the pay-when-paid and pay-if-paid provisions6 and, of

course, mandatory legislation on public procurement.7
Finally, as already mentioned, construction disputes are technically complex, requiring
efficient management of challenging evidentiary processes, including document manage-
ment, expert evidence, programme analysis and quantification of damages. The eviden-
tiary challenges in construction disputes have given rise to the use of tools, such as Scott
Schedules (used to present fact intensive disputes in a more user friendly format) that are
unique in construction arbitrations.8
It is for all these reasons that alternative dispute resolution and arbitration of construc-
tion disputes requires special focus and attention, which is what The Guide to Construction
Arbitration aims to provide.
The Guide to Construction Arbitration is designed to appeal to different audiences. In the
first place, it aims to offer practical information to practitioners who are inexperienced in
international construction contracts and dispute resolution. For example, in-house law-
yers who may lack experience in negotiating and drafting construction contracts, and
construction professionals who may have experience in managing construction projects
but may lack experience in the conduct of construction arbitration will find The Guide to
Construction Arbitration useful. Lawyers in private practice who are familiar with arbitration,
but lack experience in dispute resolution proceedings in construction arbitration will also
benefit. Last but not least, students who study construction arbitration will find it to be a
helpful source of information.
While the main focus of The Guide to Construction Arbitration is the resolution, by arbi-
tration, of disputes arising out of construction projects, Part I is devoted to important
substantive aspects of international construction contracts.To understand how construction
disputes are resolved in international arbitration, one first has to understand how disputes
arise out of a typical construction contract in the first place, and what are the substantive
rights, obligations and remedies of the parties to a construction contract.
Thus, this book is broadly divided in three parts. Part I includes Chapters 1–7, which
examine a wide range of substantive issues in construction contracts, such as The Contract:
the Foundation of Construction Projects (Aisha Nader), Parties to a Construction Contract
(Scott Stiegler), Bonds and Guarantees (Christopher Harris and Jane Davies Evans),
Introduction to the FIDIC Suite of Contracts (Ellis Baker and Anthony Lavers), Allocation
of Risk in Construction Contracts (Ellis Baker, Luke Robottom and Anthony Lavers),
Contractors’ Claims, Remedies and Reliefs (James Bremen and Leith Ben Ammar) and
Employers’ Claims and Remedies (James Bremen and Mark Grasso).
Part II (Chapters 8–13) then focuses on dispute resolution processes in construction
disputes. The aim of this Part is to look into special features of construction arbitration,
and the following chapters are included: Suitability of Arbitration Rules for Construction
Disputes (David Kiefer and Adrian Cole), Subcontracts and Multiparty Arbitration in
5 For example, in France, Law No. 75-1334 of 31 December 1975 on Subcontracting.

6 For example, in the UK with the UK Housing Grants Construction and Regeneration Act 1996.
7 For example, EU Directive 2014/24.
8 J. Jenkins and K. Rosenberg, ‘Engineering and Construction Arbitration’, in Lew et al. (editors) Arbitration in
England, Kluwer, 2013.
3
Introduction
Construction Disputes (Stavros Brekoulakis and Ahmed El Far), Interim Relief, includ-
ing Emergency Arbitration, in Construction Arbitration (Peter Hirst and David Brown),
Organisation of the Proceedings in Construction Arbitrations: General Considerations and
Special Issues (Tim Chelmick and George Spalton), Documents in Construction Disputes
(Bartosz Krużewski and Robert Moj) and Awards (Roger ter Haar QC, Crispin Winser
and Maurice Holmes).
Part III (Chapters 14–18) examines a number of select topics in international construc-
tion arbitration. Specifically, the chapters look into Construction Disputes in Investment
Treaty Arbitration (Erin Miller Rankin, Sami Tannous and Matei Purice), Construction
Arbitrations in the Nuclear Sector (Jane Davies Evans), Construction Disputes in the
Energy Sector (Mark Beeley), Construction Arbitration and Concession Contracts (Philip
Dunham and José Manuel García Represa) and Construction Arbitration and Turnkey
Projects (James Doe, David Nitek and Michael Mendelblat).
Part IV (Chapters 19–21) examines jurisdictions with particular interest and a very
active construction industry: Construction Arbitration in Australia (Andrew Stephenson
and Lindsay Hogan), Turkey (Serdar Paksoy and Simel Sarıalioğlu) and The Nuts and
Bolts of Construction Arbitration in the MENA: Principles and Practice (Mohamed S
Abdel Wahab).
The structure and organisation of The Guide to Construction Arbitration is broadly based
on the LLM course on International Construction Contracts and Arbitration that David
and I teach at Queen Mary University of London. The course was first introduced by HH
Humphrey Lloyd in 1987 and was taught by him for more than 20 years. Humphrey has
been an exceptional source of inspiration for hundreds of students who followed his classes,
and I am personally indebted to him for his generous assistance when I took over the
course from him some years ago.
We want to thank all the authors for contributing to The Guide to Construction Arbitration.
We are extremely fortunate that a group of distinguished practitioners and construction
arbitration specialists from a wide range of jurisdictions have agreed to participate in this
project. We further want to thank Gemma Chalk, George Ingledew and Iain Wilson for all
their hard work in the commission, editing and production of this book. They have made
our work easy. Special thanks are due to David Samuels for asking us to conceive, design
and edit this book. We thoroughly enjoyed the task, and hope that readers will find the
result to be useful and informative.
4
Part I
International Construction Contracts
1
The Contract: the Foundation of Construction Projects
Aisha Nadar1
An introduction through history

Construction is one of the oldest industries; it is a pivotal industry2 that has been entrusted
throughout the generations with the task of transforming society’s ideas and needs into
workable infrastructure solutions.
Prior to the Industrial Revolution, each construction project3 was undertaken by a
master builder who was tasked with both design and construction;4 and as far back as
Babylonian times, the relationship between the owner and the builder was governed by a
detailed code.5
1 Aisha Nadar is a senior consultant at Advokatfirman Runeland AB.

2 World Trade Organization Council for Trade in Services, ‘Construction and Related Engineering Services,
Background Note by the Secretariat’, 8 June 1998 (www.wto.org/english/tratop_e/serv_e/w38.doc) states:
With its close link to public works and hence the implementation of fiscal policy, it has always been considered as a
strategically important industry for creating employment and sustaining growth. For the developing economies, the
construction sector carries particular importance because of its link to the development of basic infrastructure, training of local
personnel, transfers of technologies, and improved access to information channels.
3 J.R. Turner, The Handbook of Project-based Management: Improving the Processes for Achieving Strategic Objectives,
Second Edition, McGraw-Hill (1999), defines a construction project in the following manner:
[A]n endeavor in which human, material and financial resources are organized in a novel way; to undertake a unique
scope of work of given specification, within constraints of cost and time, so as to achieve…the delivery of quantified and
qualitative objectives.
4 S.G. Bernard, Men at Work: Public Construction, Labor, and Society at Middle Republican Rome, 390–168 B.C.
(2012), p.110. And see James O’Brien, ‘Managing Construction Projects’, Project Management Quarterly,
March 1975 (www.pmi.org/learning/library/managing-construction-projects-major-roles-5776).
5 N.G. Bunni, Risk and Insurance in Construction, Second Edition, Spoon Press, London (2003). Also, see the
Hammurabi records: ‘an entire body of laws, arranged in orderly groups, so that all men might read and know
what was required of them. The code was carved upon a black stone monument, eight feet high, and clearly
intended to be reared in public view.’ Source: Charles F Horne, avalon.law.yale.edu/ancient/hammint.asp.
Law Code of Hammurabi (1780 B.C.) relating to construction
7
The Contract:The Foundation of Construction Projects
The advent of specialisation and freedom of contract, brought about by the industrial
revolution and documented by economists such as Adam Smith,6 resulted in owners no
longer relying solely on the master builder to take their project from concept to comple-
tion, but rather on a cadre of specialists.7
This development resulted in the owner having to enter into individual contracts8 with
each of the project participants – contracts that governed the specific role each would play
in relation to project execution.9
This approach continues today, with the owner10 weaving an interlaced mosaic of con-
tracts that includes contracts with the financiers, designers, suppliers, insurance providers
and, at the heart of this mosaic, the construction contract – the contract between the owner
and the contractor.
228. If a builder build a house for some one and complete it, he shall give him a fee of two shekels in money for each sar
of surface.
229. If a builder build a house for some one, and does not construct it properly, and the house which he built fall in and kill
its owner, then that builder shall be put to death.
230. If it kill the son of the owner the son of that builder shall be put to death.
231. If it kill a slave of the owner, then he shall pay slave for slave to the owner of the house.
232. If it ruin goods, he shall make compensation for all that has been ruined, and inasmuch as he did not construct properly
this house which he built and it fell, he shall re-erect the house from his own means.
233. If a builder build a house for some one, even though he has not yet completed it; if then the walls seem toppling, the
builder must make the walls solid from his own means.
234. If a shipbuilder build a boat of sixty gur for a man, he shall pay him a fee of two shekels in money.
235. If a shipbuilder build a boat for some one, and do not make it tight, if during that same year that boat is sent away
and suffers injury, the shipbuilder shall take the boat apart and put it together tight at his own expense.The tight boat
he shall give to the boat owner.
6 R. Pound, ‘Liberty of Contract’, Yale Law Journal 18 (1909) pp. 454–487.
7 See P.L. Bruner, ‘The Historical Emergence of Construction Law’, William Mitchell Law Review 34(1) (2007)
Article 6 (citations omitted):
Beginning in 1857, the founding of the American Institute of Architects (AIA), which championed the practice of
architecture as a specialised profession distinct from construction contracting, heralded the eclipse of the architect’s historic role
as ‘master builder’ – the single person in charge of design and construction. Following the founding of the AIA, engineering
associations were formed to promote engineering as a profession, separate from both architectural design and construction
contracting. In turn, these associations championed recognition of a number of professional engineering sub-specialties –
electrical, mechanical, structural, civil, and geotechnical – to address emerging technical disciplines. Professional specialization
accelerated after legislative enactment of state design-professional registration laws, beginning with the state of Illinois in
1897. By the mid-twentieth century, the architectural profession was perceived as having abandoned its age-old role as
‘master builder’.
8 J. Sweet, ‘Standard Construction Contracts: Academic Orphan’, 31 Construction Law 38 (2011). In this piece,
the author states:
Those who design, usually architects or engineers, make contracts with those for whom they work, such as their clients,
as well as those entities who work for them, such as consultants. Builders, usually called contractors, make contracts with
those who engage them, called owners; those who work for them, such as subcontractors; and those who provide materials,
called suppliers.
9 See, generally,Vera Van Houtte, ‘The Role and Responsibility of the Owner’.
10 Many different terms are used internationally to denote the parties to a construction contract. The owner can
be referred to as ‘employer’, ‘client’or ‘purchaser’ and the contractor may be referred to as the ‘constructor’
or the ‘client’s contractor party’, but throughout this work, the parties will be referred to as the owner and
the contractor.
8
The international construction contract

The terms ‘construction’ and ‘contract’ are defined in the United States Federal Acquisition
Regulations11 (FAR):
• ‘contract’ means a mutually binding legal relationship obligating the seller to furnish the
supplies or services (including construction) and the buyer to pay for them; and
• ‘construction’ means construction, alteration or repair of buildings, structures, or other
real property.
Contracts for construction, alteration or repair of buildings, structure or other real property
must clearly articulate both the technical aspects of the construction and the legal relation-
ships between the parties.
Construction projects can be differentiated from other projects, such as manufacturing,
in that they have unique attributes. Such attributes include the following:
• construction projects are unique one-off projects that are often carried out on-site in
remote locations, while being exposed to environmental hazards;
• taking a construction project from conception to completion brings together a myriad
of organisations and individual specialisations through ‘virtual teaming’; and
• construction projects have a development and execution life cycle that is generally
measured in years.
These unique characteristics were clearly noted by an English civil engineer and barrister,
EJ Rimmer, almost 80 years ago:
…contract works are to be constructed in or erected and fixed on to land, and cannot be rejected
and sent back to the Contractor if they prove to be unsatisfactory; that the works are to be carried
out in open air under unstable conditions with material and labour of varying quality; that the
conditions of excavation and foundation cannot be entirely foreseen until the ground is opened
up; that execution of the works may result in damage to property belonging to other persons;
that works of specialists may have to be carried out concurrently with work done by the general
contractor; that the period of the contract may extend over several years and the Employer may
desire the use of completed parts of the work before final completion of the whole; and that the
amount of money involved is often such as to imperil the financial resources of a contractor who
has made an unwise tender.12
11 FAR 2.101. The FAR specifically states that for purposes of this definition, the terms ‘buildings, structures,
or other real property’ include, but are not limited to, improvements of all types, such as bridges, dams, plants,
highways, parkways, streets, subways, tunnels, sewers, mains, power lines, cemeteries, pumping stations, railways,
airport facilities, terminals, docks, piers, wharves, ways, lighthouses, buoys, jetties, breakwaters, levees, canals,
and channels. Construction does not include the manufacture, production, furnishing, construction, alteration,
repair, processing or assembling of vessels, aircraft, or other kinds of personal property (www.acquisition.gov/
far/html/Subpart%202_1.html).
12 As quoted by Christopher R Seppälä, in his paper delivered at the FIDIC/ICC International Construction
Contracts and Dispute Resolution conference in Cairo, Egypt, 17 March 2005.
9
These characteristics result in construction projects being particularly sensitive to an

extremely large spectrum of risks;13 the spectrum is extended in the international arena.14
Hence, successful project execution dictates that this risk must be managed and that
parties settle the issues associated with project risk through contract provisions.15
Management of project risk will require that the owner undertake a comprehensive
and systematic approach in identifying, assessing and developing a risk mitigation strategy,
which may include the transfer of risk to other parties.16
There is a close relationship between risk management and the characteristics of a
construction contract:
One of the main areas where risk management can be applied is in developing the conditions
of contract. A clear definition for the risks and their allocation provides incentive for the efficient
management of risks as they occur during the construction process. Each party to the contract
has clear understanding of their rights, duties and liabilities. For this to occur conscious decision
must be made in the drafting of any new contract to appraise each party of the consequences of
each risk occurring.17
As such, in a comparative look with other types of contracts, one will find that a con-
struction contract contains more wording, provided to deal specifically with the risks that
might arise.
13 N.G. Bunni, The FIDIC Forms of Contract, Third Edition, Blackwell Publishing (2005) pp. 94–95. Also, see
Footnote 5, Chapter 3 for a comprehensive review of the risk exposure in a construction project.
14 See P.L. Bruner, ‘Allocation of Risks in International Construction: Revisiting Murphy’s Law, the FIDIC
Conditions and the Doctrine of Force Majeure’, International Construction Law Review 259 (1986):
International construction presents the greatest business risks (and presumably rewards) in the world. In undertaking to
construct massive monuments to mankind’s ingenuity in distant cities, jungles, desserts, mountains and seas, international
contractors confront a multitude of risks: (1) management of multi-national parties; (2) language barriers to communication;
(3) variations in the availability, productivity, and skill of labor; (4) foreign customs and practices; (5) potential political and
economic instability; (6) uncertainties of weather; (7) unexpected geological conditions; (8) extended lines of communications
and supply; (9) differing quality and suitability of building materials; (10) currency fluctuations and restrictions; (11)
unfamiliar forms of disease, plants, insects and animal life; (12) different civil and criminal laws; (13) possible arbitrary
government regulation; (14) difficulties in obtaining adjudication of claims and enforcement of contract rights.
15 See John Burrows, The Principles of the Law of Contract: ‘We must not expect too much of the law of contract,
particularly in complex transactions such as those in the construction industry.’ And see the UNCITRAL
Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works (1987), p. 1:
Contracts for the construction of industrial works are typically of great complexity, with respect both to the technical aspects of
the construction and to the legal relationships between the parties.The obligations to be performed by contractors under these
contracts normally extend over a relatively long period of time, often several years. In these and other ways, contracts for the
construction of industrial works differ in important respects from traditional contracts for the sale of goods or the supply of
services. Consequently, rules of law drafted to govern sales or services contracts may not settle in an appropriate manner many
issues arising in contracts for the construction of industrial works. It may be desirable or advisable for the parties to settle these
issues through contract provisions.
16 Risk Analysis and Management for Projects (RAMP), Third Edition, Institute of Civil Engineers and the Actuarial
Profession (2014).
17 P.H. McGowan et al., ‘Allocation and Evaluation of Risk in Construction Contracts (1992, Chartered Institute
of Buildings),’ Occasional Paper No. 52 of The Charted Institute of Building, as quoted in K. Pickavance, Delay
and Disruption in Construction Contracts, LLP Reference Publishing (1997) pp. 13–14.
10
Although it has been noted that, ideally, risks should be allocated to the party in the best
position to handle this risk:
The ideal contract – the one that will be most cost effective – is one that assigns each risk to
the party that is best equipped to manage and minimise the risk, recognizing the unique cir-
cumstances of the project…. This can be accomplished by assigning each risk addressed in the
contract to the party that (1) has a comparative advantage in regard to the risk bearing ability;
and (2) has control over the risk.18
Nael Bunni19 states that, in addition to the general principles of control of the risk and
ability to bear it, the allocation of the risks between the contracting parties should also
consider: ‘(a) which party could best foresee that risk; and (b) which party most benefits or
suffers when the risk eventuates’.
Thus, a construction contract will set the manner in which the project risks will be
handled through provisions that allocate the project risks between the parties, and will
offer specific remedies in the event of breach of contract or the occurrence of specified
events.20 They also provide for procedures that must be followed by parties wishing to avail
themselves of such remedies.21 In addition, in light of the possible change in design and
technology, the construction contract may also provide the owner with the right to order
changes and the mechanism for achieving them, in advance.22
The owner then selects a project delivery method and a contract type that mirror the
risk profile of the project and are congruent with the risk allocation strategy. The construc-
tion contract signed between the owner and the contractor will be a reflection of both the
project delivery method and contract type (see infra).
Project delivery methods and types of construction contract

In deciding on both the project delivery method and the contract type, the owner must
consider who will undertake the essential functions required to take the project from con-
cept to completion,23 and how the project risk, including the risk inherent in valuing and
paying for the work, will be handled.
Construction projects are becoming increasingly complex, and this challenge is met
with innovation, including a proliferation of project delivery strategies.
18 See, for example, R.J. Smith, ‘Risk Identification and Allocation: Saving Money by Improving Contracts and
Contracting Practices’, International Construction Law Review (1995) 40.
19 See Footnote 5, supra.
20 N.G. Bunni, ‘A Comparative Analysis of the Claim and Dispute Resolution Provisions of FIDIC’s 1999 Major
Forms of Contract Against its Earlier Form’, an unpublished paper delivered dated January 2006. The remedy
usually includes time or money, but can also extend to suspension and even termination.
21 Ibid.
22 J. Burrows, The Principles of the Law of Contract:
There is of course much practical sense in having a single administrator and decision-maker. But what this also achieves
is the advance prescription and objective certainty the law requires.The contract provides in advance for the possibility of
variation, and provides a single mechanism removed from the parties for achieving it.
23 Taking a construction project from conception to completion involves a number of essential functions,
including planning and feasibility studies, design, construction, management, commissioning, and operation.
11
One distinguishing factor between various delivery methods is who will carry the
design responsibility. This concerns the level of the contractor’s involvement during the
design phase.24
The traditional method of construction contracting (‘design-bid-build’) is the project
delivery method in which design and construction are contracted for separately.The owner
will carry out the design and only enter into a construction contract subsequent to the
completion of the design. This type of project delivery typically involves a sequential pro-
cess in which the contractor is selected by means of competitive tender that includes a fully
detailed design.The resulting construction contract will only include the obligation for the
contractor to construct the work designed by the owner in accordance with the owner’s
detailed specifications and drawings.
Alternatively, the owner may allocate the design function to the contractor.This method
of project delivery is commonly referred to as the ‘design-build’, when design and con-
struction are combined in a single contract with a single contractor.
Design-build project delivery relies on a performance requirements-based contract –
the intention is to tell the contractor what is needed, not how to achieve the desired prod-
uct. The design is accomplished in accordance with performance requirements after the
award of the construction contract, with the contractor given a broad leeway to design the
job in an efficient manner.
The design-build family of project delivery includes the engineering, procurement
and construction (EPC)/Turnkey type of project delivery, which endeavours to transfer
greater functions, project controls and risk to the contractor. EPC/Turnkey contracting
seeks to establish a single point of responsibility, achieving the necessary engineering and
design work, procuring the equipment and materials identified within those designs and
constructing a facility that is ready to be used by the owner at the ‘turn of a key’.
Once the owner has determined the delivery method, they must turn their focus to
determining the type of contract. The choice of type of contract is intimately linked to the
overall payment and pricing structure that will govern the transaction.
Contract types are grouped into two broad categories: fixed-price contracts and
cost-reimbursement contracts. When placed on a continuum, the contract types can
range from firm-fixed-price to cost-plus-fixed-fee. In fixed-price contracts, the cost risk
is transferred to the contractor, with the contractor assuming full responsibility for the
performance costs and resulting profit (or loss) in firm-fixed-price contracts. However,
in cost-plus-fixed-fee type contracts the owner retains the cost risk, with the contractor
assuming minimal responsibility for the performance costs, and the negotiated fee (profit)
is fixed. In between are various derivative types of contracts, including the re-measurement
type contract.
The three basic types of contract that are most commonly encountered in construc-
tion are:
• fixed-price/lump sum;
• re-measurement; and
• cost-plus.
24 ‘Design’ is the process of defining the construction requirement, producing the technical specifications and
drawings, and preparing the construction cost estimate. See footnote 11.
12
Fixed-price or lump sum contracts

These are contracts where the contractor is paid a pre-agreed sum of money when he
or she has successfully performed all of his or her obligations under the contract. The
contract sum is determined and specified in the contract agreement. Payment is made in
pre-determined stages and the contractor assumes the risk for both performance and price.
Entering a fixed-price contract requires that the contractor commit to complete the whole
of the work for a specific sum, which will require that the contractor fully understands all
of his or her future obligations and is able to price them during the tender phase. Entering
into a fixed-price contract with a high degree of uncertainty at the tender stage will require
the contractor to build a significant premium into his or her tender pricing. Fixed-price
contracts, while providing the owner with a higher degree of cost certainty, demand a
greater investment in preparing a complete tender documentation.
Re-measurement
During the tendering phase, the contractor is required to give a fixed price for each item
of work in accordance with the owner’s estimated quantities. During contract execution,
the work completed by the contractor is measured and the amount that the contractor is
paid is determined as a product of the measured quantities and the contractor’s price for
each item. With this type of contract, the employer assumes the risk for the quantity and
the contractor assumes the risk for the pricing.
Cost-plus
Under a cost-plus contract, the owner retains the cost risk and the contractor is paid his
or her costs including overheads and profit. Cost-plus is more flexible in that it does not
require full information at the time of tender, but this flexibility comes with greater price
uncertainty for the owner. This type of contract is particularly useful in cases where the
scope of the work is not well defined at tender stage, or where the kinds of labour, mate-
rial and equipment needed to meet the owners requirements are uncertain. Administration
of cost-plus type contracting also comes at a high cost because complete records of all
time and materials spent by the contractor on the work must be maintained and must
be verifiable.
Standard form contract

Globalisation requires optimisation in the allocation of resources and the facilitation of
international trade.25
25 While the global construction industry does not enjoy the same economies of scale as does manufacturing,
reduction of transaction costs is still paramount. In manufacturing, efficient allocation of resources requires
making sure that the right goods are at the right place, at the right time, to support production requirements,
while economies of scale are achieved when the production batch size is sufficiently large as to allow
distribution of your fixed costs over more products sold – the larger your market, the larger number of
products that can be produced in one run without retooling, hence the cheaper the cost of producing each
individual item (fixed costs can be divided over a larger number of items). See J.B. ReVelle, Manufacturing
Handbook of Best Practices: An Innovation, Productivity, and Quality Focus, CRC press (2002) for an in-depth
explanation of supply chain management.
13
Standard forms of contracts are used by every industry to aid in reducing costs, both
by reducing costs that would result from the development of a contract and the cost of
uncertainty as to what their bargain contains.
Standard forms of contract have a deep history of use in the construction industry.They
provide for lower transaction costs, and clarity and consistency of terms.26
Standard form contracts, for use in the domestic construction market, have been pub-
lished by professional institutions as far back as the 19th century. In 1888, the American
Institute of Architects (AIA)27 published their first standard contract; this was followed
in 1903 by the Royal Institute of British Architects.28 The first standard form of con-
tract, designed for use in international construction transactions, was published by the
International Federation of Consulting Engineers (FIDIC) in 1957.29
Rameezdeen and Rodrigo30 identify the following as advantages of using a standard
form of contract in construction:
• it can be used for various types of projects and client requirements;
• it embodies industry practices and customs;
• parties can be comfortable with the fact that it has been tried and tested over a long
period of time;
• fair allocation of risks between parties;
• in a competitive tendering environment, it provides a uniform basis for pricing without
the fear of hidden costs;
• the tendered price is likely to be lower as contractors do not have to price additional
risks associated with interpretation of bespoke contracts or clauses;
• the transaction cost involved in negotiating a contract is reduced; and
• it looks at three dimensions together; namely, the wider legal context through statutes
and case law, other documents forming the contract and areas of possible disagreement
between parties.
26 J. Sweet, ‘Standard construction contracts: academic orphan’, 31 Construction Law 38 (2011).

27 The AIA first published the Uniform Contract for use between an owner and a contractor in 1888. See ‘The
history of AIA contract documents’ at www.aiacontracts.org/contract-doc-pages/21531-the-history-of-
aia-contract-documents.
28 In 1903, a standard form was produced ‘under the sanction of the RIBA and in agreement with the Institute
of Builders and the National Federation of Building Trades Employers of Great Britain and Northern Ireland’.
See Joint Contracts Tribunal Website, Our History, at http://corporate.jctltd.co.uk/about-us/our-history/.
29 N. Bunni, The FIDIC Forms of Contract, Third Edition, Blackwell Publishing (2005) p. 6.
30 R. Rameezdeen and A. Rodrigo (2014) ‘Modifications to standard forms of contract: the impact on
readability’, Australasian Journal of Construction Economics and Building, 14(2) (2005) pp. 31–40.
14
Today, there is a wide spectrum of standard forms available for both domestic31 and inter-
national32 transactions that are published by national and international professional associa-
tions, including:
• FIDIC;33
• the Institution of Civil Engineers;34
• the Institute of Chemical Engineers;35
• the Joint Contracts Tribunal;36
• the Engineering Advancement Association of Japan;37
• the Civil Engineering Contractors Association;38
• the AIA;39 and
• the Design Build Institute of America (DBIA).40
Standard contracts provide a risk allocation solution of general purpose for items such
as differing site conditions, site investigations, unusually severe weather, permits and
responsibilities, and changes. They assign responsibilities and liabilities to each contracting
party regarding job performance, organisation, time frames, guarantees, insurance, errors
and payment.
Each standard contract seeks to reflect a specific philosophy with regard to the alloca-
tion of project risk, and to capture best practice with regard to dealing with change, termi-
nation, payment and the contract administration role. 41
Professional associations endeavour to update their standard forms of contract at fairly
regular intervals in an attempt to keep pace with the developments in the industry, both in
terms of best practice and legal concepts.
Underpinning the choice of standard form of contract are issues of project delivery
method; risk allocation; cost, schedule and performance trade-offs; security arrangements;
level of owner involvement in the design and construction process; liberty of owner to
31 In domestic transactions it is not uncommon for parties to select nationally produced standard contracts. For
an overview of the forms available in the US domestic market, see J. Sweet, ‘Standard construction contracts:
some advice to construction lawyers’, 40 SCL Review (1988) p. 823, available at: http://scholarship.law.
berkeley.edu/facpubs/955. Also, see DLA Piper ‘Industry forms of agreement’ at www.dlapiperrealworld.
com/law/index.html?t=construction&s=forms-of-contract-procurement-methods&q=industry-forms-of-a
greement.
32 World Bank standard bidding documents include the FIDIC standard forms of contract. Also, see African
Development Bank and Asian development bank standard bidding documents. Also, the PLC Cross-Border
Construction and Projects Handbook 2010/11 looks at the types of contract used for national and
international construction and engineering projects in each of the 18 jurisdictions covered by the guide.
33 See www.fidic.org.
34 See www.ice.org.uk.
35 See www.icheme.org.
36 See www.jctltd.co.uk.
37 See www.enaa.or.jp.
38 See www.ceca.co.uk.
39 See www.aiacontracts.org.
40 See www.dbia.org.
41 It is often said by the FIDIC that their contracts are ‘made by engineers for the use of engineers’.
15
direct change during contract execution; approach to dispute management; and resolution
and familiarity.42
Essential elements of the construction contract

Regardless of the owner using standard or bespoke conditions of contract, construction
contracts must include the principle documents that identify and allocate the project risk
and describe the whole of the works. The principle documents in a construction contact
will include:
• the conditions of the contract, general and specific;
• technical documentation;43
• schedules;
• programmes; and
• bills of quantities.
The contract sets forth the basic terms under which the parties are doing business together
– price and payment terms, commencement date, completion date, description of scope of
work, allocation of risks of loss, insurance, change order procedure, suspension and aban-
donment of the project, termination, breach, liquidated damages, alternative dispute resolu-
tion and indemnification provisions.
The general conditions (including any supplemental conditions) are a set of rules that
cover problems – such as claims, disputes, subcontracting, changes, time, warranties, protec-
tion of property, insurance, remedies and termination – that routinely arise in construc-
tion contracts.44
Drawings
The drawings include the plans prepared by the architect, by the surveyor and by the con-
sulting engineers (i.e., site plans, structural plans, mechanical plans and electrical plans), as
well as more detailed drawings prepared by the contractor, subcontractor or supplier called
‘shop drawings’ that have been submitted to and approved by the owner or project design
professional. A material deviation from these plans will constitute a ‘defect.’
Specifications
The specifications – typically written and supplied by the project design professional with
the plans – provide even more detail as to the materials to be used, the performance
42 It is often assumed that choosing a standard contract form will help to reduce transaction costs, but choosing
a form that is unfamiliar to the potential offerors can increase the tendering time and cost as well as creating
additional administrative burdens for the parties.
43 The technical documents that are to be included in the tender package will be driven by the project delivery
method. In the case of design-bid-build project delivery, the specification is the document in which the
consulting engineer will specify the project requirements for all matters not covered by the conditions of
contract or shown on the drawings – in the case of a design-build project delivery method, the technical
requirements for the completed works in terms of performance.
44 J. Sweet, ‘Standard construction contracts: some advice to construction lawyers’, Construction Law Journal, 7
(1991).
16
requirements for aspects of the project and the methods or techniques of construction to be
employed. The specifications fill in the necessary information that is not evident from the
drawings and includes materials and workmanship clauses, schedules to provide positional
information and prime cost and provisional sums if required.
Employer’s requirements45
‘Employer’s requirements’ is the term used by FIDIC46 to denote the document that defines
the purpose, scope and design and technical criteria of the works in design-build contracts.
As explained by Nael Bunni,47 the employer’s requirements are the main source of infor-
mation for the general obligations of the contractor and should be drafted in a balanced
manner so as to effectivly specify the employer’s needs, while not limiting the contractor’s
flexibility in design to meet those needs, and must clearly state the purpose for which the
works are intended.
Bill of quantities
The bill of quantities, as used in a remeasurement contract, is a list of the materials and
their estimated quantities against which the contractors provide their rates during the ten-
der phase. The agreed prices are then used for periodic valuation of the works that have
been executed.
45 ‘Employer’s requirements’ is the term used by FIDIC to denote the technical requirements for
design-build project.
46 See subclause 1.1.1.5, ‘Employer’s Requirements’, in FIDIC Conditions of Contract for Plant and
Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works Designed by the
Contractor: The Plant and Design-Build Contract (Common known as FIDIC Yellow Book), 1999.
47 Footnote 29, supra, p. 476.
17
2
Parties to a Construction Contract
Scott Stiegler1
Introduction
Procurement of construction services has evolved over the years to become a sophisti-
cated and unique part of contract law. No longer can construction contracts be considered
as the mere provision of building services. Many modern construction projects involve
numerous engineering disciplines, include stringent and perhaps technically sophisticated
performance requirements (such as those for processing plants), can involve cross-border
arrangements and, more often than not, have a large number of parties and interested par-
ties including government and regulatory bodies.
As a result, construction law itself is predominant in the formation and evolution of the
substantive contract law in England and Wales. Indeed, the rise in complexity of projects
and sophistication of the parties drives not only the development of complex and detailed
contracting frameworks, but also can lead to long-term and technically challenging dis-
putes, both in a legal and engineering sense.
Added to this is the prevalence of what can only be described as truly international
construction projects. The nature of these types of projects is unique, with the prevailing
influencing factor being the parties themselves. International construction projects typi-
cally involve parties from differing cultural and legal backgrounds who bring with them
their own ideas of not only how the works themselves should be performed, but also the
way in which the parties are to structure and manage their contracting and project manage-
ment relationship. They also bring knowledge and experiences from their own domestic
construction industry that may or may not be compatible with the domestic construction
industry of the other party or parties. This is particularly influential when parties from
differing jurisdictions enter into joint venture arrangements for the performance of the
works. Further still is the cultural background of the parties that may have an influence on
1 Scott Stiegler is a senior associate at Vinson & Elkins RLLP.
18
the working relationship of the parties or that may need to be taken into account when
structuring the project management aspects of the project. This in itself creates interesting
challenges that sometimes cannot be resolved by cleverly wordsmithed contracts, particu-
larly so when common law contractors undertake work in civil law jurisdictions and vice
versa. It is in this light that the modern construction contract has become a sophisti-
cated instrument.
Construction contract arrangements

Construction contracts come in a variety of bespoke and standard forms.They cover a range
of differing scopes of works and services from pure consultancy services right through to
complete EPC turnkey solutions. Contracting arrangements can include design and build,
consultancy services, EPC turnkey, operation and maintenance, project and construction
management, front-end engineering design, ‘early contractor involvement’ (single or mul-
tiple), alliancing framework agreements, as well as longer-term models such as build, own,
operate and transfer, and other similar arrangements. There are also a number of ancillary
construction contracts such as those for joint venture arrangements, independent verifier
roles and other similar supporting functions.
As a consequence of such a broad range of potential scope of works and services,
there are a variety of domestic and international institutions that have and maintain their
own particular sets of standard form contracts. While there are widely known institutions
such as the Joint Contracts Tribunal (JCT) and the International Federation of Consulting
Engineers (FIDIC) that produce and maintain their own contract suites, there are also
a variety of specialised industry bodies that prepare and maintain more particular suites
of construction contracts, such as Oil and Gas UK, which produces the LOGIC suite
of contracts, the Institute of Chemical Engineers (IChemE), the Institute of Electrical
Engineers (IEE), the Association of Consultant Architects (ACA), the Royal Institute of
British Architects (RIBA) and the Institute of Civil Engineers, which produces the widely
recognised and regarded NEC3 contract.
Standard building contracts

A standard building contract is typically confined to the construction of the works only.
The employer is generally assisted by an architect, engineer or other construction pro-
fessional to translate the employer’s requirements into technical documents upon which
prices can be sought. It is common for detailed tender documents to be prepared and for
there then to be a competitive tender process from which the employer can select the best
contractor for the works.
Flexibility also exists around how the contractor can be paid for such works. For exam-
ple, payment can be based on a simple lump sum for the performance of the defined works
only or perhaps on a cost reimbursable basis where the full extent of the scope of works is
not clearly defined at the outset of the project.
Design and build contracts

The typical and historically traditional position for standard building contracts is in more
recent times less reflective of most modern construction projects. It is not uncommon for
19
employers to seek construction services on a design and build basis, that is, it is for the
contractor to review the employer’s requirements and itself develop a suitable and compli-
ant design and to execute the works in accordance with that design. In this situation, the
contractor is responsible not only for the design of the works, but also the packaging and
letting of the trade packages for the performance of the works itself. This places additional
risk on the contractor (for example, time risk with procurement and insolvency risk with
the supply chain) that could be seen as passing the risk to the party best placed to manage
it, but may also leave the employer facing a higher contract price as a result.
This contracting methodology does have a number of benefits, such as the following:
• As the design and construction of the works are provided for under a single contract,
there is a single point of responsibility. This potentially may have an impact of reducing
(or at the very least clearly allocating) the design and construction risks of the project.
• By having the contractor develop its own design, it allows the contractor to develop its
own means and methods for executing the works. This, in turn, could benefit the par-
ties as the contractor may employ methods that it is more familiar with and reduce the
overall cost of the works and the time for its performance for the employer.
• Time for procurement can potentially be reduced. Again, as the procurement aspects of
the works are all being managed by the contractor who is also developing the design,
procurement lead times and other requirements (importation requirements, for exam-
ple) can be considered early on in the project.
• Performance of the works can, in some circumstances, be improved given the over-
all responsibilities placed on the contractor. The incentives on the contractor are also
heightened in situations where liquidated damages can be imposed for delayed perfor-
mance or where performance bonds or retention bonds are provided by the contractor.
However, having overall responsibility for performance can also potentially drive nega-
tive behaviours in lump sum arrangements where the contract price agreed does not
reflect a proper estimate of the works at tender.
With these advantages, there are also a number of potential disadvantages:

• As the risk associated with the design and construction of the project is passed to the
contractor, it is very likely that the cost of this risk will be reflected in the eventual
contract price, resulting in a higher cost to the employer.
• The employer may feel a lack of control over the detailed design and construction of
the works as this is, again, a matter for the contractor. Furthermore, the employer input-
ting into these areas may also lead to claims from the contractor for additional costs as
a result of what could be instructions from the employer to carry out the works dif-
ferently to how the contractor had originally planned or to perform additional works
outside the original scope.
• While performance of the works may arguably be improved, there is also an incentive
for the contractor to carry out the works to the minimum compliant standard at the
minimum cost, thereby maximising its potential profit.
• Depending on the scale of the project, there may be risks of lack of competition in the
market, especially for more specialised projects.
• Contractors could be motivated to make claims against the employer to alleviate them-
selves from the transfer of risk.
20
• While the transfer of risk may be appropriate in particular circumstances, contractors

will quite often demand that there be overall limitations on liabilities and other restric-
tions on the passing of risk.
Design and build contracts are complex contracting arrangements and a careful and thor-
ough understanding of the technical requirements of the project and the risks associated
therein is needed by all parties.
Consultancy services
A consultancy services agreement is designed for the provision of engineering or design
services to an employer or contractor. Insofar as it applies to engagements by an employer,
consultants, such as an architect or engineer, are typically engaged early on in the develop-
ment of the project to assist with matters that could include scope definition, risk identifi-
cation, preparation of tender documents and other general project issues.When retained by
a contractor, the scope of a consultant’s role is generally professional in nature and is more
than likely related to the design aspects of the contracted works.
Project management contracts

For larger construction projects, there is often a need to have a professional construc-
tion manager involved from the employer’s perspective. While this can sometimes be
done by way of a consultancy services agreement, more sophisticated arrangements do
exist. One such example is the ‘engineering, procurement and construction management’
(EPCM) contract.
The benefits of this arrangement include that it may reduce the overall cost of the
works in terms of limiting the risk contingency normally applied by contractors as well
as potentially having advantages in procurement. There are also advantages in that the
employer retains control over design aspects. Conversely, there are added risks, the main
being that the risk of design remains with the employer.The key to success in this arrange-
ment is a good understanding of the project and having thorough and detailed project
planning and management.
Build, own, operate, transfer

A build, own, operate, transfer (BOOT) contract is form of public-private partnership
(PPP) project model in which a company undertakes a large development project (usu-
ally infrastructure-related projects such as toll roads and bridges) under contract to a
public-sector partner, such as a government agency. A BOOT project can be seen as a way
of developing a large public infrastructure project with private funding.
The BOOT model works by the public-sector partner contracting with a private devel-
oper (more often than not a large corporation or consortium of businesses with specific
expertise relevant to the project) to design and implement the project. The public-sector
partner may provide, for example, some limited funding or some other benefit (such as
tax-exempt status) but the private-sector partner generally assumes the risks associated with
planning, constructing, operating and maintaining the project for a specified period of time.
During that time, however, the developer charges customers who use the infrastructure that
21
has been built to realise a profit. Again, a toll road or bridge is a typical example. At the
end of the specified period, the private-sector partner transfers ownership to the funding
organisation, either freely or for an amount stipulated in the original contract. Such con-
tracts are typically long term and may extend to 40 years or more.
Alliance agreements
Traditional construction contracts are generally structured around the consequences of
failure and allocation of risk. Alliancing agreements challenge this traditional approach
and are incentive-based relationship contracts. Under this contracting arrangement, the
parties agree to work together as one integrated team with a culture of cooperative
decision-making, risk sharing, ‘no blame and no dispute’ and financial transparency.
In an alliance agreement, the owner, contractor and designer are all parties to one pro-
ject agreement. Project development is driven by a cooperative board of management made
up of representatives of the parties, with a mandate to deliver the project in accordance
with agreed goals and alliance principles. While risk is said to be shared, the ultimate risk
does lie with the project owner.The alliance model is driven by a target contract cost and a
target completion date, with the purpose of these targets being to drive pain or gain shar-
ing in the decision making. The contractor is incentivised as its profit margin is dependent
on performance.
Another unique aspect is the ‘no blame’ culture in that the alliance parties release each
other from all liability except, in most cases, for wilful default or gross negligence. The
philosophy on disputes is that rather than spending time and energy on apportioning
blame and developing costly claims, a more efficient approach is for the parties to work
cooperatively to overcome problems and risks that have manifested themselves during the
life of a project.
With such a wide variety of possible arrangements, it is inevitable that there are a mul-
titude of different potential and interested parties in construction projects. As a result, the
particular parties and their roles and responsibilities in these contracting frameworks must
be clearly understood and defined.
Parties to a construction contract

As explained generally in the sections above, there are a variety of contracting methods and
arrangements that the parties may wish to consider when considering the requirements
for a construction project. This, in turn, leads to the possibility of various potential parties
and interested parties in construction projects. The sections below discuss briefly the most
common parties in construction projects.
The employer
The ‘employer’ is the contracting party for whom the work is carried out and is typically
the owner of the land upon which the work is carried out. The employer can also be
referred to as the ‘owner’, ‘client’, ‘purchaser’ or even the ‘developer’. For the purposes of
this chapter, the term ‘employer’ will be adopted.
An employer can take many different forms and is largely dependent on the nature
and scope of the construction project being undertaken. The employer need not be a
22
professional construction or development organisation. Indeed, in some circumstances the

employer is not a professional construction or development organisation and is, rather, rep-
resented by a professional team to undertake the role of the employer under a contract.This
is not an uncommon situation and is reflective of the need to have competent and appro-
priately skilled construction contract professionals filling the shoes of an unsophisticated
employer. This situation is also reflective of the need to have such a skillset when dealing
with sophisticated contracting, building and engineering organisations.
The role of the employer varies depending on the nature of the contract entered into.
For example, an employer could be expected to play a more passive role under a design and
build lump sum contract, whereas it could be expected to play a more active role in a cost
reimbursable or, indeed, a front-end engineering design contract.
The contractor
The ‘contractor’ is the contracting party responsible for carrying out the works. Depending
on the type of construction contract, the contractor can either perform the works itself
or elect to subcontract part of the works to specialist subcontractors and designers. The
nature and scope of works under the particular construction contract will dictate the role
and responsibilities of the contractor. However, where an element of design is involved,
it is quite common for the contractor to subcontract this role out to a specialist designer,
architect or engineer.
The engineer or employer’s representative

For contracts of even moderate value or importance, it is not uncommon for the employer
to engage an ‘engineer’ or ‘employer’s representative’ to assist the employer in the manage-
ment of the contract. For the purposes of this chapter, the term ‘employer’s representative’
will be used. The employer’s representative is precisely as the name implies, the representa-
tive of the employer for the purposes of the contract.
The employer’s representative is generally a specialised engineering professional such as
a project manager or quantity surveyor. More often than not, the role of the employer’s rep-
resentative, while fulfilled by a named individual, is supported by a team of engineering or
construction professionals who have likely been involved in the project prior to the execu-
tion of the contract with the contractor.The team supporting the employer’s representative
have usually worked with the employer to prepare the specification for the works and the
tender documents, may have advised on various issues such as risk, insurance arrangements
and contracting methodology, and are likely to have involvement in the letting and review
of the tender submissions for the works. As such, by the time the contract is executed with
the contractor, the employer’s representative is generally very familiar with the project, the
requirements of the works and the contract.
Following the execution of the contract with the contractor, the duty of the employer’s
representative is to, in the broadest sense, supervise the execution of the works by the
contractor to ensure that such works are completed in accordance with the requirements
of the contract. The role of the employer’s representative therefore includes such tasks as
assessing payment claims, reviewing the performance of the works in light of the contrac-
tual programme, considering and monitoring the works to ensure compliance with the
contract specifications and other quality requirements, identifying any defects in the works,
23
reviewing and assessing claims made by the contractor, such as requests for variations and
extension of time and other events specified in the contract that give rise to potential enti-
tlement (such as, for example, claims for force majeure, adverse weather and unforeseeable
ground conditions). As the employer’s representative holds such an important position as
the employer’s agent, the employer’s representative therefore also owes a contractual duty
of professional care to the employer.
Subcontractor
Subcontracting the works to trade or design subcontractors is a common feature in modern
construction contracts. This may be for reasons attributable to the specialist nature of the
works or simply the need for additional resources or labour. Whatever the reasons may be,
the requirements and restrictions around subcontracting are typically dealt with in detail in
the contract. For example, rarely is the contractor allowed to subcontract the entirety of the
works to another contractor. Furthermore, requirements may be placed on the engagement
of lower-tier subcontractors, such as flowing through key contract terms, requirements for
collateral warranties or additional guarantees, or even a requirement to allow the employer
to audit the books of account of the lower-tier subcontractor.
Specialist professionals, including architects, quantity surveyors, project

managers and other consultants
There are a variety of other professionals who may have involvement in construction pro-
jects.The type and nature of the project and contracting framework will define the level of
involvement that these professionals may have.
Architects
The traditional role of the architect was that of the principal’s representative as well as the
designer of the works. The law regarding the obligations on construction professionals has,
therefore, developed from this initial position. However, the role has evolved over time and
in larger projects, it is usually performed by other construction professionals such as engi-
neers or project managers.
While not an exhaustive list of all activities an architect could be expected to undertake,
the duties of an architect could be expected to include the following:
• undertaking a review and assessment of the site (in particular, geological and geotechni-
cal characteristics of the site) to advise on ground conditions;
• advising an employer to the use of the land and any limitations thereon, such as plan-
ning and development matters, rights of adjacent owners or restrictive covenants and
other access issues that may have an impact on the performance of the works;
• advising the employer of project execution issues, such as design development, cost
planning and indicative programming;
• preparing preliminary concept designs and initial specifications for the performance of
the works, whether for an approval process, cost planning or for tender purposes;
• advising on project risk identification and potential contracting methodology;
24
• preparing documents for and thereafter managing the tender process for the works,
including a review of the submitted tenders and providing recommendations and anal-
ysis of the submitted tenders; and
• monitoring the execution of the works by the contractor and, in some situations, acting
as a certifier of the works.
Quantity surveyors
The role of a quantity surveyor is to estimate the quantities for the works to be performed
(i.e., to survey the quantity of material, equipment etc required in order to execute the
works). A quantity surveyor can be engaged at the beginning of a project to assist the
employer in preparing the tender documents or to review tender submissions where a bill
of quantities has been prepared.This role is particularly important if the employer is seeking
a fixed-price, lump-sum contract. A quantity surveyor can also be engaged to assist with
the ongoing needs of the project, such as assessing the measurement of payment claims and
claims for variations to the scope of works.
Project managers
In larger or long-running construction projects, project managers are often retained by
both the employer and contractors in order to assist in the day-to-day running of the
works and the management of the contract. While a project manager is someone who
has originally trained as an engineer or quantity surveyor, the role of a project manager is
administrative and managerial.
The role of a project manager may cover many of the activities traditionally performed
by an architect. For example, project managers may have a greater role in cost planning and
analysis from a project feasibility perspective, have a contract management role and may
well indeed have a level of input from a procurement aspect. These duties are, of course,
variable and are dependent on the contracting framework with the contractor.
Other consultants
There are a myriad of other consultants that can provide services in construction projects.
For example, the works may require the specialist advice of an electrical, mechanical, struc-
tural or hydraulic consultant. Many consultants also exist in the fields of building certifica-
tion, fire, security, acoustics and safety. The input given by consultants is obviously driven
by the specific works, but in many larger projects it is not uncommon for employers to
retain the services of consultancy engineering firms who typically have a variety of differ-
ing consultants from which to draw upon.
Other possible interested parties, including funders and insurers

The increase in complexity and risk associated with projects, the growth of ‘mega projects’
and the differing and varying roles of parties and third parties in construction projects has
led to the importance of appropriate risk identification and insurance coverage. Indeed,
the construction industry is subject to higher degrees of uncertainty and risk than many
other sectors.
25
In planning projects, employers, insurers and their respective specialist advisers ought
to consider, inter alia:
• what the nature and likelihood of the risks relevant to the project are;
• how risk is to be allocated between the parties – will it be transferred, shared or assumed;
• what insurance protection is to be provided by the employer and what is to be provided
by the contractor; and
• when the insurance programme is to start and finish.
There are obviously a range of insurance policies available in the construction market and
these can be customised to suit the needs of the particular project. The most common
policies are ‘contractor’s all risk’ policies, typically covering physical damage to the works,
as well as professional indemnity insurance policies, which are typically intended to cover
professional design issues. Other insurance policies cover public liability, workers’ com-
pensation and, in some Middle Eastern countries, decennial liability insurance may also
be necessary.
The complexity and risk associated with certain projects also impacts on the poten-
tial funding that may be available. Typically, the long-term financing of infrastructure and
industrial projects is based upon the projected cash flows of the project and is secured by
the project assets.The level of funding and how it is provided is again driven by the specific
project and its circumstances.
26
3
Bonds and Guarantees
Christopher Harris and Jane Davies Evans1
Purpose of security
Security in the form of bonds and guarantees is a well-established feature of construc-
tion projects.
Bonds or guarantees are, with limited exceptions, sought by the employer to secure the
contractor’s performance, and to protect advance payments made for mobilisation of the
contractor to site, and/or the purchase of long-lead or high-value components or materi-
als. In addition, on-demand bonds or guarantees are regularly used in the construction
industry to enable the early release of retention monies. Less frequently, the contractor may
also require security to ensure there will be sufficient funds available for an impecunious
employer to make payments as and when they fall due, or to protect against regime change
when working for public entities in potentially unstable jurisdictions.
Types of security
Before considering the different forms of security typically given in international construc-
tion projects, it is important to note that there are essentially two different types of obliga-
tions encompassed by such securities, each with different requirements and consequences.
In particular, the security provided may impose on the issuer:
• an autonomous contractual obligation to pay a specified sum of money on the occur-
rence of a specified event or presentation of a particular document; or
• an accessory obligation to be answerable in the event that a third party fails to perform
a contractual obligation or make a payment owed to the beneficiary under the underly-
ing contract.
1 Christopher Harris and Jane Davies Evans are barristers in practice at 3 Verulam Buildings.
27
Terminology
Unfortunately, there is little consistency in the terminology applied to bonds and guaran-
tees, which causes some confusion and makes it difficult to determine whether a particular
security encompasses an autonomous or accessory obligation merely by looking at its title.
Generally speaking, security instruments imposing autonomous obligations tend to be
referred to as on-demand bonds or guarantees, first-demand bonds or guarantees, demand
bonds or guarantees or standby letters of credit, whereas security instruments imposing
accessory obligations are often labelled guarantees, default bonds or surety bonds.
The greatest confusion in the construction sector probably arises from the fact that
where these instruments are used as performance security, both types (representing autono-
mous and accessory obligations) are often labelled as performance bonds or performance
guarantees. The situation is not assisted by the fact that, while standard forms are available,
they are rarely used in practice, with most employers and issuers of security insisting on
their own bespoke wording.
Whether a particular instrument is treated as imposing a autonomous or accessory obli-
gation is a matter of construction of the instrument in question and not dependent on the
label attached by the parties.2 In light of the different legal characteristics of the two, and
the consequences that flow therefrom (as set out further below), the question of the proper
construction of such security instruments frequently gives rise to litigation or arbitration
and is the subject of numerous reported decisions of the English courts.3
In this chapter, autonomous contractual obligations will be referred to as ‘on-demand
bonds’ or ‘on-demand guarantees’ and accessory contractual obligations will be referred to
as ‘conditional guarantees’.
As will be seen below, the distinction between autonomous and accessory obligations is
of fundamental importance. The key difference is that an on-demand bond or guarantee is
(subject to intervention by the local courts as discussed below) payable against documents,
whereas a claim under a conditional guarantee requires proof that there was a breach of the
underlying construction contract.
Autonomous obligations – on-demand bonds and guarantees

The most common forms of security used on international construction projects are
on-demand bonds and guarantees. An on-demand bond or guarantee usually stipulates on
the face of the bond or guarantee itself what document will have to be to receive payment
2 Contracts of suretyship … are an area of law bedevilled by imprecise terminology and where therefore it is important not
to confuse the label given by the parties to the surety’s obligation (although the label may be indicative of what the parties
intend) with the substance of that obligation. Because the parties are free to make any agreement they like, each case must
depend upon the true construction of the actual words in which the surety’s obligation is expressed.This involves ‘construing
the instrument in its factual and contractual context having regard to its commercial purpose’, a task which the court
approaches ‘by looking at it as a whole without any preconception as to what it is.
Vossloh Aktiengesellschaft v. Alpha Trains (UK) Limited [2010] EWHC 2443 (Ch) at [20].
3 See Andrews and Millett, Paragraph 16-002 and the cases referred to therein, including Trafalgar House
Construction (Regions) Ltd v. General Surety and Guarantee Co Ltd [1996] 1 A.C. 199; Marubeni Hong Kong and
South China Ltd v. Mongolia [2005] EWCA Civ 395; IIG Capital LLC v.Van Der Merwe [2008] EWCA Civ
542; Vossloh Aktiengesellschaft v. Alpha Trains (UK) Limited [2010] EWHC 2443; Carey Value Added SL v. Gruppo
Urvasco [2010] EWHC 1905.
28
presented to the issuer in order to receive payment. All that the beneficiary will have to
do is issue a demand in accordance with the terms of the bond/guarantee and present the
required documents.
The documents required vary from case to case. The most common forms of
on-demand bonds and guarantees simply require the employer to demand payment, com-
bined with a formal declaration from the employer that the contractor has failed to per-
form its obligation under the construction contract.4 In practice, it is not unusual in the con-
struction industry for on-demand bonds or guarantees to include a pro forma demand letter
that the parties negotiate as part of the negotiation of the construction contract and security
itself. Additional requirements may include (1) a statement from a specified person that
the contractor is in breach of its obligations (for example, the relevant minister or attorney
general for public works contracts);5 or (2) a certificate from a third party (for example, the
engineer or the dispute adjudication board). Less common requirements can include provi-
sion of an arbitration award or judgment in respect of the underlying construction contract.
The employer beneficiary of such an on-demand bond or guarantee will generally seek
to obtain security with the least onerous documentation requirements, such as, for example,
a simple demand or certificate issued by the employer, whereas the contractor will seek
the additional protection provided by a third party certificate or judgment. Ultimately, the
terms of the security will depend on the parties’ respective bargaining positions and/or
what terms the available issuers6 are prepared to accept.
Theoretically, when the issuer of the security receives a demand for payment, it simply
checks that the demand and supporting documents comply with the terms of the security
and, if so, makes payment to the employer. Again, theoretically, the issuing bank is not con-
cerned with the question whether there has in fact been a default by the contractor under
the underlying construction contract, which renders the payment due.
In Edward Owen Engineering Ltd v. Barclays Bank International Ltd, Lord Denning
MR observed:7
All this leads to the conclusion that the performance guarantee stands on a similar footing to a
letter of credit. A bank which gives a performance guarantee must honour that guarantee accord-
ing to its terms. It is not concerned in the least with the relation between the supplier and the
customer; 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 case of fraud of which the bank has notice.
4 For example, the pro forma performance security demand guarantee provided with the FIDIC Red Book
(1999 Edition) requires a written statement that the contractor is in breach of his or her obligations under the
contract, and ‘the respect in which the [Contractor] is in breach’.
5 For example, the FIDIC Red Book (1999 Edition) pro forma proposes that a demand for payment must
contain the signature of the relevant minister or the employer’s directors authenticated by the employer’s
bankers or a notary public.
6 This reflects that, unlike conditional guarantees, on-demand bonds are usually issued by banks and
insurance companies.
7 Edward Owen Engineering Ltd v. Barclays Bank International Ltd [1978] QB 159 at [171].
29
In practice, depending on the commercial relationship between the issuer of the security
and the contractor (or the counter guarantor as the case may be),8 the issuer may notify the
contractor (or the counter guarantor) upon receipt of a demand before making payment.
The issuer will do so for one of two reasons: (1) if the issuer is concerned that it may not
be able to enforce the security it is holding in relation to the bond/guarantee; or (2) to give
the contractor the opportunity to make direct payment and avoid an act of default under
the terms of the agreement between the contractor and the issuer.9
Where a contractor fears that the employer is about to make a demand, or where the
contractor has been informed that a demand has been made by the issuer, the contractor
may attempt to block the demand by a court injunction.10 As noted above, the traditional
approach of the English courts was to limit injunctions to situations where there was clear
evidence of fraud.This approach has to some extent relaxed in recent years both in England
and elsewhere.11
In Simon Carves Limited v. Ensus UK Limited the English Technology and Construction
Court had to consider the extent to which the terms of the construction contract pursuant
to which the performance security had been issued might prevent the employer from seek-
ing payment under the security.12 In Simon Carves, the underlying construction contract
provided that the security would be ‘null and void’ and was to be returned to the contractor
immediately once the acceptance certificate was issued save in respect of pending claims.
The acceptance certificate was issued, albeit with a list of defects attached; one month later
the employer issued a defects notice under the mechanism for notifying defects during the
defects liability period. The judge, after reviewing a long line of decisions, held that: ‘fraud
is not the only ground upon which a call on the bond can be restrained by injunction’ and
that ‘if the underlying contract, in relation to which the bond has been provided by way of
security, clearly and expressly prevents the beneficiary party to the contract from making a
demand under the bond, it can be restrained by the Court from making a demand under
the bond.’The judge found that the security was null and void under the terms of the con-
struction contract as between the employer and the contractor, and injuncted the employer
from making a demand under the bond.13
The judge also provided a useful explanation as to the extent to which the commercial
consequences of a call on an on-demand bond or guarantee are relevant when an English
court is deciding whether to grant an injunction or not:
40. It is well known that bonds are regularly called for on substantial and public procurement
projects. These bonds can be conditional bonds or as in this case, unconditional or on-demand
bonds. Contractors are required to provide them from an acceptable bank or surety. The banks
8 See ‘Procuring the security’, infra.

9 Ibid.
10 Depending on the factual situation, the contractor may request orders from the court preventing the employer
from making a demand, requiring the employer to withdraw a demand, preventing the bank from paying out
in response to a demand or requiring the employer or the bank to return the security to the contractor.
11 While this chapter focuses on the approach of the English courts, the authors are aware of injunctions being
granted in similar situations in a number of other jurisdictions.
12 Simon Carves Limited v. Ensus UK Limited [2011] EWHC 657 (TCC).
13 Ibid, Paragraph 37.
30
are not uncommonly the main banks which fund the contractors (albeit that it is not clear
that this was the case here); the banks providing the bonds will usually have security and
counter-indemnities so that they are secured when and if they have to pay out on the bond to the
beneficiaries. It is often the case that banks will not provide more than a certain number of bonds
or bonds beyond a certain value to any one contractor. If a bond is called, it may be difficult for
the contractor to have that bank provide another equivalent bond for another job at that time.
41. I have formed the view that damages would not be an adequate remedy. My reasons are
the same as set out in my earlier judgements on this matter which I will not again set out
in detail. Broadly, they are that the calling of the bond as in this case gives rise to a very real
risk of damage to the commercial reputation, standing and creditworthiness of [the Contractor]
which would be very difficult to quantify; there would be a very real risk that [the Contractor]
would not pre-qualify for tenders because often tenderers have to disclose whether there have
been recent calls on the bonds and if so on what grounds.There was evidence that there had been
an earlier call on the bond but I attach little importance to that in commercial terms because
the unchallenged evidence is that it was done by agreement to secure speedy payment; in those
circumstances, the call could be readily explained. An added factor is that if, as I have held, [the
Contractor] does have a strong case on the continuing validity of the bond as between it and
[the Employer], the commercial advantage of not having the bond actually called or the loss of
that advantage is unquantifiable. 14
The English Technology and Construction Court reached a similar conclusion in Doosan
Babcock v. Mabe.15 In Doosan Babcock, the employer had commenced commercial produc-
tion of electricity from a power plant for which Doosan Babcock had provided two boilers.
The on-demand guarantees provided by Doosan Babcock expired on their terms on the
earlier of a specified date or the issue of a taking-over certificate. The employer did not
issue a taking-over certificate, relying on a contractual provision that permitted use of the
boilers without the issuance of the taking-over certificate as a temporary measure. The
judge granted an injunction preventing the guarantees being called, finding that there was
a strong likelihood that Doosan Babcock would be able to demonstrate that the use of the
boilers was not temporary, or that the employer was in breach of the underlying supply
contract in not issuing the taking-over certificate.
Accessory obligations – conditional guarantees

A less common form of security in the construction context is the conditional guarantee.
By contrast to the autonomous obligations found in on-demand bonds and guarantees, in
order to make a claim under a conditional guarantee, the employer will first have to prove
that the contractor has in fact failed to perform his or her obligations under the construc-
tion contract, and thereby caused the employer loss.
Accordingly, claiming under a conditional guarantee is no less complicated or cumber-
some than suing the contractor himself. It will require a detailed factual investigation to
14 Ibid, Paragraphs 40 and 41.

15 Doosan Babcock Limited (formerly Doosan Babcock Energy Limited) v. Comercializadora de Equipos y Materiales Mabe
Limitada (previously known as Mabe Chile Limitada) [2013] EWHC 3201 (TCC).
31
prove that the contractor is liable under the construction contract, and may well result in
arbitration or litigation proceedings.
If the employer brings a claim under the guarantee, the guarantor will be able to rely
on all the defences available to the contractor under the construction contract. Accordingly,
the contract of guarantee cannot be viewed in isolation, but must be considered together
with the underlying construction contract.To that extent, the liability of the guarantor and
the liability of the contractor are co-extensive.
In addition, and to the extent not otherwise provided by the guarantee itself, the gen-
eral law of suretyship16 provides additional protection, and possible defences to the guaran-
tor such that the guarantor will be released from liability if there have been any material
changes to the terms of the underlying construction contract without his or her consent17
or where the employer has given additional time to the contractor to perform.18
Consequently, it is in most cases considerably more difficult and takes considerably
more time for an employer to obtain payment under a conditional guarantee than under
an on-demand bond or guarantee and, as a consequence, these instruments perform differ-
ent functions. Whereas an on-demand bond or guarantee protects the employer’s cash flow
and enables him or her to obtain payment on account of his or her loss without delay, the
main advantage of a conditional guarantee is that it offers a second source of payment if
the contractor is insolvent or does not have sufficient monies to sums awarded in respect
of his or her failure to perform. In the authors’ experience, save for parent company guar-
antees (which often take the form of a conditional guarantee), it is now more usual for
major international contractors to provide on-demand guarantees; conditional guarantees
are becoming the exception.
Procuring the security

In the construction industry, security tends to be provided (in ascending order of cost to
the contractor) by group companies, banks, and specialist surety or insurance companies:
• Guarantees from the parent company or another group company of the party to the
original construction contract are the least expensive form of security for the contrac-
tor (subject, of course, to the cost to the group if the security is called by the employer);
• Guarantees or bonds issued by a bank. These tend to be ‘on-demand’ instruments, as
banks are generally reluctant to become involved in investigating or assessing the merits
of demands or dispute. The underlying construction contract will often specify what
bank (or banks) will be acceptable to the employer, for example, specifying the required
location and credit rating of the issuing bank.
• Guarantees or bonds issued by specialist surety or insurance companies, who will carry
out a risk assessment before deciding to underwrite the contractor’s obligations, charg-
ing a premium for this service.
16 A detailed discussion of the law of suretyship is outside the scope of this chapter and readers are recommended
to consult specialist texts in this area, such as Andrews and Millet, Law of Guarantees, Seventh Edition, 2015 or
Phillips, O’Donovan and Courtney, The Modern Contract of Guarantee,Third Edition, 2016.
17 Holme v. Brunskill [1978] 3 QBD 495; Andrews and Millett, Paragraphs 9-023–9-028.
18 Andrews and Millett, Paragraphs 9-029–9-034.
32
• Standby letters of credit issued by banks. These are very similar to on-demand bonds
and share the key characteristic that they are payable against documents (rather than
proof of liability) and impose an autonomous obligation on the bank independent
of the underlying transaction. Standby letters of credit are not frequently used in the
construction industry; they are sometimes used to secure delivery of key components
where significant up-front payments are required, or as a mechanism for making (and
securing) payment where the employer is a government in an unstable jurisdiction.19
With the exception of parent company guarantees, when procuring a bond or guarantee,
the contractor will need to pay an issuing fee, with further fees payable whenever the bond
or guarantee is extended in duration or value. Many international contractors increasingly
enter into facility agreements with their bank, pursuant to which the bank will provide a
number of commercial banking services, including the provision of bonds and guarantees.
The alternative is for the contractor to enter into an ad hoc arrangement with its bank or a
commercial provider of bonds and guarantees on a project-by-project basis. In both cases,
the contractor will typically have to commit that all sums paid to the contractor under
the construction contract will be paid into a specified bank account located at the issuing
bank who ultimately bears the risk on the guarantee or bond.20 In addition, the contractor
will have to provide security to the value of the bonds and guarantees. A combination of
blocked funds in cash accounts and security over the contractor’s fixed and floating assets
is typical.The need to provide security in relation to the value of the bonds and guarantees
limits the amount of bonds and guarantees that a contractor can procure at any given time.
While it is generally cheaper for the contractor to procure bonds and guarantees under
a facility agreement than on an ad hoc basis, the consequence of a demand being made
on security procured under a facility agreement can be catastrophic for the contractor.
Most facility agreements contain default clauses, whereby a call on an on-demand bond
or guarantee constitutes an act of default under the facility agreement unless the contrac-
tor is able to make immediate direct payment of the sums demanded to the bank. An act
of default may entitle the bank to call in all loans, lines of credit and security provided
under the facility agreement whether related to this construction contract or otherwise.
Further, cross-default provisions are increasingly common in facility agreements, whereby
an act of default under one facility agreement constitutes an act of default under other
19 A standby letter of credit will typically require presentation of documents (often signatures from the employer
confirming that payment is due) in order to payment to be made under the instrument. An employer who
issues a standby letter of credit to make or secure payment may be able to block payment under the standby
letter of credit by refusing to provide the required documents or signatures. Where the English courts have
jurisdiction over the letter of credit, the contractor may be able to seek judicial assistance. Section 39 of
the Senior Courts Act 1981 permits the English High Court to direct a person to execute any conveyance,
contract or other document, or indorse any negotiable instrument, and to step in and execute the document
or indorse the negotiable instrument if that person fails to comply. This power has been used in relation to
payments under letters of credit. See, for example, Astro Exito Navegcaion SA v. Southland Enterprise Co Ld
(No 2) (Chase Manhattan Bank NA intervening) [1983] 2 AC 787; Jack: Documentary Credits (Fourth Edition)
at 9.85.
20 Some banks will require that the contractor provide in addition an assignment of the proceeds of the
construction contract as a condition of issuing the guarantees or bonds.
33
facility agreements, including facility agreements made with other banks. In short, making
a demand on an on-demand guarantee or bond may result in the contractor being unable
to continue trading.21 For this reason, calling an on-demand guarantee or bond tends to be
the action of last resort for an employer.
In an international context the employer will typically require that the contractor pro-
cures an on-demand bond or guarantee from a bank in the employer’s home country. This
arrangement is advantageous for the employer, who can recover monies quickly in their
home country without first having to issue proceedings against the contractor in another
jurisdiction, or having to pursue a foreign bank to enforce a demand for payment under
the guarantee or bond. Unless an international contractor has a significant presence in the
foreign jurisdiction, the contractor will not normally have the commercial relationship in
place, or available security, to procure a guarantee or bond from a local bank directly. The
normal arrangement is for a chain of back-to-back guarantees and counter guarantees to
be set up through a series of SWIFT messages,22 linking the local bank who issues the
guarantee to the employer to a bank in the contractor’s home jurisdiction who has the
commercial relationship with the contractor.Where a demand is made by the employer, the
demand will be passed up the chain; the bank in the contractor’s home jurisdiction who has
the direct relationship with the contractor will provide the funds, which are then fed back
down the chain to the employer.
In most situations, the flow of funds from counter guarantor to guarantor is seamless.
The chain of guarantees and counter guarantees may be broken if the international com-
munity places the employer under sanctions prohibiting the passing of financial benefit to
the employer. While the local bank may not be subject to these sanctions, the international
banks who have provided counter-guarantees may be prohibited permanently from hon-
ouring the counter-guarantees.23 In practice, this may result in the local bank (or a bank
somewhere in the chain) defaulting on the security.
Forms of security required on international construction projects

The most common forms of guarantees or bonds required on international constructions
projects are set out below.
21 The potentially catastrophic consequence of calling an on-demand guarantee or bond explains why banks
may notify the contractor before paying out on the demand.
22 SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication, a cooperative utility of
banks headquartered in Belgium.
23 See the English House of Lords decision Shanning International Limited v. Lloyds TSB Bank plc; Lloyds TSB
Bank plc v. Rasheed Bank (2001) 1 WLR 1462 (HL). EU Regulation No. 3541/92 prevented performance
of a supply contract in Iraq. The supplier’s performance was guaranteed by an on-demand guarantee issued
by a local bank in Iraq and counter guaranteed by Lloyds Bank in the UK. Article 2 of EU Regulation No.
3541/92 prohibited satisfaction of any claims ‘under or in connection with a contract or transaction the
performance of which was affected, directly or indirectly, wholly or in part by the measured decided on
pursuant to [the relevant UN Security Council] resolutions’. The House of Lords found (1) a claim under
the performance guarantee was a claim ‘under or in connection with’ the supply contract, performance
of which was prohibited under EU Regulation No. 3541/92; and (2) Article 2 of EU Regulation No.
3541/92 permanently prohibited a claim being satisfied in relation to the non-performance, including a claim
from the issuing bank against the bank who had provided the counter guarantee.
34
Tender security or bid bonds

Where a large contract is put out to tender, the employer will spend considerable time and
money in choosing a suitable contractor. If the prospective contractor withdraws prior to
entering into a binding contract or refuses to accept the award of the contract or fails to
procure the performance bond required to support the contract, the employer may have to
re-open the tender process, incurring substantial delay and additional expense. Accordingly,
invitations to tender will often require tenderers to submit a bid bond or tender guaran-
tee for a specified sum. The bond will be released if the tenderer is not selected, or once
the tenderer has entered into the construction contract and provided the required per-
formance bond. A bid bond will almost invariably take the form of an on-demand bond
or guarantees.24
Advance payment guarantees or bonds

In many construction projects the employer will make advance payments to the contrac-
tor providing some immediate finance to mobilise to site, purchase materials, or otherwise
prepare for the construction works. In exchange, the contractor will often be asked to pro-
cure a bond or guarantee to secure the repayment of the advanced funds in the event that
the contractor becomes insolvent or fails to perform the contract. The advance is typically
‘clawed back’ by the employer through deductions from the interim payments made to the
contractor, with the value of the security reduced in parallel.
Performance bonds
The purpose of performance bonds or guarantees is to protect the employer from a failure
by the contractor to perform the construction contract. If the contractor acts in breach of
contract, the employer is likely to suffer loss (e.g., in the form of delay or through having
to order replacement works) and the issuer of the bond or guarantee undertakes to pay
the employer a sum of money to compensate him or her for this loss. Even though the
purpose of a performance bond or guarantee is frequently described as ‘securing the due
performance of the contract’, with the exception of parent company guarantees, the issuer
or guarantor does not undertake to compel the contractor to perform the services (which
would be out of his or her power in any event). The contractor is incentivised to perform
the construction contract by their own autonomous obligations under the same, as well as
obligations owed to the issuer under a counter-indemnity.
24 For example, the FIDIC Red Book (1999) provides an example proforma of tender security; the security
to be provided by all prospective tenderers (referred to as the ‘Principal’ in the proforma) as a condition
of submitting a bid. Any demand must be submitted within 35 days after the expiry of the validity of the
tenderers’ tender and include signatures of the prospective employer (the ‘beneficiary’) authenticated by the
beneficiary’s bankers or a notary public. The tender security can be called in the following situations: (1) if
the tenderer withdraws its offer after the latest time specified for submission and before the validity of the
offer expires; (2) if the tenderer refuses to accept the correction of errors in his offer in accordance with
the conditions of tendering; (3) if the beneficiary awards the contract to the tenderer, and the tenderer fails
to sign the contract agreement within 28 days from when it receives the letter of acceptance (or a different
period as may be agreed); or (4) if the beneficiary awards the contract to the tenderer, and the tenderer fails to
provide compliant performance security to the beneficiary within 28 days from when it receives the letter of
acceptance (or a different period as may be agreed).
35
Performance bonds and guarantees are typically provided by way of on-demand bonds
or guarantees, save in exceptional circumstances where the balance of negotiating power
between the parties is such that the contractor is able to negotiate a conditional guarantee.
Parent company guarantees

The purpose of a parent or group company guarantee is to provide the other party to the
construction contract with recourse to a group company with a better financial standing
than the contracting party. This is particularly relevant for international contracting, when
the contractor will often set up a subsidiary within the jurisdiction of the employer for the
sole purpose of undertaking the specific project.This subsidiary will typically have no assets
save for the income paid under the construction contract, which will likely be insufficient
to meet the employer’s claims if there is substantial non-performance.
The value of such a guarantee depends on the creditworthiness of that group company
and care needs to be taken that the guarantee is provided by a group company that holds
(and will continue to hold) substantial assets. For smaller construction groups it is normal
for the ultimate parent company guarantee to provide such a guarantee. However, many
larger, listed international contractors have internal policies limiting access to guarantees
from the ultimate parent company to the most significant projects entered into by the con-
tractor, subject to board approval and clear limits on the parent’s potential liability.
Retention bonds and guarantees

In construction contracts, the employer is generally entitled to retain a percentage of the
contract price (typically 5 per cent) pending completion of the work to form a retention
fund. The retention fund is available to the employer to ensure the contractor completes
any snagging works and rectifies defects during the defects liability period. It is normal
for 50 per cent of the retention monies to be released on practical completion, with the
remainder released at the end of the defects liability period.
It is increasingly common for construction contracts to permit the contractor to have
an earlier release of the retention monies in exchange for providing an on-demand bond
or guarantee. This results in improved cash flow for the contractor without compromising
the employer’s security.
Payment guarantee
In some cases, where the contractor has concerns regarding the employer’s financial stand-
ing, the contractor may seek a payment bond or guarantee to cover a percentage of the
contract sum. Since the contractor is generally paid in stages as the work progresses, this
should provide sufficient protection to the contractor in respect of payments outstanding
for completed works. As noted above, in certain jurisdictions and sectors, security for pay-
ments will be made by way of standby letters of credit.
Dispute resolution
Security instrument versus construction contract
One of the main challenges in a major international construction project involving multi-
ple parties and multiple contracts occurs when the parties to the various contracts do not
36
sign up to consistent dispute resolution procedures. This is typically the norm regarding
security instruments and construction contracts, given that most banks require disputes
under the security to be resolved by their local courts, while the construction contract will
usually specify international arbitration.
This can cause considerable problems in the context of conditional guarantees. As set
out above, a claim under the guarantee requires the same proof that the contractor is liable
as would be required if the employer sued the contractor directly. However, in the absence
of an express provision in the guarantee that the guarantor will be bound by the findings
in proceedings between the employer and the contractor, an award or judgment in those
proceedings will not be binding on the guarantor,25 and in principle, the guarantor would
be entitled to demand that the matter be re-litigated. Accordingly, from the employer’s
perspective it would be preferable if these claims could be consolidated and heard at the
same time to avoid the risk of inconsistent decisions. However, unless all parties agree,
such consolidation may be difficult to achieve in the context of conflicting arbitration or
jurisdiction clauses.
This issue is less pertinent in the context of on-demand bonds. As set out above, an
on-demand bond is theoretically independent of the underlying contract and the issu-
er’s obligation to make payment arises on the presentation of the correct documentation.
Accordingly, any proceedings between the employer and the contractor under the main
construction contract should be of no or limited relevance to the issuer, and there should
not be any need for consolidated proceedings. However, as noted above, courts are increas-
ingly showing a willingness to block payments under on-demand bonds and guarantees
pending the outcome of the corresponding dispute under the construction contract.
Claims under the construction contract relating to the security

Where the security is blocked by a court, or the employer refuses to return the security to
the contractor for some other reason, the contractor will often bring claims in the arbitra-
tion under the construction contract seeking immediate return of the bond or guarantee,
and damages in relation to the prolonged duration of the bond or guarantee. The damages
typically include the cost of maintaining the security beyond the date when the contrac-
tor says the security should have been returned, and losses associated with maintaining the
security. Regarding the latter, where a bond or guarantee is blocked pending resolution of
the underlying disputes, the contractor’s ability to tender for new projects (which them-
selves require bonds or guarantees) will be restricted,26 creating the possibility of a claim for
loss of opportunity to earn profits on other projects.
Similar claims may be made where the project has been prolonged due to
employer-risk events.
25 Re Kitchin Ex p.Young (1881) L.R. 17 Ch. D. 668; Alfred McAlpine Construction Ltd v. Unex Corpn Ltd (1994)
38 Con LR 63, CA.
26 As noted above, because the contractor must provide security to the value of the bonds and guarantees procured,
there is a limit on the value of the bonds and guarantees that the contractor can procure at any given time.
37
4
Introduction to the FIDIC Suite of Contracts
Ellis Baker and Anthony Lavers1
The history of the FIDIC suite

The Fédération Internationale Des Ingénieurs-Conseils2 (FIDIC) was founded in Belgium
in 1913. Since then, it has become the foremost representative body for the world’s consult-
ing engineers, with member associations in some 100 countries.
Although the Contracts Committee became one of its earliest constituent parts soon
after FIDIC’s foundation, it was not until 1957 that the first FIDIC standard form contract
was produced.
The first contract, known as the Red Book first edition,3 was not actually drafted
by FIDIC but was instead an authorised reproduction, ‘re-badged’ by FIDIC, of the ICE
Conditions of Contract fourth edition, published by the Institution of Civil Engineers.This
was itself an ‘international’ contract in the sense that it had been adopted by the Association
of Consulting Engineers as such. Although the modern FIDIC forms have developed very
significantly since the 1950s, it is still relevant to note that ‘The Red Book is based on a
domestic contract.’4
These common law origins are still used as a criticism by some commentators, espe-
cially in civil law jurisdictions, who are sceptical of FIDIC’s entitlement to its paramount
position, though the Silver Book, for example, owes relatively little to an English heritage.
Successive editions of the Red Book were issued in 1969,5 19776 and 1988.7
1 Ellis Baker is a partner and Anthony Lavers is counsel at White & Case LLP.
2 The International Federation of Consulting Engineers.
3 Conditions of Contract for Works of Civil Engineering Construction, 1957.
4 Nael Bunni, The FIDIC Forms of Contract, 3rd ed., Ch. 4, Blackwell Publishing (2005).
5 2nd ed.
6 3rd ed.
7 4th ed.
38
The other long-established FIDIC contract is the Yellow Book,8 first produced in
1963 and with subsequent editions in 19809 and 1987,10 which is the design and build
equivalent of the employer design Red Book.
In the mid 1990s, two significant landmarks occurred in the development of the FIDIC
contracts. These were the introduction of a turnkey contract – the Orange Book – and the
setting up of a task group to produce a major revision of the Red and Yellow Books. These
events led to the launch in 1999 of the current editions of the principal FIDIC contracts,
known colloquially11 as the ‘Rainbow Suite’, from the colours of the covers of the respec-
tive Books: Red,Yellow and Silver.12
An overview of the current FIDIC contracts

One of the strengths of the FIDIC suite is its consistency of structure and numbering across
the major contracts. All of the major Rainbow Suite contracts have the same 20-clause
structure, and, so far as possible, the clause numbers correspond to their equivalents in
each Book.
These are not superficial similarities and they facilitate use and study of the FIDIC
forms. However, the individual contracts reflect quite different approaches to construction
procurement, and these extend to divergences in detailed provisions.
There are a number of documents that together constitute the Contract between the
Parties. With the exception of the Silver Book,13 the main FIDIC forms contemplate that
the Contract will be formed by the exchange of Letter of Tender and Letter of Acceptance.
The design of the project is set out as a Specification,14 or the basis for the design provided
in the Employer’s Requirements.15 Crucially, there will be Particular Conditions, which are
specific to the project in question.The explanation of the characteristics and features of the
individual contracts below refers to the General Conditions.
FIDIC has prepared translations of the main Rainbow Suite forms of contract, partly to
deal with the problems caused by unofficial, and often very inaccurate, translations.
The Red,Yellow and Silver Books have all been translated into Arabic, Chinese, French,
Polish, Portuguese, Romanian, Russian, Spanish, Turkish and Vietnamese. A further nine
European languages (Bosnian, Croatian, Estonian, Hungarian, Italian, Latvian, Lithuanian,
Serbian and Slovak) have at least one contract translated, as do three Asian languages (Bahasa
Indonesia, Japanese and Mongolian). There are guidance notes in German.
8 Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and
Engineering Works Designed by the Contractor.
9 2nd ed.
10 3rd ed.
11 and somewhat inaccurately.
12 At the time of writing, FIDIC is revising these contracts in order to publish new editions, to which brief
reference is made where it is useful and possible to do so.
13 A contract under the Silver Book will be formed by the Parties’ execution of the Contract Agreement.
14 Red Book.
15 Yellow and Silver Books.
39
The Conditions of Contract for Construction for Building and Engineering

Works Designed by the Employer 1999: the Red Book
The Red Book is not only the oldest of the FIDIC contracts, celebrating its 60th anni-
versary this year (2017), it is also the most widely used for general construction projects
of many kinds. The single most important characteristic of the Red Book is contained
in its full title: it is an employer design contract. The design, prepared by the Employer’s
staff or by consultants acting on its behalf, is provided to the Contractor in the form
of Specifications and Drawings (and any Schedules). The payment mechanism16 is tradi-
tional measurement and valuation. However, it is open to the Parties to vary this posi-
tion. FIDIC advises17 of ‘the possibility of replacing Clause 12 by appropriate Particular
Conditions for a lump-sum contract or a cost-plus contract’.18 Also traditional is the role of
the Engineer: ‘who shall carry out duties assigned to him in the Contract’.19 It may seem
paradoxical that the Engineer’s duties, including such important functions as the making
of determinations,20 should be usually much more fully set out in the Contract, to which
the Engineer is not a Party, than in the contract for professional services (or employment
contract), which governs the relationship between employer and engineer. This is regarded
as normal in common law jurisdictions, but the ‘dual role’ of the Engineer as agent of the
Employer, and as a decision-maker acting fairly between the Parties, is sometimes regarded
with misgivings in civil law jurisdictions.21
In other respects, the FIDIC Red Book follows in the line of its predecessors as an
engineering contract in the common law style. Glover and Hughes provide a brief outline
of the 20-clause structure22 and further analysis of specific aspects of its content is provided
in Chapter 5, ‘Allocation of Risk in Construction Contracts’. A departure from that tradi-
tion is found in the replacement of the dispute-resolution function of the Engineer by a
Dispute Adjudication Board (DAB).23 This mechanism had first been introduced by FIDIC
in 1995 in the Orange Book.24 It is found in Clause 20 of all the main Rainbow Contracts,
though not in identical form. In the Red Book, the DAB is appointed25 by the Parties
at the outset of the project, allowing its members to become familiar with its progress
and challenges.
16 Clause 12.
17 The FIDIC Contracts Guide, p. 205 (2000).
18 Guidance for the Preparation of Particular Conditions No 14.
19 Sub-Clause 3.1.
20 Sub-Clause 3.5.
21 For a civil law perspective of this issue, see Axel-Volkmar Jaeger and Götz-Sebastian Hök, FIDIC – A Guide for
Practitioners, Springer, pp. 103-104 (2010).
22 Jeremy Glover and Simon Hughes QC, Understanding the FIDIC Red Book: A Clause-by-Clause Commentary,
2nd ed., Sweet & Maxwell, pp. xvi-xix (2011).
23 Sub-Clauses 20.2-20.4.
24 Conditions of Contract for Design-Build and Turnkey, 1st ed. (1995).
25 Sub-Clause 20.2.
40
The Conditions of Contract for Plant and Design-Build for Electrical and
Mechanical Works and for Building and Engineering Works Designed by the
Contractor: the Yellow Book
The Yellow Book is FIDIC’s second-oldest contract, and almost certainly the most widely
used after the Red Book. The Yellow Book contains provisions for electrical and mechani-
cal plant and also for design and build work more generally. As with the Red Book, the
contract’s most important feature is contained within the full title; it is FIDIC’s principal
contractor design contract.26 The design is prepared by the Contractor in accordance with
the Employer’s Requirements, which specify ‘the purpose, scope and/or design and/or
other technical criteria for the Works’.27
The Contractor accepts a fitness-for-purpose obligation28 for the design of the works, as
well as for materials and workmanship.The payment mechanism for theYellow Book is lump
sum fixed price, with provision for progress payments on the basis of Engineer certification.
Like the Red Book, the Yellow Book contract is administered by the Engineer
(see above).
A major difference is evident from the Clause 20 dispute resolution provisions.Whereas
the Red Book provides for a ‘standing’ DAB to be appointed ‘by the date stated in the
Appendix to Tender’, under the Yellow Book,29 the Parties ‘jointly appoint a DAB by the
date 28 days after a Party gives notice to the other Party of its intention to refer a dispute to
a DAB’. This is known as an ‘ad hoc’ DAB and can be criticised as losing one of the major
advantages of the DAB model, namely the ability of the members to become familiar with
the project and the personnel engaged on it. It has been suggested30 that the disparity is
explained by the difference31 in the types of projects for which the Red and Yellow Books
are respectively used.
The Yellow Book is one of FIDIC’s most important contracts. Its content influenced
the Silver Book to some extent and also the Gold Book,32 both of which are based on
the contractor design concept. Its risk allocation (see Chapter 5, ‘Allocation of Risk in
Construction Contracts’) resembles more the Red Book in terms of the perception of
traditional balance between Employer and Contractor.
The Conditions of Contract for EPC/Turnkey Projects: the Silver Book

The FIDIC Silver Book is the third of the major Rainbow Suite contracts. It was the most
controversial upon its launch and to some extent remains so. This is largely attributable to
perceptions of its risk allocation. FIDIC’s first turnkey contract was the Orange Book,33 but
26 Though not the only one: see also Silver and Gold Books.
27 Sub-Clause 1.1.1.5.
28 Sub-Clause 4.1.
29 Sub-Clause 20.2.
30 Ellis Baker, ‘Is it all necessary? Who benefits? Provision for multi-tier dispute resolution in international
construction contracts’ Society of Construction Law Paper No. 154, p. 12 (2008).
31 The difference is removed by the 2016 Yellow Book, 2nd ed., Sub-Clause 21.1.
32 The Conditions of Contract for Design, Build and Operate Projects, 2008.
33 See ‘The history of the FIDIC suite’, above.
41
the Silver Book was seen as a greater departure from the FIDIC contracts that preceded
the 1999 Rainbow Suite.
Essentially, the Silver Book is a lump sum EPC turnkey contract. As with the Yellow
Book, the design is prepared by the Contractor in accordance with the Employer’s
Requirements.34 The Contractor assumes full responsibility for the engineering, procure-
ment and construction of the Works and undertakes a fitness-for-purpose obligation for
design, materials and workmanship. Unlike the Red and Yellow Books, the Contract is not
administered by an Engineer; there is no such appointment. Instead, decisions are made,
and other contract administration functions performed, by the Employer, with or with-
out an Employer’s Representative. This form of contracting is typically used on complex
engineering facilities, such as process or power plants, where a high degree of certainty as
to cost, time and performance is required, often because of ‘bankability’ issues in funding
the project. The concept is that the Employer obtains a fully functioning facility, capable of
operating immediately to guaranteed standards of performance, ready at the ‘turn of a key’.
In these respects, the Silver Book is typical of its kind. FIDIC justified its launch, and
the perceived break with balanced risk allocation, purely as a pragmatic response to market
demand. In the words of the then Chairman of the Contracts Committee, Christopher
Wade, ‘FIDIC felt that the best service it could give to the industry at this time would be
to come out into the open with a standard form to satisfy those needing more security of
final cost and time than FIDIC’s traditional forms can give.’35 Therefore, ‘the more risks a
contractor is required to bear, the higher the “premium” a prudent contractor must add
to his price to cover his extra risk-taking.’36 FIDIC’s position, then, is that the Silver Book
is simply a different vehicle for the procurement of engineering projects and that there
is no question of unfairness in the greatly altered balance of risk allocation. Some of the
responses from representatives of the contracting industry purported to regard the pub-
lication of the Silver Book as indicative of anti-contractor animus on the part of FIDIC.
The European International Contractors37 organisation was consulted by FIDIC in the
process of preparing the Rainbow Suite, but proceeded to publish its very critical Guide,
complaining of ‘the Silver Book’s departure from the traditional FIDIC contractual and
risk-sharing philosophy’.38 Some of the criticism published by others was more intemper-
ate still: ‘Contractors will seek and likely find ways to recover compensation for risk they
should not have been required to assume, litigation will increase, not decrease, and projects
will suffer.’39 While the Silver Book, in keeping with the EPC turnkey concept, allocates
much more risk to the Contractor than in more ‘balanced’ contracts, such as the Red and
Yellow Books, it should not be regarded in emotive terms. Contractors routinely do price
35 Christopher Wade, ‘The Silver Book: The Reality’ International Construction Law Review, Part 3, p. 501
(2001).
36 Christopher Wade (op. cit.), p. 508.
37 A federation of construction industry bodies from 15 European countries.
38 Commentary on the EIC Guide by the Chairman of the EIC Conditions of Contract Working Group: Frank
Kennedy, EIC Contractor’s Guide to the FIDIC Conditions of Contract for EPC Turnkey Projects (The
Silver Book). International Construction Law Review Part 4, p. 505 (2000).
39 Anthony Gaede Jr., ‘The Silver Book: an unfortunate shift from FIDIC’s tradition of being even-handed and
of focusing on the best interests of the project’ International Construction Law Review, Part 4, p. 502 (2000).
42
for the varying degrees of risk allocation in contracts. It is true that the omission of the
Engineer from a FIDIC form of contract will inevitably be remarked on and the absence
of the beneficial effect of the Engineer’s contract administration may be felt in the conduct
of the project, but the Parties will always have made the choice with ‘eyes open’ and like all
contracts, a contract under the Silver Book will have been freely entered into. In the final
analysis, it has been no more than an extension of the range of choice in the FIDIC suite
and should be seen in this context.
The other FIDIC construction contracts

The main FIDIC contracts have been introduced above; the following identifies the
other FIDIC contracts. This treatment does not mean that they are unimportant – the
reverse is true of nearly all – but that they are not the principal constituents of the current
Rainbow Suite.
The MDB Pink Book

The FIDIC Red Book was used widely, over many years, on development projects funded
by banks as part of mandatory bidding documents to which borrowers had to adhere. The
Pink Book40 represents a formalisation of the amendments to the Red Book that had been
developed by Multilateral Development Banks (MDBs)41 for use in aid-funded projects.
The purpose was to ‘simplify the use of the FIDIC Conditions of Contract not only for the
MDBs and their borrowers but also for others involved with project procurement includ-
ing engineers, contractors, and contract specialists. It is intended for use on MDB financed
projects only.’42 The 2010 Pink Book is the latest MDB harmonised version of the Red
Book, replacing earlier editions from 2005 and 2006. Essentially, the Pink Book should be
regarded as just that – a version of the Red Book, though the amendments should not be
underestimated, justifying as they do a separate publication. Many of the amendments are
additional provisions aimed at achieving financial probity and transparency. For example,
the Contractor must follow ‘Inspections and Audit by the Bank’43 of the Site, and of its
accounts and records, and the Contractor is to be notified if the Bank suspends payments
to the Borrower.44 The intention of many of the Pink Book amendments to the Red Book
is to avoid fraudulent and corrupt practices, and the Employer is given additional explicit
powers of termination on such grounds.45 Recognising that many aid-funded projects are
in developing countries, there is quite extensive expansion of the provisions46 on Staff and
Labour relating to such specific issues as Foreign Personnel, Supply of Food and Water,
40 Conditions of Contract for Construction for Building and Engineering Works designed by the Employer,
Multilateral Development Bank Harmonised Edition 2010.
41 The MDBs, known as the Participating Banks, operating under the auspices of the World Bank, are listed in
the Introduction to the Pink Book and include the African Development Bank, the Asian Development Bank
and the European Bank for Reconstruction and Development.
42 Jeremy Glover and Simon Hughes QC (op. cit.), p. xxi. The Introduction by Christopher Thomas QC
contains a useful account of the development of the Pink Book.
43 Sub-Clause 1.15.
44 Sub-Clause 2.4.
45 Sub-Clause 15.6.
46 In Clause 6.
43
Measures against Insect and Pest Nuisances, Arms and Ammunition, Festivals and Religious
Customs, Forced Labour, and Child Labour. There are modifications to the provisions for
Claims, Disputes and Arbitration47 with an option for the parties to choose institutional
arbitral rules or UNCITRAL48 Rules instead of ICC,49 or under ICC Rules, where the
Contract is with foreign contractors50 and a default position in favour of the Singapore
International Arbitration Centre for contracts financed by the Asian Development Bank.
The DBO Gold Book

The Gold Book51 is FIDIC’s first attempt at a design-build-operate (DBO) contract
intended to be used in the type of project funded by project financing, for example under
a PFI52 scheme. It is treated by some commentators as one of FIDIC’s principal contracts,
although it was published in 2008 and so does not form part of the original Rainbow
Suite. In terms of extent of usage it cannot, or cannot yet, be regarded as the equivalent
of the Red, Yellow or Silver Books, nor even of the Pink Book. This is not only because
it is younger than those contracts. FIDIC’s choice of DBO model is not suitable for all
types of DBO project.53 ‘The document, as written, is not suitable for contracts which are
not based on the traditional Design-Build-Operate sequence, or where the Operation
Period differs significantly from the 20 years adopted.’ However, the greatest restriction
in terms of breadth of appeal was FIDIC’s decision to adopt what it calls the ‘green-field
Design-Build-Operate scenario, with a 20-year operation period’ where there is ‘a single
contract awarded to a single contracting entity’.54 The Gold Book can therefore only be
used in projects where the design-build work and the operation and maintenance work are
to be carried out by the same contractor.
In simple terms, the Gold Book resembles a design-build contract, which is heav-
ily based on the Yellow Book, with an agreement attached for operation and mainte-
nance during the 20-year Operation Service Period. Obviously, the latter necessitates the
inclusion of a number of concepts and technical terms not found in the Yellow Book,
such as Asset Replacement Fund,55 Auditing Body,56 Commissioning Certificate and
Commissioning Period,57 Operating Licence, Operation Management Requirement,
Operation and Maintenance Plan, Operation Service, and Operation Service Period.58
Because, self-evidently, the Gold Book was not included in the FIDIC Contracts Guide
published in 2000, FIDIC subsequently issued a separate equivalent.59 The commentary
47 In Clause 20.
48 United Nations Commission on International Trade Law.
49 International Chamber of Commerce.
50 Sub-Clause 20.6 (a) (i).
51 Conditions of Contract for Design, Build and Operate Projects 2008.
52 Private Finance Initiative.
53 Some insight into the reasoning is given in the Foreword and Notes of the Gold Book, pp. 2-3.
54 Gold Book, Foreword, p. b.
55 Sub-Clause 1.1.2.
57 Sub-Clauses 1.1.8 and 1.1.9.
58 Sub-Clauses 1.1.54 to 1.1.58.
59 The FIDIC DBO Contract Guide 2011.
44
reveals that FIDIC was largely able to keep to the established 20-clause structure of the
Rainbow Suite and that where possible many provisions are similar, especially to the Yellow
Book.The differences are essentially of two kinds: first, those additions which are a product
of the Operation Service Phase, following on from the Design-Build Phase; and second,
those changes which FIDIC introduced as improvements. Thus in addition to the Final
Payment Certificate Design-Build60 and the Final Statement Design-Build,61 there is a
Final Payment Certificate Operation Service62 and a Final Statement Operation Service.63
Perhaps the feature of the Gold Book that gives it the greatest importance is not,
paradoxically, the frequency of its adoption for projects but rather the fact that it has in
several key respects pointed the way forward to the coming generation of FIDIC contracts.
While the final content of the latest editions was not available at the time of writing, the
Pre-Release Edition of the Yellow Book, given restricted distribution in December 2016,
offered some insights into likely reforms. The new second edition of the Yellow Book64
has a revised dispute resolution mechanism.65 It contains an addition, not found in the
1999 Yellow Book, of a provision for Avoidance of Disputes.66 This is a version of the Gold
Book’s provision, the first of its kind, by which the DAB can assist the Parties with informal
discussion or otherwise in trying to resolve disagreements, short of a dispute that has actu-
ally crystallised. The problem of adjudicators doing so under English law created by the
decision in Glencot Development & Design Co Ltd v. Ben Barrett & Son (Contractors)67 has been
identified,68 but the concept is uncontroversial in some civil law jurisdictions and looks set
to be a fixture in the future FIDIC dispute resolution machinery.
A further departure was foreshadowed by the treatment of time-bars on claims by the
Contractor. These were a long-standing source of criticism under the Rainbow Suite con-
tracts by contractors and their representatives, not least the disparity between the 28-day
limit for Contractor claims69 and the ‘as soon as practicable’ equivalent for Employer’s
claims.’70 The Gold Book opened the possibility for challenges by the Contractor to the
application of the time-bar,71 giving the DAB power to ‘overrule the 28-day limit’ if it ‘con-
siders there are circumstances which justify the late submission’. The Pre-Release Edition
of the new Yellow Book follows this lead, expressly empowering the DAB to ‘waive’ the
time limits.
64 Conditions of Contract for Plant and Design-Build. Pre-Release Second Edition 2016. A revised Pre-Release
Second Edition (2017) was distributed at the FIDIC Users Middle East Conference in Abu Dhabi in
February 2017.
65 Clause 21 in the new 21-clause structure.
66 Sub-Clause 21.3.
67 [2001] BLR 207.
68 Ellis Baker, Ben Mellors, Scott Chalmers and Anthony Lavers, FIDIC Contracts: Law and Practice, Informa, pp.
525-526 (2009).
69 Sub-Clause 20.1 of the Red,Yellow and Silver Books.
70 Sub-Clause 2.5 of the Red,Yellow and Silver Books.
71 Sub-Clause 20.1(a).
45
The Gold Book represented a foray by FIDIC into an area of procurement it had pre-
viously not entered. It can only be regarded at best as a qualified success in its own right.
But its importance may have been elevated by its function as a ‘testing-ground’ for future
reform of the principal FIDIC contracts.
The FIDIC (Blue Green) Dredging Contract

The FIDIC Dredging Contract72 is sometimes known as the Blue Book or Blue-Green
Book, though neither name has achieved the wide currency of the Rainbow Suite con-
tracts. It is often excluded altogether from consideration by commentators on the FIDIC
forms of contract. This is an unfortunate omission. Prepared in conjunction with the
International Association of Dredging Companies, the Dredging Contract has been exten-
sively used for coastal and marine works of all kinds, including ports and harbours. It is well
known in the Middle East and benefits from an absence of competitors in a highly special-
ised sector. It bears some resemblance to the Short Form of Contract (see below) in being a
straightforward, simplified contract, which can be executed on a design-build basis or with
a significant Employer design element.This is a matter of agreement; the Contractor agrees
to ‘carry out design to the extent specified, as stated in the Appendix’.73 In the Notes for
Guidance74 it is explained that ‘Where the Employer procures any part of the design, the
responsibility for design will be shared as this Contract makes the Contractor responsible
only for design prepared by him. The extent of the Contractor’s design obligation should
therefore be clearly stated if disputes are to be avoided.’
In other respects, the Dredging Contract exhibits many of the characteristics of a tradi-
tional FIDIC contract, despite being shorter75 and simpler.
The Dredging Contract is administered by the Engineer. Price can be on a
Re-measurement basis, as in the Red Book, or a lump sum, as in the Yellow Book; the
Appendix contains a range of pricing options.76 Dispute resolution is by an ad hoc DAB
as in the Yellow Book. The FIDIC Dredging Contract is an example of a sector-specific
standard form, which, though not generally well known, has a disproportionately large
significance within that specialist industry.
The Short Form of Contract: the Green Book

Although it is not one of FIDIC’s principal contracts, the Green Book would have some
claim to be regarded as part of the Rainbow Suite, since it was issued in 1999. FIDIC states
it is ‘for engineering and building works of relatively small capital value’, or for contracts
of greater value requiring ‘fairly simple or repetitive work or work of short duration’.77 It
is suggested that ‘USD 500,000 and 6 months should be regarded as reasonable limits on
the capital value and duration respectively.’78 Like the Dredging Contract (see above), the
72 Form of Contract for Dredging and Reclamation Works, 2006.

73 Sub-Clause 5.1.
74 p. 27.
75 15 clauses.
76 Clause 11 and p. iv.
77 Short Form of Contract 1999 Foreword.
78 Axel-Volkmar Jaeger and Götz-Sebastian Hök (op. cit.), p. 125, based on FIDIC guidance.
46
Green Book has a simplified 15-clause format. Also like the Dredging Contract, the Parties
can agree the extent, if any, to which the Employer provides input into the design.79 The
Contractor has a fitness-for-purpose duty for its design,80 as well as for construction and
materials. As with the Dredging Contract, pricing is a matter of choice for the Parties81
between a range of options extending from varieties of lump sum to re-measurement and
even a cost reimbursable option. The Green Book differs from the Dredging Contract in
some key respects. First, there is no express provision for the appointment of an Engineer to
undertake contract administration. FIDIC invites reconsideration of this position: ‘although
there is no reference to an impartial Engineer, the Employer may appoint an Engineer to
act impartially, should he wish to do so.’82 Second, the dispute resolution rules are more
basic than for other FIDIC contracts. There is no DAB, but an adjudicator, and no time
for amicable dispute resolution. Reflecting the anticipated smaller scale of disputes, there is
no reference to ICC arbitration.83 Instead, the parties agree the applicable rules and other
arrangements in the Appendix. The Green Book guidance advises that ‘[t]he UNCITRAL
Rules are recommended’,84 though ICC arbitration is raised as an option if institutional
administration is required.The Green Book is, in effect, an international version of domes-
tic minor works contracts and it reflects this perspective throughout.
Subcontract
The FIDIC Subcontract85 has been expressly prepared for use with the 1999 Red Book. It
can also be used with the Pink Book ‘but only if the necessary amendments are made to
reflect the significant differences’86 between the Pink and Red Books. Described as a ‘First
Edition’, the Subcontract replaced the 1994 Subcontract, which had been prepared for
use with the FIDIC fourth edition. The General Conditions are prepared to operate ‘back
to back’ with the Red Book in terms of rights and obligations. In the case of the Force
Majeure provisions,87 this is literally done with the words ‘The provisions of Main Contract
Clause 19 (Force Majeure) shall apply to the Subcontract.’ The form is also noticeable for a
series of flow charts. These represent typical sequences of the principal events, of payment
events88 and of sub-contractor claims and disputes under alternative versions of the dispute
resolution provisions.89 The Subcontract carries a fitness-for-purpose obligation.90 Payment
is by measurement in accordance with the Main Contract (Red Book) provisions.91
79 Appendix and Clause 5.

80 Sub-Clause 5.2.
81 Appendix and Clause 11.
82 In the Foreword.
83 Sub-Clause 15.3.
84 Notes for Guidance, p. 29.
85 Conditions for Subcontract for Construction for Building and Engineering Works Designed by the
Employer, 2011.
86 Foreword to Pink Book.
87 Clause 19.
88 Under Clause 14.
89 Clause 20 and Particular Conditions.
90 Sub-Clause 4.1.
91 Sub-Clause 12.1.
47
Obviously, there is no Engineer appointed and contract administration is in the hands of

the Contractor. Subcontract disputes are resolved by reference to a Subcontract DAB, fol-
lowed by time for amicable settlement in the event of reference to arbitration, which pro-
vides for ICC Rules with one arbitrator rather than three as the default position.92
Consultancy agreements
The remaining current FIDIC contracts are consultancy agreements. They differ from the
Rainbow Suite contracts and the other standard forms above in that they are not construc-
tion contracts and do not involve the contractor. Most significant93 of these by far is the
White Book.94 First published in 1990, the White Book is probably the most important
agreement for professional services in construction globally. The contract is between the
‘purchaser’ of the services: ‘Client’ rather than ‘Employer’, and the ‘supplier’ of the services:
‘Consultant’ rather than ‘Contractor’.
FIDIC’s intention was to produce an agreement for ‘general use for the purposes of
pre-investment and feasibility studies, detail design and administration of construction and
project management, both for Employer-led design teams and for Contractor-led design
teams on design and build commissions’.95
A feature of the 2006 (and previous editions) of the White Book was the very limited
provision concerning the rights and obligations of the Parties. The basic Consultant’s duty
of care was stated to be ‘no other responsibility than to exercise reasonable skill, care and
diligence in the performance of his obligations under the Agreement’.96 This was consistent
with the English law concept of the basic duty of the supplier of a service.97 An attempt
has been made in the 2017 fifth edition to make this more flexible, by providing that the
‘Consultant shall perform the Services with a view to satisfying any function and purpose
that may be described in Appendix I [Scope of Services]’.98 But this is still said to be only
to the extent achievable using reasonable care and skill, so would constitute a problem in
the provision of design services, for example, for a design-and-build contractor required to
give a fitness-for-purpose undertaking to the employer for design.
The actual substance of the scope of services is very limited. Some more guidance notes
have been inserted by the 2017 fifth edition, but the Appendices are still largely blank pages,
to be filled in by the parties. Consequently, what are in effect further Particular Conditions
will be much greater than the General Conditions. The fifth edition has also added new
provisions relating to Client-instructed Variations to the Services.99 A mechanism exists for
92 Sub-Clauses 20.6 and 20.7.

93 It is not intended to refer further to the Joint Venture (Consortium) Model Agreement 1992, the
Sub-Consultancy Agreement 1998 or the Model Representative Agreement (Dark Blue Book) 2004.
94 Client/Consultant Model Services Agreement. The 4th edition 2006 has just been replaced by the 5th
edition 2017.
95 Foreword to White Book 5th edition 2017.
97 Supply of Goods and Services Act 1982 s.13.
99 Clause 5.
48
instructing Variations but ‘Any such Variation shall not substantially change the extent or
nature of the Services.’100
The dispute resolution provisions of the White Book have always differed sharply from
those found in the construction contracts. Under the 2017 fifth edition, disputes are first
subject to an amicable dispute resolution stage,101 which is now stated to be mandatory,
followed by adjudication102 with a further provision for amicable settlement103 before refer-
ence to arbitration,104 either subject to agreement by the Parties or to ICC Rules.
Former contracts still in use

It is curious that FIDIC has continued to market the Orange Book105 after its replace-
ment by the 1999 Silver Book. In some respects, the Orange Book was a forerunner of
the Rainbow Suite generally, as well as the Silver Book specifically, with its 20-clause
structure, time-bars for Contractor claims106 and role of the DAB,107 though the arbitration
provision does not include the ICC. Its continued use, now inevitably diminishing, is due
partly no doubt to perceptions of the Orange Book as less aggressive than the controversial
Silver Book.
More generally, its survival is indicative of the inherent conservatism of the construc-
tion industry.This too explains the persevering use of the fourth edition of the FIDIC Red
Book, which was often used as a basis for standard forms in the Middle East, though now
it is being replaced by its 1999 successor.
Development of the FIDIC contracts

As indicated above, during 2017 FIDIC should conclude its long-running review of the
Red,Yellow and Silver Books with the publication of new editions.The first step was taken
with the restricted distribution of a so-called Pre-Release Second Edition of the Yellow
Book in December 2016 (and further restricted distribution of an amended version in
Abu Dhabi in February 2017108). Beyond the individual observations made in relation to
adoption of Gold Book provisions, for example, regarding DAB powers as to time bars
and dispute avoidance, it is not considered useful to attempt a review of a preliminary
version which may yet be subject to significant amendment. It can be observed that the
Pre-Release Second Edition is much bigger than the current Yellow Book and includes a
21-clause structure; there is to be much greater emphasis on contract administration proce-
dures.The cover states that ‘The Yellow Book Second Edition will be formally published by
FIDIC early 2017 for use in the market place,’ though it is not at the time of writing known
whether this means that it will be published ahead of the new Red and Silver Books.

102 Sub-Clause 10.2.
105 See n. 24, above.
107 Sub-Clauses 20.3 and 20.4, 20.7 and 20.8.
108 See n. 64, above.
49
It is understood that in the various Task Groups there are ongoing reviews of DBO,
and Dredging agreements, and also the development of a new Tunnelling/Underground
works contract.
Conclusion
The FIDIC contracts are the pre-eminent standard forms in the international construc-
tion market. Although there are individual sectors where other standard forms rival this
supremacy, such as the LOGIC109 contracts in the offshore oil and gas industry, and the
I Chem E110 forms in the water and process industries, no competitor can equal FIDIC’s
global reach or its penetration into so many types of construction and engineering work.
The NEC 3111 suite is said by its proponents to be a potential challenger, but it is still a
distant one. An alternative scenario is that FIDIC’s dominance will actually grow; such
growth is most likely in countries without well-established domestic forms and in those
regions, notably the Middle East, where cross-border construction activity has become a
common phenomenon.
109 LOGIC stands for Leading Oil & Gas Industry Competitiveness; these contracts replaced the CRINE forms.
110 Institution of Chemical Engineers.
111 New Engineering Contract, 3rd edition of the Engineering and Construction Contract of the UK’s
Institution of Civil Engineers. This edition will be replaced by a 4th edition during the second half of 2017.
50
5
Allocation of Risk in Construction Contracts
Ellis Baker, Luke Robottom and Anthony Lavers1
Risk in construction contracts

‘Risk’, in a project delivery context, can be defined as ‘an event or set of circumstances that,
should it occur, will have an effect on the achievement of the project’s objectives’.2 Risk
exists as a consequence of uncertainty, and, in any project, the exposure to risk produced
by uncertainty must be managed.3
Construction projects are often complex, highly technical and of high value, and can
have construction periods that may span a number of years. Common risks prevalent in
construction projects include weather, unexpected job conditions, personnel problems,
errors in cost estimating and scheduling, delays, financial difficulties, strikes, faulty materials,
faulty workmanship, operational problems, inadequate plans and specifications, and natural
disasters.4 Projects will also have additional specific risks dependent on the nature of the
project and its surrounding circumstances.
Although the volume and nature of contractual documentation for a construction pro-
ject will vary as a consequence of the nature of the project, its scale and the procurement
methodology adopted,5 a construction contract may be simply described as a contract
between a contractor and an employer whereby,‘one person (the contractor) agrees to con-
struct a building or a facility for another person (the employer) for agreed remuneration by
1 Ellis Baker and Luke Robottom are partners and Anthony Lavers is counsel at White & Case LLP.
2 Peter Simon, David Hillson and Ken Newland, Project Risk Analysis and Management Guide, The Association for
Project Management, p. 17 (1997).
3 See Catriona Norris, John Perry and Peter Simon, Project Risk Analysis and Management, The Association for
Project Management, p. 3 (2000).
4 See Samuel Laryea and Will Hughes, The Price of Risk in Construction Projects (2006).
5 See Julian Bailey, Construction Law,Volume 1, 2nd ed., p. 49 (2016).
51
an agreed time’.6 A construction contract will include a compact of rights and obligations7
between the parties by which the parties pre-allocate responsibilities between themselves
in respect of certain risks that may transpire during the contract’s execution. In doing so,
the parties define the impact of such risks on the three key elements of the construction:
the product or facility that is to be constructed by the contractor, the time at which the
product or facility must be completed by the contractor and the amount the employer is
obliged to pay the contractor. The collective allocation of such risks in a construction con-
tract represents its ‘risk allocation’.
Pursuit of a ‘fair and equitable’ allocation of risk

Typically, in preparing the contract document bid package, the employer will be in a posi-
tion to decide on its intended risk allocation. While there may be, in such circumstances,
a temptation to allocate major risks to the contractor, this must be tempered by an under-
standing of the adverse consequences of unilaterally assigning risk where doing so may
preclude the submission of bids or result in such an increase in cost that the project is no
longer financially viable.8 Improper risk allocation may also result in prolongation of con-
struction completion times, wastage of resources and increased likelihood of disputes. As
Shapiro states, ‘Proper risk identification and equitable distribution of risk is the essential
ingredient to increasing the effective, timely and efficient design and construction of pro-
jects. If the parties to the construction process can stop thinking in an adversarial manner
and work in a cooperative effort towards obtaining an equitable sharing of risks based upon
realistic expectations, the incidence of construction disputes will be significantly reduced.’9
While it is possible for parties to negotiate the terms of a construction contract indi-
vidually, the possibility of unwanted variance and scope for abuse of bargaining power on
both sides has led to a number of standard form contracts being developed by various enti-
ties, and it is now usual in major projects for one of these standard forms to be used as the
basis for the final construction contract.10 One of the pervasive features of standard form
contracts is an attempt to produce a ‘fair and balanced’ allocation of risk.11 The rationale
for pursuing this is that doing so will provide the best chance of successful project delivery.
Echoing Shapiro, Lane notes that, ‘[a] contract which balances the risks fairly between a
contractor and an employer will generally, in the absence of bad faith, lead to a reasonable
price, qualitative performance and the minimisation of disputes.’12
It has been suggested that to achieve a fair and equitable allocation of the risks inherent
in construction projects, a risk should be allocated to a party if:
6 Peter Simon, David Hillson and Ken Newland (op. cit.), p. 17 (1997).
7 Julian Bailey (op. cit.), p. 1512.
8 Bryan Shapiro QC, ‘Transferring Risks in Construction Contracts’, p. 5 (2010), available at: http://www.shk.
ca/wp-content/uploads/2013/02/Transferring-Risks-in-Construction-Contracts-BSS.pdf.
9 Ibid, p. 17.
10 See Graham Vinter, Project Finance, 4th ed. , Sweet and Maxwell, p. 1 (2013).
11 In relation to FIDIC, see Ellis Baker, Ben Mellors, Scott Chalmers and Anthony Lavers, FIDIC Contracts: Law
and Practice, Informa, p. 6 (2009).
12 Patrick Lane SC, ‘The Apportionment of Risk in Construction Contracts’, International Conference on
Arbitration and ADR in the Construction Industry, Dubai, (2005).
52
• the risk is within the party’s control;

• the party can transfer the risk, for example, through insurance, and it is most economi-
cally beneficial to deal with the risk in this fashion;
• the preponderant economic benefit of controlling the risk lies with the party in question;
• to place the risk upon the party in question is in the interests of efficiency, including
planning, incentive and innovation; and/or
• if the risk occurs, the loss falls on that party in the first instance, and it is not practicable,
or there is no reason under the above principles.13
Commenting on this, Bunni notes that, while the principle of control of a risk is a powerful
method in the determination of risk allocation, it is not comprehensive and other prin-
ciples must be utilised to address adequately the allocation of risk in a construction con-
tract.14 For example, ‘acts of God’ or ‘force majeure’ cannot be controlled by either party,
and, instead, the consequences of such risks must be assessed and managed. Consequently,
Bunni proposes that the following four principles are used for allocating risks in construc-
tion contracts:
• Which party can best control the risk and/or its associated consequences?
• Which party can best foresee the risk?
• Which party can best bear that risk?
• Which party ultimately most benefits or suffers when the risk eventuates?
The question of what is a ‘fair’ risk allocation is, ultimately, a subjective one; in deciding
how it wishes to procure a project and the way it seeks to allocate risks, an employer will
need to weigh up the theoretical efficiency of the risk allocation with political and market
dynamics and the needs of the particular project.
Allocating risk in a construction contract

There are various methodologies or ‘routes’ by which an employer may wish to procure
a construction project. The methodology selected will, necessarily, have an impact on the
allocation of risk in certain respects in the construction contract. A summary of the major
methodologies and their primary impacts on risk allocation is set out below:
Traditional procurement
In a traditional or design-bid-build procurement, the employer will engage a design con-
sultant to prepare the design for a project and then bid and award a construction contract
to a contractor to construct the project in accordance with that design. In a construction
contract used in a traditional procurement, the employer will take responsibility for the
design provided, with the consequence that the contractor will be entitled to relief (which
may be in the form of an extension of the time for completion or increase in the agreed
13 See article by Max Abrahamson, Journal of the British Tunnelling Society,Vols 5 and 6, November 1973 and
March 1974; and CIRIA Report R 79 ‘Tunnelling – improved contract practices’ (1978).
14 Nael Bunni, The Four Criteria of Risk Allocation in Construction Contracts, International Construction Law
Review,Vol 20, Part 1, p. 6 (2009).
53
remuneration) if there are defects or deficiencies in such design. (See the section on the
FIDIC Red Book in Chapter 4, ‘Introduction to the FIDIC Suite of Contracts’, and spe-
cifically below.)
Design and build

In a design and build contract, the contractor will be responsible for both the design and
construction to meet the contractual specification. This offers the employer ‘single point
responsibility’ for any defects arising out of the design and/or construction of the works.
This is an advantage relative to traditional procurement, where it may be difficult to estab-
lish whether a defect was caused by defects in design (and therefore the responsibility of
the design consultant) or construction (and therefore the responsibility of the construction
contractor) and where losses resulting from defective design may significantly outweigh
caps on liability in the consultant appointment. (See the section on the FIDIC Yellow Book
in Chapter 4, ‘Introduction to the FIDIC Suite of Contracts’, and specifically below.)
EPC/turnkey
In engineering, procurement and construction (EPC) contracts, a single contractor takes
responsibility for all elements of design (engineering), construction and procurement of a
project on a ‘turn-key’ basis. In such contracts, the contractor will have significant discre-
tion to design the project as it sees fit, so long as the output based or functional specifica-
tion is satisfied. These contracts typically involve a heavy transfer of risk from the employer
to the contractor, meaning the contractor will have limited grounds on which to seek
an extension to the time for completion or increase in the agreed lump sum price. (See
the section on the FIDIC Silver Book in Chapter 4, ‘Introduction to the FIDIC Suite of
Contracts’, and specifically below.)
Alliance contracting
Alliance contracting is a procurement model that has increased in popularity over recent
years, particularly in public sector procurement in Australia and New Zealand. Alliance
contracting involves the parties to the project co-operating in a spirt of ‘mutual trust and
cooperation.’ Alliance contracts include a risk allocation which is fundamentally different
from that in construction or design and build/EPC contracts and will typically involve a
sharing of cost overruns or savings between the parties, regardless of how those overruns
or savings came about.15
Allocating specific risks

Typical risks that are allocated between the parties in construction contracts include:
Quantities
The volume of resources required for a construction project is a source of uncertainty at
the outset of any project. In contracts for a lump sum remuneration, the contractor is paid
15 See Julian Bailey (op. cit.), p. 39.
54
a fixed amount for works regardless of the quantity of resources used. The risk of volumes
of resources required sits with the contractor and must be accounted for in the formulation
of its bid. Conversely, under a re-measurement contract, the parties agree unit rates for the
resources required for some or all of the works and remuneration is calculated based on
the actual quantities used. In such an arrangement, the employer can be said to bear the
volume or quantity risk.
Errors in employer-provided information

In construction projects, it is common for the employer to provide the contractor with a
range of information, including in relation to what is to be constructed (for example, the
specification for the works), the location and condition of the site on which the project
is to be constructed and other factors related to how the work will be undertaken (for
example, the permits required for the work, the means of accessing the site and prevailing
weather conditions at the site). Such information may be provided to the contractor for
‘information only’ or on a ‘non-reliance’ basis. In such cases, the risk of errors or inaccura-
cies in such information will usually sit with the contractor. Alternatively, the employer
may assume some or all of the risk, by allowing the contractor time or cost relief, or both,
in circumstances where the information provided by the employer subsequently proves to
be incomplete or incorrect.
Unforeseen ground conditions

The risk of unforeseen ground conditions is well known to the construction industry: ‘It
frequently occurs in practice, particularly in engineering contracts, that unexpected diffi-
culties are encountered during construction which may not only necessitate a change from
the expected method of working, but in extreme cases may mean that completion of the
work, at least in accordance with the original design, is impossible.’16
The effects can be felt in terms of time and money: ‘unforeseen site conditions …
have an obvious capacity to cause delay and disruption to the performance of works on a
construction or engineering project, and to cause an escalation in the contractor’s costs.’17
Certain types of work such as tunnelling18 have a greater propensity for being affected
by ground conditions, but most structures have subsoil foundations of some kind, so the
phenomenon of unforeseen ground conditions is widely applicable. It is therefore unsur-
prising that unforeseen ground conditions are one of the main candidates for advance
allocation of risk19 in construction and engineering contracts.20 Accordingly, the potential
time and cost consequences should be provided for and taken into account in the parties’
forward planning, which includes tender pricing.
16 Nicholas Dennys QC and Robert Clay (eds), Hudson’s Building and Engineering Contracts, 13th ed., Sweet &
Maxwell, p. 402, (2015).
17 Julian Bailey (op. cit.), p. 697.
18 Ibid.
19 See Julian Bailey, ‘What lies beneath: site conditions and contract risk’, Society of Construction Law Paper
137 (2007).
20 See Ellis Baker and Michael Turrini, ‘The underlying problem: negotiating the ground conditions issue’,
Society of Construction Law Paper 181 (2013).
55
In the FIDIC suite of contracts, the Red/MDB and Yellow forms characteristically
seek a balanced allocation of risk through Sub-Clause 4.12 on Unforeseeable Physical
Conditions and related provisions, both as to time and cost.21 Unforeseen ground condi-
tions are dealt with in a radically different way by the Unforeseeable Difficulties provisions
of the Silver Book. (See also the section on ‘Unforeseen ground conditions’ below.)
Force majeure
In the course of a construction project, performance of the parties’ obligations can be
delayed, impaired or altogether prevented by events outside the parties’ control.
All major legal systems have rules governing the impossibility or inhibition of perfor-
mance of contractual obligations.The underlying law of the contract selected by the parties,
or that which applies in the absence of such selection, is capable of providing remedies and
other outcomes to some extent. There is often a significant difference between the civil
law and common law traditions in this respect. The concept of imprévision has long formed
a part of systems deriving from French law and the doctrine of rebus sic stantibus is expressly
incorporated into the German Civil Code.22 But, in the common law systems and notably
in English law, there is no general theory of force majeure, which is not a term of art. The
effect is that ‘performance of the relevant obligation must have been prevented by an event
of force majeure and not merely hindered or rendered more onerous.’23 The test of frustra-
tion in construction (and other) cases was set out by the House of Lords in Davis Contractors
Ltd v. Fareham Urban District Council:24 ‘[F]rustration occurs whenever the law recognises
that without default of either party, a contractual obligation has become incapable of being
performed because the circumstances in which performance is called for would render it a
thing radically different from that which was undertaken by the contract.’25
The difference in approaches between jurisdictions explains why parties to construc-
tion contracts routinely make their own express provision for force majeure. Under Clause
19 of the modern FIDIC contracts, for example, there is a mandatory notification proce-
dure for force majeure events and potential relief available to both Parties.The treatment of
force majeure under the FIDIC suite of contracts is discussed further below.
Indemnification and insurance

Neither indemnities nor insurance are risks to be allocated in the way unforeseen ground
conditions or force majeure events are. They are, however, devices by which risk allocation
can occur and are explained in this context.
In principle, indemnities can arise by operation of law, including statute, but this cover-
age is limited to indemnity clauses in contracts. ‘The central characteristic of an indem-
nity clause is that the indemnifier assumes a primary responsibility for the adverse event
covered by the clause and undertakes to hold the indemnified party harmless against the
21 There are some changes of structure in Sub-Clause 4.12 of the 2016 Pre-Release edition of the Yellow Book,
but the philosophy is essentially as before.
22 Axel-Volkmar Jaeger and Götz-Sebastian Hök, FIDIC – A Guide for Practitioners, Springer, pp. 329-330 (2010).
23 Hugh Beale, Chitty on Contracts, 32nd ed., Sweet & Maxwell, p. 1227 (2015).
24 [1956] AC 696.
25 Lord Radcliffe at p. 729.
56
consequences of that event.’26 The use of indemnity clauses in construction contracts has
been described as ‘governing or re-allocating ultimate contractual responsibility for third
party claims as between Employer and Contractor.’27
Insurance is a mechanism by which risk can be allocated to a third-party insurer pursu-
ant to a contract of insurance, for payment of a premium. In construction contracts, parties
may mandate that counterparties hold certain insurances to protect such party against cer-
tain risks allocated to that party under the contract. Under the FIDIC suite of contracts, for
example, Clauses 17 and 18 provide for the risks of certain events with the capacity to cause
significant loss and to pre-allocate responsibility for guarding against them, principally by
insurance, and for meeting such loss where this cannot be insured or recovered from insur-
ance. (See the section on ‘Indemnification and insurance for specific risk’ below.)
Allocating specific risks – the FIDIC approach

Unforeseen ground conditions
The Red/MDB and Yellow Books
In the FIDIC Red and Yellow Books, the issue of ‘unforeseen ground conditions’, which
is a common industry expression, is dealt with under the heading ‘Unforeseeable Physical
Conditions’, which obviously is not identical. The FIDIC term28 extends to ‘natural physi-
cal conditions and man-made and other physical obstructions and pollutants, which the
Contractor encounters at the Site when executing the Works, including sub-surface and
hydrological conditions, but excluding climatic conditions.’29 Although this formulation is
wider than ‘ground conditions’, extending beyond geology, for example, to hydrology, it is
also more restricted, in referring to ‘unforeseeable’ rather than ‘unforeseen’. Unforeseeability
is an objective test for those purposes, being defined30 as ‘not reasonably foreseeable by an
experienced Contractor by the date for submission of the Tender’.31
The unforeseeability test is crucial to the risk allocation for ground conditions and
other physical conditions in the FIDIC Red and Yellow Books and three aspects need
to be considered in applying it.32 First, the test is not what was actually foreseeable, but
what would have been reasonably foreseeable. Second, the foreseeability is not that of the
Contractor, but of an experienced Contractor, namely an industry standard. Third, the
point in time to which the test refers is Tender Submission (Base Date for MDB), which
means that it must be seen together with information available to the Contractor (Site
26 Gerard McMeel, The Construction of Contracts, 2nd ed., Oxford University Press, p. 563 (2011).
27 Nicholas Dennys QC and Robert Clay (eds) (op. cit.), p. 1110.
28 Significantly, the FIDIC provision begins by defining ‘physical conditions’. This was a problematic omission
from the 4th edition of the Red Book, noted by Jeremy Glover and Simon Hughes QC, Understanding the
FIDIC Red Book: A Clause by Clause Commentary, 2nd ed., Sweet & Maxwell, p. 108 (2011).
29 Sub-Clause 4.12.
31 In the MDB (Pink) version of the Red Book, ‘Base Date’ replaces ‘Tender’.
32 Ellis Baker et al. (op. cit.), p. 88.
57
Data)33 and the ‘correctness and sufficiency of the Accepted Contract Amount’34 to obtain
a full picture.
The issue of reasonable foreseeability by an experienced Contractor under Sub-Clause
4.12 of the Yellow Book was recently considered in the Gibraltar case of Obrascon Huarte
Lain SA v. Her Majesty’s Attorney General for Gibraltar,35 where the (English) Technology and
Construction Court (TCC) held that the Spanish contractor ‘did not in fact encounter
physical conditions in relation to contaminated soil over and above that which an experi-
enced contractor could reasonably have foreseen by the date of submission of its tender’,36
applying a ‘balance of probabilities’ test. The Court of Appeal37 upheld the TCC’s analysis
of this issue.38
Subject to compliance with Sub-Clause 20.1, if the Contractor can meet the require-
ments of Sub-Clause 4.12 for ground conditions it has experienced, it may be able to
claim an extension of time for delay and payment of additional Cost, to be included in the
Contract Price.
The FIDIC contracts: changing the risk allocation

Users of standard form contracts are not bound to accept the risk allocation for unfore-
seen ground conditions (or anything else). The Building Law Reports Commentary on
Obrascon39 warns that ‘Contractors may want to consider whether or not they would be
comfortable assuming the risk … or, rather, whether to propose bespoke specificity as to
the nature of the ground conditions which are contemplated.’
In the Guidance Notes in the Red/Yellow Books, FIDIC has provided an alternative
on the basis of the risk sharing, by which Sub-Clause 4.12(b) is replaced with a percentage
allocation of Cost between the Contract Price and the Contractor respectively.
A much more thorough ongoing reallocation of ground risk (as part of Physical
Conditions) is found in the FIDIC Silver Book. Under Sub-Clause 4.12, the Contractor
is ‘deemed to have obtained all necessary information as to risks, contingencies and other
circumstances which may influence or affect the Works’ so that the Contractor ‘accepts
total responsibility for having foreseen all difficulties and costs of successfully completing
the Works’ and the effect is that no addition to the Contract Price is payable.
Generally, the Contractor under the Silver Book bears the risk of unforeseen ground
conditions, covered by the expression ‘Unforeseen difficulties’. However, two qualifica-
tions must be made to this general proposition. First, the Employer is made responsible
for certain data which it provides to the Contractor,40 so that extension of time could be
33 Sub-Clause 4.10.
35 [2014] EWHC 1028 (TCC).
36 Para 227.
37 [2015] BLR 521.
38 A recent discussion of Australian and English cases can be found in Gordon Smith ‘Latent Conditions and the
Experienced Contractor Test’, International Construction Law Review, pp. 390-412 (2016).
39 [2014] BLR pp. 488-489.
40 Sub-Clause 5.1.
58
claimable for error in certain circumstances,41 although there is no express entitlement to

any additional payment.
Second, depending on the law selected by the Parties as stated in the Particular
Conditions, the effect of the provisions may be in doubt.42 For example, strong reservations
have been expressed43 as to whether the transfer of risk to the Contractor is enforceable
under German law in circumstances where the Employer has provided incorrect informa-
tion on ground conditions.44
Force Majeure
The main Force Majeure provisions45 in the FIDIC contracts are basically the same for
the Red, Yellow and Silver Books.46 ‘Force Majeure’ is defined47 as ‘an exceptional event
or circumstance’. Force Majeure does not have to be unforeseeable or even unforeseen.48
However, it must be:
• beyond a Party’s control;
• beyond reasonable provision by a Party before entering into the Contract;
• not reasonably capable of being avoided or overcome; and
• not substantially attributable to either Party.
A non-exhaustive list is given of possible ‘exceptional events or circumstances’:

• war, hostilities, invasion, enemy action;
• rebellion, terrorism, insurrection, coup d’état or civil war;
• riots and other civil/industrial disorder;
• munitions, explosives, radiation or contamination (except as attributable to the
Contractor); and
• natural catastrophes, such as earthquake, hurricane, typhoon or volcanic activity.
A Party prevented from performing its contractual obligations49 by a Force Majeure event
or circumstance must give notice to the other Party within 14 days of when it did, or
should have, become aware of it.50 The Party is excused performance of its obligations
while prevented from doing so.
41 For commentary, see Ellis Baker et al. (op. cit.), p. 92.

42 Peter Fenn ‘Review of international practice on the allocation of risk of ground conditions’, International
Construction Law Review, pp. 439-453 (2000).
43 Alexander Kus, Jochen Markus and Ralf Steding ‘FIDIC’s new Silver Book under the German Standard Form
Contract Act’, International Construction Law Review, pp. 533-550 (1999).
44 Axel-Volkmar Jaeger and Götz-Sebastian Hök (op. cit.), p. 107, provides a commentary on the German law
position in relation to these types of risk allocation.
45 Clause 19.
46 Jeremy Glover and Simon Hughes QC (op. cit.).
47 Sub-Clause 19.1.
48 The FIDIC Contracts Guide, p. 292 (2000).
49 In the MDB (Pink) Book ‘substantial obligations’ rather than ‘obligations’.
50 Sub-Clause 19.2.
59
Additionally, a Contractor may be entitled to further relief 51 if it incurs additional delay

or Cost,52 in the form of an extension of time or additional payment.
Although the obligation to give a Force Majeure notification is owed by both Parties,
and the provision as to Optional Termination, Payment and Release53 can apply to either
Party, the balance of risk allocation in the FIDIC contracts can generally be said to favour
the Contractor, as it is more likely to be relieved of its obligations.
Indemnification and insurance against specific risk

The indemnity and insurance provisions of the FIDIC contracts54 need to be read together
to obtain a comprehensive view of the allocations made.
Indemnities
In the FIDIC suite of contracts, Clause 17 uses indemnities as the medium for risk allocation
on a range of issues.The net effect is complex. Indemnities are given by both Employer and
Contractor, and some of them are reciprocal. Thus the Contractor gives to the Employer
an indemnity against all third party claims for personal harm and damage to property
arising out of activities or personnel for which it is responsible, and the Employer gives a
similar, though not identical, indemnity to the Contractor.55 More of Clause 17 is devoted
to indemnities by the Contractor, including responsibility for Care of the Works,56 which
has no Employer equivalent. The Contractor is liable for loss or damage during the period
from Commencement Date to the issue of the Taking Over Certificate, except where it
has a cause classified as an Employer’s Risk.57 But it would be an over-simplification to say
that the indemnity provisions under the FIDIC contracts favour the Employer. Wherever
loss or damage to the Works or other aspects of the project results from an Employer’s Risk,
the Contractor may be able to claim an extension of time for delay, or additional Cost, or
both, to be added to the Contract Price.58
Further complexity is added by differences between the FIDIC contracts. While all
books include foreign hostilities, civil conflict, riots/disorder, explosions/contaminations/
radiation and sonic damage by aircraft,59 the Silver Book significantly omits three cat-
egories of Employer Risk found in the Red and Yellow Books;60 use or occupation by
the Employer, design of any part of the Works by personnel for whom the Employer is
responsible and ‘Unforeseeable61 operation of forces of nature’. The MDB version of the
Red Book adds to the first paragraph of Sub-Clause 17.3 the words ‘insofar as they directly
51 Sub-Clause 19.4.
52 As defined by Sub-Clause 1.1.4.2.
53 Sub-Clause 19.6.
54 Clauses 17 and 18.
55 Sub-Clause 17.1.
56 Sub-Clause 17.2.
57 Sub-Clause 17.3.
58 Sub-Clause 17.4.
59 Sub-Clause 17.3.
60 See Ellis Baker et al. (op. cit.), p. 346.
61 Defined by Sub-Clause 1.1.6.8 as ‘not reasonably foreseeable by an experienced contractor by the date for
submission of the Tender’.
60
affect the execution of the Works in the Country’. When compared with the Red Book
itself ‘the effect of this is to narrow further the nature of the ‘Employer risks’.62
Much of the remaining Risk and Responsibility provisions can be regarded as fairly
balanced in terms of risk allocation. The indemnities for infringement of intellectual prop-
erty rights63 are essentially reciprocal. The exclusion of liability for ‘any indirect or conse-
quential loss’64 applies to both Parties. There is provision for the Contractor’s total liability
to be limited to a stated amount; the amount is the subject of express provision, usually
included in the Particular Conditions following negotiation.
Insurance
The insurances to be effected under the FIDIC forms of contract are basically against loss
or damage to Works and Contractor’s Equipment,65 personal injury and damage to prop-
erty of third parties66 and personal injury to the Contractor’s Personnel.67
‘Generally, the FIDIC forms assume that the Contractor will be responsible for effect-
ing and maintaining the insurances,’68 although either Party can do so by provision in the
Particular Conditions; third-party personal injury or damage to property insurance must
be in the joint names of the Parties. If the Contractor does take out the insurances, the
Employer is entitled69 to approve both the insurers and terms of the policies. There is no
equivalent entitlement where the Employer is the insurer.
What cover is actually obtained will depend to some extent on what is available in the
market and at what cost. However, the insuring party, whether Contractor or Employer,
must insure against loss or damage to Works and Goods ‘for not less than the full rein-
statement cost including the costs of demolition, removal of debris and professional fees
and profit’.
The required scope of this cover needs to be seen in conjunction with the Employer’s
Risk provisions, which as indicated above: ‘shall cover all loss and damage from any cause
not listed in Sub-Clause 17.3’,70 subject to any Particular Conditions. Insurance for
Contractor’s Equipment71 has to be for ‘not less than the full replacement value, including
delivery to Site’.
The required scope of the insurance against personal injury and damage to property of
third parties is also defined by reference to Sub-Clause 17.3, it being permissible to exclude
liability to the extent that it arises from ‘a cause listed in Sub-Clause 17.3 [Employer’s
Risks], except to the extent that cover is available at commercially reasonable terms’.
62 Jeremy Glover and Simon Hughes QC (op. cit.), p. 342.

63 Sub-Clause 17.5.
64 Sub-Clause 17.6.
65 Sub-Clause 18.2.
66 Sub-Clause 18.3.
67 Sub-Clause 18.4.
68 Ellis Baker et al. (op. cit.), p. 368.
69 Sub-Clause 18.1.
70 Sub-Clause 18.2(c).
71 Defined in Sub-Clause 1.1.5.1.
61
Indemnification and insurance – summary

The Risk and Responsibility provisions72 are principally, though not exclusively, indemni-
ties. The risk allocation can be broadly characterised as balanced, and several of the provi-
sions are reciprocal or apply equally, as in the case of the exclusion of indirect or conse-
quential loss. The Contractor is offered relief in the form of time, money, or both, from its
Care of the Works liabilities73 by the Employer’s Risks provision,74 which resembles a list
of force majeure events.
The Employer’s Risks provisions have a key role in the interpretation of the Insurance
requirements, whose complexity and numerous carve-outs and exceptions make generali-
sation about balance of risk allocation extremely difficult.75
As a general proposition, it can be said that the Parties agree to insure those risks as
to damage, injury and third party liability which are insurable, and to pre-allocate respon-
sibility for those which are not to be insured, or cannot be. There is a presumption that
the Contractor will take responsibility for obtaining insurance, but this, and much of
the question of scope of cover, can be agreed by the Parties and made the subject of
Particular Conditions.
The allocation of risk in a construction project – summary

Accurate risk identification and a fair and equitable allocation of risk are essential to ensur-
ing the successful delivery of a project. Both the employer and the contractor must work
co-operatively to seek an equitable sharing of risk based on an appropriate procurement
methodology and seek to allocate typical risks in an efficient manner, in the light of the
nature of the particular project and its specific considerations. In doing so, the intention is
that the potential for frustration of the project schedule and the incidence of construction
disputes will be reduced, to the benefit of all parties.
The FIDIC contracts represent ‘international benchmarks’ in terms of risk allocation.
However, these vary notably between the different procurement methods offered by the
FIDIC suite. If the Red and Yellow Books are reckoned to offer ‘balanced’ risk allocation,
the Silver Book places significantly more risk on the EPC/Turnkey Contractor. In any
event, the risk allocation in the FIDIC General Conditions can be further modified by the
use of Particular Conditions.
72 Clause 17.
73 Sub-Clause 17.2.
74 Sub-Clause 17.3.
75 For detailed commentary, see Ellis Baker et al. (op. cit.), pp. 371-378.
62
6
Contractors’ Claims, Remedies and Reliefs
James Bremen and Leith Ben Ammar1
Introduction
The international construction market is highly competitive. Following the financial crisis
of 2008 and the steep decline in the prices of oil and gas in recent years, with the excep-
tion of some government infrastructure projects, there has been a dramatic decrease in
construction work worldwide, in particular for major contractors who specialise in large
and complex projects.
Employers with scarcer resources are awarding projects on tight budgets and employer
friendly contractual terms, often to contractors who undervalue their bids in order to win
the project, resulting in cash flow issues, delays and substandard works. In recent years, this
increasingly common recipe has led to a very contentious international construction mar-
ket and numerous construction arbitrations.
Contractors are required to complete projects on time, at the required quality and at
the agreed cost. Their ability to do that can be affected by a number of factors outside of
their control and properly drafted construction contracts provide relief to contractors when
such events occur.
This chapter will discuss the claims, remedies and reliefs available to contractors in
major construction projects by reference to market practice and one of the most com-
monly used suites of standard form construction contracts, FIDIC.
Firstly, it will discuss the circumstances in which claims for extensions of time arise,
and the procedure to be followed when making such claims. Secondly, it will set out the
conditions that give rise to claims for loss and expense, and the usual requirements that
contractors must satisfy for their claim to be successful. Thirdly, it will look at variations,
payment and force majeure claims, and the circumstances in which they can give rise to
extensions of time, loss and expense and termination. Finally, it will briefly discuss the other
1 James Bremen is a partner and Leith Ben Ammar is an associate at Quinn Emanuel Urquhart & Sullivan LLP.
63
Contractors’ claims, remedies and reliefs
circumstances that give rise to a contractor’s right to terminate the contract, related proce-
dural requirements and consequences.
Extensions of time
In most projects, contractors are required to complete the project by a set date. Construction
projects are often time-critical and delays to completion of a given project can result in
significant monetary losses to the employer. For example, if the completion of a power
plant or an oil refinery is delayed, it will have a direct effect on the offtake agreement
and the project revenue stream, affecting the ability of the employer to repay the lenders.
Accordingly, as will be further discussed in Chapter 7 of this book, construction contracts
usually contain liquidated or general damages provisions under which the contractor is
liable for delays to the project.2
Large and lengthy projects will generally be divided in milestones that the contractor
must achieve by set milestone dates. In such circumstances, contractors are likely to also
be liable for liquidated or general damages if they fail to complete the milestones by the
milestone dates.
A multitude of events can delay a project, some of which are outside of a contractor’s
control. Accordingly, contractors cannot always be held responsible for delays and liable for
the resulting losses. Depending on the governing law and the provisions of the underlying
contract, a contractor may be entitled to claim an extension of time when such events arise.
Events that can give rise to an extension of time include:
• acts caused by the employer or one of its representatives (including other contractors
employed by the employer);
• events outside of both parties’ control and that are the employer’s responsibility under
the contract, such as force majeure events, material or goods shortages or delays caused
by the authorities; and
• variations to the scope of works.3
Typically, construction contracts entitle contractors to an extension of time if they can

prove that the event caused delay to an activity that is on the project’s or particular mile-
stone’s critical path (the critical path of a project or a milestone is the longest path of
logically connected activities such that the sum of the individual durations of each activity
equals the overall duration of the project or milestone).
Contractors will usually be required to provide notice to the employer, or its repre-
sentative, of the delaying event. The clock will start ticking either when the delaying event
arises, or more often when the contractor becomes aware of the delaying event.4
In construction contracts, compliance with such contractual notices will usually be
a condition precedent to any claim for an extension of time.5 These contractual notice
requirements are often referred to as guillotine provisions and are enforced strictly in
2 See, for example, Clause 8.7 of the FIDIC Yellow Book.

3 See, for example, Clause 8.4 of the FIDIC Yellow Book.
4 See, for example, Clause 20.1 of the FIDIC Silver Book.
64
common law jurisdictions, in accordance with one of the underlying principles of contract
law, pacta sunt servanda or freedom of contract.
Some civil law jurisdictions take a hostile view towards condition precedent clauses
and time bars. Contractors should, therefore, always check the legal position in their cho-
sen jurisdiction.
In addition to the notice requirements, the contractor will be required to follow the
procedure set out in the underlying contract in order to claim an extension of time. While
it might vary depending on the contract, it will generally involve submitting detailed par-
ticulars and supporting contemporaneous records evidencing the entitlement to an exten-
sion of time.6 Contractors should negotiate the costs arising from such exercise with the
employer when discussing clauses of this nature.
In order to produce particulars and records that satisfy the contractual and evidentiary
hurdle for claiming an extension of time, contractors must ensure they have a good plan-
ning team.
Such particulars and records will generally be submitted to the employer’s representa-
tive, who must, in consultation with the parties, make a fair determination of the contrac-
tor’s claim.7
Contractors and employers should keep these records in the event either of them disa-
gree with the employer representative’s determination and the entitlement to an extension
of time arises as an issue in future arbitration proceedings. During proceedings, such records
will be required by the contractor to establish the existence of the alleged delaying event
and by its appointed programming experts to provide opinion evidence on the impact that
each alleged delaying event had on the contractor’s ability to complete the works.
Employers may, by their conduct, waive some of the contractual condition precedents
to claiming an extension of time with regard to one or more contractor claims. If such
waiver is established, the employer may be estopped from denying an extension of time on
the basis that the contractor failed to comply with those contractual condition precedents.
In common law jurisdictions, this principle is referred to as estoppel by conduct. It
arises if (1) a party by its conduct (2) led the other to believe (3) it had waived or relaxed
compliance with an obligation, and (4) the other party acted in accordance with that con-
duct (5) to its detriment.
In both civil law and common law jurisdictions, contracts can be concluded orally or
by conduct and accordingly the employer’s conduct leading to the contractor’s belief it had
relaxed the procedural condition precedents may constitute a variation to the underlying
contract, having a similar effect as estoppel by conduct.
The ability to conclude an oral contract or a contract by conduct is limited if the
underlying contract contains entire agreement, no waiver or no variations unless in writ-
ing provisions, in particular in common law jurisdictions where such provisions would be
enforced strictly. In civil law jurisdictions, they would be enforced but may be balanced
against overriding considerations of fairness and equity, which could have the same effect
as estoppel.

65
Loss and expense

Claims for loss and expense cover all types of financial claims by contractors in construc-
tion disputes.
Claims for loss and expense arise when contractors can show that:
• they suffered loss because of an employer breach of contract; or
• they have an entitlement to additional money under the contract.
To successfully claim for loss and expense for breach of contract, a contractor needs to
prove that (1) there was an obligation, (2) which was breached by the employer or its rep-
resentatives, (3) therefore causing monetary loss to the contractor, and (4) that loss is not
too remote.
Under English law, losses will not be too remote if:
• a reasonable man would have realised losses of the same kind8 were a not unlikely con-
sequence of the breach9 (referred to as direct losses); or
• those losses may reasonably be supposed to have been in the contemplation of the par-
ties at the time they entered into the contract10 (referred to as indirect or consequen-
tial losses).
The test for remoteness is very similar in other common law jurisdictions. In civil law juris-
dictions, however, claimants are usually only entitled to those damages reasonably foresee-
able at the time of execution, except in cases of gross negligence or fraud.
The ability to recover certain losses may also be limited by provisions of the con-
tract. For instance, construction contracts often limit the parties’ ability to recover indirect
losses,11 except in case of fraud, deliberate default or reckless misconduct.
Events that may entitle contractors to additional money under the contract include acts
of prevention by the employer or his or her representatives, variations and neutral events
for which the employer is responsible under the contract.
Contractors will usually be required to follow the same procedure as for claims for an
extension of time, and the same contractual condition precedents will apply.
The most common heads of claim are prolongation, disruption and acceleration. When
a project is delayed because of an event for which the employer is responsible, the contrac-
tor is entitled to an extension of time, as discussed above, as well as any losses arising from
the delay. These losses are referred to as prolongation costs.
Prolongation costs can include site and office overheads, financing charges arising from
money borrowed to fund the project and loss of profit. To successfully claim for prolonga-
tion costs, contractors need to provide detailed particulars and evidence that each of the
claimed costs were caused by employer delay. The contractor’s ability to successfully claim
the prolongation costs will also be subject to the rules of remoteness under the governing
law of the contract.
8 Overseas Tankship (UK) Ltd v. Morts Dock & Engineering (The Wagon Mound, No. 1) [1961] AC 388.
9 C Czarnikow Ltd v. Koufos (The Heron II) [1969] 1 AC 350.
10 Hadley v. Baxendale (1854) 9 Exch 341.
66
In complex projects, when contractors experience difficulties proving the causal link
between each alleged delay event, the actual delay to the project and the claimed prolon-
gation costs, they are often tempted to combine all the alleged delay events into a global
claim, instead of breaking down the delay and prolongation costs and linking them to
specific delay events. Because of the lack of causal link, global claims seldom succeed, in
particular when heard before an experienced and robust arbitral tribunal.
Claims for general disruption arise from the assumption that contractors arrange the
activities required to complete a project in an efficient sequence. On that assumption,
any event that affects the sequence of the works can lead to inefficient use of plants and
manpower, which in turn would increase the costs of completing the project. When the
employer is responsible for such events, a contractor is entitled to recover those costs.
Claims for disruption are generally difficult to prove. Contractors must show that the
additional costs are caused by events the employer is responsible for instead of the contrac-
tor’s inefficient practices.
The most commonly used method to prove disruption costs is the measured mile
method, where the contractor compares the efficiency in the disrupted section of the
works with the efficiency in an identical unaffected section. It will only work, however,
when the contractor is able to identify an identical unaffected section of the works.
Acceleration claims are also fairly common in construction arbitrations. They can
arise when:
• the employer instructs the contractor to complete the works within a shorter period
than originally required under the contract (referred to as express acceleration); or
• because of one or more events for which the employer is responsible, the contrac-
tor must perform more work or delayed work within the same period (referred to as
implied acceleration).
The contractual procedure to instruct acceleration and claim for costs arising from accel-
eration will generally be the same as for variation claims.12
Claims for implied acceleration are rare and difficult to prove.They cannot arise in par-
allel to extension of time and loss and expense claims made because of the same event.They
are generally only successful in circumstances where a contractor has incurred costs when
successfully mitigating all the delay caused by an event the employer is responsible for.
Variations
Employers will often want the ability to make changes in a project. Those changes may
arise from potential buyer or end user requirements, changes in technology or aesthet-
ics concerns.
Properly drafted construction contracts will provide a sophisticated mechanism allowing:
• employers to make changes to the scope of the works after the contract is executed; and
• contractors to be awarded an extension of time and payment for costs arising from
those changes.
67
In order to claim an extension of time or payment for additional costs, the contractor must
follow the procedure set out in the contract. Upon request from the employer, a contractor
will generally be required to submit a proposal containing any additional time and costs
claimed, together with all supporting documentation.
For example, Clause 13.3 of the FIDIC Silver Book provides:
If the Employer requests a proposal, prior to instructing a Variation, the Contractor shall respond
in writing as soon as practicable, either by giving reasons why he cannot comply (if this is the
case) or by submitting:
(a) a description of the proposed design and/or work to be performed and a programme for
its execution,
(b) the Contractor’s proposal for any necessary modifications to the programme according to
Sub-Clause 8.3 [ Programme ] and to the Time for Completion, and
(c) the Contractor’s proposal for adjustment to the Contract Price.
The Employer shall, as soon as practicable after receiving such proposal (under Sub-Clause
13.2 [Value Engineering] or otherwise), respond with approval, disapproval or comments. The
Contractor shall not delay any work whilst awaiting a response … .
As for other claims for time and costs, the time and costs effect of a variation, if not agreed
between the parties, will usually be determined by the employer’s representative13 and be
subject to any contractual condition precedents, such as notice requirements. In addition
to time-related costs, contractors are usually entitled to any additional labour and material
related costs that arise from the variation, subject to any contractual or legal limitations
on liability.
The contractor should, of course, ensure that the supporting documentation includes
all documents required contractually and from an evidentiary perspective to prove their
entitlement to additional time and costs.
Force majeure
Events outside of the parties’ control may arise during a project, affecting the contrac-
tor’s ability to perform his or her contractual duties. A force majeure clause excuses
non-performance by a contractor of his or her contractual obligations when impossibility
results from a cause stated in the contract. Such causes are typically defined as an event or
act that:
• is beyond the reasonable control of the contractor;
• was not reasonably foreseeable at the time of entering the contract;
• could not have been avoided;
• is not attributable to the employer; and
• prevents the contractor from performing its obligations under the contract.14
13 See, for example, Clauses 3.5 and 13.3 of the FIDIC Silver Book.
14 See, for example, Clause 19.1 of the FIDIC Red Book.
68
Often, force majeure clauses may also specify a descriptive list of events such as war, terror-
ism, civil unrest and severe adverse weather conditions, which will be deemed to be force
majeure events if they also comply with the conditions above.15 Force majeure clauses may
also exclude particular events from the scope of force majeure in order to allocate liability
in advance for such events.
To successfully claim force majeure, the contractor must prove that a force majeure
event exists and that it is preventing performance,16 temporarily or permanently. What
constitutes ‘prevention’ in this context will depend on the wording but also on the gov-
erning law of the contract. For instance, under English law, the prevention must be legal
or physical. A contractor will not be able to claim that it was ‘prevented’ from performing
the contract just because the cost of performance has increased above what was originally
anticipated.17
As with other claims, the contractor must also comply with contractual condition prec-
edents, such as notice provisions. Again, failure to comply with such contractual condition
precedents may or may not have a debarring effect.
If successful, a contractor may be entitled to a graduated range of remedies, including
extension of time, loss and expense, suspension of performance, termination of the contract
and consequential provisions.
A contractor will typically be entitled to an extension of time for delays arising from
being ‘prevented’ from performing his or her obligations under the contract. However, he
or she will generally be under the obligation to minimise any such delay.
While some standard form contracts such as FIDIC18 provide contractors with the abil-
ity to also claim for loss and expense (time-related costs, as well as costs of remedying the
works due to loss or damage caused by a force majeure event) in some circumstances, in
practice, construction contracts generally allocate cost-related risks of force majeure events
to contractors.
In the event of a prolonged force majeure event preventing the execution of sub-
stantially all the works, contractors may be entitled to terminate the contract.19 If so, the
force majeure clause will set out the length of force majeure before termination becomes
available and the payments that must be made if the contract is terminated.Very often, the
approach to termination is the same as with termination for convenience. However, any
‘termination payment’ may either exclude or limit greatly the amounts that may be paid or
amount of loss of profit for the balance of the contract.
Payment
Non-payment or late payment claims are also very common contractor claims that arise in
construction projects. In the current market, contractors often price their bids on a very
tight margin and non-payment or late payment can quickly eat into their margin, in par-
ticular when a contractor has financing obligations.

17 Fairclough Dodd & Jones Ltd v. JH Vantol Ltd [1956] 3 All E.R. 921.
69
The effect on the contractor’s and subcontractors’ cash flow can strongly hinder their
performance and the contractor’s ability to perform its obligations on time and at the
planned cost, if at all.
Construction contracts usually require employers to make payments to contractors
periodically, in accordance with an agreed schedule of payments.20 Before each payment
is made, contractors must submit contractually compliant interim payment applications
showing in details the amount they consider themselves to be entitled to together with
supporting documentation evidencing the progress to the works against which payment
is claimed.21
The employer must pay all duly justified payments, subject to any deductions it is enti-
tled to make under the provisions of the contract22 (such as deductions for defective works,
for instance). If the employer fails to pay the contractor by the prescribed deadlines without
any valid justification, the contractor will typically be entitled to financing charges incurred
because of such delay.23 Any prolonged failure may entitle the contractor to suspend work
and, in extreme cases, terminate the contract.
In order to suspend the works or terminate the contract for non-payment, the contrac-
tor must comply with the procedure set out in the contract, including any notice require-
ments. The suspension and termination provisions of the contract will generally set out the
length of notice before suspension and termination become available.24
Contractors will generally be entitled to an extension of time and associated time-related
costs for delays arising from such suspension of the works, subject to the requirements set
out in the ‘Extensions of time’ and ‘Loss and expense’ sections set out above.
Termination
Contractors generally have relatively limited termination rights in construction contracts.
In addition to the circumstances set out in the ‘Force majeure’ and ‘Payment’ sections above,
contractors are typically entitled to terminate a contract:
• for a failure by the employer to submit reasonable evidence of financial arrangements
demonstrating ability to pay the contract price;
• if the employer substantially fails to perform its obligations under the contract;
• for a failure by the employer to enter into a contract agreement in accordance with the
contract or the prohibition on assignment;
• for a prolonged suspension of the works instructed by the employer or his representa-
tive; and
• for employer insolvency.25
Provided a prescribed reason arises, and the contractual procedure is followed, a contractor
will be entitled to terminate the contract.

70
The consequences of termination will be prescribed by the contract and will generally
include, on the one hand, payment of sums due and return of performance security to the
contractor and, on the other hand, handing over of plants, materials and documents paid
for to the employer, and removal of all other goods from site.26
As will be further discussed in Chapter 7 of this book, employers have generally more
extensive termination rights. While a valid termination for default may have disastrous
consequences for contractors, a wrongful termination may entitle them to payment for all
the profit they would have made under the contract but for the wrongful termination and
the cost of demobilisation.
71
7
Employers’ Claims and Remedies
James Bremen and Mark Grasso1
Introduction
The majority of construction disputes proceeding to arbitration are commenced by con-
tractors. This is not to suggest that it is only contractors that have claims on most projects,
as that is clearly not the case. It goes without saying that employers have interests in the
projects they are commissioning, in particular, the interest in having their project delivered
on time, on budget and in accordance with the contractual specifications. The main dif-
ference between a contractor’s position and that of an employer that causes a contractor
to refer its claims to arbitration is that, generally speaking, a contractor will feel financial
pressure earlier than an owner in the form of non-payment of sums to which it considers
it is entitled, and will turn to arbitration in order to recover such sums.
Nevertheless, owners often bring claims against contractors, sometimes as claimant, but
more often by way of counterclaim after an arbitration has been commenced against them
by a contractor. This chapter considers the range of claims employers most frequently pur-
sue in arbitration, which revolve around four issues:
• the time for delivery of a project;
• the quality of what is being delivered;
• termination; and
• payment.
Claims concerning the time for completion

In almost every construction contract, even for a simple project, there will be a specified
date by which the project must be completed. On larger and more complex projects, the
work may be divided into milestones and the contractor may be required to complete each
milestone by the associated ‘milestone date’ specified in the contract. There may also be
1 James Bremen is a partner and Mark Grasso is of counsel at Quinn Emanuel Urquhart & Sullivan LLP.
72
additional milestones and milestone dates for matters, such as testing and commissioning
and handover of the whole project.
However, even if a contract specifies a completion date or one or more milestone dates,
the question arises as to the nature of the remedies available to the employer if the contrac-
tor fails to complete part or all of the work by the associated milestone or completion date.
As a matter of principle, the employer would have a claim against the contractor for dam-
ages for breach of contract, but what quantifiable damage will it have suffered as a result of
the delay to the project? In almost all cases, the monetary loss to any employer as a result of
delay will be a relatively small sum or may be very difficult to quantify.
In light of this, the usual practice is for construction contracts to provide that the con-
tractor will be liable for liquidated damages (that is, damages in a fixed monetary amount)
for each day for which it is in delay. If the project has been divided into milestones, there
may be different liquidated damages rates for each milestone. The liquidated damages pay-
able in respect of each milestone and the project as a whole will also probably be capped.
An example of a liquidated damages provision is Clause 8.7 of the FIDIC Silver Book,
which provides that:
If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Contractor
shall subject to Sub-Clause 2.5 [Employer’s Claims] pay delay damages to the Employer for
this default. These delay damages shall be the sum stated in the Particular Conditions, which
shall be paid for every day which shall elapse between the relevant Time for Completion and
the date stated in the Taking-Over Certificate. However, the total amount due under this
Sub-Clause shall not exceed the maximum amount of delay damages (if any) stated in the
Particular Conditions.
Clause 8.7 goes on to provide that liquidated damages are the employer’s sole remedy for
delay on the part of the contractor. This is also a provision commonly found in construc-
tion contracts.
As is also illustrated by Clause 8.7, most liquidated damages provisions provide, in effect,
that the contractor must, prima facie, pay the employer liquidated damages for all delays
in completing the project. In other words, the employer is not required to establish that
the contractor is at fault before being entitled to recover liquidated damages. Put another
way, in an arbitration, an employer’s claim for liquidated damages would, at least in the first
instance, simply be a mathematical calculation of the number of days that passed from the
scheduled milestone or completion date to the date on which the milestone or completion
was actually achieved multiplied by the applicable liquidated damages rate.
However, the fact that liquidated damages provisions prima facie make contractors
liable for delay, however caused, gives rise to two questions: first, how does the contractor
obtain relief from this liability for liquidated damages when it has not been responsible for
the delay to the project; and second, what are the legal implications of a clause that provides
that the contractor is liable for liquidated damages even if the employer is at fault?
In relation to the first question, a contractor would be extremely unlikely to sign up to
a contract that would make it contractually responsible for all delays, even delays outside
its control. While there may be some risks that a contractor is prepared to accept (e.g., risks
associated with bad weather), most contractors would refuse to assume responsibility for
73
force majeure events and delay events caused by the owner’s acts or omissions. For these
reasons, most construction contracts contain terms that provide that the contractor will be
entitled to an extension of the milestone dates if it establishes that it has been delayed in
achieving the milestones by certain events. In the FIDIC Silver Book, such a provision is
found in Clause 8.4.
Claims concerning extensions of time in construction arbitrations can be very complex.
In most jurisdictions, the contractor carries the burden of establishing that it is entitled to
an extension of time and associated relief from the employer’s claim for liquidated damages
– that is, that the project was delayed by matters that the construction contract specifies
are the employer’s responsibility. Strictly speaking, an employer is not obliged to positively
demonstrate that the contractor was the cause of delay in order to be able to recover liq-
uidated damages. However, when faced with a claim by a contractor for an extension of
time, many employers will proceed to seek to do so as it is the best means of defeating the
contractor’s claim for an extension of time.
It is often thought that in some civil law jurisdictions, a contractor is not liable for
liquidated damages if the employer has suffered no loss as a result of the contractor’s delays.
However, the circumstances in which contractors are able to persuade arbitral tribunals to
exercise any power to reduce the contractually-agreed amount of liquidated damages are,
in practice, extremely rare.
In relation to the second question noted above, the risk associated with a liquidated
damages clause that does not provide relief for the contractor when the employer is at fault
is that, if the employer causes delay to the project, it will be found that the employer cannot
hold the contractor to the contractually agreed milestone dates or completion dates while
it has been at fault, and that time is therefore ‘at large’. The effect of time being at large is
that the contractor is no longer obliged to complete the milestones or the project by the
associated milestone dates or completion date, but only in a reasonable time. However, liq-
uidated damages clauses that provide no relief when the employer is responsible for delay
are extremely rare.
Nevertheless, because of the potential advantage of time being set at large, contractors
often attempt to argue that time is at large because of alleged failures on the part of the
employer in awarding extensions of time as and when they are due. However, the mere
failure to administer an extension of time clause is insufficient to set time at large, and
arguments by contractors based on any such failings causing time to be at large almost
inevitably fail.
In summary, where there has been delay to a construction project, an employer will
generally have a claim against the contractor for liquidated damages. Such a claim is likely
to form a significant part of any claims which an employer brings against a contractor in
a construction arbitration. However, any such claim will almost certainly be met with a
counterclaim by a contractor for an extension of time, and the employer will need to be
prepared to meet the contractor’s counterclaim.
It is also worth noting that many construction contracts provide that if a contractor has
not been proceeding with the works as required by the contract, or is otherwise in delay,
the employer may instruct the contractor to accelerate the works or take other measures
to recover the delay. In practice, however, employers are generally hesitant about exercis-
ing such powers as there is a risk that, if the contractor is subsequently found not to be in
74
breach of contract or in delay, the employer’s instruction would amount to a variation and
the employer would be liable to the contractor for the additional costs of the acceleration
or other measures it has directed.
Claims concerning the quality of the works

Under most construction contracts, the contractor’s primary obligation is to deliver the
project in accordance with the employer’s specifications by a specified date. On a strict
reading of such contracts, it might be argued that the quality of the works as they are being
undertaken is irrelevant, as all that matters is that, when the project is handed over to the
employer, everything is in accordance with the contractual specifications. This gives rise to
a question as to whether there can be defects in a contractor’s works prior to handover.This
question has been debated by commentators in several jurisdictions, and the legal position
is, perhaps surprisingly, generally unclear.
From a practical perspective, it would clearly be unsatisfactory to an employer if, in
circumstances in which it has observed a deficiency in the manner in which the contractor
is carrying out the works or has identified a serious defect in part of the works, it has no
remedy against the contractor until handover. In order to overcome this, many construc-
tion contracts contain provisions that entitle the employer to inspect the works as they are
proceeding (e.g., Clause 7.3 of the FIDIC Silver Book) and to issue a notice to the con-
tractor prior to completion requiring the contractor to remedy a deficiency in the works
(e.g., clauses 7.5 and 7.6 of the FIDIC Silver Book). Clause 7.6 of the FIDIC Silver Book
provides that, should the contractor fail to remedy the work following such a notice from
the employer, the employer may instruct others to remedy the work at the contractor’s cost.
In addition, the generally worded Clause 15.1 of the FIDIC Silver Book provides that:
If the Contractor fails to carry out any obligation under the Contract, the Employer may by
notice require the Contractor to make good the failure and to remedy it within a specified rea-
sonable time.
This is a powerful remedy for an employer while construction works are progressing.
The employer may also have a right to withhold a portion of the payments otherwise
due to the contractor until the deficiency in the work is rectified, even before the project
is complete. The amount that the employer will be entitled to withhold will generally be
limited to the cost of rectifying the defect (see, e.g., Clause 14.6 of the FIDIC Silver Book).
Construction contracts for large projects will generally contain a structured regime
concerning completion and handover of a project. For example, Clause 48.1 of the FIDIC
Red Book provides that:
When the whole of the Works have been substantially completed and have satisfactorily passed
any Tests on Completion prescribed by the Contract, the Contractor may give a notice to that
effect to the Engineer …. The Engineer shall, within 21 days of the date of delivery of such
notice, either issue to the Contractor, with a copy to the Employer, a Taking-Over Certificate …
or give instructions in writing to the Contractor specifying all the work which, in the Engineer’s
opinion, is required to be done by the Contractor before the issuing of such Certificate.
75
In other words, when the contractor considers that it has completed (or, if applicable, sub-
stantially completed) the works:
• the contractor issues a written notice to that effect (under the FIDIC Red Book, this
notice is to be issued to the engineer appointed by the employer);
• the works are inspected (by the engineer, in the case of a project governed by the
FIDIC Red Book);
• if the works are complete (or substantially complete as the case may be), a Taking-Over
Certificate is issued (again, this is the responsibility of the engineer under the FIDIC
Red Book); and
• if not, the contractor is notified (by the engineer, under the FIDIC Red Book) of the
works it must complete or correct before the Taking-Over Certificate can be issued.
Pursuant to Clause 48.1 of the FIDIC Red Book, the Taking-Over Certificate may iden-
tify minor aspects of the work that are outstanding or need to be corrected by the contrac-
tor, although they do not affect the handing over of the project to the employer. In such
circumstances, the contractor will generally be required to complete all snagging items and
remedy any outstanding defects at its own cost within a specified period of time, known
as the defects liability period, after completion (see, e.g., Clause 49 of the FIDIC Red
Book). Should any other defects be identified during that period, the contractor will also
be obliged to remedy them by the end of the defects liability period.
The rectification of defects during the defects liability period is the contractor’s right.
Unless the contract specifically provides to the contrary, the employer is unlikely to have a
right to sue the contractor for damages for breach of contract until the end of the defects
rectification period, unless the contractor has failed to carry out any work it is required to
carry out in the defects liability period within a reasonable time. However, if defects remain
unremedied or other works remain incomplete within a reasonable time of them being
identified or, in the worst case, at the end of the defects liability period, or if the employer
subsequently identifies further defects, the employer will have a claim against the contrac-
tor to recover the costs of rectifying the defects.
Depending upon the number and complexity of defects on a project after completion
and the cost of rectifying them, a defects claim may not be so significant as to warrant an
employer commencing an arbitration against a contractor bearing in mind the costs of
arbitration. Of course, there will be exceptions to this. In any event, a defects claim is likely
to form a reasonably substantial part of an employer’s counterclaim if an arbitration is com-
menced against it by a contractor.
In order to succeed in a defects claim, the employer will need to identify the relevant
contractual specification (which may be a specification concerning the quality of the works
generally or a fitness for purpose warranty), the reasons why the contractor’s works fail to
meet the specification and the costs of rectifying the defect. An employer is not limited to
recovering the costs of rectifying the defect in the cheapest manner possible, but would be
expected to act reasonably in engaging a third party to undertake the rectification works.
Termination
The most powerful remedy that an employer has against a contractor is the right to termi-
nate its contract, particularly when the contractor is in default.
76
An employer will always be well advised to check carefully that it is contractually and
legally entitled to terminate a contract before doing so. The consequences of a wrongful
termination of a contract can be serious and can expose the employer to a substantial claim
for damages from the contractor, extending to the profit that it claims to have lost as a
result of the wrongful termination. In addition, termination of a partially completed project
may cause disruption to the overall completion of the project, bearing in mind the time
required to engage a replacement contractor, and the additional costs associated with this.
At the same time, termination is a remedy that is perhaps considered too infrequently
by employers. Although it may appear surprising, many construction contracts, even con-
tracts for large projects, provide the employer with broad scope to terminate the contract
for any default on the part of the contractor. If a contract provides that it may be terminated
for any default, such a provision should be given effect by an arbitral tribunal. Even in juris-
dictions in which the parties may be obliged to carry out their contractual obligations in
good faith, there is no reason why a clause permitting termination for any default should
not be construed according to the ordinary meaning of the words used in the clause.
Contracts based on standard forms, however, may not be so favourable to the employer.
For example, the FIDIC series of contracts effectively requires the contractor to be in seri-
ous breach of the contract before the employer will be entitled to terminate their contract.
Nevertheless, the proof required to satisfy the termination provisions of such contracts is
not insurmountable.
If it validly terminates a contract for default on the part of its contractor, an employer
will generally be entitled to recover from the contractor the additional costs of complet-
ing the contract with another contractor (that is, the costs over and above those it would
have incurred if the original contractor had completed the project in accordance with its
contractual obligations), which are likely to be substantial, plus any other amounts it would
have been entitled to irrespective of the termination, such as liquidated damages for the
delays that had occurred up to the time of termination.
However, termination will have a significant financial impact upon a contractor. If an
employer does not promptly commence an arbitration against a contractor following ter-
mination, the employer is likely to find that the aggrieved contractor will institute arbitral
proceedings very shortly after termination. In either case, the employer will bear the bur-
den of establishing that the termination was valid under the contract. In some jurisdictions,
local law may impose additional preconditions to termination, which must also be satisfied
if the termination is to be upheld by an arbitral tribunal.
Another remedy available to employers, which has some conceptual overlap with ter-
mination, is descoping – that is, removing part of the original scope of works from the
contractor. The wording of variation provisions in most contracts will permit an employer
to add to or omit from the contractor’s scope of works, effectively at its discretion. On the
face of such permissions, it may appear that an employer would have the right to omit
substantial portions of the contractor’s works for any reason (e.g., if the employer is dis-
satisfied with the contractor’s performance generally). However, this may be prohibited by
the express terms of the variation provisions. Even if it is not, most legal systems limit the
ability of an employer to make substantial omissions from a contractor’s scope of works.
In common law systems, it is generally held that an employer cannot take work from the
original contractor in order to give it to another contractor unless the variation provision
77
of the original contract permits the employer to do so. In some civil law jurisdictions, par-
ticularly those in the Middle East, local law prevents government employers from changing
a contractor’s scope of works by more than 10 per cent without retendering the works. In
practice, this has the effect of preventing a government employer from reducing the con-
tractor’s scope of works by more than 10 per cent.
Payment
As noted earlier, an employer will be concerned to see that its project is delivered on
budget. Disputes about price often arise as a result of claims made by contractors, as con-
sidered in Chapter 6. Insofar as such claims are concerned, the employer will generally be
the respondent – that is, it will be defending claims made by the contractor and arguing
that the contractor is not entitled to the additional costs it is claiming.
Leaving contractors’ claims aside, an employer will otherwise generally be required to
pay the contractor pursuant to the contract as the contractor is carrying out its works in
accordance with the terms of the contract. There are three main exceptions to this. First,
an employer may be entitled to withhold amounts claimed by the contractor where the
corresponding work has not been completed or has not been carried out in accordance
with the contract. Second, many contracts will provide that the employer is entitled to
retain a percentage of all payments (usually around 5 per cent) until the project is com-
plete, at which point it must return half of this retention, and then until the defects liability
period has come to an end and all outstanding works have been rectified, at which point
the remainder of the retention must be paid to the contractor (see, e.g., Clauses 60.2 and
60.3 of the FIDIC Red Book). Third, the employer will generally be entitled to set off
amounts it is owed by the contractor against payments it would otherwise be required to
make to the contractor. If a project is in delay and the contractor has a substantial liability
to the employer for liquidated damages, this can significantly reduce the net amounts actu-
ally payable by the employer to the contractor. Set-off provisions are therefore a powerful
remedy available to employers.
78
Part II
International Arbitration for Construction
Disputes
8
Suitability of Arbitration Rules for Construction Disputes
David Kiefer and Adrian Cole1
Introduction
Arbitration continues to be the preferred method of dispute resolution for construction
disputes. With many large infrastructure projects being financed, developed, supplied and
constructed by companies from countries other than the one where the project sits, inter-
national arbitration is the most attractive option for resolving disputes among the interested
parties. The driving reason behind this preference is that international companies involved
in construction and engineering would rather look to arbitration to resolve their disputes,
as opposed to subjecting themselves to the idiosyncrasies of local court systems and their
inherent risks. As a result, construction and engineering projects consistently generate the
largest percentage of commercial disputes before international arbitral bodies. For exam-
ple, in 2015, they made up 25 per cent of all cases before the International Chamber of
Commerce, which was the largest percentage of any subject matter by a significant margin.2
With respect to construction disputes involving parties from the same country, domestic
arbitration remains an attractive option. The use of arbitration, whether domestic or inter-
national, provides parties with a large degree of privacy, as most elements of the arbitration
process are kept between the parties and are not subject to public scrutiny. It also allows the
parties to select and present the merits of their dispute to seasoned arbitrators with signifi-
cant experience of construction-related issues.
With such a large number of construction disputes being arbitrated on regular basis,
it seems appropriate to ask a threshold question: are arbitration rules well-suited for con-
struction disputes? After all, construction disputes distinguish themselves from other com-
mercial disputes in a number of ways. They can be exceptionally large in scope, involv-
ing multiple interested parties with independent contractual relationships and amounts in
1 David Kiefer and Adrian Cole are partners at King & Spalding.
2 2015 ICC Dispute Resolution Statistics.
81
dispute reaching into the hundreds of millions of dollars, even eclipsing a billion dollars
at times. The timelines of these projects – from initial development through engineering,
construction and commissioning – span years, with key documentation created daily by
dozens of witnesses. This often leads to an enormous amount of data to be reviewed and
evaluated as evidence. Disputes concerning issues of time, cost and quality frequently give
rise to the need to analyse and assess the cause of project delays through complex schedule
analyses and expert testimony.Technical evaluation and testimony from experts is also often
needed to address defects arising from the design and construction of complicated equip-
ment. Complex issues of loss and of quantum of claim are common, requiring the input of
expert quantity surveyors or quantum specialists. Overall, the rules and accepted practices
in arbitration are well-suited for the nuances of construction disputes and allow the parties
to prepare and present their cases effectively. That said, parties to construction arbitrations
need to be aware of the applicable rules and norms, so they can strategically streamline and
present their cases within the boundaries of these constraints.
Joinder of necessary parties

Cost overruns on a construction project can arise from a number of causes, such as delays,
inefficiencies and defects, which can be the responsibility of a number of participants in the
process. These participants, which include owners, contractors, subcontractors and equip-
ment suppliers, typically enter into a number of separate contractual agreements, each with
their own dispute resolution provision. In order to achieve a universal resolution of the
entire dispute, parties may want to join all the interested parties into a single proceeding, so
an award can be apportioned appropriately and inconsistent decisions avoided.
Arbitration rules generally allow claims arising out of more than one contract to be
brought forth and decided in a single arbitration and for multiple arbitrations to be con-
solidated into one.3 Consolidation is only appropriate with the consent of the parties or
when the disputes arise from the same legal relationship and the arbitration agreements
are compatible. While consolidation of all issues arising from the same project presents
considerable efficiencies, there are a number of caveats to keep in mind before embracing
this approach. First, each of the separate agreements must provide for an arbitration before
the same arbitral body. If not, the parties will have to negotiate and agree to a separate
dispute resolution agreement that provides for arbitration before the same body or a com-
mon ad hoc arrangement if an arbitral institution is not adopted. Second, arbitrating all
disputes among all of the parties should make sense strategically and not compromise a
party’s ability to effectively present its case. For example, if an engineering, procurement
and construction (EPC) contractor is in an arbitration with an owner over alleged defects
in equipment supplied by the EPC contractor, the EPC contractor may not want to join
the original equipment manufacturer (OEM) in the arbitration with the owner, but instead
pursue a separate arbitration with the OEM under their equipment supply agreement.The
reason for avoiding joinder in this case is that the EPC contractor might find itself in the
unenviable position of defending the equipment in order to rebut the owner’s claim, while
3 See ICC Arbitration Rules, Article 9 (allowing joinder of parties from multiple contracts); ICDR Rules,
Article 7 (discussing joinder of parties to an arbitration); ICC Arbitration Rules, Article 10 (providing for the
consolidation of arbitrations); and ICDR Rules, Article 8 (allowing consolidation of two or more arbitrations).
82
simultaneously pursuing a defect claim related to this same equipment against the OEM.
This would allow the owner to ‘divide and conquer’ – a situation which could be avoided
if the EPC contractor waited to bring an arbitration against OEM until after obtaining the
results of the arbitration against the owner. This same dynamic could be at work where an
EPC contractor is a consortium made up of two different companies (e.g., an engineering
firm responsible for design in a consortium with a contractor responsible for construction).
These consortium partners may want to air their grievances against one another in a forum
to which the owner is not privy in order to avoid making allegations that could help the
owner’s case against the consortium.
Discovery and document exchange

Construction arbitrations are often won or lost based on the availability and significance of
documents contemporaneously created at the time the issues in the case arose. Examples
of such documents and data include cost accounting records, schedules, meeting minutes
and site reports. The party requesting these documents will often need the production of
all of these documents in order to recreate a timeline of events for a schedule analysis or
to decipher how extra costs were tracked and categorised at the time they were incurred.
Requesting all of a type of document can be seen as a ‘fishing expedition’ by some arbitra-
tors, with the preferred method being requests for the production of specific documents.
There is a basis for making broader requests, however, with the ICDR Rules allowing
requests for ‘specific documents or classes of documents’ and the IBA Rules on the Taking
of Evidence in International Arbitration (the IBA Rules), which are typically incorporated
in the Terms of Reference in many arbitrations, allowing requests for a ‘narrow and specific
requested category of Documents’.4 Therefore, practitioners can pursue these documents
by requesting them by category, but will bolster their chances of successfully receiving
the documents if they keep the categories specific tailored to issues in the dispute and
satisfy the tests of relevance and materiality. For example, a request for all of a contractor’s
accounting records may be rejected as too broad, while a request for the cost accounting
records related to a differing site condition claim being advanced by the contractor is more
likely to bear fruit.
Of course, the most voluminous type of document sought in discovery are emails.
With project management personnel from all of the parties sending and receiving dozens
of emails daily, the pool of potentially relevant emails can easily number into the millions.
Unlike the previous set of documents discussed, most parties do not want the production
of all of the emails sent and received by the opposing parties. Instead, each party wants only
those emails that are germane to the issues it sees as relevant. In order to get those relevant
emails, each party must cast a net wide enough to allow for scenarios and circumstances
it may only suspect existed, while being focused enough to prevent the reception of data
that is wholly irrelevant to its case. It is here that the rules governing most arbitrations fall
silent and fail to provide helpful guidance. Therefore, it is up to the parties to come to an
agreement on a protocol for the production of electronically stored data, such as emails,
and the arbitrators to oversee and insist on a process that is both fair and efficient. Such a
4 ICDR Rules, Article 21; IBA Rules, Article 3.
83
protocol should recognise the need for metadata showing the provenance of the evidence
to be preserved. Preferred methods of culling out irrelevant data include the use of search
terms whereby the requesting party formulates its requests and then comes to an agree-
ment with the producing party on a set of search terms to be run against the universe of
data to find responsive ‘hits’. A newer method is the use of predictive coding, which uses an
algorithm to cull out emails relevant to the issues most important to the parties. Because
they are largely silent on the issue of electronic discovery, arbitration rules allow the par-
ties and arbitrators to come to an agreement on methods such as these that will allow for
the production of key evidence in way that is commensurate with the overarching goal of
‘maintaining efficiency and economy’.5
Experts
It is difficult to overstate the importance of experts in the proper resolution of construction
disputes. Thorough and convincing expert testimony can help a party prevail on any of the
host of issues that typically arise in construction disputes. Experts in construction matters
are often used to decipher engineering standards, analyse schedule delays, perform forensic
accounting and find the root causes of defects. Expert opinions are not limited to these core
issues, however, and can speak to everything from market conditions for loss of revenue
claims to weather patterns for claims of force majeure. At bottom, a single arbitration can
find itself dealing with the opinions of a number of experts, each of which will be expected
to testify at the eventual hearing.
Fortunately, arbitration rules have been developed to accommodate and fully utilise
expert witnesses. The IBA Rules provide that the arbitrators may require experts opining
on the same issue to meet and confer and report on the areas on which they agree and
disagree.6 This is only one tool that arbitrators may employ to bring efficiency and clarity
to what can be a morass of expert opinion. It is not uncommon for arbitrators to ask parties
to have the experts on the same issues testify together in a panel in front of the arbitrators
at the hearing.This practice, which is sometimes referred to as witness conferencing or ‘hot
tubbing’, can also help the arbitrators to make efficient use of the experts in a matter by
cutting through posturing and building a degree of consensus. Finally, arbitration rules also
allow for the tribunal itself to appoint an independent expert to advise it on issues in the
case.7 This option allows an arbitral tribunal to be independently educated on issues and
form the basis for its decision on a source of information untainted by party bias. A com-
mon occurrence with this approach, however, is that parties will still seek to engage their
own expert advisors to assist them in making their submissions to the tribunal, which can
lead to a proliferation of experts and additional cost.
5 ICDR Rules, Article 21; see also ICC Rules, Article 22(1) (‘The arbitral tribunal and the parties shall make
every effort to conduct the arbitration in an expeditious and cost-effective manner, having regard to the
complexity an value of the dispute.’).
6 IBA Rules, Article 5(4).
7 IBA Rules, Article 6; ICDR Rules, Article 25.
84
Interim measures
Recognising that parties cannot always wait the years it will take for an eventual final
award to have an exigent issue addressed, arbitration rules allow for interim or conservatory
measures. The International Chamber of Commerce and International Centre for Dispute
Resolution Rules both provide for such relief and both allow for parties to also seek
interim relief from a judicial authority as well.8 These rules also provide that the requesting
party can be made to furnish the appropriate security, as would be typically required by a
court of law in the event an injunction was issued.
There are times when parties to construction cases will have the need for such interim
measures to maintain the status quo until the tribunal provides the award based on the
full hearing on the merits. This need can arise when a contractor seeks to block a draw
on a performance bond or letter of credit by an owner. A draw on a letter of credit can
harm a contractor’s credit rating and put it in the position of having to wait until the
final award to attempt to recoup the amount from what may or may not be an insolvent
owner. Therefore, a contractor will often want a determination that the owner should be
prevented from making the draw before it happens. A contractor may also want to block
an owner from terminating its contract. In either scenario, the parties can get an interim
ruling that addresses the exigent issue while the remainder of the case moves towards the
full hearing. It should be pointed out, however, that while these rules can assist the arbitra-
tion, there can be many times when they are not as effective as a party may wish. Tribunals
are often unable to enforce the interim or conservatory measures they grant and national
courts in some jurisdictions will not enforce partial awards.
Case presentation
Most arbitration rules afford tribunals and the parties considerable flexibility in how
they present their cases. This flexibility can facilitate efficient case management and avoid
unnecessary delay or expense. For example, the use of Scott Schedules for tabularising
the positions of parties or experts on multiple headed claims (such as defects, variations
or quantum issues) can provide a structured framework for readily assimilating the case as
presented and for recording the tribunal’s decisions upon it. This sort of flexibility would
most likely not be found in the courts of most judicial systems. Practitioners before arbitral
tribunals should also expect arbitrators to ask witnesses questions directly.9 This practice
also helps to focus the presentation on the issues the tribunal believes are important to its
eventual decision and award.
Although tribunals will allow for flexibility, practitioners will also be held to commonly
accepted standards of fairness in presenting evidence. Privileged communication between
clients and attorneys will be maintained, although the degree of recognition of this privi-
lege will vary depending on the law governing the dispute.10 Tribunals are also expected to
8 ICC Rules, Article 28; ICDR Rules, Article 24.

9 See, e.g., IBA Rules, Article 8(3)(g) (‘the Arbitral Tribunal may ask questions to a witness at any time.’).
10 See ICDR Rules, Article 22 (‘The arbitral tribunal shall take into account applicable principles of privilege,
such as those involving the confidentiality of communications between a lawyer and client.’); IBA Rules,
Article 9(2)(b) (providing that the Tribunal shall exclude evidence based on ‘legal impediment or privilege
under the legal or ethical rules determined by the Arbitral Tribunal to be applicable.’).
85
consider concepts of relevancy,11 burden,12 general admissibility,13 weight of the evidence14

and fairness15 in determining what evidence to allow into the hearing. These rules give
tribunals considerable leeway as gatekeepers to determine exactly what evidence they will
consider. For example, there are no provisions expressly calling for the exclusion of hearsay,
however, a tribunal could rightfully exclude such evidence on the grounds of admissibility
and fairness.
National law
Notwithstanding the considerable freedom that national laws grant to parties to resolve
their disputes in arbitration rather than in state litigation, care must be taken to ensure that
applicable arbitration rules are not inconsistent with or contravene provisions of applicable
national law. In the Middle East, for example, there are a number of national law require-
ments, some unstated, with which compliance is mandatory if an award is to be enforceable.
Some of these requirements are not addressed or are inconsistent with the rules of some
of the international arbitration institutions. These requirements impact, among others, the
giving of evidence of witnesses, the taking of oaths and the timing and signing of arbitra-
tion awards.
Conclusion
In conclusion, arbitration has become the preferred method of resolving construction dis-
putes for good reason. Arbitral institutions and their rules generally allow parties and tri-
bunals the flexibility needed to accommodate the unique nature of these disputes, within
the overarching goal of achieving economy and efficiency. Furthermore, such rules may
be amended or supplemented by agreement to reflect the needs of a particular dispute or
the jurisdiction in which it is seated. In short, the construction industry is well served by
arbitration and it follows that construction disputes will remain a significant portion of the
caseloads of all major arbitral institutions in the years to come.
11 See ICDR Rules, Article 20(6); IBA Rules, Article 9(2)(a).

12 IBA Rules, Article 9(2)(c).
13 ICDR Rules, Article 20(6).
14 Id.
15 IBA Rules, Article 9(2)(g).
86
9
Subcontracts and Multiparty Arbitration in Construction Disputes
Stavros Brekoulakis and Ahmed El Far1
Given the large number of parties and interrelated agreements, including subcontracts,
involved in construction projects, any dispute that arises in a main contract may have reper-
cussions in the subcontract and can give rise to parallel arbitration proceedings.
In this chapter we discuss the use and importance of subcontracts in construction law,
as well as their relationship to the main contracts. We then discuss the circumstances that
give rise to multiparty arbitration in construction disputes. In doing so, particular attention
is given to the FIDIC conditions of contracts and subcontract for construction.
Subcontracts
Types of subcontract
International construction contracts have become invariably more complex. In practice, it
is not easy for one contractor to have the technical expertise to undertake the whole of
works. Thus, it is technically and financially more efficient for contractors to employ sub-
contractors to provide material or to execute parts of the works.2
The use of subcontracts is also important for the employer, who only needs to enter
into a single contract and obtain a single price for the whole works, including the price
for subcontracts.3
The main contract and subcontract in a construction project are typically interrelated,
and in essence, a subcontract is concluded in view and in the light of the main contract.4
1 Stavros Brekoulakis is a professor and Ahmed El Far is a PhD student at the Centre for Commercial Law
Studies, Queen Mary University of London.
2 J. Bailey, Construction Law, Routledge (2011), p. 1294; J. Florian Pulkowski, ‘The Subcontractor’s Direct Claim
in International Business Law’(2004) 21 International Construction Law Review, 31.
3 Laurence McIntosh Ltd v. Balfour Beatty Group Ltd [2006] CSOH 197 45–46.
4 J. Bailey, Construction Law, Routledge (2011), p. 1295.
87
In a typical build-only contract, for example, the subcontractor will have to work on the
basis of drawings submitted by the employer, whereas in a design-and-build contract, the
subcontractor will have to work on the basis of the specifications given by the employer.
Moreover, changes affecting the main contract will usually affect the subcontract and
vice versa. For example, any delay in the performance of the subcontract may give rise to
liability of the contractor under the main contract. Similarly, if the employer requests a vari-
ation, this may affect the scope of works for the subcontractor.
Such interrelation can also be evidenced by explicit references in the subcontract to
the main contract. In a subcontract, there are typically references to the main contract as
well as the role of the engineer and the employer from the main contract and vice versa.5
However, despite their close interrelation, the main contract and the subcontract for
construction are typically separate. No multiparty contractual relationship is established
between the employer, the contractor and the subcontractor. Similarly, no direct liability
between the employer and the subcontractor arises, unless the contractual arrangements of
the parties or the national law provide for it.6
This interrelation is typically established with contractual terms that allow for the rights,
duties, risks and liabilities to flow, in the first instance, from the employer to the contractor,
and subsequently from the contractor to the subcontractor (the idea of ‘contractual chain’).
The concept of contractual chain is of fundamental importance to the main contractor,
who is the contractual party in the middle. If the contractual chain is not tight, and the two
contracts are not fully compatible, the contractor may be exposed in risks and liabilities
under the main contract, which it may not be able to pass on to the subcontractor under
the subcontract.7
For example, in the Canadian case of Smith v. Johnson Bros,8 the main contract provided
for the right of the employer to suspend the works, and that in such a case the main con-
tractor would be entitled to claim extension of time, although not additional costs for sus-
pension.9 The subcontract equally provided for the right of the main contractor to suspend
works, but provided that in such a case the subcontractor would be entitled to both exten-
sion of time and additional costs and expenses. When the employer suspended the works,
the contractor claimed extension of time from the employer under the main contract, but
was faced with a claim for both extension of time and additional costs and expenses from
the subcontractor under the subcontract.
5 For example, see Sub-Clauses: (4.4) and (5.3) of the FIDIC Conditions of Contracts for Construction, and see
Sub-Clauses: (1.1), (1.8), (2.1), (2.5), (4.2) and (8.6) of the FIDIC Conditions of Subcontracts of 2011.
6 J Florian Pulkowski, ‘The Subcontractor’s Direct Claim in International Business Law’ (2004) 21 International
Construction Law Review, 31, 36 (2004); J. Bailey, Construction Law, Routledge (2011), pp. 1295–1297. French
law allows direct recourse between the employer and the subcontractor; see Article (12) of the Law on
Sub-contracting No. 75-1334 of 1975; Article (1597) of the Spanish Civil Code; Article (1798) of the
Belgian Civil Code; MAB Chao-Duivis, ‘Subcontracting in Europe: the Results of a Questionnaire’ (2013)
30 International Construction Law Review, 318, 319; F. Chaix and S. Marchand, ‘The Right of Recourse of an
Employer Against a Subcontractor’ (1998) 1 The International Construction Law Review, 211, p. 221.
7 L. Di Paola, ‘Back-to-back Contracts’ (2009) 26 International Construction Law Review, 489, pp. 489-490.
8 See Smith v. Johnson Bros [1954] 1 DLR 392.
9 This is unlike Article (8.8) of FIDIC, which stipulates that if the engineer suspends the works, the contractor
may claim an extension of time and payment of additional costs.
88
There are two different types of subcontractors: domestic subcontractors and nomi-
nated subcontractors. A domestic subcontractor is chosen by the main contractor, whereas
a nominated subcontractor is selected by, or agreed with, the employer under nomination
agreements in the main contract.10 If a domestic subcontractor is involved, the contractor
will clearly be liable for any defect pertaining to the subcontract.11
Opting for a nominated subcontractor may be advantageous to the employer as well as
to the contractor. From the employer’s point of view, nominated subcontractors allow the
employer or the engineer to be involved in the choice of a specialist subcontractor and,
thus, offer better control on the quality of the subcontractor’s work or the materials used.12
A nominated subcontractor may also save time, as the employer may identify the subcon-
tractor before the conclusion of the main contract and inform the main contractor at the
time of tender about the suggested choice of the subcontractor. If the employer intends to
use nominated subcontractors, this should be made clear in the tender documents to give
the contractor the opportunity to take this into account when pricing for the project.13
From the contractor’s point of view, the contractor may want to involve the employer
in the selection of the subcontractor in order to minimise its risk and liability from the
subcontractor’s work.14 Whether this would be possible will depend on the factual circum-
stances surrounding the process of selection of the subcontractor and any direct contact
that the employer may have had directly with the subcontractor.
In all cases, a nominated subcontractor cannot be selected by the employer against
the contractor’s wishes. Clause (5.2) of the FIDIC Red Book, for example, provides that
the contractor shall not be under any obligation to employ a nominated subcontractor
against whom the contractor raises a reasonable objection by notice to the engineer as
soon as practicable, with supporting particulars.15 Reasonable objections include where
the subcontractor lacks sufficient competence, resources or financial strength; or where the
subcontractor insists on terms of the subcontract that are not aligned with the main con-
tract, and that may leave the contractor exposed to liability against the employer, which the
contractor cannot pass on to the subcontractor; or where the subcontractor does not agree
to indemnify the contractor in case of negligence or misuse of goods by the nominated
subcontractor, its agents and employees.16 If the contractor objects to the nominated sub-
contractor, the employer may be able to overcome such objection by agreeing to provide
an indemnity to the contractor with respect to the contractor’s grounds for objection.17
10 See Clause (5.1) of the FIDIC Conditions of Contracts for Construction.

11 See D. Chappell, Understanding JCT Standard Building Contracts, Sixth Edition, Spon Press (2000), p. 33;
J. Murdoch and W. Hughes, Construction Contracts: Law and Management, Third Edition, Spon Press (2000),
p. 266.
12 J. Bailey, Construction Law, Routledge (2011), p. 1307.
13 J. Glover and S. Hughes, Understanding the FIDIC Red Book: A Clause-By-Clause Commentary, Second Edition,
Sweet & Maxwell (2011), paragraph 5-003.
14 Ibid, at 1308.
15 See Clause (5.2) of the FIDIC Conditions of Contracts for Construction.
16 To that effect, see Clause (5.2) (a)–(c) of the FIDIC Conditions of Contracts for Construction; E. Baker,
B. Mellors, et al., FIDIC Contracts: Law and Practice Informa (2009), p. 133.
Sweet & Maxwell (2011), paragraph 5-008.
89
While a dispute may arise over whether the objection is ‘reasonable’, there is no specific
provision under FIDIC for the resolution of such a dispute. Relying on Clause (2.5) to
initiate proceedings to that effect is questionable.18
The concept of chain liability

According to the concept of chain liability, there is no direct liability between the employer
and the subcontractor and there is no multiparty contractual relationship. Thus, the con-
tractor is usually liable to the employer and the subcontractor is liable to the contractor.19
Chain liability is usually achieved using back-to-back contracts.
The main purpose of back-to-back contracts is the alignment of the contractual terms
of the main contract and the subcontract.20 It is important for the parties that certain rights
and duties exist not only in their own contract, but also in the other contracts related to
the project.21
Alignment of the main contract with the subcontract is achieved either by drafting
the two contracts in similar clauses, or by incorporating parts of the main contract in
the subcontract.22 An example of the former is the FIDIC Conditions of Subcontract
for Construction, which were first published in 2011 to be used in conjunction with the
FIDIC Conditions of Contract for Construction (1999). The FIDIC Contract and the
FIDIC Subcontract have 20 clauses each, which are similar in content and structure.23
On the other hand, incorporation by reference requires clear and express language as
to what are the specific rights and duties incorporated in the subcontract.24 For example,
in the case of Lafarge Redland Aggregate Ltd v. Shephard Hill Civil Engineering, the subcontract
made extensive references to the main contract, including an obligation of the subcontrac-
tor to read and note the provisions of the main contract. The question before the English
court was whether such references might establish direct liability of the subcontractor with
regard to the employer. The court held that there was no privity between the employer
18 See Clause (2.5) of the FIDIC Conditions of Contracts for Construction. which expressly provides that the
employer may give notice to the contractor in case the ‘Employer considers himself to be entitled to any
payment under any Clause of these Conditions or otherwise in connection with the Contract, and/or to any
extension of the Defects Notification Period’ (emphasis added).
19 J. Bailey, Construction Law, Routledge (2011), pp. 1296 and 1300.
20 L. Di Paola, ‘Back-to-back Contracts’ (2009) 26 International Construction Law Review, p. 489.
21 W. Hughes, R. Champion and J. Murdoch, Construction Contracts: Law and Management, Fifth Edition,
Routledge (2015), p. 45.
22 L. Di Paola, ‘Back-to-back Contracts’ (2009) 26 International Construction Law Review pp. 489, 490.
23 The majority of clauses in the FIDIC Subcontract mirror the equivalent clauses in the FIDIC Contract,
for example, Clause 8 provides about Commencement, Clause 9 about Tests on Completion, Clause
10 about Taking Over, Clause 11 about Defects Liability, Clause 12 about Measurement and Evaluation,
Clause 14 about Price and Payment, Clause 15 and 16 about Termination and Suspension, Clause 17 about
Risk, Clause 18 about Insurance, Clause 19 about Force Majeure and Clause 20 about Claims, Disputes
and Arbitration.
24 J. McGuinness, The Law and Management of Building Subcontracts, Second Edition, Blackwell Publishing (2007),
pp. 54–55; for the arbitration clause to be incorporated by reference, it is generally required at common law
that the parties clearly state that, see L. Di Paola, ‘Back-to-back Contracts’ (2009) 26 International Construction
Law Review pp. 489, 492 and 497–499; C. Seppala, ‘The New FIDIC International Civil Engineering
Subcontract’ (1995) 5 International Construction Law Review p. 11.
90
and the subcontractor, and that while the provisions in the main contract may have had an
important bearing on the contractual relationship between the contractor and the subcon-
tractor, they did not establish a contractual relationship of any kind between the employer
and the subcontractor.25
While back-to-back contracts ensure that the rights and obligations of the parties under
the main contract and the subcontract are aligned, the principle of chain liability will not
typically be affected, so that no direct liability will arise between the employer and the sub-
contractor. Under FIDIC conditions, for example, Clause (4) of the contract for construc-
tion expressly provides that the contractor shall be responsible to the employer for the acts
or defaults of any subcontractor, its agents or employees, as if they were the acts or defaults
of the contractor.26 This applies to both nominated and domestic subcontractors.27
Such wide and strict liability under FIDIC is not the case under some national laws. For
example, English law provides that a contractor is not necessarily responsible for any design
carried out by a nominated subcontractor, or for whether the subcontractor has complied
with the performance specifications of the goods and materials.28
Given such strict liability, any breach by the subcontractor of the contract may lead to
breach of the contractor under the main contract. This is why the subcontract will invari-
ably include a clause providing that the subcontractor in such circumstances will indemnify
the contractor.29
Other clauses in the FIDIC subcontract for construction aim to align the rights and
duties of the parties under the subcontract with those of the parties under the main con-
tract.30 For example:
• Sub-Clause (1.8) of the FIDIC subcontract ensures that the same laws and language
will govern both contracts;31
• Sub-Clause (1.10) ensures that there is no privity between the employer and the
subcontractor;32
• Sub-Clause (2.2) provides that the subcontractor shall perform and assume all obliga-
tions of the contractor under the main contract other than where the provisions of
the subcontract otherwise require, and execute the subcontract works and remedy any
defects in such a manner that does contribute to any breach by the contractor of his
obligations under the main contract;33
25 See Lafarge Redland Aggregates Ltd v. Shephard Hill Civil Engineering Ltd [2000] 1 WLR.
26 See Clause (4.4) of FIDIC Conditions of Contracts for Construction.
27 See E. Baker, B. Mellors, et al., FIDIC Contracts: Law and Practice Informa (2009), p. 130.
Sweet & Maxwell (2011), p.. 8889.
29 See Clause (5.2) of FIDIC Conditions, which provides that the failure of the subcontractor to include a
provision to that effect may entitle the contractor to object to a nominated subcontractor.
30 E. Kratochvilova and M. Mendelblat, ‘Testing the Water – a New FIDIC Subcontract’ (2011) 28 International
Construction Law Review, pp. 1, 4.
31 Sub-Clause (1.8) of the FIDIC Conditions of Sub-Contracts for Construction of 2011.
91
• Sub-Clause (2.3) provides that instructions and determinations of the engineer must be
notified to the subcontractor ‘as contractor’s instructions’;34
• Sub-Clause (2.4) provides that the subcontractor shall have the same rights and rem-
edies that the main contractor has under the main contract;35
• Clause (8) coordinates the progress of the main contract and the subcontract and is
aligned with the provisions in the main contract;36
• Clause (14) passes the risk for delay in payments by the employer to the subcontractor;37 and
• Sub-Clause (14.6) endorses the ‘pay when paid’ method.38
Similarly, the FIDIC conditions of contract for construction include some provisions per-
taining to the subcontract, notably clause (5) and Sub-Clause (5.4), which entitles the
engineer to require the contractor to provide evidence that it has paid the nominated
subcontractor the sums due under the payment certificates. If the contractor fails to submit
such evidence, the employer is entitled under FIDIC to directly pay the nominated sub-
contractor and request the contractor to repay such amount.
As previously mentioned, direct claims or remedies between the employer and the sub-
contractor may be possible where the applicable national law provides for direct remedies39
or in factual circumstances that the subcontractor can be held liable against the employer on
the basis of an implied warranty or a direct collateral agreement between the employer and
the subcontractor.40 Thus, for example, in the case of Shanklin Pier v. Detel Products, where
the owners entered into a contract with the contractors to repair and repaint a pier that was
demolished during the war. The subcontractor met with the employer for the purpose of
obtaining the contract for the repainting of the pier. During the meeting the subcontractor
made certain warranties, including that it should have a life of at least seven to 10 years.The
issue before the court was whether an enforceable warranty can arise between parties other
than the parties to the main contract.The English court held that the employer was entitled

36 Clause (8) of the FIDIC Conditions of Sub-Contracts for Construction of 2011.
37 Clause (14) of the FIDIC Conditions of Sub-Contracts for Construction of 2011.
38 However, the contractor cannot withhold payment that the engineer has withheld because of the contractor’s
fault or because of employer’s bankruptcy. In some jurisdictions, such as the UK, the pay-when-paid method
is not enforceable. To that effect, see Section 113(1) of the Housing Grants, Construction and Regeneration
Act; and MAB Chao-Duivis, ‘Subcontracting in Europe: the Results of a Questionnaire’ (2013) 30 International
Construction Law Review 318, pp. 323-324. Other Clauses include: Sub-Clause (3.3), which is equivalent
to Clause (2.5) of the main contract; Sub-Clause (3.4); Sub-Clause (3.5), which makes the contractor
responsible for the coordination of the main works and the subcontract works, and with the works under any
other Subcontract.; and Clause (17), which extends the subcontractor’s responsibility for the damage of the
subcontract works until the final taking over by the employer.
39 MAB Chao-Duivis, ‘Subcontracting in Europe: the Results of a Questionnaire’ (2013) 30 International
Construction Law Review, pp. 318, 325–327 (2013); ICC Case No. 6230 of 1990, XVII Yearbook Commercial
Arbitration pp. 164, 169–170 (1992).
40 However, see the South African case of Concrete Construction v. Keidan [1955] 4 SA 315, which denied privity
between the employer and the subcontractor despite direct contact; J. Bailey, Construction Law, Routledge
(2011), pp. 1295–1297.
92
to recover against the subcontractor for breach of an express warranty, notwithstanding that
the contract was concluded between the contractors and the subcontractors.41
Finally, direct claims may be possible if a duty of care is established by representations
as was evidenced in the English case of IBA v. EMI. In this case, EMI agreed to construct a
television mast for IBA. EMI employed BICC as their subcontractors to design and execute
the construction of the mast itself. Upon the collapse of the mast, IBA alleged breach of
contract against EMI and BICC and alleged a breach of warranty against BICC. Based on
a statement in a letter sent by BICC to IBA whereby the latter made a representation, the
court found that such communication between the employer and the subcontractor had
established a duty of care to the employer and made the subcontractor liable with regard
to the employer.42
Multiparty Arbitration in Construction Disputes

As already mentioned, the completion of a construction project may involve several par-
ties and interrelated agreements and any dispute between two parties may be based on the
same facts and may raise similar legal issues in a dispute between two other parties in the
same project.
While multiparty arbitration proceedings between the employer, contractor and sub-
contractor will not usually be possible because of the contractual and bilateral nature of
arbitration,43 a party may wish to involve a third party in a construction arbitration under
certain circumstances. The contractor in particular, being the middle party in a construc-
tion dispute, may want to bring the subcontractor, who may be responsible for the delay in
the completion of the works, in the arbitration against the employer. Similarly, the employer
may want to arbitrate with the subcontractor if the contractor has become insolvent,44 or in
case of nominated subcontractors, although otherwise the employer will have little interest
in multi-party arbitration that involves subcontractors and will be able to hold the main
contractor fully liable without concern of whether the main contractor will be able to pass
on its claims to any other responsible party. Finally, the subcontractor may have an inter-
est in multiparty arbitrations if, for example, its right to receive a payment depends on the
contractor’s having been paid first, or in case the subcontractor has a direct claim against
the employer.45
However, unless consent for multiparty arbitration can be safely ascertained, the arbi-
tration clause in the main contract will not generally extend to include the subcontractor
under the subcontract. And, similarly, the arbitration clause in the subcontract will not typi-
cally extend to include the employer under the main contract.46 Consent for multiparty
41 See the English case of Shanklin Pier Ltd v. Detel Products Ltd [1951] 2 K.B. 854; also see Welsh Health Technical
Services Organisation v. Haden Young Ltd [1988] 37 B.L.R. 130.
42 See Independent Broadcasting Authority v. EMI Electronics Ltd [1980] 14 B.L.R. 1.
43 S. Brekoulakis, Third Parties in International Commercial Arbitration Oxford University Press (2010), paragraphs
1.09–1.13.
44 D. Kondev, ‘Do Recent Overhauls of Arbitration Rules Respond to the Need for Multi-party Arbitration in
the Construction Industry?’ (2015) 32 International Construction Law Review pp. 63, 66.
45 The ‘name borrowing’ arbitrations; in the UK, see for example Belgravia Property Company Ltd v. S & R
(London) Ltd [2001] BLR 424.
46 A. Steingruber, Consent in International Arbitration Oxford University Press (2012), paragraph 9.01.
93
arbitration may be ascertained if the arbitration clauses in the main contract and subcon-
tract expressly allow for multiparty arbitration, or if the applicable arbitration rules provide
for multiparty arbitration.47
In non-construction arbitrations, tribunals often ascertain implied consent for multi-
party arbitration on the basis of different legal theories for non-signatories such as agency,
assignment, third-party beneficiary, incorporation by reference, alter ego or equitable or
arbitral estoppel.48 However, under typical terms of construction contracts and subcon-
tracts, it will be very difficult for a non-signatory subcontractor, for example, to be bound
by the arbitration clause in the main contract under most of the non-signatory theories.
Unless exceptional circumstances exist, arbitral tribunals will not usually find a subcontrac-
tor to be, for example, the principal of the main contractor, or the assignee (unless the con-
tractor expressly assigns the benefit of the subcontract to the subcontractor under FIDIC
Red Book Clause 4.5) or the third party beneficiary of the main contractor, or the alter
ego for the main contractor.
Multiparty arbitration clauses

Parties may draft arbitration agreements that include all the relevant parties either in the
form of one umbrella arbitration agreement, or by drafting several identical arbitration
clauses providing for multiparty proceedings under certain circumstances. While umbrella
arbitration agreements will not typically be used in construction contracts, identical arbi-
tration clauses providing for multiparty proceedings are not uncommon. However, unclear
drafting may lead to confusion or disagreements.49
For example, in City & General v. AYH,50 the main contractor, Kier, agreed to carry
out works of refurbishment and rebuilding. City & General (CG) entered into a building
contract with Kier (the main contractor) for the refurbishment and building of the former
Patent Office Library in London, and appointed AYH to act as a project manager.
The contract between CG and AYH included an arbitration clause providing that any
dispute would be referred to arbitration by a single arbitrator, and that if the dispute raised
issues that are the same as, or connected with, issues raised in related disputes between
either party and a third person, already referred to arbitration, the parties agreed that the
dispute under the deed would be referred to the arbitrator appointed to determine the
related dispute.
When a dispute arose between CG and AYH, an arbitrator had been appointed in
relation to arbitration between CG and Kiev. CG and AYH disagreed as to whether their
dispute raised issues that ‘were the same as, or connected with, issues’ raised in the arbitra-
tion between CG and Kiev and therefore whether it should be referred to the arbitrator
appointed to determine the dispute between CG and Kiev. Relying on Judge Humphrey
the Construction Industry?’ (2015) 32 International Construction Law Review pp. 63, 64.
48 W.W Park, ‘Non-signatories and International Contracts: an Arbitrator’s Dilemma’, in Permanent Court of
Arbitration (ed), Multiple Party Actions in International Arbitration Oxford University Press (2009), paragraph
1.12.
49 Trafalgar House Construction v. Railtrack [1995] 75 BLR 55.
50 City & General (Holborn) v. AYH Plc [2005] EWHC 2494 (TCC).
94
Lloyd’s decision in Trafalgar House Construction (Regions) Limited v. Railtrack,51 Justice Jackson
noted that the arbitration clause was unclear and that, accordingly, it was proper to have
regard to the commercial purpose of the arbitration clause – namely, to avoid multiplicity
of proceedings. Noting that if a material portion in both disputes is connected, it makes
commercial sense for both disputes to be dealt with by the same tribunal, Justice Jackson
found that a number of issues in the arbitration against AYH were substantially the same
as, or connected with, issues arising in the arbitration with Kier. He therefore ordered that
the arbitrator who was appointed in the arbitration between CG and AYE be appointed in
respect of the arbitration between CG and AYH.52
The FIDIC Conditions of Contract and Subcontract include compatible dispute reso-
lution clauses to achieve coordination between disputes that may arise under the main
contract and the subcontract. For example, Sub-Clause (20.1) of the FIDIC Conditions of
Subcontract provides that whenever the contractor is required under the FIDIC conditions
of the main contract to give any notice or information to the engineer or the employer or
to keep contemporary records, the subcontractor shall also give a similar notice or other
information in writing to the contractor and keep the contemporary records that will
enable the contractor to comply with the terms of the main contract. Similarly, Sub-Clause
(20.2) of the FIDIC Conditions of Subcontract provides that if the subcontractor considers
itself entitled to any extension of the subcontract time and any additional payment under
the terms of the subcontract, the equivalent provision of Sub-Clause (20.1) of the main
contract will apply, save that the period of notice for the subcontractor’s claims shall be no
later than 21 days after the subcontractor became aware or should have become aware of
the relevant event or circumstance giving rise to the claim. Such periods (and the period
for the subcontractor to substantiate its claim) are deliberately shorter than the periods for
the main contractor to give notice (and substantiate its claim) to the engineer under the
main contract.53
However, while under Clause (20) of the FIDIC Conditions of Contract and
Subcontract the dispute resolution processes under the two contracts are coordinated, they
remain separate and distinct. This is in accordance with the concept of contractual chain
and separate liability under the two contracts.
Thus, under Clause (20) of the FIDIC Conditions of Subcontract, if the subcontrac-
tor has a claim against the contractor, the contractor will make a fair determination of the
claim.54 If the subcontractor is not satisfied with the determination, the dispute will be
referred to the dispute adjudication board (DAB) of the subcontract.55 The contractor must
then decide whether the dispute is related or unrelated to the main contract. If, according
to the main contractor, the dispute under the subcontract is unrelated to the main contract,
either party (i.e., the main contractor or the subcontractor) shall be entitled to refer the
51 [1995] 75 BLR 55.

52 City & General (Holborn) v. AYH Plc [2005] EWHC 2494 (TCC).
53 Sub-Clause (20.1) of the FIDIC General Conditions and Sub-Clause (20.2) of FIDIC Conditions of
Sub-Contracts for Construction of 2011.
54 Sub-Clause (20.2) of FIDIC Conditions of Sub-Contracts for Construction of 2011; E. Kratochvilova and M.
Mendelblat, ‘The FIDIC Subcontract, first edition’, (2012) 29 International Construction Law Review, 104, 109.
55 Sub-Clause (20.4) of FIDIC Conditions of Sub-Contracts for Construction of 2011.
95
subcontract dispute to the subcontract DAB.56 If either party issues a notice of dissatisfac-
tion against the decision of the subcontract DAB, the parties shall attempt to amicably settle
the dispute and then proceed to arbitration.57
If the contractor considers that the dispute under the subcontract involves an issue that
is related to a dispute under the main contract, then in any notice of dispute given by the
contractor or within 14 days of receiving a notice of dispute from the subcontractor, the
contractor may notify the subcontractor, with reasons, that the dispute is related to a dispute
under the main contract. In such case, the parties shall defer any referral of the dispute to
the subcontract DAB for a period not less than 112 days or as agreed between the parties.
If the subject of the subcontract dispute has not been previously referred to the main con-
tract DAB, the contractor shall refer it, and the subcontractor shall afford the contractor all
information that may be reasonably required to enable the contractor to pursue his or her
dispute, which includes the subject of the subcontract dispute.58 After the main contract
DAB issues its decision (or if the period that the parties have agreed to defer any referral to
the subcontract DAB expires), then each party has different options: the contractor is enti-
tled to refer the subcontract dispute to the subcontract DAB, while the subcontractor has
the option of either referring the subcontract dispute to the subcontract DAB or straight
to arbitration.59
While the decision of the main contract DAB will not be binding on the subcontrac-
tor or the subcontract DAB,60 the latter will invariably take it into account to decide the
dispute between the contractor and the subcontractor. However, if the two disputes pro-
ceed to arbitration (under the main contract and under the subcontract), they will not be
consolidated or otherwise harmonised, even if they are ‘related’.
Overall, default Clause (20) under the FIDIC Conditions for Subcontract provides for
a harmonised dispute resolution process only when the dispute is referred to the DAB.
The procedure under the first step (namely, before the engineer or contractor) and the
arbitration procedure are parallel procedures without any possibility of communication.
Prominent commentators have criticised this approach noting that ‘If the sole goal were
saving time and cost and avoiding inconsistent results, all disputes between the employer
and/or the contractor and/or the subcontractor should be decided by a single DAB and a
single arbitration procedure in which all three parties could participate.’61
In addition to the default provision of Clause (20), the Appendix of the FIDIC
Conditions of Subcontract provides for two alternative dispute resolution processes that
the parties may agree to follow. In such case, the parties will have to amend default Clause
(20) and incorporate one of the two alternative options.62 Under the first option, the dis-
pute resolution process under the subcontract does not include a subcontract DAB: where a
56 See Sub-Clause (20.4) of FIDIC Conditions of Sub-Contracts for Construction of 2011.

57 See Sub-Clauses (20.6 and 20.7) of FIDIC Conditions of Sub-Contracts for Construction of 2011.
61 Christopher Seppälä, Presentation in the Milan Chamber of Arbitration Annual Conference,
1 December 2011.
the Construction Industry?’ (2015) 32 International Construction Law Review 63, 69.
96
dispute arises, the contractor and the subcontract will attempt to amicably settle the dispute
and, failing any amicable solution, will refer their dispute to arbitration.63 If parties opted
for this alternative dispute resolution process, there will be no harmonisation or coordina-
tion of the two processes at any stage.
Alternatively, the Appendix provides for a complex procedure with an aim of binding
the subcontractor to the decision of both the DAB and the arbitration award under the
main contract.
Specifically, within seven days after receipt of a subcontractor’s notice of claim, the
contractor must notify the subcontractor of whether the subcontractor’s claim will be
treated as related or unrelated to the main contract claim. Any disputes about whether
the claim is related or unrelated will be resolved under the ICC Rules for a Pre-Arbitral
Referee Procedure.
If the claim is treated as related, the contractor will submit the claim to the engineer
under the main contract with the subcontractor’s support. If the contractor becomes enti-
tled to extension of time and additional payment under the main contract, the contractor
will have to pass on an appropriate share of the benefit to the subcontractor.
If the contractor wants to challenge the decision of the engineer, it may refer it to the
main contract DAB and give the subcontractor a reasonable opportunity to be involved in
resolution of the dispute, including in the preparation of submissions, attending the hearing
before the DAB and making oral submissions. When the DAB issues its decision, the con-
tractor must notify the subcontractor within seven days, and unless the subcontractor issues
a notice of dissatisfaction, the DAB decision will be deemed binding on the subcontractor.
However, if the subcontractor is not satisfied with the DAB decision, the contractor may
either give a notice of dissatisfaction under the main contract or disagree with the subcon-
tractor. In this case, the dispute will be considered as being unrelated to the main contract
and will be decided between the contractor and the subcontractor through amicable set-
tlement and ICC arbitration.
After the contractor issues a notice of dissatisfaction, the contractor and the employer
will attempt to resolve the dispute amicably under the main contract, with the involvement
of the subcontractor. Failing an amicable settlement, the dispute will be referred to arbitra-
tion under the main contract, in which case the contractor will have to keep the subcon-
tractor informed and, crucially, allow the subcontractor a reasonable opportunity to par-
ticipate. In all cases, the contractor will notify the subcontractor of an award within seven
days, and the award will be binding on the subcontractor as it is binding on the contractor.
Overall, the third alternative is highly complex and is likely to give rise to many issues,64
with anecdotal experience so far showing that it is not generally preferred by parties.
Arbitration rules allowing for third-party claims

Multiparty arbitration may be allowed where the applicable arbitration rules provide for
third-party claims. Not all arbitration rules contain multiparty provisions. While some
63 E. Kratochvilova and M. Mendelblat, ‘Testing the Water – a new FIDIC Subcontract’, (2011) 28 International
Construction Law Review 1, 12.
64 Christopher Seppälä, Presentation in the Milan Chamber of Arbitration Annual Conference,
1 December 2011.
97
rules merely provide that multiparty proceedings are allowed where the parties consent to
such joinder,65 Articles (7)–(10) of the ICC Rules of 2012 include detailed provisions that
may allow:
• the joinder of a third party;
• claims based on multiple contracts; and
• the consolidation of multiple arbitrations.
Thus, the ICC Rules allow the joinder of an additional party, such as a subcontractor, if a
request is made to the Secretariat before the confirmation of the tribunal, and the request
must indicate the legal basis for the joinder. Joinder will be allowed if the Secretariat is
prima facie satisfied that there is an arbitration clause that may be binding on all parties.66 If
the Secretariat refuses the joinder, the party may ask a national court to determine whether
the arbitration clause is binding on the non-signatory third party.67
If joinder is allowed, claims may be made by any party against any other party, provided
that they are made before the terms of reference are signed.68 Moreover, claims arising out
of or in connection with several contracts may be made in a single arbitration, regardless of
whether such claims are made under one or more than one arbitration agreement under
the ICC Rules.69 This may apply where, for example, an employer has signed several con-
tracts with different contractors and the contracts include an ICC arbitration clause.
Finally, the ICC Court may allow the consolidation of multiple arbitrations where:
• all the parties have agreed to consolidation;
• all of the claims in the arbitrations are made under the same arbitration agreement; or
• where the claims are made under more than one arbitration agreement if the arbitra-
tions are between the same parties, the disputes arise in connection with same legal
relationship and the arbitration agreements are compatible.70
While the laws of many major arbitration jurisdictions do not include provisions regarding
the consolidation of multiple arbitrations,71 Article (1046) of the Netherlands Arbitration
Act stipulates that any of the parties may request the President of the District Court in
Amsterdam to order the consolidation of the proceedings regarding related disputes.72
On a related note, multiparty arbitration may raise problems in relation to the con-
stitution of the arbitral tribunal. The right to appoint an arbitrator is a sacrosanct right
65 For example, see Article 17(5) of the UNCITRAL Arbitration Rules (2013); Article 22(viii) of the LCIA
Arbitration Rules (2014). But see Articles 4(1) and 4(2) of Swiss Rules (2012) where there is no need for all
the parties to consent to the joinder.
66 See Article 6(4)(i) of the ICC Rules (2012).
67 To that effect, see Article 6(6) of the ICC Rules (2012).
68 Article (8) of the ICC Rules (2012).
71 However, Section (35) of the English Arbitration Act of 1996 stipulates that the tribunal has no power to
consolidate arbitral proceedings unless the parties agree.
72 Article (1046) of the Netherlands Arbitration Act of 2015; also see Schedule 2, Section (2) of the Hong Kong
Arbitration Ordinance.
98
in international arbitration and remains instrumental in multiparty arbitration.73 This was

confirmed in the well-known Dutco case where the French Court of Cassation invalidated
an award where two respondents jointly nominated an arbitrator while reserving their right
to challenge such appointment, and provided that parties should be treated equally in the
constitution of arbitral tribunals. Arbitral institutions, including the ICC, have amended
their rules in order to comply with this principle.74
Where consent is not ascertained, it is generally difficult to have multiparty arbitration.
In such cases, the parties may opt for appointing the same arbitral tribunal in the related
proceedings75 or request concurring hearings76 in order to avoid inconsistent decisions
regarding intertwined issues.
73 Siemens AG and BKMI Industrienlagen GmbH v. Dutco Consortium Constr. Co., Cass. Civ. 7 January 1992 (French
Cour de Cassation); B. Hanotiau, Complex Arbitrations, Multiparty, Multicontract, Multi-issue and Class Actions
Kluwer Law International (2005), paragraphs 443–457.
74 Article 12(6) of the ICC Rules of Arbitration of 2012.
75 Abu Dhabi Gas Liquefaction Co v. Eastern Bechtel Corp [1982] 2 LIoyd’s Rep. 425, where the court provided that
it was desirable that there should be one arbitrator to avoid inconsistent findings.
76 For example, see Section (35) of the English Arbitration Act 0f 1996; and see Rule (14.b) of the Rules of the
London Maritime Arbitrators Association of 2006.
99
10
Interim Relief, including Emergency Arbitration, in Construction
Arbitration
Peter Hirst and David Brown1
Introduction
The availability of interim relief during the course of an arbitration, and beforehand in
circumstances where parties have agreed to refer their disputes to arbitration, has always
been a major concern in both domestic and international arbitration. This is particularly
the case in the construction industry, given the potential for issues to arise at every stage of
performance of the underlying contract calling for urgent attention that cannot be satisfied
by arbitration proceedings on the merits, no matter how accelerated those proceedings
may be.
It seems fair to say at the outset that even though a construction project may give rise
to an extremely broad range of disputes with respect to which the need for interim relief
may arise – from the requirement for an order for the expulsion of a contractor from site
to the validity of a call on one of the range of bonds that may have been issued pursuant to
the terms of the contract, for example – no need has been identified for an interim relief
regime specific to construction arbitration.
This echoes the fact that there are no dedicated and widely used rules for construction
arbitration in the international field. There is a clear preference for a set of rules that offers
the parties a broad and flexible framework that can be adapted to whatever the specific
needs of any given construction dispute may be. In our view this holds true for interim
relief as for other aspects of construction arbitration.
As a result, this chapter will provide a relatively general overview of current rules and
practice with respect to interim relief, before focusing on a recent development, namely
emergency arbitration, that is highly relevant for construction disputes.
There is, however, one aspect of dispute resolution that is quite specific to the con-
struction industry, namely recourse as a preliminary step to dispute boards on international
1 Peter Hirst and David Brown are partners at Clyde & Co.
100
Interim Relief, including Emergency Arbitration, in Construction Arbitration
projects, with a view to helping the parties to avoid disputes altogether and, if necessary,
to render a decision on a dispute that can effectively be appealed to arbitration. This in
turn, gives rise to questions concerning interim relief in a multi-tier dispute resolution
context. The spotlight here will be on the FIDIC standard forms, most of which propose a
highly elaborate dispute board regime followed, if appropriate, by International Chamber
of Commerce (ICC) arbitration.
Interim relief – some general observations

The development of the law and practice concerning interim relief in arbitration, and par-
ticularly international arbitration, is a good example of how, over time, (1) many jurisdic-
tions have come to accept that arbitral tribunals, as well as state courts, should be empow-
ered to grant interim relief, and (2) state legislators and private interests have been able
achieve not simply a modus vivendi but a highly effective arrangement when it comes to
combining the needs of arbitration users with the prerogatives of state courts.
The challenge, for both legislators and arbitration users (particularly institutions provid-
ing arbitration rules and/or administrative services with respect to the arbitral process), can
be summarised as follows:
• to devise rules for the administration of interim relief in appropriate circumstances by
an arbitral tribunal;
• to provide support from state courts with respect to interim relief ordered by an arbitral
tribunal, particularly as regards enforcement; and
• to safeguard parties’ access to interim relief from the courts even though they are bound
by an arbitration agreement.
It is not our purpose here to carry out a detailed review of the extent to which this chal-
lenge is met by different national arbitration laws and various sets of institutional and other
arbitration rules. Suffice it to say that when parties are deciding on the set of rules that
will govern any arbitration between them, and also the seat of arbitration (and thereby the
underlying national law that will apply to the arbitration), it is important that they be satis-
fied as to the availability of effective interim relief from both an arbitral tribunal and the
state court.
Widely used sets of arbitration rules such as those of the ICC and the London Court
of International Arbitration (LCIA), both of which are adopted frequently in construction
arbitrations, are generally considered to respond adequately with respect to parties’ needs
when it comes to interim relief. However, comparison of the relevant provisions in the lat-
est editions of those sets of rules (published in 2012 and 2014 respectively) reveals a notable
difference in approach, and gives lie to the frequently encountered view that the rules of
the leading arbitral institutions have become broadly uniform.
The provisions in the ICC Rules at Article 28 are relatively short and general in nature.
They refer to ‘conservatory and interim measures’ without going into further detail.
However, they provide what was evidently considered by the ICC task force preparing
the 2012 edition to be a satisfactory statement of the relevant rules, since no changes were
made from the wording appearing in the previous edition of 1998. It should, however,
be noted that the Secretariat’s Guide to ICC Arbitration, published very shortly after the
appearance of the 2012 edition, provides at Paragraphs 3-1032 to 3-1050 a detailed and
101
helpful commentary on Article 28, including a description of the types of measures avail-
able, advice for arbitrators and the Secretariat’s practice in relation to applications for relief.
Perusal of the corresponding provisions of the LCIA Rules at Article 25 reveals a com-
paratively detailed presentation of the specific measures that may be ordered by the arbi-
tral tribunal and the rights of the parties, including their right to apply to state courts for
interim relief.
It is notable, for example, that the LCIA Rules expressly require the arbitral tribunal
to give all parties a reasonable opportunity to respond to an application for relief (Article
25.1), whereas the issue of the availability of ex parte relief is not addressed in Article 28 of
the ICC Rules but only in the Secretariat’s Guide (at Paragraph 3-1040), which states
that ‘(t)here is no place for purely ex parte interim relief in ICC arbitration’. Arguably it is
preferable for such a matter to be addressed in the Rules themselves rather than an accom-
panying guide.
Even though it is easy (and perhaps dangerous) to generalise, this preference in the
LCIA Rules for a more detailed exposé of what might be called the ‘rules of the game’
seems to be characteristic of a common law yearning for clear guidance as to what the par-
ties and arbitral tribunal may do and how they are to proceed.
With respect to interim relief, a common law/civil law difference of approach that
echoes the above-mentioned desire for clarity is particularly notable in the corresponding
legislation.Thus, the English Arbitration Act 1996 contains, in Section 44 which deals gen-
erally with what its title calls ‘Court powers exercisable in support of arbitral proceedings’,
a set of provisions stipulating in some detail what can be done by an English court and how
and when it is to be done. (Certain of these provisions are quoted below.)
The corresponding provisions in the French Civil Procedure Code (Article 1468,
which applies to both domestic and, unless the parties provide otherwise, international
arbitration) limit themselves to what may be done:
The arbitral tribunal may order against the parties any conservatory or provisional measures that
it deems appropriate, set conditions for such measures and, if needs be, attach penalties to such
order. However, only courts may order conservatory attachments and judicial security.
The arbitral tribunal has the power to modify or add to any provisional or conservatory
measure that it has ordered.
It would be wrong, however, to conclude that the English and French approaches to the
question of interim relief as demonstrated in their respective legislation in particular cor-
respond to a fundamental difference with respect to remedies available to arbitrators or
the supporting role allocated to the courts. On the contrary, both jurisdictions are seen as
arbitration-friendly in both respects and recommended as seats of arbitration by practition-
ers from each side of the Channel.
Neither would it be correct to conclude that differences between the ICC and LCIA
Rules correspond to a substantially different perception of the arbitral process. Both sets of
Rules seek to offer effective solutions to issues faced by the parties – and both have seen
the need for an emergency arbitrator regime where interim relief is required before the
arbitral tribunal is constituted.
102
However, before turning to emergency arbitration, the issue of the effectiveness of

interim measures in arbitration requires to be considered, and in particular, the question of
the enforcement of measures order by an arbitral tribunal.
One of the fundamental differences between a state court and an arbitral tribunal is, of
course, that the latter may not actually enforce the judgments or orders (such as interim
measures) that it issues. Instead, the latter must rely upon the former. This is potentially a
major concern, although it must be pointed out that enforcement issues do not arise in the
majority of cases, as parties usually comply voluntarily. One of the main reasons for this is
that parties are reluctant to refuse to comply with orders from the same individuals as those
who will decide the substantive dispute. There is also the possibility of sanctions against a
party for failing to comply – a costs award, for example.
It is well known that, when it comes to awards disposing of substantive disputes between
the parties, instruments such as the 1958 New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards greatly facilitate the position for a party seeking to
enforce an award.The position is less clear when it comes to the enforcement of a decision
as to interim relief by an arbitral tribunal. A number of national arbitration laws stipulate
that the courts may require a party to comply with an order emanating from an arbitral
tribunal – see, for example, Section 42 of the English Arbitration Act 1996.
However, in jurisdictions where there are no such express provisions, difficulties have
often been encountered on the basis that they do not constitute final arbitral awards dispos-
ing of substantive disputes between the parties. In recent years, however, particularly in the
United States, a body of decisions and doctrine has developed in support of the view that,
even though the matter may be interim in nature, measures should be enforced as arbitral
awards since they ‘are ‘final’ in the sense that they dispose of a request for relief pending
the conclusion of an arbitration’ (Gary B Born, International Commercial Arbitration, second
edition (2014), Section 17.03).
There has been a call for the development of the equivalent of the NewYork Convention
with specific reference to the enforcement of interim measures. However, UNCITRAL
has preferred instead to address the matter in the latest version (2006) of its Model Law on
International Commercial Arbitration. Thus, Article 17H now stipulates as a general prin-
ciple that ‘(a)n interim measure issued by an arbitral tribunal shall be recognised as binding
and, unless otherwise provided by the arbitral tribunal, enforced upon application to the
competent court, irrespective of the country in which it was issued’.
The ‘new kid on the block’ – emergency arbitration

A major problem with any regime for interim relief during arbitration proceedings is, of
course, that an application cannot be made unless and until the arbitral tribunal is consti-
tuted. However, it is well known that it may take several months following the commence-
ment of arbitration proceedings to constitute the tribunal, particularly if one of the parties
is uncooperative.
One solution has been to include provision in arbitration rules for the expedited for-
mation of the arbitral tribunal – see, for example, Article 9A of the LCIA Rules. A further
solution, developed over the last decade or so to address a perceived need for interim relief
during the pre-arbitral stage, has been the introduction of an emergency arbitrator regime.
103
Emergency arbitration is not, however, entirely a creature of the 21st century. A rela-
tively similar solution was offered by the ICC in 1990 in the form of a ‘Pre-Arbitral
Referee’ procedure – indeed this procedure remains available to parties, even though it has
been used only occasionally. The Pre-Arbitral Referee was proposed as a means of address-
ing precisely the issues that are now being referred to emergency arbitrators, namely urgent
requirements for provisional or conservatory measures pending a decision on the merits in
an arbitration that has yet to be commenced. The role of the Pre-Arbitral Referee would
be to issue a binding order as to the request for interim measures within 30 days of his or
her appointment.
It was described in 2000 as ‘an excellent idea which thus far has not worked’.2 The
problem seems to have been that the procedure was offered separately from the ICC Rules
as a purely voluntary scheme, and as a result there was relatively little uptake.
There is a much greater uptake now that emergency arbitrator provisions are fully
integrated into the arbitration rules used by various institutions. The International Centre
for Dispute Resolution (ICDR), the international division of the American Arbitration
Association (AAA), was the first to do so, in 2006, at Article 37 of the ICDR Rules, having
also found that a separate set of Optional Rules for Emergency Protection published in
1999, and providing for an emergency arbitrator, had not had much success.
A number of other institutions have now followed this example, including the
Stockholm Charmer of Commerce, the Singapore International Arbitration Centre, the
Kuala Lumpur Regional Centre for Arbitration, the Hong Kong International Arbitration
Centre and, as of 1 October 2016, the DIFC-LCIA Arbitration Centre in Dubai. What is
more, legislation has been amended to take into account the advent of emergency arbitra-
tion – for example, Singapore has modified its arbitration legislation to make it clear that
‘arbitrator’ includes ‘emergency arbitrator’, and the Hong Kong arbitration legislation now
provides assistance with the enforcement of relief granted by emergency arbitrators.
Two recent editions of arbitration rules that now include emergency arbitration are
those of the ICC (2012) and the LCIA (2014), both of which provide that the emergency
arbitration provisions are only to apply with respect to arbitration agreements entered into
after the revised set of rules chosen by the parties came into effect. Further, they both stipu-
late that the parties may opt out of the emergency arbitration regime.
The ICC and LCIA regimes reflect the common purpose of enabling a party to seek
emergency relief before an arbitral tribunal is in place. We will focus here on the ICC
offering, which is broadly comparable with those of other institutions, except that the
emergency arbitrator may only issue an order and not an award – see further below. It
is understood that there have been more than 40 emergency arbitrations under the ICC
Rules to date, including several matters arising out of construction contracts. Applications
for relief have covered a range of matters from the financial to the technical.
The ICC approach enables a party to apply for ‘urgent interim or conservatory meas-
ures that cannot await the constitution of an arbitral tribunal’ at any time prior to the
transmission of the file to the arbitral tribunal (Article 29.1). However, the request for arbi-
tration with respect to the substantive merits of the dispute underlying the application for
interim relief must be filed no later than 10 days after receipt by the ICC Court Secretariat
2 Craig, Park and Paulsson, International Chamber of Commerce Arbitration, Third Edition, p. 706.
104
of the application (unless the emergency arbitrator grants a longer period), failing which,
the President of the ICC International Court of Arbitration (the President) will terminate
the emergency arbitrator proceedings (Article 29.6).
The important role allocated to the President under the ICC Rules demonstrates the
ICC’s concern to ensure the success of an application under Article 29. Thus, it is the
President who, within two days of receipt of the application, will himself appoint the emer-
gency arbitrator. The choice is entirely at the President’s discretion since the ICC (unlike
the ICDR) has no emergency arbitrator list – just as there are no published arbitrator lists
for appointments in standard ICC arbitration.
It is also the President who will decide whether the application justifies the implemen-
tation of the emergency arbitrator provisions (Appendix V Article 1.5). However, as under
the standard ICC Arbitration Rules, it is the emergency arbitrator and not the President
who will decide whether he has jurisdiction to grant relief (Appendix V Article 5.1).
Appendix V to the ICC Arbitration Rules, which sets out the procedure to be followed
in detail, might be said to comprise in essence a concentrated version of the Rules applying
to disputes on the merits, except that the maximum period from transmission of the file
to issue of the emergency arbitrator’s order must not exceed 15 days, unless the President
agrees to an extension (Appendix V Article 6.4).
As might be expected, it is up to the emergency arbitrator to conduct the proceed-
ings as he or she sees fit (Appendix V Article 5). It is, however, notable that he or she must
‘ensure that each party has a reasonable opportunity to present its case’ (Appendix V Article
5.2). This is not required under all sets of emergency arbitrator provisions – thus, the
LCIA Rules require all parties to be consulted ‘if possible’ (Article 9.7). However, it can be
expected that emergency arbitrators will make every effort not only to ‘consult’ all parties
but to obtain written submissions from them.
Detailed provisions also regulate the order to be issued by the emergency arbitrator.The
ICC provisions, unlike many of the other sets of arbitration rules that now include provi-
sion for emergency arbitration, are notable for not giving the emergency arbitrator power
to issue an arbitral award, whereas both awards and orders may be issued by an arbitral tri-
bunal under the standard interim relief provisions at Article 28.1. Therefore, in emergency
arbitration under the ICC Rules, there will be no delay due to the requirement under
Article 33 that an award by scrutinised by the ICC Court.
An important point to note is that an emergency arbitrator can play no part in any
proceedings on the merits. The ICC Rules specify that ‘(a)n emergency arbitrator shall not
act as an arbitrator in any arbitration relating to the dispute that gave rise to the Application’
(Appendix V Article 2.6). This may well be considered to be a disadvantage, when com-
pared to the alternative solution of the expedited formation of the tribunal as mentioned
above, given the understanding of the underlying contract and circumstances relating to the
dispute that the emergency arbitrator will have acquired.
A key concern with respect to emergency arbitration, as with the granting of interim
relief in ‘standard’ arbitration proceedings, is, of course, the enforceability of the decision
of the emergency arbitrator, whether it be in the form of an order or an award. A general
concern under all sets of rules is the status of the emergency arbitrator – in other words,
there is some uncertainty as to whether he or she will be considered by courts to have
acted as an arbitrator, particularly as the award or order handed down can be modified by
105
the arbitral tribunal deciding the substantive disputes with respect to which the emergency
proceedings were commenced (see, for example, Article 29.3 of the ICC Rules). As stated
above, some jurisdictions have modified their arbitration legislation to avoid any issues in
this regard, but this is far from being a frequent occurrence to date.
A second concern, as with interim relief generally, arises precisely as a result of the
interim nature of the decision made by the emergency arbitrator. Insofar as the decision
is expressed to be an award, then enforcement may be easier, for the reasons indicated
above. The status of ICC decisions under the ICC Rules, which may only take the form
of ‘orders’, would appear in principle, therefore, to be more problematic. However, there
is case law from both the United States and France (Braspetro Oil Services company v. The
Management and Implementation Authority of the Great Man-Made river Project, Paris Court of
Appeal, 1999, (1999) Mealey’s Intl Arb Rep, 8; and Publicis Communication and Publicis SA v.
True North Communications Inc, US Court of Appeals, 206 F.3d 725 (7th Cir. 2000)) to sup-
port the view that the actual denomination of the decision in question is irrelevant and that
it is the content of the decision that determines whether it is final in nature with respect
to the issue in question.
Finally, the ICC Rules, like others providing for emergency arbitration, stipulate that
the parties’ agreement to such provisions is ‘not intended to prevent any party from seeking
urgent interim or conservatory measures from a competent judicial authority…’ (Article
29.7). However, a recent English court decision, addressing a broadly similar provision
under the LCIA Rules, indicates that wording such as that found in the ICC Rules may
well actually limit a party’s ability to seek relief from a state court by virtue of the inclusion
of emergency arbitration provisions in its arbitration agreement.
Thus, in Gerald Metals v. Timis [2016] EWHC 2327 (Ch) it was held that, applying the
test under Section 44-3) of the Arbitration Act 1996 (‘if the case is one of urgency, the
court may, on the application of a party or proposed party to the arbitral proceedings, make
such orders as it thinks necessary for the purpose of preserving evidence or assets’) resort
to a state court for relief should not be allowed. The court considered that, by virtue of the
emergency arbitration provisions in the LCIA Rules, the applicant had had an adequate
opportunity to obtain appropriate relief under its arbitration agreement. In other words,
the condition set out in Section 44(5) of the 1996 Act, namely ‘in any case the court shall
act only if or to the extent that the arbitral tribunal, or any arbitral or other institution or
person vested by the parties with power in that regard, has no power or is unable for the
time being to act effectively’, had not been satisfied.
This is evidently an outcome that flows from the implementation of the specific pro-
visions of the English legislation. The position may well be completely different in other
jurisdictions. All the same, the above-mentioned case underlines the importance of taking
into consideration the arbitration law at the place of arbitration when deciding whether
to include emergency arbitration provisions within the scope of an arbitration agreement,
given the possibility that the right to apply to the courts for interim relief may be seriously
jeopardised if the wrong decision is taken.
Emergency arbitration in a multi-tier context

We have seen above that the emergency arbitrator provisions under the ICC Rules are not
obligatory. It should also be noted that the ICC Rules provide, at Article 29(6), that those
106
provisions shall not apply if ‘(c) the parties have agreed to another pre-arbitral procedure
that provides for the granting of conservatory, interim or similar measures’.
The Secretariat’s Guide to ICC Arbitration (2012) comments on this provision as fol-
lows: ‘Agreeing to another pre-arbitral procedure that provides for the granting of con-
servatory, interim or similar measures amounts to an implied opt-out and therefore also
excludes the application of the Emergency Arbitrator Provisions… For example, this will
occur where the parties have agreed to the ICC pre-arbitral referee procedure or to use a
dispute board that may issue interim measures’ (Paragraph 3-1102).
On that basis, therefore, the emergency arbitrator provisions will not apply if the par-
ties have adopted the latest edition (2015) of the ICC Dispute Board Rules, which, in
Article 15(1), empower the Dispute Board to ‘decide upon any provisional relief such as
interim or conservatory measures’. The same power, in identical terms, is given under the
Dispute Adjudication Board (DAB) Procedural Rules included with many FIDIC standard
form contracts since 1999 and therefore incorporated by default into FIDIC-based contracts.
It would seem, however, that the position is not entirely straightforward. One question
in particular comes to mind – what if the parties have agreed to a pre-arbitral procedure
but have not constituted the entity that would be empowered to decide upon provisional
relief at the time when a party wishes to make an application?
The ICC emergency arbitrator provisions would appear to have been drafted on
the basis that the dispute board will be operational from an early point in the contract
period.This is the expectation under the ICC Dispute Board Rules, for example. Applying
Article 7, the Dispute Board should be appointed within about 90 days after signature of
the underlying contract, with the time required depending upon how many individuals are
to be appointed and the extent to which the parties cooperate in the process.
Similarly, under the current edition of the FIDIC Conditions of Contract for
Construction (known as the ‘Red Book’), which proposes that the parties adopt a ‘stand-
ing’ DAB, it is foreseen (in the form of Appendix to Tender attached as part of the Red
Book package) that the DAB should be constituted within 28 days of the contractual
Commencement Date. (A standing DAB is also foreseen under the FIDIC Conditions
of Contract for Design, Build and Operate Projects, the first edition of which appeared
in 2008.)
In practice, however, this is often not the case. Despite the strict terms of their contract,
parties may nevertheless prefer to defer the constitution of the dispute board until a dispute
arises in relation to which they require a formal recommendation or decision from the dis-
pute board.This is often done with a view to avoiding the cost of a dispute board operating
on a retainer basis before a formal dispute procedure needs to be adopted.
Then there is the arrangement applicable under the current editions of the FIDIC
Conditions of Contract for Plant and Design-Build (known as the ‘Yellow Book’) and the
FIDIC Conditions of Contract for EPC Turnkey Projects (known as the ‘Silver Book’),
where the parties’ agreement is that a DAB is to be appointed only after one of them
requires a dispute to be adjudicated: ‘the Parties shall jointly appoint a DAB by the date
28 days after a Party gives notice to the other Party of its intention to refer a dispute to
a DAB in accordance with Sub-Clause 20.4’ (Sub-Clause 20.2 of both the Yellow and
Silver Books).
107
Indeed, the appointment may take much longer given the need for the parties to nego-
tiate and sign dispute board agreements with the DAB members, particularly if one of the
parties is not as cooperative as it might be.
In short, even though the parties may have contracted to set up dispute boards that
would be empowered to grant provisional relief, it may well not prove possible to have
an operational dispute board in place until long after the provisional relief was not only
required but may have served a purpose.
In these circumstances, it seems to be unfortunate to have to exclude the possibility of
applying the ICC emergency arbitrator provisions, if that is indeed how Article 29(6)(c)
is to be interpreted. It might be said in response that this will not necessarily be a cause
of hardship, since a party may always apply to a competent judicial authority for relief.
This may well be correct, but it disregards the fact that the parties’ intention in agreeing
to the ICC or FIDIC dispute board regime as well as ICC arbitration is to rely primarily
upon recognised independent and private dispute resolution methods rather than the state
court alternative.
Perhaps the simplest solution to ‘plug the gap’ would be to stipulate in the contract
that the ICC emergency arbitrator provisions will be applicable until the dispute board is
constituted.This begs the question of why the ICC emergency arbitrator provisions should
no longer be applicable once that point is reached.
However, it is difficult to see what the benefit of such an arrangement might be. There
seems to be no advantage of effectively having a choice between referring a matter to an
emergency arbitrator or dispute board for provisional relief. The outcome in each case
would be appear to be an order or decision that would merely be provisionally binding
on the parties – as discussed above, the ICC regime does not provide for the issue of an
enforceable arbitral award.
It will be interesting to see whether the next edition of the FIDIC forms address this
issue, and the potential solution in the form of the ICC emergency arbitrator, in the next
editions due shortly.
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11
Organisation of the Proceedings in Construction Arbitrations:
General Considerations and Special Issues
Tim Chelmick and George Spalton1
Introduction
This chapter considers particular features of construction disputes that impact on the
organisation of arbitral proceedings.
The first half of the chapter focuses on general issues that are common to most con-
struction disputes. We then consider certain specific procedural issues – such as the inter-
relationship between arbitration and other forms of dispute resolution and the role that
experts can play in construction arbitration.
The second half of the chapter focuses on specific evidential issues that can arise in
construction disputes.
Special features of construction disputes

The first point to note is that arbitration is just one of many means of resolving con-
struction disputes. Whereas most disputes are resolved either in litigation or arbitration,
construction disputes can also be resolved via dispute boards, early neutral evaluation, adju-
dication and expert determination. Save for dispute boards (which are mentioned below),
those forms of dispute resolution are outside the scope of this chapter but are important to
note because they tend to offer a more informal means of resolving a dispute than arbitra-
tion and may, in certain circumstances, provide a means of avoiding some of the difficulties
presented by the increasing formality of international arbitration.
The second point to note, as a general observation, is that construction arbitrations
require very careful case management and a proactive approach from tribunals given the
range of issues that can arise in one set of proceedings. For example, a claim for damages for
delay by an employer can quickly give rise to competing factual and expert evidence about
delay and disruption; calls on performance bonds; technical expert evidence; complicated
1 Tim Chelmick and George Spalton are barristers at 4 New Square.
109
Organisation of the Proceedings in Construction Arbitrations
quantum evidence concerning the final account; and management of voluminous con-
temporaneous documentation. This, in turn, can give rise to the need to consider certain
preliminary issues early on in proceedings, along with heavy specific disclosure applications
and repeated rounds of expert evidence. Hearings can become long and complex, and this
explains why many international construction contracts provide for a form of adjudication
to keep projects moving pending resolution of any major disputes.
The third point is that from the perspective of managing the proceedings the approach
to expert evidence is perhaps the most important issue of all:
• It requires tribunals to ensure that expert evidence is tailored to the needs of a particular
case and also to ensure that the product of the experts’ work is genuinely useful when
it comes to determining the claim and drafting any award. This is especially important
in construction disputes because of the technical and mechanical aspects of the disputes
and because of the range of potential types of expert evidence.
• The area that can cause tribunals the most trouble in terms of expert evidence is
delayed evidence – whether in the context of an employer’s claim for liquidated dam-
ages for costs or losses said to flow from a contractor’s delay in completing works, or
a contractor’s claim for an extension of time or prolongation costs. These issues are
addressed in detail below.
Fourth and finally, a further feature of construction disputes that can cause difficulties for
both parties and arbitrators is the fact that there are often a number of parties involved in
a dispute and yet arbitration does not generally lend itself well to multi-party disputes. For
example, by contrast with litigation in domestic courts, it can be very difficult to join par-
ties to ongoing proceedings and it can be very difficult (if not impossible) to consolidate
separate sets of proceedings.This is clearly an issue that parties should address as a front-end
matter; for example, employers and main contractors who have agreed to arbitrate any dis-
putes should seek to ensure that sub-contractors or professional advisers enter into agree-
ments that contain arbitration clauses allowing the parties to be joined into other arbitra-
tions or that allow consolidation of proceedings. That can be achieved through a tailored
or bespoke approach to dispute resolution clauses, or by ensuring that parties enter into
a standard form contract that provides for joinder (such as certain variations of the Joint
Contracts Tribunal form of contracts).
Despite these difficulties, arbitration continues to be the preferred means of resolving
disputes between international parties.
Alternative forms of dispute resolution

As mentioned above, certain specialist forms of dispute resolution are outside the scope of
this book (such as early neutral evaluation). However, there are a variety of forms of dispute
resolution that one can encounter in the context of construction projects.
In this regard, the trends in relation to alternative procedures have varied over recent
years. For example, as the editors of Keating on Construction Contracts note:
Whilst very unusual in recent years, the architect under the contract was in the frequently
appointed arbitrator under an arbitration clause in the contract. As a result, a body of case law
developed [in England] on the circumstances under which the architect might be disqualified
110
from acting. It was said that this place the architect in a position ‘invoking and possibly involving
on occasions considerable trouble.’ As Lord Hoffmann observed, ‘the notion of what amounted
to a conflict of interest was not then as well understood as it is now.’ It is thought unlikely that
parties will now appoint the architect (or engineer in an engineering contract) as arbitrator.2,3,4
The alternative forms of dispute resolution are all potentially important because of the
manner in which they interrelate with arbitrations. However, from the perspective of inter-
national construction disputes, the most important is arguably the dispute board procedure.
Dispute boards have become increasingly popular ever since they were introduced into
various standard forms of the Fédération Internationale Des Ingénieurs-Conseils (FIDIC)
contracts for international infrastructure projects. Again the editors of Keating explain:
FIDIC was encouraged in this step by the World Bank who considered that the DB [dispute
board] procedure would, overall, be a cost-effective measure for reducing the sums spent on dis-
putes arising from big projects with which it was concerned. In particular, international aware-
ness and take up of the procedure has rapidly increased since it was inserted into the widely used
FIDIC Red Book, 4th Edn (1992 Reprint with amendments) used for construction works
designed by the employer, by way of a 1996 supplement.
A true DB, known as a ‘standing dispute board’ is one which is appointed at the outset of
a project and remains in place until its completion. It is then able to fulfil a dual function: (a) to
avoid disputes arising in the first place; and (b) if and when contracts do not provide for stand-
ing DBs but only for ‘ad hoc’ DBs. These latter DBs only come into existence when a dispute
arises and they are used to give a reasonably quick decision which the parties may or may not
accept. Although an ad hoc DB is a cheaper procedure than a standing DB, it does not provide
the parties with the possibility of avoiding disputes in the first place.5
In general, dispute boards, and other forms of resolving disputes, are encountered more
frequently with construction disputes than with commercial disputes. This is primarily
because of the complexity of construction projects and the need to manage the parties’
relationship on a proactive basis.The key point, from the perspective of those managing dis-
putes or those deciding them, is to be aware of the different possibilities under the relevant
construction contract and the manner in which each dispute resolution procedure relates
to the arbitration clause and to the management of the arbitration itself.
Tribunal-appointed experts
Before turning to specific evidential issues that impact on the organisation of construction
arbitrations, it is worth noting the potential role of tribunal-appointed experts in arbitra-
tions of construction disputes.
2 Citing Lord Shaw of Dunfermline in Bristol Corp v. Aird [1913] AC 241 at 252, HL.
3 Beaufort Developments (NI) Ltd v. Gilbert-Ash (NI) Ltd [1999] 1 AC 266 at 276, HL.
4 Keating on Construction Contracts, 10th Edition, Sweet & Maxwell, pp. 17–1048.
5 Keating on Construction Contracts, 10th Edition, Sweet & Maxwell, pp. 17–174.
111
While most modern arbitration laws allow a tribunal to appoint an expert or legal
adviser to report to it and the parties on technical or other matters,6 the practice is not
common and is generally limited to construction arbitrations (especially where the tribunal
is largely comprised of civil lawyers). When a tribunal appoints an expert to carry out this
role, the expert’s fees will be treated as expenses of the tribunal.7
There are several potential advantages to having a tribunal-appointed expert. Above all,
they help tribunals to understand the technical issues from the outset, and can help tribu-
nals to avoid a situation where they end up with two discrete approaches to a particular
issue (e.g., different types of delay analysis). A tribunal-appointed expert can also help to
speed up the arbitral process.
Notwithstanding the potential advantages noted above, the appointment of experts by
tribunals in major international construction arbitrations is a fairly rare occurrence. One
reason for this could be the difficulty in finding an expert that both parties find acceptable.
In any event, any tribunal-appointed expert should maintain his or her distance from
the tribunal and should in no circumstances be involved in the tribunal’s deliberations.
Evidence in construction disputes

General considerations
This part of the chapter outlines some issues that commonly arise with evidence in con-
struction arbitrations.
One of the key advantages of international arbitration as a process is its flexibility.
Further, quite deliberately, the principal institutional and ad hoc rules contain no detailed
guidance on the preparation and presentation of evidence. This gives parties the freedom
to agree specific provisions for evidence to suit the dispute. It is, therefore, important to
consider the required evidence at the start of the arbitration, as the terms of reference and
first procedural order will normally dictate the evidence that will be permitted in the
course of the dispute.
The strength associated with the flexibility of the process can, however, create problems
as there are often considerable differences in expectation between parties from different
jurisdictions as to what is required by way of evidence in an arbitration. The most obvious
example is the difference in approach in civil law jurisdictions compared to common law
jurisdictions, but this is by no means the only example.
In order to address this issue, the International Bar Association (IBA) produces rules on
the taking of evidence in international arbitration, which were most recently updated in
2010 (the IBA Rules of Evidence). These rules are adopted either on a mandatory basis or
as guidance in many construction arbitrations. The IBA Rules of Evidence contain provi-
sions for:
6 See, for example, the Arbitration Act 1996, Section 37(1)(a) for the relevant law in the UK. See also (by way
of example) the IBA Rules on Taking of Evidence (Article 6); the LCIA Rules (Article 21); the ICC Rules
(Article 25.3); Article 29 of the UNCITRAL Arbitration Rules and the UNCITRAL Model Law Article 26;
and also Article 25 of the AAA/ICDR Rules.
7 See, for example, the Arbitration Act 1996, Section 37(2).
112
• the production of documents;

• witnesses of fact; and
• experts (both party- and tribunal-appointed).
Each of these three stages is considered in turn.
Document production
Document production is required in the majority of construction disputes.Whether acting
for contractors or employers, there are inevitably going to be documents in the possession
of the other party that may assist the other party (and hence the tribunal) in determining
the merits of individual claims. Examples include:
• internal programmes and other correspondence relating to individual causes of delay;
• documents relating to the informal instruction of variations in the scope of the
works; and
• investigations carried out at the time into the cause of defects.
In many cases, the documents that are of most assistance are not the formal project docu-
ments (which are often carefully drafted and will be readily available) but the correspond-
ence that takes place at a lower level between those actually performing the work on-site.
Obtaining an order for disclosure of these documents is often critical to the overall success
or failure of a claim at arbitration.
In the majority of construction arbitrations, disclosure is by request (which is also the
approach taken in the IBA Rules of Evidence). The form of request (commonly known as
a Redfern schedule) is set out in Article 3(3) of the IBA Rules of Evidence. Importantly,
the request for a document must be specific, the relevance of the document must be set out
and it also must not be a document that is in the possession or control of the party making
the request. The aim of the procedure is to limit document production by forcing a party
seeking disclosure to identify precisely the documents that need to be disclosed. The IBA
Rules of Evidence contain a procedure to determine whether disclosure requests should
be granted. The aim of the process is to reduce the burden associated with disclosure, with
corresponding reduction in the time taken to resolve a dispute (at a lower overall cost). In
practice, it often fails to achieve this goal given the volume of documents that are generated
in the course of a substantial construction project.
Factual evidence
In general, factual evidence will also be required in order to deal with a construction dis-
pute. Article 4 of the IBA Rules of Evidence deals with factual evidence. Again, the process
offers flexibility for the tribunal to control the extent of the factual evidence adduced by
each party, and also gives the tribunal the power to limit the issue to specific issues (see
Article 4(4) of the IBA Rules of Evidence).
The IBA Rules of Evidence also require each party to inform the tribunal of any wit-
nesses they require to attend the hearing (Article 8(1)). If attendance is required, the witness
must attend the hearing in person unless otherwise ordered by the tribunal.The IBA Rules
of Evidence also permit the other parties to question a factual witness. There is no restric-
tion of the scope of any such questions, save that the tribunal has the power to ‘limit or
113
exclude any question to, answer by or appearance of a witness, if it considers such question,
answer or appearance to be irrelevant, immaterial, unreasonably burdensome, duplicative or
otherwise covered by a reason for objection set forth in Article 9.2.’8
Some practical issues regarding witness evidence that may arise in construction disputes
include the following:
• Factual evidence should focus on issues in dispute. There is a tendency in substan-
tial matters to deal with extensive factual matters that are of peripheral relevance at
best. Consideration should therefore be given to agreeing a list of factual issues to be
addressed before statements are adduced.
• Where factual evidence is required, it should be assumed that the witness will be
required to attend the evidential hearing in person.This may require significant forward
planning if the arbitration is being held in a different jurisdiction from the project (as is
often the case).
• Witnesses will often give evidence in a language other than the language of the arbitra-
tion. If this is the case, arrangements need to be made for translation of the evidence.
Care needs to be taken when appointing a translator, as construction disputes may
involve a large number of technical terms that may not be familiar to all translators. If
there is a dominant language (for documents or witnesses) that is not the language of
the arbitration, it may help the parties when selecting the tribunal if one of the tribunal
members can speak both languages.
• If a party wishes to use a video link for a witness, permission will need to be sought
from the tribunal at the earliest possible opportunity.
Expert evidence
Expert evidence will almost invariably be required in any substantial disruption dispute.
However, whenever expert evidence is required, there are a number of general principles
that must be taken into account.
The first (and obvious) point is that the extent of the expert evidence is controlled by
the tribunal. The IBA Rules of Evidence make this clear (Articles 5 and 9).
The IBA Rules of Evidence also contain provisions that are designed to ensure that
the expert evidence consists of genuine opinions given by an expert who is independent
from the parties.There is a positive obligation on experts to set out in any report both their
independence and that the opinions are true in his or her professional opinion. The IBA
Guidelines on Party Representation in International Arbitration 2013 (which can also be
adopted by the parties and the tribunal) contain further safeguards to ensure the integrity
of the process. In particular, Articles 18–25 address the interaction between counsel and
experts. The guidelines expressly permit counsel and experts to assist expert witnesses in
the preparation of their reports, but there is a positive obligation to ensure that the report
sets out the expert’s own analysis and opinion.
If expert evidence is required, there are a number of mechanisms commonly used
in construction arbitrations that are designed to identify the areas of agreement and
8 Article 9.2 of the IBA Rules of Evidence contains the general power of a tribunal to control the admissibility
of any evidence.
114
disagreement. The most obvious is for the tribunal to order that there be a meeting of
experts followed by a joint statement identifying areas of agreement and disagreement.
Although uncommon in arbitration, there are often procedural advantages if this meeting
takes place before any reports are prepared as this avoids time and money being spent on
issues that are not in dispute.9
The tribunal also has considerable scope to control oral evidence at any hearing. One
common technique used in construction arbitration is for experts in similar disciplines
to give evidence at the same time (known as ‘hot tubbing’). This allows the tribunal to
hear from both experts at the same time on specific issues, with each expert being able to
respond to points made by the other expert.This often crystallises disputes regarding expert
evidence quickly.
Defects claims
Many construction claims involve issues of defective work. In order to establish that work
is defective, it will be necessary to establish:
• the original specification of the work;
• the actual condition of the work carried out; and
• the differences between the specification and the work carried out.
The first (and often overlooked) issue is that it is necessary to establish the actual condi-
tion of the works as built. This may not be problematic if the defect is identified when the
contractor (or subcontractor) remains on site. However, many defects are latent and so are
only identified after construction is complete.
There are a number of procedural devices that can be used in construction arbitrations
to deal with issues regarding the actual state of the works. The most obvious is that the
tribunal can order a joint inspection of the works by either party-appointed experts or
tribunal-appointed experts. The experts can then be directed to agree the condition of the
works (or identify areas of disagreement).This has the potential to avoid the tribunal having
to resolve disputes as to the true condition of the work by reference to factual evidence.
However, further issues arise if the alleged defects are identified after termination (or
partial termination) of a contractor’s scope of works by an employer, especially if the defec-
tive work package was not complete as at the date of termination. In such circumstances,
if the actual condition of the work as at the date of termination cannot be established, any
claim by an employer for defective work carried out prior to termination may be difficult
to prove. It is, therefore, critical that the condition of the work as at the date of termination
is established. Ideally, an independent inspection of the work should be carried out (pref-
erably instructed on a joint basis). If this is not possible, it will be necessary for the party
taking over the works to record the state of the works at the date of takeover. Photographic
and video evidence may well be the best evidence available in such circumstances.
Having established the state of the work, it is next necessary to establish whether the
work carried out is defective. In many cases, the defects will be obvious. However, this is
not always the case. One obvious example is where the dispute is over the design life of a
9 This is the usual practice of the Technology and Construction Court in England and Wales.
115
structure. It will not necessarily be obvious on inspection that the design life of a structure
is less than the specification. Expert evidence would be required to establish the defect.
Finally, even if the defect has been established, the extent of the damage suffered by
the defect needs to be assessed. Even if the defect is obvious (or is admitted), disputes may
nevertheless arise regarding the extent and necessity of the required remedial work. One
recent example of precisely such a dispute in the UK is Costain Limited v. Tarmac Holdings
Limited,10 a case involving the supply of concrete to be used in the construction of a con-
crete safety barrier on a motorway. It was admitted that the concrete supplied was defec-
tive. The only dispute was whether the concrete could be repaired or whether complete
replacement of the barrier was required. This is a dispute that could only be resolved by
obtaining expert evidence.
Many disputes involve multiple defects. In order to deal with such disputes, tribunals
often order that the parties prepare a Scott Schedule11 listing the defects and allowing each
party to identify the issues that arise in respect of each defect, along with the evidence
relied upon for each defect.
The use of a Scott Schedule is a matter that is usefully addressed at the first procedural
meeting in a claim involving a significant number of defects. Once the Scott Schedule has
been completed, the tribunal can assess how best to deal with the claims. In a claim involv-
ing a large number of small defects, it may be possible for the tribunal to deal with only
some of the defects (normally those with the highest value). This could either be done by
way of preliminary issue or by sample from which the overall financial outcome can be
assessed by way of extrapolation.
Delay and disruption claims

Special considerations may apply for delay and disruption disputes. Again, there is no stand-
ard procedure in construction arbitration to deal with such disputes, but the parties are free
to design a suitable process.
Useful guidance for dealing with delay and disruption disputes can be found in the
recently updated Delay and Disruption protocol published by the Society of Construction
Law12 (the Protocol). While the Protocol is aimed at UK projects and those governed by
English law, the guidance is nevertheless useful for international construction projects. In
particular, the Core Principles are of general application.
The starting point for any delay or disruption claim is the project records. Absent clear
records, it is difficult for a party (or its expert) to establish the true cause of any delay. Core
Principle 1 of the Protocol recommends that parties agree on the type of records that need
to be kept in order to establish a valid claim for delay or disruption. This may or may not
have been done by the time the matter proceeds to a dispute, but illustrates the importance
of document production in claims for delay and disruption. Where project records are
lacking, it may be necessary to adduce factual evidence to plug the gaps. However, such
10 [2017] EWHC 319 (TCC). The case also provides valuable guidance as to the circumstances in which the
English Court will refuse to grant a stay in support of arbitration if the arbitration agreement is null and void
or inoperative (in accordance with Section 9(4) of the Arbitration Act 1996).
11 www.justice.gov.uk/courts/procedure-rules/civil/standard-directions/general/scott-schedule-note.
12 Second Edition, published February 2017.
116
evidence is necessarily subject to challenge if (as is common) the arbitration takes place
many years after the event. It is, therefore, no replacement for detailed project records.
Any claim for delay or disruption (which are conceptually different claims even if delay
and disruption often occurs at the same time) is inevitably supported by expert evidence.
There are common procedural issues that arise in all claims involving delay experts.
The critical record for the purposes of any delay and disruption dispute is the pro-
ject programme (which is almost always in electronic format, using accessible and com-
mercially available software). Most accepted methods of delay analysis require an original
plan and an as-built programme. From these two programmes, a critical path (anticipated
and as built) can be established. Given the fundamental importance of the programme to
claims of delay and disruption, in construction arbitrations, tribunals may order that the
appointed experts meet in order to agree the base programmes and critical paths. If the
building blocks are agreed, the areas for disagreement between the experts are substantially
reduced. It is, self-evidently, necessary to consider all delays when reaching a conclusion
regarding the criticality of any delay event. An early meeting to discuss delay events pre-
vents experts giving options based on incomplete factual evidence that would render any
report meaningless.
In certain cases, it may also be possible for the experts to agree on the delay methodol-
ogy that should be adopted. However, that is significantly more controversial, not least as
the appropriate delay analysis is a matter of expert judgment and as different methods of
considering the delay may give rise to different outcomes regarding the critical delay events.
Finally, it is important to note that wherever possible the impact of individual delays
needs to be considered. Merely identifying delay events and asserting that these cause delay
without identifying how (the ‘global claim’) is to be avoided if at all possible (see Principle
17 of the Protocol). While global claims do, on occasion, succeed before tribunals, the tri-
bunal would need to be satisfied that it was impossible to demonstrate causation. In all but
the most complicated case, while establishing the impact of a delay may be difficult, it is
not impossible. Advancing a global claim, therefore, immediately decreases the prospect of
the claim succeeding.
117
12
Documents in Construction Disputes
Bartosz Krużewski and Robert Moj1
Introduction
Documents are the most reliable evidence in construction arbitration. Each party to
the dispute relies on documents to prove its claims or rebut the other party’s arguments.
Documents are the main source of accurate and contemporaneous information, allowing
the arbitrators to recreate the factual circumstances of the case and consequently decide
on its merits. It is especially applicable to construction arbitration, where the execution of
long-lasting projects requiring continuous cooperation between owners, general contrac-
tors, subcontractors, designers and other parties in a changing environment usually gen-
erates a complex factual background, recorded by the parties in various documents on a
daily basis. If these circumstances lead to a dispute, they can be precisely unravelled only by
deriving data from contemporaneous documents.
Therefore, before entering into a construction dispute, especially before commenc-
ing arbitration, parties to the arbitration have to diligently review the vast quantities of
available documents, including letters, contemporaneous records and emails, in order to
identify the documents relevant to their case, as well as any missing documents that may
be in the possession of the opposite party or even a third party not involved in the dispute.
In the latter case, it might be worth considering obtaining the documents through the
disclosure procedure. Even if these stages are prudently executed, the number of docu-
ments required to support the parties’ cases in construction arbitration usually amounts to
thousands. Consequently, it is also vital for the parties to effectively manage the documents
filed in the arbitration and convincingly present them to the arbitrators during the hearings
on the merits of the case.
This chapter provides guidance on handling documents in construction arbitration. It
presents the types of documents commonly filed in arbitration that should draw the party’s
1 Bartosz Krużewski is a partner/advocate and Robert Moj is a senior lawyer/legal adviser at Clifford Chance.
118
attention during the document review process, the procedure of disclosure in international
arbitration, and the management of documents during arbitration.
Documents as evidence
When it comes to international arbitration, there is no clear definition as to what a docu-
ment or documentary evidence is. The evidence is anything in the form of material or
information that a party can present to the tribunal to support its arguments.2
By presenting evidence such as witness statements, expert reports and documents, the
parties will attempt to discharge their burden of proof.3 The burden of proof is a com-
monly accepted rule providing that a party relying on a particular fact has the burden of
establishing that fact.4
In general, documentary evidence may be any form of written data such as letters,
emails, contracts, reports and any other written communication. Moreover, it can include
photographs, films, audio and video tapes, and drawings.5 The IBA Rules on the Taking
of Evidence in International Arbitration (the IBA Rules) define a document as ‘a writing,
communication, picture, drawing, program or data of any kind, whether recorded or main-
tained on paper or by electronic, audio, visual or any other means.’6 The term ‘document’
relates not only to physical media, but also to any type of electronic media such as emails,
text messages, word processing documents, digital images or even metadata.
Typical documents in construction disputes

Different types of construction claims establish different requirements as to the burden of
proof, both in relation to the claimant and the respondent.7 Consequently, different docu-
ments might be required to prove different claims.
Construction contracts also require the parties to create and exchange miscellaneous
documents.8 The diversity of documentation that might serve as evidence is increased by
the complexity of construction projects and the variety of record-keeping practices used
by companies, especially from different jurisdictions.9
2 J. Cook, ‘Factual and Expert Evidence in Arbitration’, Asian Dispute Review Hong Kong International
Arbitration Centre (HKIAC) 2014,Volume 2014, Issue 1, p. 30.
3 J. Cook, ‘Factual and Expert Evidence in Arbitration’, Asian Dispute Review Hong Kong International
4 J. Waincymer, Procedure and Evidence in International Arbitration Kluwer Law International, 2012, p. 761; S.
Rosenne,Y. Ronen, The Law and Practice of the International Court 1920–2005, Fourth Edition, Leiden: Martinus
Nijhoff Publishers, 2006, pp. 1040–1042.
5 J. Cook, ‘Factual and Expert Evidence in Arbitration’, Asian Dispute Review, Hong Kong International
6 See: IBA Rules on the Taking of Evidence in International Arbitration, adopted by a resolution of the IBA
Council on 29 May 2010, International Bar Association.
7 J. Permesly, T. Cohen, International Arbitration Involving Construction: Best Practices for Documenting
Claims and Defenses, available at: www.chaffetzlindsey.com/wp-content/uploads/2016/05/
International-Arbitration-Involving-Construction-Best-Practices-for-Docu....pdf.
8 See: Conditions of Contract for Construction for Building and Engineering Works Designed by the
Employer, Text of FIDIC First Edition, 1999 (see especially: clauses 20.1, 2.5, 15.1).
9 Footnote 7.
119
Therefore, there is no universal list of documents that will be adequate to discharge the
burden of proof in relation to each particular construction claim. However, there are some
types of documents typically submitted by parties in arbitration to support their construc-
tion claims.These documents include pre-contractual and contractual documents; variation
orders and schedule documentation; correspondence; contemporary records; and cost doc-
umentation. Parties involved in construction projects may consider producing these types
of documents in order to accurately record the events occurring throughout the execution
of the project, to effectively manage the project, and to settle any potential disputes during
its execution or, in the worst case scenario, to prepare evidentiary material for arbitration.
A party preparing for arbitration may also revert first to these types of documents in order
to find the documents relevant to the case. These types of documents are:
• pre-contractual documentation, including specifications, drawings, geotechnical data or
clarifications of the tender requirements provided by the owner on one side and the
contractor’s calculations, labour productivity assumptions, internal reports and work-
sheets on the other side, may be used to prove the parties’ assumptions, expectations and
intentions as to the execution of the contract;
• contractual documentation, including the contract, final specification and drawings,
which may vary from the pre-contractual versions, as well as annexes to the contract
and variation orders; these documents evidence the scope of the parties’ obligations;
• schedules (original versions and updates), supplemented by charts and reports present-
ing any changed assumptions as to the resources envisaged to complete particular works,
which are crucial in evidencing the liability for delays or entitlement to an extension of
time and related monetary claims;
• correspondence, including letters, notices and emails, which contain information rang-
ing from daily technical issues to legal statements impacting the execution of the project;
• other contemporaneous records, such as minutes of meetings, site logs, progress reports,
daily reports on the man-hours and equipment hours worked, which might be helpful
in evidencing the actual impact of any obstacles occurring during the execution of the
works on the parties’ assumptions, including loss of productivity or acceleration meas-
ures; and
• cost documentation, including invoices, receipts and proofs of payment. Generally, the
party seeking reimbursement of the actual cost incurred should submit this primary evi-
dence to prove the quantum of the pursued claims. As this is usually a time-consuming
and expensive exercise, in particular in large construction disputes, in practice the par-
ties try to substitute the filing of the primary evidence with presenting an expert report
on the accuracy of the sums claimed, accompanied by an invitation addressed to the
other party or the expert appointed by the tribunal to review the calculations on a
sample basis. Such measures are sometimes accepted by the tribunals.10
10 J. Jenkins, International Construction Arbitration Law, Second Edition, Arbitration in Context Series,Volume 3,
Kluwer Law International, 2013, p. 189; for more information on the types of documents required to prove
construction claims see footnote 7.
120
Document review and disclosure

Before entering into a dispute, especially into construction arbitration, it is recommended
to perform a document review. Document review is a process in which a party verifies
the documents it possesses in order to eliminate those that are irrelevant or immaterial to
the case.11
This process is usually expensive and time-consuming, as an immense number of docu-
ments are produced during the life of a construction project. However, this process is also
crucial for the successful outcome of a dispute, mainly due to the following reasons.
Firstly, the party aiming to win the arbitration has to meet its burden of proof. That
means that this party has to provide the tribunal with evidence proving that the facts on
which it relies actually occurred. The party must therefore conduct a document review in
order to find the relevant documents to support its assertion as to the facts and to separate
the pertinent documents from those of lesser importance. Document review may also help
identify any missing documents that may be in possession of the other party or a third party,
and may lead to a filing for disclosure early on in the arbitration process.
Secondly, providing the tribunal with only the relevant documents accelerates and sim-
plifies the case, which in most cases may increase the chances of winning in arbitration.
Providing the tribunal with thousands of documents without showing their importance
or explaining their relevance to the case will increase the costs and may dilute the parties’
argumentation. Moreover, the tribunals have means of stopping such conduct of the parties
by issuing procedural orders, and are indeed encouraged to do so by several institutional
rules and guidelines on arbitration.12
Furthermore, document review makes it possible to prevent any documents that are
privileged or confidential from being filed in the arbitration. During the document review,
the parties have the opportunity to exclude the documents that are confidential due to
commercial or technical reasons or that are subject to legal privilege. Even though a party
to the dispute will not always be allowed to withhold such documents from submitting
them to the tribunal, after identifying such documents, it can argue that those specific
documents cannot be submitted as they are confidential. The IBA Rules determine com-
mercial or technical confidentiality as one of the grounds for the tribunal to exclude such
evidence.13
Finally, it is important to conduct a document review before commencing arbitration,
as establishing the actual course of events in the project helps build the case strategy and
properly structure the claims or defence, and makes it possible to mitigate any poten-
tial risks.
Therefore, conducting at least a limited document review is recommended before com-
mencing arbitration.
11 J. Jenkins, International Construction Arbitration Law, Second Edition, op cit, pp. 178–179.
12 See: ICC Rules of Arbitration (as of 1 March 2017); IBA Rules on the Taking of Evidence in International
Arbitration, adopted by a resolution of the IBA Council on 29 May 2010, International Bar Association;
International Dispute Resolution Procedures of International Centre for Dispute Resolution (as of
1 June 2014).
13 See: Article 9.2. of IBA Rules on the Taking of Evidence in International Arbitration.
121
Once the party has conducted the review and established the relevant documents in
its possession, it can then assess what documents it needs to support its claims or defence.
Those documents, if possessed by the opposing party or by a third party, can be subject to
document disclosure.
Document disclosure has at its core the party’s right to request the production of docu-
ments by the opposing party14 or third parties.15 The problem in international arbitration is,
however, how broad that right is, and to what extent the parties will be entitled to request
the production of documents from another party.
Document production is available in most legal systems. However, there are significant
differences between the common and the civil law systems in terms of the approach and
scope of document production. In common law systems, the disclosure is much broader
than in civil law systems. The scope of disclosure in common law systems is compared to
the ‘all cards on the table’ rule – without regard to whether the party has to provide the
opposing party with favourable or unfavourable documents.16 In the US, there is therefore
a general duty of the parties to produce and present any documents that may be relevant
to the case, no matter in which party’s interests.17 English law limits discovery that is now
known as document disclosure and is narrower than the discovery was.The scope of docu-
ment disclosure nowadays depends upon the tests of reasonableness and proportionality.18
On the other hand, civil law systems are less stringent and considered ‘less ambitious
in search for truth than the common law approach.’19 The general rule is that each party
produces only the documents on which it relies. No general obligation exists as to the pro-
duction of documents, in particular those that are unfavourable to the party’s contentions.20
There are rules that permit the party to request certain documents from the opposing party
or third parties, but those rules require the requesting party to specify the documents and
thus significantly limit the document production possibilities.
In view of such differences between legal systems when it comes to document disclo-
sure, arbitration had to somehow strike a balance between the common law and the civil
law rules – and it seems that it was successful. Numerous arbitration rules and guidelines
on documentary evidence set up the general rules on document disclosure. The document
production in arbitration is described as ‘one of the most remarkable examples of a merger
between different national civil procedure approaches.’21
The guidance as to document disclosure in international arbitration was provided in the
IBA Rules in 1999.22 The IBA Rules are not a binding document but the parties may agree
14 P. Tercier, andT. Bersheda, Document Production in Arbitration: A Civil Law Viewpoint, in: The Search for
‘Truth’ in Arbitration – ASA Special Series No. 35, JurisNet, LLC 2011, p. 79.
15 See: IBA Rules on the Taking of Evidence in International Arbitration.
16 P. Tercier and T. Bersheda, Document Production in Arbitration: A Civil Law Viewpoint, op cit, p. 81.
17 G. Kaufmann-Kohler, ‘Globalization of Arbitral Procedure’, Vanderbilt Journal of Transnational Law Volume 36,
p. 1325.
18 www.justice.gov.uk/courts/procedure-rules/civil/rules/part31#31.2.
20 G. Kaufmann-Kohler, Globalization of Arbitral Procedure, op cit, p. 1326.
21 G. Kaufmann-Kohler, Globalization of Arbitral Procedure, op cit, p. 1325.
22 IBA Rules on the Taking of Evidence in International Commercial Arbitration, adopted by a resolution of
the IBA Council in June 1999. The IBA Rules were subsequently amended and the new version of the IBA
122
to adopt them or they can be used by the tribunal as guidance.The IBA Rules seem to find
a balance between common and civil law rules on document disclosure.
The IBA Rules are influenced by four principles.23 Firstly, there is no room for pre-trial
discovery and fishing expeditions in international arbitration. Secondly, the arbitral tribunal
has the power to order the production of documents by one party, requested by another
party.Thirdly, the decision to order the document disclosure lies within the absolute discre-
tion of the arbitral tribunal. And lastly, the requested party has a right to object to such an
order, with the objections listed in the IBA Rules (Article 9.2).24
Following these principles, Article 3 of the IBA Rules established the requirements
the party has to fulfil if it wants the tribunal to order document disclosure. First of all, the
request to produce documents must be submitted to the tribunal within the prescribed
time limit set by the tribunal. The request has to contain a description of the document
that is sufficient to identify it, or a description of categories of documents that is sufficiently
narrow and specific. The requesting party has to explain how the requested documents are
relevant to the case and material to its outcome, and confirm that the requested documents
are not in its possession, and also explain why the requesting party assumes that the docu-
ments are in possession of the opposing party or a third party.25
Similar restrictions are provided for in other rules and guidelines.The ICC Commission
Report on Techniques for Controlling Time and Costs in Arbitration suggests limiting
the number of possible requests for document production and establishing time limits.
Moreover, the ICC Commission Report describes providing the tribunal with documents
that are not relevant and material to the case as wasteful.26
However, the requested party is not defenceless against the request for the production
of documents. The IBA Rules provide that the requested party can put forward an objec-
tion to the disclosure of documents based on the circumstances listed in Article 9.2 of the
IBA Rules. Those circumstances include:
• lack of sufficient relevance or materiality;
• legal impediment or privilege under legal or ethical rules;
• unreasonable burden to produce the requested evidence;
• loss or destruction of the document that has been reasonably shown to have occurred;
• grounds of commercial or technical confidentiality;
• grounds of special political or institutional sensitivity; or
• consideration of fairness or equality of the parties.27
If the requested party files any objections, the requesting party will have the right to address
them, and subsequently the tribunal will have the power to resolve the issue of document
production by a procedural order.
Rules on the Taking of Evidence in International Commercial Arbitration was adopted in 2010.
23 H. Raeschke-Kessler, ‘The Production of Documents in International Arbitration – A Commentary on Article
3 of the New IBA Rules of Evidence’, Arbitration International, Volume 18, No. 14, LCIA, 2002, p. 415.
3 of the New IBA Rules of Evidence’, Arbitration International, Volume 18, No. 14, LCIA, 2002, pp. 415, 416.
25 See: Article 3 of IBA Rules on the Taking of Evidence in International Arbitration.
26 See: ICC Commission Report on Techniques for Controlling Time and Costs in Arbitration, ICC, Paris, 2012.
27 See: Article 9.2 of IBA Rules on the Taking of Evidence in International Arbitration.
123
If the tribunal orders a party to produce documents and the party does not comply
with such order and refuses to provide the opposing party with the documents, it can
face sanctions.
Firstly, arbitrators can be authorised ‘to draw adverse inferences from the parties’
non-production of discoverable evidence.’28 It means that the tribunal can draw a legal
inference, adverse to the party concerned, as a consequence of that party’s silence or the
absence of requested evidence.29 The adverse inferences are aimed at ensuring the efficacy
and fairness of the arbitral proceeding.
Furthermore, the arbitral tribunal may discharge from the burden of proof the party
that provided insufficient proof due to the opposing party’s failure to comply with the
order to produce documents. However, such sanctions should be expressly provided for in
the arbitration rules governing the case.30
Lastly, Article 9.7 of the IBA Rules provides that:
if the Arbitral Tribunal determines that a Party has failed to conduct itself in good faith in the
taking of evidence, the Arbitral Tribunal may, in addition to any other measures available under
these Rules, take such failure into account in its assignment of the costs of the arbitration, includ-
ing costs arising out of or in connection with the taking of evidence.31
These sanctions may not be applied if the request for disclosure concerns a third party that
does not produce the requested documents.32 The parties must remain aware that the pro-
cedural law of the seat of arbitration may provide for more stringent sanctions.
Managing documents during the review, disclosure and arbitration

proceedings
Since the scale of documents produced during the life of a construction project is usually
large, there is an increased need to find proper document management tools, which may
simplify and accelerate the review of documents, their disclosure and even their manage-
ment in the arbitration.
Nowadays, the technology allows parties to use electronic document management sys-
tems (EDMS), which can assist in the process of searching, organising, producing and man-
aging documents. The EDMS ‘are considered to be more accurate and less expensive than
paper-based methods of document management.’33 The first and most obvious advantage
of the EDMS is storage. Although it seems impossible to imagine that the need of keep-
ing the paper documents in one place will disappear, storing documents in an electronic
form reduces the costs of having to store and print all the paper documents. Moreover, the
28 P. Tercier and T. Bersheda, Document Production in Arbitration: A Civil Law Viewpoint, op cit, p.101.
29 https://definitions.uslegal.com/a/adverse-inference/.
31 See: Article 3 of IBA Rules on the Taking of Evidence in International Arbitration.
3 of the New IBA Rules of Evidence’, Arbitration International, Volume 18, No. 14, LCIA, 2002, p. 426.
Kluwer Law International, 2013, p. 182.
124
EDMS may be able to capture additional data from electronically stored documents since
those documents contain the metadata.
Documents stored in the EDMS are coded with objective and subjective data fields.34
‘Objective’ data fields ‘capture information such as the date, author and subject matter of
the document, whereas “subjective” fields capture information such as the relative rel-
evance of a document, or the issue to which a document relates’.35 Furthermore, the docu-
ments stored electronically in the EDMS can be accessed by several users at the same time
and users can access them from different devices.The information from the EDMS can also
be quickly transmitted to other users, including the other party or the arbitral tribunal.36
Nonetheless, the EDMS have their flaws, such as costs of purchasing the appropriate
hardware or software and training the users. Moreover, with the electronic search tools
come certain limitations, especially regarding date restriction and key word search, where
the risk is that not all the relevant documents will appear. To mitigate this risk, the parties
are encouraged to use more advanced searching techniques, such as the ‘Boolean’ searches
or ‘fuzzy’ searches created especially for accurate electronic document searches.37
The ICC Commission Report on Managing E-Document Production also indicates
that the parties may use the technique of data sampling, which:
entails the retrieval, review and production of only a portion of the repositories potentially con-
taining relevant and material documents in order to assess whether the benefits of further review
and production justify the costs and burdens of such review and productions.38
A predictive coding tool should also gain the attention of the arbitration practitioners.
Predictive coding is a learning technology that makes it possible to review documents and
find the relevant ones on the basis of the tags and marks that were input by the person who
reviewed the samples. It is a mixture of keyword search, filtering and sampling to automate
portions of the e-discovery document review.The goal of predictive coding is to reduce the
number of irrelevant and non-responsive documents that need to be reviewed manually.39
By means of these techniques, it is possible for the party to limit the scale of documents
that need to be reviewed. Consequently, these techniques allow the parties to conduct pro-
ceedings in a more cost- and time-effective manner.
To reduce the costs and increase the effectiveness of document review, it is recom-
mended to involve in the document review process those persons who were also involved
in the construction project.
In order to simplify the presentation of crucial documents during the arbitration pro-
ceedings, the parties may submit a timeline (chronology) of events to the tribunal. The
Final Report on Construction Industry Arbitrations issued by the International Chamber
of Commerce (ICC) (the ICC Construction Report) goes as far as to indicate that the
34 J. Jenkins, International Construction Arbitration Law, Second Edition, op cit, p. 183.

37 See: ICC Commission Report on Managing E-Document Production, ICC, Paris, 2012.
38 See: ICC Commission Report on Managing E-Document Production, ICC, Paris, 2012.
39 http://searchcompliance.techtarget.com/definition/predictive-coding.
125
timeline is required in all disputes concerning delays and disruption.40 The timeline typi-
cally consists of three columns containing the date of the event, its description and evi-
dence proving its occurrence.41
Managing and using documents during the hearing

Documents should be properly managed and prepared not only for the purposes of written
submissions, but the parties should also consider a convenient method for managing the
documents during the hearings. The ICC Construction Report states that it is the tribunal
that will need to ascertain:
whether it is practicable to work from printouts or whether it would be better if the material were
accessed directly by the tribunal, in which case it will be necessary for the tribunal and every
other party to be provided with the necessary software.42
Such software may be an expensive tool; however, its benefits cannot be overestimated. One
only has to imagine how the ability for the tribunal and the parties to comfortably access
the instantly needed documents stored in a database would simplify and accelerate the
hearings. At the same time, it would eliminate the need to ensure that everyone is literally
on the same page, which may be a frustrating process in cases where large volumes of docu-
ments are involved.43 One of the examples of such a tool is a limited access secure website
that will be accessible only to the approved persons. During the hearings, that website will
be accessible to all the involved persons.44 The parties or the tribunal may thereafter decide
whether each party and the tribunal should search for the relevant documents itself or
whether they should be projected onto a screen.
Nevertheless, if the tribunal decides that it prefers to work with printouts, it is still pos-
sible and necessary to properly organise the documents in order to simplify and speed up
the hearings. So far, there are no rules on managing the documents during the hearing in
any particular way; however, the tribunal has the power to decide on that matter.45
The ICC Construction Report proposes that the documents should be assembled
into ‘working’ files, divided, for example, into complete sets of site minutes, programmes,
instructions and ‘issue’ files, where each file will contain documents relevant to each issue.46
The parties may also agree to assemble the most relevant documents to which the parties
would like to refer during the hearing into the hearing bundles. Presenting files or bundles
40 Final Report on Construction Industry Arbitration, ICC International Court of Arbitration Bulletin Volume
12, No. 2, Paragraph 21.
Kluwer Law International, 2013, p. 179–180.
42 ‘Final Report on Construction Industry Arbitration’, ICC International Court of Arbitration Bulletin, Volume 12,
No. 2, Paragraph 53.
44 J. Waincymer, Procedure and Evidence in International Arbitration, Kluwer Law International, 2012, pp. 881–882.
No. 2, Paragraphs 52–53.
126
relating to each issue or ‘working’ files not only streamlines the proceedings but also elimi-
nates the issue of duplication of documents.
The ICC Construction Report also indicates the importance of document identifica-
tion systems. The parties must number the documents according to the agreed numbering
system and ideally should highlight the relevant section of each of those documents for
ease of reference.47 The parties can also colour-code the documents according to their
content.48 For example, the ‘working’ files, witness statements and issue files would each
have an assigned colour.
Even if the arbitral tribunal does not decide on any particular way of managing the
documents, it is in the parties’ interest to suggest that the tribunal do so.
It is also important to be aware of how to properly manage the documents during
the examination of witnesses. During the examination, the parties may wish to consider
showing to the witnesses the most relevant documents in order to flag these documents
to the arbitrators. That way, the party can ensure that the tribunal will not overlook such
a document.
Documents may also be presented during the opening and closing statements of the
parties’ counsel. In order to effectively convey the arguments during such presentations, the
documents may be projected onto a screen.
Conclusion
On one hand, documents are the most accurate and reliable evidence serving the parties,
experts and finally the tribunals to decide on the merits of the case. On the other hand, the
number of documents in construction disputes is overwhelming and might still increase
in the future with the increase in the complexity of the construction projects and the
development of the parties’ awareness of the role of documents as evidence in arbitration.
Therefore, efficient management of documents in the construction disputes is important to
the parties’ success in arbitration, and its role will grow in the future.
No. 2, Paragraph 52.; J Jenkins, p. 185
127
13
Awards
Roger ter Haar QC, Crispin Winser and Maurice Holmes1
Absent compromise, while court cases end in judgments, arbitrations end in awards. It is
important to keep in mind the distinction between the two.2
Leaving aside investment treaty arbitrations, arbitrations concerning construction pro-
jects are essentially private affairs, even where one party is a state organisation.While differ-
ent jurisdictions take somewhat different approaches, in general, arbitrations are regarded
as being protected by a degree of privacy. Thus, the contents of the vast majority of arbitral
awards are known only to the disputing parties, the arbitral tribunal and the institution
under whose auspices an arbitration may be being conducted.
While, particularly in common law countries, courts are conscious that their decisions
will be relied upon by parties outside the particular dispute being determined to regulate
their affairs (in common law countries because of the doctrine of precedent, in civil law
countries because judgments give guidance as to how similar disputes may be resolved in
future), such considerations are generally absent in arbitrations. In arbitrations, tribunals
are primarily concerned with deciding issues placed before them in a way that can be the
subject of successful enforcement by the winning party.
Procedural orders
In the course of an arbitration the tribunal will issue directions regulating the conduct of
the arbitration. Some arbitrators will describe these as ‘directions’ and some as ‘orders’: the
distinction is mere nomenclature and of no significance. What is important is that such
1 Roger ter Haar QC, Crispin Winser and Maurice Holmes are barristers at Crown Office Chambers.
2 An interesting paper on this distinction was written by the late Lord Bingham: ‘Reasons and reasons for
reasons: differences between a court judgment and an arbitration award’, 4 Arbitration International (1988),
p. 441.
128
Awards
directions or orders are not ‘awards’, as they do not formally determine matters of substance
in issue between the parties.
This is not in any way to diminish the significance of such orders, which may be of
great complexity, may determine difficult issues that involve legal concepts and may have a
crucial effect upon the success of one party or the other to the arbitration.
A decision that takes the form of a procedural order may not be final: thus, a tribunal
that determines in a first procedural order that a substantive evidential hearing will take
place on 1 January may decide in a later order that justice requires that hearing to be heard
at a later date.
Other decisions expressed in the form of a procedural order may have substantive effect;
for example, a decision refusing to permit an amendment to introduce a new claim may
mean that the claim is ruled out for ever if a statutory limitation period prevents that claim
from being brought in another arbitration or in court proceedings.
Distinguishing between a procedural order and a final dispositive decision that amounts
to an award, even if not described that way by the tribunal, can be difficult, although in
the vast majority of cases the distinction is clear enough. In broad terms, if the decision
is a management decision as to how the arbitration is to proceed, it is a procedural order.
Important consequences can flow from the distinction. As pointed out below, there are
often formal requirements relating to the issue of awards – sometimes emanating from the
institution under whose auspices an arbitration is being conducted and sometimes aris-
ing out of the law of the country in which the seat of the arbitration is situated. If those
formalities are not observed, an award may not be legally enforceable. By contrast, if the
decision is merely procedural then it is unlikely that any formalities will be applicable.
Awards are also sometimes capable of challenge through annulment or other procedures
or should, in most cases, be capable of recognition through the courts, whereas such proce-
dures are not applicable to procedural orders.
Interim, partial and final awards

Unlike procedural orders, subject to certain qualifications all awards are final and binding, as
is made clear by the express terms of many of the standard forms of construction contract
(see, e.g., Clause 20.6 of the FIDIC Red Book (finally settled), Clause 66(9) of ICE 7th
Edition (finally determined) and Clause W1.4 of NEC3 (the tribunal settles the dispute
referred to it)) and institutional rules (see, e.g., Article 34.2 of the 2010 UNCITRAL
Arbitration Rules (final and binding), Article 35.6 of the 2017 International Chamber
of Commerce (ICC) Arbitration Rules (binding on the parties), Article 30.1 of the
ICDR International Arbitration Rules (final and binding), Article 26.8 of the 2014 LCIA
Arbitration Rules (final and binding) and Rule 32.11 of the SIAC Arbitration Rules (final
and binding)). In the present context, a ‘final’ award is contrasted with an ‘interim’ or ‘par-
tial’ award. In that context, the reference to a final award is a reference to the last award in
a particular arbitration, that is the award by which the tribunal completes its task (there
are qualifications to this generalisation, as explained below). Once the final award has been
issued, the tribunal’s role is at an end (the tribunal is functus officio).
Thus, before issuing the final award, the tribunal should satisfy itself that it has indeed
completed its task.
129
Awards
In this sense, there is an important distinction between a final award in arbitration and
a final judgment in a court case. In the latter instance, the court may issue a final judgment
dealing with all matters other than the form of an order or as to costs of the proceedings.
This is certainly the case in many common law jurisdictions such as the UK. In this form
of procedure, the form of the order or the order as to costs may be regarded as ancillary
matters that would still be within the jurisdiction of the court to determine. By contrast,
a final award in an arbitration should (on its own or taken with earlier partial awards) deal
with all the matters arising out of the reference to arbitration including any dispositive
orders, whether monetary or other, by way or remedy or relief and any order for the pay-
ment by one party or the other of the costs of the arbitration, including the parties’ legal
costs, the remuneration of the tribunal and any charges payable to an arbitral institution. If
the tribunal does not do so, it may be too late for the tribunal to put right any omission
after the final award has been issued.
There are qualifications to the finality of a final award. Firstly, many institutional rules
provide for correction of an award after it has been issued. To quote from Article 36 of the
2017 ICC Arbitration Rules as an example:
1. On its own initiative, the arbitral tribunal may correct a clerical, computational or typographi-
cal error, or any errors of similar nature contained in an award, provided such correction is
submitted for approval to the Court within 30 days of the date of such award.
2. Any application of a party for the correction of an error of the kind referred to in Article
36(1), or for the interpretation of an award, must be made to the Secretariat within 30 days
of the receipt of the award by such party, in a number of copies as stated in Article 3(1). After
transmittal of the application to the arbitral tribunal, the latter shall grant the other party a
short time limit, normally not exceeding 30 days, from the receipt of the application by that
party, to submit any comments thereon.The arbitral tribunal shall submit its decision on the
application in draft form to the Court not later than 30 days following the expiration of the
time limit for the receipt of any comments from the other party or within such other period
as the Court may decide.
Examples of similar provisions can be found in Articles 27.1 and 27.2 of the 2014 LCIA
Arbitration Rules and Article 38 of the 2010 UNCITRAL Arbitration Rules.
Secondly, some institutional rules, in particular the 2014 LCIA Arbitration Rules, con-
tain provisions that allow for the tribunal to decide claims not decided in an issued award.
These provisions provide relief for oversights on the part of a tribunal that might otherwise
provide grounds for annulment of an award. The LCIA provisions are Articles 27.3 and
27.4:
27.3 Within 28 days of receipt of the final award, a party may by written notice to the
Registrar (copied to all other parties), request the Arbitral Tribunal to make an additional
award as to any claim or cross-claim presented in the arbitration but not decided in any
award. If the Arbitral Tribunal considers the request to be justified, after consulting the par-
ties, it shall make the additional award within 56 days of receipt of the request.
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Awards
27.4 As to any claim or cross-claim presented in the arbitration but not decided in any award,
the Arbitral Tribunal may also make an additional award upon its own initiative within
28 days of the date of the award, after consulting the parties.
These are salutary provisions, designed to do justice and to increase the prospects of
enforcement of an award, but experience shows that they are susceptible to abuse by more
or less thinly disguised attempts by unsuccessful parties to undermine an adverse award.
Such attempts usually fail.
Thirdly, some jurisdictions require formal registration or confirmation of an award
before enforcing an award, placing a procedural hurdle to be overcome that may provide
the opportunity for an award to prove neither final nor binding.
Finally, both the New York Convention and jurisdiction specific laws and procedures
may allow for the validity of an award to be challenged, either by denying enforcement of
an award, by annulling an award or (less usually) providing for grounds of appeal against
the contents of an award.
The matters referred to above are considered further below.
In many cases, leaving resolution of disputes referred to arbitration until the issue of a
single final award may be inconvenient, time-consuming, expensive or unjust to the parties.
In such cases the tribunal may issue an interim or partial award.
In this context, an interim or partial award means an award that decides some but not all
of the issues in dispute between the parties – the award is ‘partial’ because it decides some
but not all of the substantive issues in an arbitration.
Such an award is sometimes described as an ‘interim’ award. However, increasingly, an
award dealing with substantive issues is described as a ‘partial’ award, and the expression
‘interim’ award is used when its subject is the issue by the tribunal of interim relief such as
an order for the preservation of evidence.
Interim awards are discussed further below. In this chapter, ‘partial award’ is used in the
sense referred to above: that is, an award dealing finally with one or more of the substantive
issues in dispute, but not all of those issues, leaving the remaining issues to be determined
in a later award or awards.
A partial award is useful in many circumstances. At the outset of proceedings, objections
to the jurisdiction of a tribunal are often raised. It is the usual practice of tribunals to resolve
such objections under the principle of ‘competence-competence’. If the tribunal has no
jurisdiction to decide a particular dispute, it is often convenient for the tribunal to so decide
before the parties spend time and money debating substantive issues before a tribunal that
has no jurisdiction to determine those issues.
However, in many cases that course may not be convenient, perhaps because the case
as a whole is simple and this will stretch out the proceedings uneconomically or perhaps
because the tribunal feels that it will be better able to understand the jurisdictional issues
when it is better informed about the substantive issues in dispute.
A particular form of problem in construction disputes relates to whether notice of
claims has been given sufficiently early (e.g., under Clause 20 of the FIDIC Red Book
contract). Sometimes tribunals will determine such disputes, which are not strictly juris-
dictional disputes, in the same way as jurisdictional disputes as preliminary issues leading to
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Awards
a partial award, but in practice most arbitrators prefer to resolve notice issues when they are
better informed as to the substance of the claims made.
Bifurcation of proceedings is often convenient to first determine issues of liability,
before moving on to issues of quantum that may be irrelevant if claims are rejected by the
tribunal on the basis, for example, that no breach of contract has occurred, or that a claim
is barred because of the expiry of a limitation period.
In construction disputes, it is often convenient to deal with issues concerning the valu-
ation of works before factually complex claims for extensions of time and associated claims
for time-related prolongation costs. In this situation, a partial award relating to valuation of
works (particularly issues as to variations and their value) is often issued before the tribunal
hears disputes concerning extensions of time.
Partial awards are often issued when the tribunal has determined all issues save for the
allocation of costs. It is often convenient for the tribunal to invite submissions as to who
should bear the costs of the proceedings once it is known who is the winner and who is
the loser; or, perhaps, the extent to which each party is winner or loser.
In deciding whether to issue one or more partial awards followed by a final award, or
simply to issue one final award, the tribunal will principally be concerned with the time
and cost consequences of splitting the decision-making process.
Another important factor is the assessment of the risk that facts or matters that have a
bearing on the decision or decisions contained in a partial award may become evident in
a later part of the arbitration. An extreme case might be that in a partial award the tribunal
might accept the reliability of the evidence of a particular witness, only to discover that
later evidence placed before it after the issue of the partial award casts considerable doubt
upon that evidence or upon the integrity of the witness.
The power to issue partial awards may derive from the law of the seat of arbitration.
Thus, for example, the UK Arbitration Act 1996 provides in Section 47:
1. Unless otherwise agreed by the parties, the tribunal may make more than one award at dif-
ferent times on different aspects of the matters to be determined.
2.The tribunal may, in particular, make an award relating to:
(a) an issue affecting the whole claim, or
(b) a part only of the claims or cross-claims submitted to it for decision.
3. If the tribunal does so, it shall specify in its award the issue, or the claim or part of a claim,
that is the subject-matter of the award.
Some, but by no means all, institutional rules provide for the issue of interim or partial
awards – see, for example, Article 26.1 of the 2014 LCIA Arbitration Rules and Article
2(v) of the 2017 ICC Arbitration Rules (which defines an ‘award’ as including ‘inter alia, an
interim, partial or final award’).
Where neither the law of the seat of the arbitration nor governing institutional rules
expressly provide for the issue of interim or partial awards, the parties may agree terms of
reference conferring the power to issue such awards.
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Awards
Interim awards and emergency awards

As already explained, sometimes the expression ‘interim award’ is used in respect of awards
determining some, but not all, of the substantive issues in dispute in an arbitration. It is also
an expression often used to describe the decision of a tribunal granting interim relief, such
as an injunction or other restraining order. Such an order is usually not final in that it is only
intended to hold the ring pending the determination of the substantive issues in the case.
One particular form of such awards is the award of an ‘emergency arbitrator’.The estab-
lishment of an arbitral tribunal through an institution can take several weeks, if not months.
During that period, there is a substantial risk where there is an unscrupulous respondent of
significant evidence being destroyed or assets being dissipated. In order to hold the position,
many institutions have introduced an emergency arbitrator procedure where an arbitrator
who will probably not be a member of the tribunal determining the final substantive issues
decides whether or not to grant protective relief (see, e.g., Article 28 of the 2017 ICC
Arbitration Rules, Article 9B of the 2014 LCIA Arbitration Rules and Schedule 1 of the
2016 SIAC Arbitration Rules).
Interim awards and emergency awards are similar in that there is uncertainty in many
jurisdictions as to whether such interim or emergency awards, not being ‘final’ awards, are
unenforceable.3 As a result, many parties will prefer to seek interim relief from domes-
tic courts. However, there is a potential problem in some jurisdictions where the court
will refuse to grant relief if effective emergency relief is available from the relevant arbi-
tral tribunal.4
Awards supporting DAB decisions5

An increasing number of construction contracts in international projects using one of the
FIDIC suite of contracts, or other forms of contract, incorporate Dispute Adjudication
Boards (DABs) as a form of dispute resolution procedure to take place before resort to
arbitration is permitted.Where a DAB has considered and ruled on an issue, the arbitration
is a form of appeal from the DAB decision.
Frequently, a DAB will rule on an issue that has only temporary significance, albeit that
the issue may be of great importance. An example is where a monthly interim payment
certificate is (in the view of the contractor) measurably below the amount due for the work
valued in that certificate.
In that situation, it is possible that the shortfall may be made good in a later interim
payment certificate: in that situation, the cash flow problem suffered by the contractor may
be limited in time.
If an arbitration tribunal considers what should be included in a particular interim pay-
ment certificate, its decision will be final as to what should be in that interim certificate,
3 See the discussion by W.G. Bassler in ‘The enforceability of emergency awards in the United States: or when
interim means final’, 32 Arbitration International (2016), p. 559.
4 See, for example, the English case of Gerald Metals SA v.Timis [2016] EWHC 2327 (Ch).
5 A useful paper on arbitral awards following DAB decisions is Christopher Seppala’s paper ‘Commentary on
recent ICC arbitral awards dealing with dispute adjudication awards under FIDIC contracts’, International
Construction Law Review (2016), p. 185.
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Awards
but will be interim in the sense that the tribunal will not necessarily be determining what
the contractor will finally be entitled to for the work done.
This conundrum has caused difficulties in arbitrations considered by the courts in
Singapore.6 The problem arose because in Singapore, as in other jurisdictions, provisional
awards are not recognised and enforced: the courts enforce awards stating the final rights
and obligations of the parties in respect of the matters with which they deal.
The solution adopted was to uphold an interim award declaring the amount due in
an interim payment certificate, and a direction to the employer to make the payment
promptly, and to grant recognition of that award as being final. Thus the court of appeal
gave effect to a binding but non-final DAB decision.
The problem does not arise where the DAB has decided an issue that will not call
for reconsideration later under the contract machinery. Thus, a decision that a particular
instruction was a variation is a final decision on that issue, which could be the subject of a
final award by an arbitral tribunal, even if the project is ongoing.
It is important to understand that the problem is to do with enforcement under legisla-
tive provisions in particular jurisdictions. The power of a tribunal to deal with such issues
derives from the arbitration agreement appointing the tribunal, and any applicable arbitra-
tion rules.
Default awards
From time to time one party (usually the respondent) will decline to participate in an arbi-
tration, or may withdraw from proceedings.
Where this happens in a court case, the court (if satisfied of due service of the pro-
ceedings upon the absent party) will simply issue a default judgment, perhaps without the
necessity of any judicial consideration of the case. In court proceedings there is usually an
available process for default judgments to be set aside if (for example) it later transpires that
the proceedings were not duly served.
Arbitrations present different problems, because enforcement is not in the control of
the body determining liability.
In respect of default awards, as with other awards but perhaps even more so, the tribunal
should be astute to ensure that the award is enforceable.
To that end, the tribunal will have particular regard to the extent of its jurisdiction and
to setting out the basis upon which it concludes that it has jurisdiction to enter upon a
dispute and issue an award.
Again, in contrast to how a court might often proceed, tribunals generally regard it
as appropriate to scrutinise with care the merits of claims put before them by the party
appearing before them. It is not the role of the tribunal to rubber stamp the claim because
the respondent has declined to participate. (Of course, the absent respondent may have an
answer to the claim that is not apparent to the tribunal.)
6 CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33; [2015] SGCA 30, discussed
by N. Bunni, C. Ong and M. O’Reilly: ‘The Enforcement of Dispute Adjudication Board Decisions: Persero
and the FIDIC Standard Form of Contract’, 81 Arbitration (2015), p. 367.
134
Awards
Consent awards7
Where parties come to terms by agreement, they will often seek a consent award from
the tribunal. Article 33 of the 2017 ICC Arbitration Rules expressly makes provision for a
consent award:
If the parties reach a settlement after the file has been transmitted to the arbitral tribunal in
accordance with Article 16, the settlement shall be recorded in the form of an award made by
consent of the parties, if so requested by the parties and if the arbitral tribunal agrees to do so.
The advantage to the parties is that such an award may ease enforcement of a settlement
agreement if one party does not honour its part of that agreement.
Asked to issue such an award, a tribunal will normally scrutinise it to see if there are
any problems or manifest errors that might affect its enforceability, and will also wish to
ensure that any administrative details have been dealt with, not least ensuring that the
financial aspects of the arbitration concerning the tribunal and any arbitral institution have
been considered.
Time for issue of awards

Some institutional rules place a time limit within which the arbitral tribunal must issue its
award. For example, Article 31.1 of the 2017 ICC Arbitration Rules imposes a six-month
time limit. However, where there is such a time limit there is usually the option of it
being extended.
In practice, few construction arbitrations are concluded within six months. Construction
arbitrations tend to be document-heavy, and to involve significant amounts of factual and
expert witness evidence, making such a time limit very hard to achieve.
The time taken by arbitrators to produce awards is often a matter of adverse comment,
but the volume and nature of the evidence to be considered does make producing awards
arduous. There is also an an undoubted tendency for the appointment of arbitrators to be
confined to selection from a small coterie, but this problem has been recognised and the
arbitral institutions are introducing methods to ameliorate the problem including requiring
potential arbitrators to declare their existing commitments and reducing the amount paid
to arbitrators whose awards are unacceptably delayed.
Contents of awards
When preparing an award, an essential task of the tribunal is to strive to the best of its abil-
ity to produce an award that will be enforceable. The requirements set out below are some
of the requirements generally required for an award to be enforceable. Particular jurisdic-
tions may have other additional requirements.8
7 For discussion of some of the issues raised by consent awards, see G. Marchisio, ‘A Comparative Analysis of
Consent Awards: Accepting Their Reality’, 32 Arbitration International (2016), p. 331.
8 For an interesting paper on writing awards, see M. Gleeson, ‘Writing awards in international commercial
arbitrations’, 81 Arbitration (2015), p. 73.
135
Awards
In modern practice, it is generally expected that awards will be in writing (unlike a

court judgment), signed by each member of the tribunal (again, unlike a court judgment)
and dated.
An award will normally record the names and addresses of the parties and of their rep-
resentatives, which in construction arbitrations normally means their legal representatives.
The award will normally record the matters conferring authority upon the tribunal,
that is to say the arbitration agreement and the particulars of appointment of the member
or members of the tribunal.
The award will usually record at least the principal procedural stages of the arbitration.
The award should record the issues that the tribunal is called upon to decide. This is
partly to make it clear that the tribunal has properly understood what those issues are, in
order to ensure that there is no later challenge to the award upon the basis that the tribu-
nal did not understand the issues before it, or has not resolved issues that it was required
to resolve.
The award should contain reasons for its resolution of issues, but unlike a judgment in
a common law court, findings of fact and the basis for findings of fact are seldom set out at
length. And while legal conclusions are usually recorded (because awards do not have the
same formal effect as legal precedents, and indeed are generally confidential and therefore
not published), they are not set out in the depth and with the analytical reasoning that is
expected, for example, of UK judges whose decisions are liable to be scrutinised by an
appellate court and relied upon by third parties as statements of the law (this latter point is
not relevant in the same way in civil law jurisdictions). In a paper published in 1988, the late
Lord Bingham suggested the following reasons for giving reasons in an award:9
• the parties are entitled to know why they have won or lost;
• a reasoned award is a safeguard against arbitrariness, private judgment or an irrational
splitting of the difference;
• a reasoned award allows the parties to be guided by it in respect of their future com-
mercial conduct between one another;
• a reasoned award can allow an appellate or supervisory court to review the decision
effectively; and
• the giving of a reasoned judgment is a valuable intellectual discipline for the decision
maker (he described this as a ‘half reason’).
The award (or where there is more than one award, at least one of the awards) should state
clearly and unambiguously what remedies the tribunal is granting, if any.
A useful checklist for the contents of an award has been given by a distinguished inter-
national arbitrator:10
• the parties and their representatives;
• the contract and the arbitration agreement;
9 Lord Bingham, ‘Reasons and reasons for reasons: differences between a court judgment and an arbitration
award’, 4 Arbitration International (1988), p. 441. See also A. Beaumont, ‘Reasons and Reasons for Reasons
Revisited: has the Domestic Arbitral Award Moved Away from the Fundamental Basis Behind the Reasoned
Award, and is it Now Time for Realignment?’, 32 Arbitration International (2016), p. 523.
10 M. Gleeson, ‘Writing Awards in International Commercial Arbitrations’, 81 Arbitration (2015), p. 73.
136
Awards
• an overview of the dispute;

• the arbitral tribunal;
• procedural history;
• the issues raised in respect of the claim (and any counterclaim);
• relevant contractual provisions;
• relevant background or contextual matters;
• summary of the arguments of the parties;
• evidence and findings on factual issues;
• legal issues;
• conclusions on substantive issues;
• claims and arguments on relief;
• interest;
• costs; and
• disposition.
The decision-making process: dissenting awards?

Where a tribunal consists of three members rather than one, different tribunals have dif-
ferent methods of reaching their decision. Obviously, consultation is important, but with
modern communications that does not necessarily involve face-to-face meetings. It is cus-
tomary for the chair or president of the tribunal either to write the whole of the award or
the greater part of it, but in complex construction arbitrations this would very often place
an unrealistic and unjust burden upon the chair or president.
In public law arbitrations such as investment treaty arbitrations, dissenting awards are
not infrequent, but they are rare in construction arbitrations. Not only are dissenting awards
outside the ambit of expectation of most institutional rules, they are contrary to one of
the expectations of the parties to commercial arbitrations, namely that the award or awards
should be clear and unambiguous.
Institutional scrutiny
Some institutional arbitration rules, most importantly in the context of construction dis-
putes, the ICC Arbitration Rules, require awards to be scrutinised and approved by the
institution before issue.
While such scrutiny is liable to cause delay, it can be extremely useful. Institutions such
as the ICC have enormous experience of jurisdictions around the world as to what is
required of an award for it to be enforceable.
Challenges to an award
There are two overlapping concepts to be considered: a challenge to an award on the one
hand and resistance to enforcement of an award on the other.
A challenge to an award will usually take place in the courts of the jurisdiction that is
the seat of the arbitration. The grounds upon which a court will uphold a challenge will
depend upon the laws of the jurisdiction in which it is situated. There is not space here to
set out a comparison of the different approaches in different countries.
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Awards
What can be said is that, generally, grounds that will justify resistance to enforcement of
an award under the New York Convention (discussed below) will be grounds for a success-
ful challenge to the award in a local court.The converse is by no means necessarily the case:
local laws may justify the setting aside or annulment of an award on grounds that would
not justify refusal to enforce an award. This can produce conflicts between jurisdictions, as
noted below.
Enforcement of awards
Each country is likely to have its own jurisprudence as to the available methods of enforce-
ment of domestic awards.
As far as the enforcement of international arbitration awards is concerned, by far the
most important consideration is the Convention on the Recognition and Enforcement
of Foreign Arbitral Awards, signed in New York on 10 June 1958. There are now over
150 states that have contracted into the New York Convention. There are other signif-
icant treaties relating to the enforcement of awards, not least the International Centre
for Settlement of Investment Disputes Convention and certain regional conventions –
the Moscow Convention, the Panama Convention and the Riyadh Convention, among
others. However, of the conventions concerning construction arbitration, the New York
Convention is by far the most important.
Article I(1) is in very wide terms, and read on its own has the effect that an award made
in any state, even if that state were not a party to the Convention, would be recognised and
enforced by any other state that was a party, as long as the award satisfied the basic condi-
tions set down in the Convention. However, Article I(3) has two reservations that states
are permitted to adopt. The first is to limit the scope of the Convention to awards made
in another state that is a party to the Convention (the reciprocity reservation). Roughly
50 per cent of states acceding to the Convention have availed themselves of the reciproc-
ity reservation. The second is to declare that the Convention will only be applied to legal
relationships that are considered as commercial under the national law of the state making
such reservation (the commercial relationships reservation). Approximately one-third of
states have availed themselves of this reservation.
There are formal requirements in the Convention: firstly that either the duly authenti-
cated original award or a duly certified copy of the award is produced to the relevant court
and that the original arbitration agreement or a duly certified copy of that agreement is
also produced.11 However, there have been examples of some latitude being shown by some
courts to these formalities.12 If the award or the arbitration agreement is not in the official
language of the court in which recognition and enforcement is sought, certified translations
are required.13
11 Article IV.
12 See Hewlett-Packard Inc v. Berg [1994] 867 F. Supp. 1126, 1130 note 11 (Massachusetts); Shaanxi Provincial
Medical Health Products I/E Corporation v. Olpesa SA (2003) Tribunal Supremo, Case No. 112/2002 (Spain);
Lombard-Knight v. Rainstorm Pictures Inc [2014] EWCA Civ 356; [2014] Bus LR 1196; [2014] 2 Lloyd’s Rep 74
(England).
13 Article IV(2).
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Awards
Once the necessary documents have been supplied, the court will grant recognition
and enforcement unless one or more of the grounds for refusal set out in the Convention
are present.
There are seven separate grounds on which recognition and enforcement of a
Convention award may be refused.14
The first five are triggered by the party opposing recognition and enforcement.15 The
opposing party (the party against whom the Convention is invoked) needs to prove that:
(a) The parties to the arbitration agreement … were, under the law applicable to them, under
some incapacity, or the said agreement is not valid under the law to which the parties sub-
jected it or, failing any indication thereon, under the law of the country where the award
was made; or
(b) The party against whom the award is invoked was not given proper notice of the appoint-
ment of the arbitrator or of the arbitration proceedings or was otherwise unable to present
his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on matters beyond the scope of the submis-
sion to arbitration, provided that, if the decision on matters submitted to arbitration can be
separated from those not so submitted, that part of the award which contains decisions on
matters submitted to arbitration may be recognised and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance
with the agreement of the parties, or, failing such agreement, was not in accordance with the
law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended
by a competent authority of the country in which, or under the law of which, the award
was made.
It will be seen that each of these grounds is essentially concerned with the procedure:
• Was the tribunal properly constituted in accordance with a valid arbitration agreement?
• Was the arbitration conducted in accordance with due process?
• Did the tribunal answer all the questions put to it?
• Did it answer questions not put to it?
The Convention does not permit any review as to the merits of an award.
Even if one or more of the grounds are made out, the Convention does not require
refusal of enforcement. Some countries are more likely than others to uphold awards.Thus,
for example, the United States and the United Kingdom have a ‘pro-enforcement bias’,16
but this bias is not universal.
14 These are echoed in the UNCITRAL Model Law on International Commercial Arbitration at Article 36.
15 See Article V(1).
16 See in the case of the United States, Parsons Whittemore Overseas Co v. Societé Générale de L’Industrie de Papier
(RAKTA) [1974] 508 F.2d 969; and in the case of the United Kingdom Sir Stephen Tomlinson’s address to
the London branch of the Chartered Institute of Arbitrators reported under the heading ‘The Enforcement of
Foreign Arbitral Awards’ at (2015) 81 Arbitration 398; IPCO (Nigeria) Ltd v. Nigerian National Petroleum Corpn
139
Awards
Two separate heads of refusal are vested in the ‘competent authority’ of the country
where recognition and enforcement is sought. These are where the competent author-
ity finds:17
• the subject matter of the difference is not capable of settlement by arbitration under the
law of that country; or
• the recognition or enforcement of the award would be contrary to the public policy of
that country.
In countries with a ‘pro-enforcement bias’, courts are slow to refuse enforcement on either
of these grounds.
Enforcement of awards that have been annulled or set aside

It might be thought that where an award has been set aside or annulled in the courts of
the seat of an arbitration it would be difficult to enforce that award elsewhere. While that
is generally the case where the set-aside has been upon grounds equating to Convention
grounds for refusing recognition and enforcement, there are many cases where an annulled
or set-aside award has been enforced elsewhere. This is a large and complicated subject.18
[2005] EWHC 726 (Comm); [2005] 2 Lloyd’s Rep. 326; Sinocore International Co Ltd v. RBRG Trading (UK)
Ltd [2017] EWHC 251 (Comm).
17 Article V(2).
18 For useful discussions of this topic, see R. Jogani, ‘The Role of National Courts in the Post-arbitral Process:
the Possible Issues with the Enforcement of a Set-Aside Award’, 81 Arbitration (2015), p. 254; F. Gonzalez
de Cossio, ‘Enforcement of annulled awards: towards a better analytical approach’, 32 Arbitration International
(2016), p. 17.
140
Part III
Select Topics on Construction Arbitration
14
Construction Disputes in Investment Treaty Arbitration
Erin Miller Rankin, Sami Tannous and Matei Purice1
Introduction
Cross-border activity in the construction sector has seen exponential growth in recent
years, with an increasing number of complex construction projects being awarded, particu-
larly in developing economies.The nature and importance of such projects means that they
can be prone to political interference, unpredictable government policy or simply impacted
by general economic instability.
In certain cases, for example, where the state is not the contractual counterparty, inter-
ference with or violations of a contractor’s rights by the state will not give rise to a breach
of contract, leaving investors without a remedy. In other cases, projects may be impacted
by state measures not specifically directed at them. For instance, following Argentina’s
2001 financial crisis, the Argentine government’s enactment of a ‘pesification’ law had the
effect of devaluing investments in various construction concession projects.2 Within the
five years following the Argentinian financial crisis, 37 investment treaty claims across all
sectors were filed against Argentina.3
With the increased use of public–private partnership (PPP) investment vehicles and
joint ventures with state-owned entities, host states may commit to long-term project
structures only to encounter financial insecurity years down the line, resulting in the state’s
postponement, frustration or cancellation of the project.
1 Erin Miller Rankin and Sami Tannous are partners and Matei Purice is a senior associate at Freshfields
Bruckhaus Deringer LLP. The authors would like to thank Ms Patricia Snell for her kind contribution and
overall assistance in preparing and finalising this chapter.
2 See Hochtief Aktiengesellschaft v.The Argentine Republic (ICSID Case No. ARB/07/31) Decision on Liability,
29 December 2014, Paragraphs 67–68 and 100–101. Two further cases that arose from the same construction
project: Impregilo SpA v.The Argentine Republic (II)(ICSID Case No. ARB/08/14) (settled); Impregilo SpA v.The
Argentine Republic (ICSID Case No. ARB/15/39) (pending).
3 See UNCTAD Investment Policy Hub, accessed on 13 April 2017.
143
International construction contractors should therefore be attuned to the protections

provided by international investment agreements (IIAs) (either bilateral – BITs;4 or mul-
tilateral – MITs5) that may offer an alternative (or in some cases the only) remedy against
political sovereign risk.
Despite some initial reluctance by investment treaty tribunals, investment claims
under IIAs in the construction industry are now common. Indeed, there has been a
steady increase in investment disputes in the construction sector with the United Nations
Conference on Trade and Development (UNCTAD) reporting 22 pending and 47 con-
cluded construction-related investment arbitration disputes.6 The International Centre for
Settlement of Investment Disputes’ (ICSID) caseload statistics (cases registered or admin-
istered) similarly reflect this upward trend,7 with construction and infrastructure disputes
consistently representing 7 per cent of the ICSID caseload since 2010.8 In fact, as will be
known to many students and lawyers familiar with investment treaty arbitration, one of the
leading cases for whether a particular transaction is an investment under the Convention
on the Settlement of Investment Disputes between States and Nationals of Other States
(ICSID Convention) for the purposes of investment treaty protection, Salini v. Morocco,
arose out of a construction project.9
Whether a contractor can bring an arbitration against a host state under an IIA often
requires consideration of the following questions:
• whether the contractor qualifies as an investor;
• whether the contractor’s project or the construction contract itself qualifies as
an investment;
• whether the contractor’s claims arise out of the construction contract or are based on
breaches of an IIA; and
• whether the alleged breaches are by the state, an emanation of the state, or an entity
whose conduct is attributable to the state.
4 There are currently more than 2900 BITs concluded.

5 See, for example, the Energy Charter Treaty (the ECT), the Agreement on Promotion, Protection and
Guarantee of Investments among Member States of the Organization of the Islamic Conference (the OIC
Agreement) or the Unified Agreement for the Investment of Arab Capital in the Arab States (the Arab
Investment Agreement).
6 UNCTAD Investment Policy Hub, accessed on 13 April 2017.
7 As of 14 April 2017, there were 16 pending ICSID cases in the construction sector and 30 concluded, settled,
or discontinued cases. The discrepancy in the number of cases reported by ICSID and UNCTAD is perhaps
due to the inclusion of UNCITRAL cases by UNCTAD and the lack of a convention for what qualifies as a
dispute in the construction sector.
8 ICSID Caseload Statistics (Issue 2017-1) as of 31 December 2016; ICSID Caseload Statistics (Issue 2016-1)
as of 31 December 2015; ICSID Caseload Statistics (Issue 2015-1) as of 31 December 2014; ICSID
Caseload Statistics (Issue 2014-1) as of 31 December 2013; ICSID Caseload Statistics (Issue 2013-1)
as of 31 December 2012; ICSID Caseload Statistics (Issue 2012-1) as of 31 December 2011; ICSID
Caseload Statistics (Issue 2011-1) as of 31 December 2010; ICSID Caseload Statistics (Issue 2010-1) as of
31 December 2009.
9 See Salini Costruttori SpA and Italstrade SpA v. Kingdom of Morocco (ICSID Case No. ARB/00/4) Decision on
Jurisdiction, 23 July 2001.
144
This chapter does not attempt to provide a comprehensive answer to these questions, but
offers a general overview of the main issues that may arise in investment claims involving
construction projects, and how investment tribunals have approached them to date.
Is the contractor a qualifying ‘investor’?

In determining whether a contractor qualifies as an investor for the purposes of investment
treaty protection, the tribunal must first assess the definition of ‘investor’ under the relevant
IIA. If a dispute under an IIA is brought to ICSID, the contractor must also meet the defini-
tion of investor under Article 25 of the ICSID Convention.
For natural persons, the definition of investor under IIAs will typically include indi-
viduals having the nationality of the host state.10 Some BITs exclude from their protec-
tion natural persons who possess the nationality of both signatory states. For instance, the
Romania–Canada BIT excludes, for Romania, natural persons who possess both Romanian
citizenship and that of Canada.11
For legal persons to qualify as investors, they must be incorporated under the laws of
the home state. Some IIAs may require that the juridical person have a genuine commercial
activity in that state or have their main seat of business in a contracting state (other than the
host state).12 In some cases, entities constituted under the laws of the host state, but con-
trolled directly or indirectly by nationals of the investor state, may also be deemed to qualify
as investors under IIAs.13 In the construction context, a foreign shareholder or investor may
be able to obtain protection while a local partner may not.14 Unincorporated joint ventures
do not typically qualify as an investor under IIAs.That said, each IIA is different and careful
analysis of the actual wording is important in order to assess the specific requirements for a
contractor to qualify as an investor under a given IIA.
In the ICSID context, the investor must be a ‘National of another Contracting State’
pursuant to Article 25 of the ICSID Convention. ICSID has jurisdiction only over dis-
putes between a state and a national of another contracting state. Disputes between states
or between private investors are excluded. However, tribunals have determined that the
concept of ‘national’ is not limited to privately owned companies and does not depend
on whether the company is partially or even fully controlled by the state.15 Rather, the
relevant test, known as the ‘Broches Test’, as formulated in 1972 by Aaron Broches, the first
10 C. McLachlan, L. Shore and M. Weiniger, International Investment Arbitration: Substantive Principles, First Edition
(2007), pp 140–141; M. Purice, ‘Natural persons as claimants under the ICSID Convention’ in C Baltag,
ICSID Convention after 50 Years: Unsettled Issues, First Edition (2017), Section 4.02.
11 Romania–Canada BIT (2009), Article I(h)(i).
12 C. McLachlan, L. Shore, and M. Weiniger, International Investment Arbitration: Substantive Principles, First Edition
(2007), p. 142; See, for example, Switzerland–Kuwait BIT (2000), Article 1(3)(b).
13 See, for example, Netherlands–Kuwait BIT (2002), Article 1(2)(d).
14 See Tulip Real Estate and Development Netherlands (BV) v. Republic of Turkey (ICSID Case No. ARB/11/28)
Award, 10 March 2014 (a Dutch investor entered into a joint venture with three local Turkish partners).
15 Ceskoslovenska Obchodni Banka, AS v.The Slokav Republic (ICSID Case No. ARB/97/4) Decision of the
Tribunal on Objections to Jurisdiction, 24 May 1999, Paragraphs 16–17; Rumeli Telekom AS and Telsim Mobil
Telekomunikasyon Hizmetleri AS v. Republic of Kazakhstan (ICSID Case No. ARB/05/16) Award, 29 July 2008,
Paragraph 197; C. Schreuer, L. Maintoppi, A. Reinisch and A. Sinclair, The ICSID Convention: A Commentary,
Second Edition (2009), p. 161.
145
Secretary-General of ICSID, is whether an investor acted as an agent of the government, or

discharged an essentially governmental function:
[I]n today’s world the classical distinction between private and public investment, based on the
source of the capital, is no longer meaningful, if not outdated.There are many companies which
combine capital from private and governmental sources and corporations all of whose shares are
owned by the government, but who are practically indistinguishable from the completely pri-
vately owned enterprise both in their legal characteristics and in their activities. It would seem,
therefore, that for purposes of the Convention a mixed economy company or government-owned
corporation should not be disqualified as a ‘national of another Contracting State’ unless it is
acting as an agent for the government or is discharging an essentially governmental function.16
The ICSID Convention does not define the concept of nationality for natural persons
under Article 25(2)(a), however it denies jurisdiction to individuals who also hold the
nationality of the host state on either the date of consent to ICSID arbitration or the date
of the registration of the request for arbitration.17 For legal persons, ‘national of another
contracting state’ means:
any juridical person which had the nationality of a Contracting State other than the State party
to the dispute on the date on which the parties consent to submit such dispute to conciliation or
arbitration and any juridical person which had the nationality of the Contracting State party
to the dispute on that date and which, because of foreign control, the parties have agreed should
be treated as a national of another Contracting State for the purposes of this Convention.18
Professor Schreuer has asserted that:
The overwhelming weight of the authority … points towards the traditional criteria of incorpo-
ration or seat for the determination of corporate nationality under Art. 25(2)(b). The situation
may be otherwise if the parties have entered into an agreement on the investor’s nationality.19
Has the contractor made an ‘investment’ in the host state?

Most IIAs adopt a wide definition of ‘investment’, such as ‘every kind of asset’20 or ‘any
kind of asset and any direct or indirect contribution in cash, kind or in services, invested
or reinvested in any sector of economic activity’, with a non-exhaustive indicative list of
16 See C. Schreuer, L. Maintoppi, A. Reinisch and A. Sinclair, The ICSID Convention: A Commentary, Second
Edition (2009), p. 160.
17 ICSID Convention, Article 25(2)(a).
18 ICSID Convention, Article 25(2)(b).
19 C. Schreuer, ‘Commentary on the ICSID Convention: Article 25’ (1997) ICSID Rev-FILJ 59, cited in C.
McLachlan, L. Shore and M. Weiniger, International Investment Arbitration: Substantive Principles, First Edition
(2007), p. 144.
20 See Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland
and the Government of the Lebanese Republic for the Promotion and Reciprocal Protection of Investments,
16 February 1999, Article 1(2); See also Agreement between the People’s Republic of China and Bosnia and
Herzegovina on the Promotion and Protection of Investments, 1 January 2005, Article 1(1).
146
specific types of investments.21 Even those few treaties with a closed list of defined invest-
ments are so comprehensive as to capture nearly every conceivable investment covered
under the open-list approach. The starting (and likely the only) point, therefore, is to look
to the definition of ‘investment’ under the relevant IIA.
Where a dispute is brought under the ICSID Convention, however, an additional ques-
tion may arise as to whether Article 25(1) of the ICSID Convention sets any further
threshold for investments. The term investment is undefined in the ICSID Convention.
The position taken by a number of ICSID tribunals is that if a transaction qualifies as an
investment under the instrument providing consent to ICSID arbitration (such as an IIA), it
must also be deemed to qualify as an investment under the ICSID Convention.22 Therefore,
according to those tribunals, the jurisdiction ratione materiae of an ICSID tribunal is a matter
to be determined with reference to the terms of the relevant IIA.
Indeed, the Annulment Committee in MHS v. Malaysia held that the failure of an arbi-
trator to consider, let alone apply, the definition of investment as it is contained in the IIA
is a gross error giving rise to a manifest failure to exercise jurisdiction:
Some 1700 of those treaties are in force, and the multilateral treaties, particularly the Energy
Charter Treaty, which are in force, of themselves endow ICSID with an important jurisdictional
reach. It is those bilateral and multilateral treaties which today are the engine of ICSID’s effec-
tive jurisdiction. To ignore or depreciate the importance of the jurisdiction they bestow upon
ICSID, and rather to embroider upon questionable interpretations of the term ‘investment’ as
found in Article 25(1) of the Convention, risks crippling the institution.23
21 See Agreement between the Belgo-Luxembourg Economic Union, on the One Hand, and the Government
of the Republic of Belarus, on the Other Hand, on the Reciprocal Promotion and protection of Investments,
9 April 2002, Article 1(2); See also Accord entre le Gouvernement de la République Française et le Gouvernement du
Royaume d’Arabie saoudite sur l’encouragement et la protection réciproques des investissements, Article 1(1) ‘all assets of
every nature, such as goods, rights, and interests held or controlled by an investor’ [tous les avoirs de toute nature,
tels que les biens, droits et revenus, détenus ou contrôlés par un investisseur].
22 See, for example, Philippe Gruslin v. Malaysia, (ICSID Case No. ARB/99/3) Award, 27 November 2000,
Paragraph 13.6; SGS Société Générale de Surveillance SA v. Islamic Republic of Pakistan (ICSID Case No.
ARB/01/13) Decision of the Tribunal on Objections to Jurisdiction, 6 August 2003, Paragraph 133; Malaysian
Historical Salvors, SDN, BHD v.The Government of Malaysia (ICSID Case No. ARB/05/10) Decision on the
Application for Annulment, 16 April 2009, Paragraphs 73–74 and 78; Poštová Banka, AS and Istrokapital SE v.
The Hellenic Republic (ICSID Case No. ARB/13/8), Award, 9 April 2015, Paragraph 357; SGS Société Générale
de Surveillance SA v. Paraguay (ICSID Case No. ARB/07/29) Decision on Jurisdiction, 12 February 2010,
Paragraph 93.
23 Malaysian Historical Salvors, SDN, BHD v.The Government of Malaysia (ICSID Case No. ARB/05/10) Decision
on the Application for Annulment, 16 April 2009, Paragraph 73; See Philippe Gruslin v. Malaysia (ICSID Case
No. ARB/99/3) Award, 27 November 2000, Paragraph 13.6; See also I. Fadlallah, ‘La notion d’investissements;
vers une restriction à la compétence du CIRDI?’, Global Reflections on International Law (2005, ICC), cited in
J. Ho, ‘The Meaning of ‘Investment’ in ICSID Arbitrations’ (2010) 26 Arb Int 633, p. 639. Ibrahim Fadlallah,
one of the arbitrators on the Salini tribunal, stated that the quest for an objective definition of ‘investment’ is
‘hasardeuse et, probablement, contraire à l’esprit de la Convention’ [hazardous and, probably, contrary to the spirit of
the Convention].
147
As the tribunal in Garanti Koza v.Turkmenistan recently held:
The Tribunal therefore concludes that the Claimant’s burden of showing that its investment that
is the subject of this arbitration falls within the meaning of ‘investment’ as used in the ICSID
Convention as well as in the BIT is satisfied by the Tribunal’s conclusion that the Claimant’s
investment comes within the definition of ‘investment’ in the BIT and that nothing about that
definition or the Claimant’s investment itself exceeds what is permissible under the ICSID
Convention or is incompatible with its purpose.24
Nevertheless, some ICSID tribunals have considered that an investment needs to meet
certain objective criteria under the ICSID Convention as well, although these are not
necessarily to be applied in a strict fashion.25 The ICSID tribunal in Salini v. Morocco, a case
arising out of a project for the construction of a highway in Morocco, identified the fol-
lowing elements for an activity to qualify as an investment under the ICSID Convention:
• substantial commitment or contribution;
• participation in the risks of the transaction;
• reasonable duration of performance;
• regularity of profit and return; and, only in some cases
• contribution to the economic development of the host state.26
The above criteria have been commonly referred to as the Salini criteria.Tribunals typically
have considered the Salini criteria to be general characteristics rather than jurisdictional
requirements.27
In his doctrinal work, Professor Douglas endorses only part of the Salini criteria in
defining an investment in modified form; namely:
• commitment of resources to the economy of the host state;
• assumption of risk; and
• expectation of a commercial return.28
To the extent that the more controversial fifth Salini criterion listed above is deemed to
have relevance, investments related to the ‘tasks to be carried out by the State or by other
24 Garanti Koza LLP v.Turkmenistan (ICSID Case No. ARB/11/20) Award, 19 December 2016, Paragraph 242.
25 Biwater Gauff (Tanzania) v. United Republic of Tanzania (ICSID Case No. ARB/05/22) Award, 24 July 2008,
Paragraph 312: ‘In the Tribunal’s view, there is no basis for a rote, or overly strict, application of the five Salini
criteria in every case.’
26 Salini Costruttori SpA and Italstrade SpA v. Kingdom of Morocco (ICSID Case No. ARB/00/4), Decision on
Jurisdiction, 23 July 2001, Paragraph 52.
27 See Malaysian Historical Salvors, SDN, BHD v.The Government of Malaysia (ICSID Case No. ARB/05/10)
Decision on the Application for Annulment, 16 April 2009, Paragraphs 79–80; See also Biwater Gauff
(Tanzania) Limited v. United Republic of Tanzania (ICSID Case No. ARB/05/22) Award, 24 July 2008,
Paragraphs 310, 312–318; See R. Castro de Figueiredo, ‘The Notion of Investment and Economic
Development under the ICSID Convention’ in C Baltag, ICSID Convention After 50 Years: Unsettled Issues, First
Edition (2017), p. 96, citing C. Schreuer, The ICSID Convention: A Commentary, First Edition (2001), p. 140:
the Salini criteria ‘should not necessarily be understood as jurisdictional requirements but merely as typical
characteristics of investments under the Convention’.
28 Z. Douglas, The International Law of Investment Claims, First Edition (2009), p. 191.
148
public authorities’ or that ‘serve the public interest’ have been considered to satisfy the
criterion of contribution to the development of the host state – a broad scope that should
capture most construction and infrastructure projects.29
In the context of a construction contract, the qualifying investment may consist of
the rights acquired under the contract, together with all plant, equipment and materials
imported by the contractor in connection with the construction works as well as any bank
guarantees provided for the purposes of the works.
In the past, there were concerns that investment treaty protection was not available
for classic works contracts for the construction of buildings.30 However, recent cases have
demonstrated that, for more complex structures, and with the advent of PPPs to promote
efficient procurement for foreign sector investment, in practice, most international con-
struction contracts are likely to meet the definition of an investment.Various construction
works have been found by tribunals to be qualifying investments, such as:
• the development and construction of a real estate project;31
• the development of a touristic resort;32
• the development of a golf club and condominiums;33
• the dredging of a canal;34
• the construction and operation of a transfer station for hazardous waste;35
• the construction of hydro-electric power facilities;36
• the construction of a gas pipeline;37
• improvement works at an oil refinery;38
• the construction of a dam;39
• the construction of roads and motorways;40
29 Joy Mining Machinery Limited v.The Arabic Republic of Egypt (ICSID Case No. ARB/03/11) Award on
Jurisdiction, 6 August 2004, Paragraphs 58–63; Patrick Mitchell v. Democratic Republic of Congo (ICSID Case No.
ARB/99/7) Decision on the Application for the Annulment of the Award, 1 November 2006, Paragraphs
27–31.
30 Société Ouest Africaine des Bétons Industriels v. Senegal (ICSID Case No. ARB/82/1) Decision on Jurisdiction,
1 August 1984, Paragraphs 47–58; Award, 25 February 1988, Paragraphs 4.01–4.17.
31 MTD Equity Sdn Bhd and MTD Chile SA v. Republic of Chile, (ICSID Case No. ARB/01/7) Award,
25 May 2004.
32 Mohamed Abdulmohsen Al-Kharafi & Sons Co v. Libya and others, Final Arbitral Award, 22 March 2013.
33 Ansung Housing Co, Ltd v. People’s Republic of China (ICSID Case No. ARB/14/25).
34 Jan de Nul NV and Dredging International NV v. Arab Republic of Egypt (ICSID Case No. ARB/04/13) Award,
6 November 2008.
35 Metalclad Corporation v.The United Mexican States (ICSID Case No. ARB(AF)/97/1) Award, 30 August 2000.
36 Impregilo SpA v. Islamic Republic of Pakistan (ICSID Case No. ARB/03/3).
37 Saipem SpA v. People’s Republic of Bangladesh (ICSID Case No. ARB/05/7).
38 Samsung Engineering Co, Ltd v. Sultanate of Oman (ICSID Case No. ARB/15/30).
39 Salini Costruttori SpA and Italstrade SpA v. Hashemite Kingdom of Jordan (ICSID Case No. ARB/02/13); ATA
Construction v. Hashemite Kingdom of Jordan (ICSID Case No. ARB/08/2).
40 Salini Costruttori SpA and Italstrade SpA v. Kingdom of Morocco (ICSID Case No. ARB/00/4), Decision
on Jurisdiction, 23 July 2001; Toto Costruzioni Generali SpA v.The Republic of Lebanon (ICSID Case No.
ARB/07/12); Bayindir Insaat Turizm Ticaret VE Sanayi AS v. Islamic Republic of Pakistan (ICSID Case No.
ARB/03/29) Decision on Jurisdiction, 14 November 2005; Desert Line Projects LLC v.The Republic of Yemen
(ICSID Case No. ARB/05/17) Award, 6 February 2008; Consortium RFCC v. Kingdom of Morocco (ICSID Case
No. ARB/00/6); Pantechniki v. the Republic of Albania (ICSID Case No. ARB/07/21).
149
• the construction and operation of an international airport;41 and

• the construction of bridges.42
Do the contractor’s claims arise under the IIA or are they based on
breaches of the construction contact?
Construction disputes almost inevitably involve an underlying contract that comes with
a variety of rights and obligations. If the state is not a party to the construction contract,
the state cannot be held responsible for any breaches of contract. Therefore, for a claim
to be made against the state, a claim must be brought under an IIA for breach of one of
its substantive protections. In some cases, as explained below, contractual breaches by the
host state may be covered by an IIA as well. Facts giving rise to a contractual remedy may
or may not give rise to a BIT remedy, as articulated in the annulment decision of Vivendi
v. Argentina:
whether there has been a breach of the BIT and whether there has been a breach of contract
are different questions. Each of these claims will be determined by reference to its own proper
or applicable law – in the case of the BIT, by international law; in the case of the Concession
Contract, by the proper law of the contract, in other words, the law of Tucumán.43
…
A treaty cause of action is not the same as a contractual cause of action; it requires a clear show-
ing of conduct which is in the circumstances contrary to the relevant treaty standard.44
In Bayindir v. Pakistan,45 a full-scale construction claim was brought under an investment

treaty in circumstances that raised the question whether a treaty claim could provide an
alternative forum for a contractor. The tribunal held that the fact that a state may be exer-
cising a contractual remedy did not itself exclude the possibility of a treaty breach (paral-
lel claims).
In conclusion, the Tribunal considers that when the investor has a right under both the contract
and the treaty, it has a self-standing right to pursue the remedy accorded by the treaty.The very
41 Malicorp v. Arab Republic of Egypt (ICSID Case No. ARB/08/18) Award, 7 February 2011, Paragraph 114
(where the concession could have generated significant returns despite the contractor not yet having made
significant contributions).
42 Garanti Koza LLP v.Turkmenistan (ICSID Case No. ARB/11/20) Award, 19 December 2016, Paragraphs
232–233.
43 Vivendi v.The Argentine Republic (ICSID Case No. ARB/97/3) Decision on Annulment, 3 July 2002,
Paragraph 96.
44 Vivendi v.The Argentine Republic (ICSID Case No. ARB/97/3) Decision on Annulment, 3 July 2002,
Paragraph 113.
45 Bayindir Insaat Turizm Ticaret Ve Sanayi AS v. Islamic Republic of Pakistan (ICSID Case No. ARB/03/29) Decision
on Jurisdiction, 14 November 2005.
150
fact that the amount claimed under the treaty is the same as the amount that could be claimed
(or was claimed) under the contract does not affect such self-standing right.46
Purely contractual disputes, such as claims for delay or wrongful calling of a bond, are
unlikely to constitute a breach of an IIA without more. For a breach of an IIA, state con-
duct is required – the state or its emanation must go beyond what an ordinary contracting
partner would do and exercise sovereign authority.47 As the ICSID tribunal concluded in
Impregilo v. Pakistan:
In order that the alleged breach of contract may constitute a violation of the BIT, it must be the
result of behaviour going beyond that which an ordinary contracting party could adopt. Only
the state in the exercise of its sovereign authority (‘puissance publique’), and not as a contracting
party, may breach the obligations assumed under the BIT.48
IIAs typically provide five main substantive protections relevant to construction and infra-
structure disputes:
• no expropriation without compensation;
• fair and equitable treatment;
• full protection and security;
• non-discrimination; and
• the observation of obligations (‘umbrella clauses’).
These are briefly explained below.
Expropriation
IIAs provide protection from direct or indirect expropriation or measures tantamount to
expropriation, such as the revocation of title deeds, operating licences, or in some cases by
terminating or cancelling licences or agreements.49
on Jurisdiction, 14 November 2005, Paragraph 167.
47 Toto Costruzioni Generali SPA v. Republic of Lebanon (ICSID Case No. ARB/07/12) Award, 7 June 2012,
Paragraph 161.
48 Impregilo SpA v. Pakistan (ICSID Case No. ARB/03/3) Decision on Jurisdiction, 22 April 2005, Paragraph
260; See Consortium RFCC v. Morocco (ICSID Case No. ARB/00/6) Decision on Jurisdiction, 16 July 2001,
Paragraphs 39–40.
49 See Alpha Projektholding GmbH v. Ukraine (ICSID Case No. ARB/07/16) Award, 8 November 2010,
Paragraphs 408–412 (indirect expropriation through the transferring of the claimant’s assets to a company
owned by the state without compensation); Sistem Mühendislik Inşaat Sanayi ve Ticaret AŞ v. Kyrgyz Republic
(ICSID Case No. ARB(AF)/06/1) Award, 9 September 2009, Paragraphs 117–121 (abrogation of ownership
rights in a hotel and expropriation pursuant to a local court order).
151
It is now generally accepted that contractual rights, as with any other investment, are
assets that may be expropriated.50 Construction contracts are no different.51 Expropriation
of the acquired rights embodied in a contract typically occurs when a state takes a sover-
eign action (or a series of actions) that impedes performance of or effectively terminates
the contract in question.52 The state’s resort to elements of puissance publique in carrying
out the expropriatory act is the critical feature in the context of expropriation of contrac-
tual rights. The analysis is whether the acts may be characterised as merely regulatory or
contract-related, or denote instead an unreasonable, unjust or disproportionate use of sov-
ereign powers, or an open resort to the sovereign prerogative to repudiate contracts, which
indicate the existence of an expropriation under international law.
By way of example, in ADC v. Hungary,53 the claimants entered into a contract with
a Hungarian state agency, ATAA, to renovate, construct and operate two terminals of the
Budapest-Ferihegy International Airport. Prior to completion of the airport construc-
tion, the Minister of Transport in Hungary issued a Decree and the Hungarian Parliament
passed legislation ‘having the effect of causing the rights of the Project Company to disap-
pear and/or become worthless’.54 The ICSID tribunal in that case found that an unlawful
expropriation had occurred since ‘[a]n act of state brought about the end of this investment
and, particularly, absent compensation, the BIT has been breached’.55 The tribunal also
rejected the state’s public interest argument, finding that the subsequent privatisation of the
airport and resulting profit netted by Hungary rendered this position unsustainable: ‘In the
opinion of the Tribunal, this is the clearest possible case of expropriation.’56
In some cases, the contractual rights that are expropriated may extend beyond the
underlying contract rights to rights in an arbitral award. In Saipem SpA v. People’s Republic of
Bangladesh, which involved the construction of a gas pipeline in Bangladesh, Petroblanga, a
state-owned company, filed an action in court seeking the revocation of the authority of an
International Criminal Court (ICC) tribunal based on allegations of tribunal misconduct.57
The Supreme Court of Bangladesh issued a decision revoking the authority of the ICC
tribunal and denied an application to set aside the ICC tribunal’s award on the grounds
50 See, for example, Azurix Corp v.The Argentine Republic (ICSID Case No. ARB/01/12) Award, 14 July 2006,
Paragraph 314; Siemens AG v.The Argentine Republic (ICSID Case No. ARB/02/8) Award, 6 February 2007,
Paragraph 267.
on Jurisdiction, 14 November 2005, Paragraph 255.
52 See, for example, Impregilo SpA v. Islamic Republic of Pakistan (ICSID Case No. ARB/03/3) Decision on
Jurisdiction, 22 April 2005, Paragraphs 260–261; Bayindir Insaat Turizm Ticaret Ve Sanayi AS v. Islamic Republic
of Pakistan (ICSID Case No. ARB/03/29) Award, 27 August 2009, Paragraph 180; Parkerings-Compagniet AS v.
Republic of Lithuania (ICSID Case No. ARB/05/8) Award, 11 September 2007, Paragraphs 443–445.
53 ADC Affiliate Limited and ADC & ADC Management Limited v.The Republic of Hungary (ICSID Case
No. ARB/03/16) Award, 2 October 2006.
No. ARB/03/16) Award, 2 October 2006, Paragraph 304.
57 Saipem SpA v.The People’s Republic of Bangladesh (ICSID Case No. ARB/05/07) Award, 30 June 2009.
152
that the award was non-existent. An ICSID tribunal determined that ‘Saipem’s residual
contractual rights under the investment as crystallised in the ICC Award’ was a property
right capable of being expropriated.58 The tribunal found that Bangladesh had breached the
Italy–Bangladesh BIT by unlawfully expropriating the claimant’s contractual right to ICC
arbitration through the Bangladesh courts’ interference.59
Fair and equitable treatment

Fair and equitable treatment seeks to: protect from a denial of justice (procedural fairness
and transparency),60 provide freedom from coercion or harassment and protect legitimate
expectations in a stable and predictable economic environment.61 Where the host state
introduces surprise or unfair changes in legislation affecting an investment or contract (e.g.,
by revoking tax exemptions or import charges or introducing surprise taxes),62 a contractor
may seek redress under an IIA.
For example, in Garanti Koza v.Turkmenistan, an ICSID tribunal found that Turkmenistan
was liable to an investor in a highway project for the wrongful rejection of invoices submit-
ted by the claimant for non-compliance with an unusual local methodology. According to
the tribunal in that case, this amounted to a breach of the fair and equitable standard under
the applicable UK–Turkmenistan BIT.63 In Desert Line v. Yemen, which is one of the first
investment treaty cases where the claimant has obtained an award for moral damages,64 the
state sought to annul a valid arbitral award and coerced Desert Line into an unfavourable
settlement agreement through such methods as arrest, detention, death threats, and heavy
artillery.Yemen was found to have breached the fair and equitable treatment standard under
the Oman–Yemen BIT.65
In Metalclad v. Mexico,66 a US corporation, operating through its Mexican subsidiary,
was notified that it was unlawfully operating without a municipal construction permit to
develop and operate a hazardous waste disposal enterprise. Metalclad’s application for a
permit was denied and the landfill was subsequently declared a protected natural area by
58 Saipem SpA v.The People’s Republic of Bangladesh (ICSID Case No. ARB/05/07) Award, 30 June 2009,
Paragraph 128.
59 Saipem SpA v.The People’s Republic of Bangladesh (ICSID Case No. ARB/05/07) Award, 30 June 2009,
Paragraphs 159–161.
60 See ATA Construction, Industrial and Trading Company v.The Hashemite Kingdom of Jordan (ICSID Case
No. ARB/08/2) Award, 18 May 2010; Railroad Development Corporation v. Republic of Guatemala (ICSID Case
No. ARB/07/23) Award, 29 June 2012.
61 Walter Bau AG (In Liquidation) v.The Kingdom of Thailand (UNCITRAL) Award, 1 July 2009, Paragraph
12.3 (legitimate expectations that the Thai authorities would approve toll hikes as contemplated in the
concession contract).
62 MTD Equity Sdn Bhd and MTD Chile SA v. Chile (ICSID Case No. ARB/01/7) Award, 25 May 2004.
63 Garanti Koza LLP v.Turkmenistan (ICSID Case No. ARB/11/20) Award, 19 December 2016, Paragraphs
383–384.
64 Desert Line v.Yemen (ICSID Case No. ARB/05/17) Final Award, 16 February 2008, Paragraphs 289–291.
The tribunal found that a party may request moral damages in ‘exceptional circumstances’ and determined
that the state’s coercive treatment of the claimant’s executives was ‘malicious’ and therefore constitutive of
fault-based liability.
65 Desert Line v.Yemen (ICSID Case No. ARB/05/17) Final Award, 16 February 2008, Paragraphs 190–195.
66 Metalclad Corporation v.The United Mexican States (ICSID Case No. ARB(AF)/97/1) Award, 30 August 2000.
153
Ecological Degree. An ICSID tribunal found that Mexico violated the fair and equitable
treatment protection by denying the permit and by lacking transparency as to the approval
procedure for municipal construction permits.67 The Ecological Decree alone also consti-
tuted an act of indirect expropriation, as it had the effect of ‘barring forever the operation
of the landfill’.68
Full protection and security

Where an investment is affected by civil unrest or armed conflict (including instances of
physical taking over or destruction of the investment), the host state may be liable for dam-
ages through the actions or inaction of the host state. The obligation to accord full protec-
tion and security ‘creates a special regime of liability for the acts of the state and for third
parties that compromise the physical security of the assets of the investor’.69
International tribunals have generally found that the obligation to accord full and
complete protection and security includes exercising due diligence and taking reasonable
measures to protect the foreign investment.70 The scope of the full protection and security
standard has, however, evolved beyond its traditional conception of protecting investors
from physical invasion or harassment and also extends to providing legal protection.71
In Pantechniki v. Republic of Albania,72 the claimant asserted that the state had failed to
provide full protection and security to the road worksite as a result of severe civil distur-
bances in 1997. The tribunal rejected this argument, finding that the state had been unable
to intervene, as opposed to having refused to intervene.73 The tribunal adopted the view
that, ‘[a]lthough a host state is required to exercise an objective minimum standard of due
diligence, the standard of due diligence is that of the host state in the circumstances and
with the resources of the state in question’.74 Similarly in LESI v. Algeria, the tribunal found
that full protection and security, in the midst of Algeria’s civil unrest in the mid-1990s, did
not constitute an impossible guarantee of constant and complete security, but simply an
67 Metalclad Corporation v.The United Mexican States (ICSID Case No. ARB(AF)/97/1) Award, 30 August 2000,
Paragraphs 97–101.
68 Metalclad Corporation v.The United Mexican States (ICSID Case No. ARB(AF)/97/1) Award, 30 August 2000,
Paragraph 109.
69 Z. Douglas, The Foundations of International Investment Law: Bringing Theory Into Practice, First Edition (2014),
p. 379.
70 See, for example, Wena Hotels Limited v. Arab Republic of Egypt (ICSID Case No. ARB/98/4) Award,
8 December 2000, Paragraph 84.
71 See, for example, Azurix Corp v.The Argentine Republic (ICSID Case No. ARB/01/12) Award, 14 July 2006,
Paragraph 406; Siemens v. Argentina (ICSID Case No. ARB/02/8) Award, 6 February 2007, Paragraph 303;
Compañiá de Aguas del Aconquija SA and Vivendi Universal SA v.The Argentine Republic (ICSID Case No.
ARB/97/3) Award, 20 August 2007, Paragraph 7.4.15; AES Summit Generation Limited and AES-Tisza Erömü
Kft v. Republic of Hungary (ICSID Case No. ARB/07/22) Award, 23 September 2010, Paragraph 13.3.2.
72 Pantechniki SA Contractors & Engineers v. Republic of Albania (ICSID Case No. ARB/07/12) Award, 30 July 2009.
73 Pantechniki SA Contractors & Engineers v. Republic of Albania (ICSID Case No. ARB/07/12) Award, 30 July 2009,
Paragraph 82.
74 Pantechniki SA Contractors & Engineers v. Republic of Albania (ICSID Case No. ARB/07/12) Award, 30 July 2009,
Paragraphs 81–82, citing Newcombe and Paradell, Law and Practice of Investment Treaties 310 (2009). The
tribunal, at Paragraphs 79–80, also cited favourably DP O’Connell, International Law (1970) Volume II, p. 968.
154
obligation to provide reasonable and proportionate security no less favourable than that
provided to nationals.75
On the other hand, in Wena Hotels v. Egypt, the tribunal found that Egypt had violated
the full protection and security standard enunciated in the Egypt–UK BIT by failing to
prevent the seizure of the investor’s investment by one of the state entities and also because
Egypt had failed to restore the investment promptly to the investor.76
Non-discrimination
IIAs also typically provide protection against interference with the performance of the
contract by unfair or discriminatory governmental action, providing the foreign investor
with the right to a level playing field. This often involves two prongs:
• ‘national treatment’, the right to receive the same treatment as domestic investors; and
• ‘most favoured nation’ treatment, the right to receive the same treatment as foreign
investors from other states, notwithstanding that the host state may have agreed more
favourable protections with other host states.77
Umbrella clauses
Also referred to as ‘elevator’ or ‘mirror effect’ clauses, umbrella clauses are a commitment
by the host state to comply with obligations it has entered into with regard to investments.
Umbrella clauses initially emerged in the context of early oil and gas concessions as a means
of creating a parallel cause of action under international law for breach of contract.78 In the
context of the construction industry, contractors contracting directly with the state or its
emanations may wish to consider relying on such clauses.
It has been said that around 40 per cent of BITs contain some form of an umbrella
clause.79 Such clauses remain controversial, however, as to the nature and scope of inter-
national protection they afford, with two competing views taken by arbitral tribunals:
umbrella clauses elevate contractual breaches into treaty breaches; or umbrella clauses do
not elevate purely contractual breaches.80
Under the first school of thought, umbrella clauses cannot elevate contractual breaches
into treaty breaches by transforming responsibility incurred towards a private investor
under a contract into international responsibility. This was the view taken, for example, in
75 LESI, SpA and Astaldi, SpA v. People’s Democratic Republic of Algeria (ICSID Case No. ARB/05/3) Award,
12 November 2008, Paragraphs 175–181.
76 Wena Hotels Limited v. Arab Republic of Egypt (ICSID Case No. ARB/98/4) Award, 8 December 2000,
Paragraph 84.
77 See MTD Equity Sdn Bhd and MTD Chile SA v. Republic of Chile (ICSID Case No. ARB/01/7) Award,
25 May 2004 (the Malaysian investor relied on the more specific provisions of the Croatian and Danish BITs
with Chile).
78 A. Sinclair, ‘The Origins of the Umbrella Clause in the International Law of Investment Protection’ (2004)
20 Arb Int 411, pp. 415–416.
79 J. Crawford, ‘Treaty and Contract in Investment Arbitration’ (2008) 24 Arb Int 351, p. 367.
80 Z. Douglas, The Foundations of International Investment Law: Bringing Theory Into Practice, First Edition (2014),
p. 387.
155
SGS v. Pakistan.81 SGS, a Swiss corporation, commenced an ICSID arbitration alleging that
Pakistan had breached its obligations under the Pakistan–Switzerland BIT, after Pakistan
had initiated a domestic arbitration pursuant to the arbitration clause of the agreement.
The tribunal considered whether the existence of the following umbrella clause could
transform purely contractual claims into BIT claims:
Either Contracting Party shall constantly guarantee the observance of the commitments it has
entered into with respect to the investments of the investors of the other Contracting Party.82
With respect to the treaty claims, the tribunal held that the umbrella clause did not have
the effect of elevating ‘its claims grounded solely in a contract with another contracting
party.’83 Furthermore, the tribunal put forth a floodgates argument that, the scope of the
term ‘commitments’ in the clause would be ‘susceptible to almost indefinite expansion’:
Considering the widely accepted principle with which we started, namely, that under general
international law, a violation of a contract entered into by a State with an investor of another
State, is not, by itself, a violation of international law, and considering further that the legal
consequences that the Claimant would have us attribute to Article 11 of the BIT are so
far-reaching in scope, and so automatic and unqualified and sweeping in their operation, so
burdensome in their potential impact upon a Contracting Party, we believe that clear and con-
vincing evidence must be adduced by the Claimant.84
The tribunal did not preclude the possibility that states may agree in a BIT that all breaches
of each state’s contracts with investors of the other state may henceforth be converted into
and be treated as breaches of the BIT. However, the claimant in that case failed to submit
evidence of the ‘necessary level of specificity and explicitness of text’.85
Adopting the opposing view, the tribunal in SGS v. Philippines, which involved the
same claimant, found that a specific contractual obligation under a BIT could be pursued
in breach of an applicable exclusive jurisdiction clause:
Article X(2) makes it a breach of the BIT for the host State to fail to observe binding com-
mitments, including contractual commitments, which it has assumed with regard to specific
81 SGS Société Générale de Surveillance SA v. Islamic Republic of Pakistan (ICSID Case No. ARB/01/13) Decision of
the Tribunal on Objections to Jurisdiction, 6 August 2003.
82 SGS Société Générale de Surveillance SA v. Islamic Republic of Pakistan (ICSID Case No. ARB/01/13) Decision
of the Tribunal on Objections to Jurisdiction, 6 August 2003, Paragraph 163, citing Article 11 of the
Pakistan-Switzerland BIT. Note that the clause was ‘curiously worded and might have given grounds for a
narrower construction’. See J. Crawford, ‘Treaty and Contract in Investment Arbitration’ (2008) 24 Arb Int 351,
p. 367.
the Tribunal on Objections to Jurisdiction, 6 August 2003, Paragraph 165.
the Tribunal on Objections to Jurisdiction, 6 August 2003, Paragraphs 166 and 167.
the Tribunal on Objections to Jurisdiction, 6 August 2003, Paragraph 173.
156
investments. But it does not convert the issue of the extent or content of such obligations into an
issue of international law. That issue … is still governed by the investment agreement. … On
the other hand, if some other court or tribunal has exclusive jurisdiction over the Agreement, the
position may be different.86
The tribunal thus interpreted ‘any obligation’ under the umbrella clause to apply to obliga-
tions arising under national law, such as those arising from a contract. The tribunal rejected
the argument that a broad interpretation ‘would involve a full-scale internationalisation of
domestic contracts – in effect, that it would convert investment contracts into treaties by
way of what the [SGS v. Pakistan] tribunal termed ‘instant transubstantiation’.’87 However,
the tribunal ultimately found that, while it had jurisdiction over the contract claim, the
claimant had to comply with the contractual jurisdiction clause.88
Some commentators have proposed an integrationist view whereby the umbrella clause
is an extra mechanism for the enforcement of claims, but they are governed by their appli-
cable law (and do not convert a contractual claim into a treaty claim): ‘The purpose of the
umbrella clause is to allow enforcement without internationalisation and without trans-
forming the character and content of the underlying obligation.’89
The interpretation of umbrella clauses to elevate contractual claims to treaty breaches
remains unsettled, and as there is no stare decisis in international arbitration, it is difficult to
predict how individual tribunals will approach such questions.90
Is the breach committed by the host state, an emanation of the state or an

entity whose conduct is attributable to the state?
To bring a claim under an IIA, the wrongful conduct must be by the host state, or attribut-
able to it under international law. Investment treaty claims do not cover commercial dis-
putes between private parties. In the ICSID context, Article 25 of the ICSID Convention
provides that the jurisdiction of ICSID only covers disputes between a contracting state
and a national of another contracting state.
86 Société Générale de Surveillance SA v. Republic of the Philippines (ICSID Case No. ARB/02/6) Decision on
Jurisdiction, 29 January 2004, Paragraphs 113–128.
87 Société Générale de Surveillance SA v. Republic of the Philippines (ICSID Case No. ARB/02/6) Decision on
Jurisdiction, 29 January 2004, Paragraph 126.
88 J. Uff, ‘Availability of Treaty Arbitration in Construction’ (2010) International Construction Law Review 403,
p. 410.
89 J. Crawford, ‘Treaty and Contract in Investment Arbitration’ (2008) 24 Arb Int 351, p. 370; See CMS Gas
Transmission Company v.The Argentine Republic (ICSID Case No. ARB/01/8) Decision of the ad hoc
Committee on the Application for Annulment of the Argentine Republic, 25 September 2007, Paragraph
95(d). The tribunal’s decision on this issue was annulled for failure to state reasons.
90 For a more recent example in the construction sector, see Garanti Koza LLP v.Turkmenistan (ICSID Case
No. ARB/11/20) Award, 19 December 2016.
157
The International Law Commission’s Articles on Responsibility of States for

Internationally Wrongful Acts may provide guidance on attribution under international
law, prompting a tribunal to consider:91
• Is the entity who committed the wrongful act a State organ?92
• If not, does it exercise governmental functions, and was the conduct in question gov-
ernmental rather than private or commercial activity?
• If not, was it acting under the control or direction of the State?
Where the contractor contracted directly with the host state or an emanation or organ of
the state, the host state can be responsible for breaches of the contract, which also amount
to breaches of the IIA. For example, in Bayindir v. Pakistan,93 which concerned the con-
struction of a motorway, the ICSID tribunal upheld jurisdiction over the dispute, finding
that the alleged breaches of the applicable BIT between Turkey and Pakistan were a direct
consequence of a decision of an administrative body, the National Highway Authority, to
terminate the contract. However, the decision received express clearance from the Pakistani
government and could not have been taken without government guidance – thereby estab-
lishing attribution to the state pursuant to Article 8 of the ILC Articles.94
For state-owned enterprises, where an action is effectively controlled by the state or
the state has significant involvement in the commission of the act, attribution may also be
found.95 In the Suez Canal dredging project case of Jan de Nul NV v. Egypt, the tribunal
articulated a two-tier test for the ‘effective control’ requirement under Article 8:
International jurisprudence is very demanding in order to attribute the act of a person or entity
to a State, as it requires both a general control of the State over the person or entity and a
specific control of the State over the act the attribution of which is at stake; this is known as the
‘effective control’ test.96
Similarly, the tribunal in Toto v. Lebanon determined that acts of the Executive Council of
Major Projects (CPEG), and its successor, the Council for Development and Reconstruction,
were attributable to Lebanon.97 The tribunal found that Toto had contracted with entities
91 J. Crawford, ‘Treaty and Contract in Investment Arbitration’ (2008) 24 Arb Int 351, p. 355. Crawford argues
that the ILC Articles were designed to attribute wrongful acts only. Cf A Badia, ‘Attribution of Conducts
of State-Owned Enterprises Based on Control by the State’ in C. Baltag, ICSID Convention after 50 Years:
Unsettled Issues, First Edition (2017), p. 205.
92 See R. Dolzer and C. Schreuer, Principles of International Investment Law, Second Edition (2012), pp. 216–217.
93 Bayindir v. Pakistan (ICSID Case No. ARB/03/29) Award, 27 August 2009, Paragraph 125.
94 Bayindir v. Pakistan (ICSID Case No. ARB/03/29) Award, 27 August 2009, Paragraph 124.
95 Article 8, ILC Draft Articles on Responsibility of States for Internationally Wrongful Acts (2001); See A. Badia,
‘Attribution of Conducts of State-Owned Enterprises Based on Control by the State’ in C. Baltag, ICSID
Convention after 50 Years: Unsettled Issues, First Edition (2017), pp. 190–192; See also pre-ILC Articles case of
Wena Hotels Ltd v. Arab Republic of Egypt (ICSID Case No. ARB/98/4) Award, 8 December 2000, Paragraphs
67–69.
96 Jan de Nul NV and Dredging International NV v. Arab Republic of Egypt (ICSID Case No. ARB/04/13) Award,
24 October 2008, Paragraph 173.
97 Toto Costruzioni Generali SpA v.The Republic of Lebanon (ICSID Case No. ARB/07/12) Decision on
Jurisdiction, 11 September 2009.
158
exercising governmental authority, although they were organs of the state and each had
distinct legal personality and administrative and financial autonomy.98
In brief, the CPEG, with projects funded by the State budget, and in charge of implementing
the decisions of the Council of Ministers, exercised Lebanese governmental authority when it
entered into the Contract with Toto. As also confirmed by Article 5 of the ILC Draft Articles,
its conduct has to be considered as an act of the Lebanese state.99
Where the employer is an autonomous corporate body legally distinct from the state, the
tribunal will most likely not find attribution of responsibility for a contractual breach by
the employer. In Impregilo v. Pakistan, where the claimant concluded contracts with the
Pakistan Water and Power Development Authority (WAPDA), and not with the state of
Pakistan, the tribunal found that the WAPDA was ‘properly characterised as an autono-
mous corporate body, legally and financially distinct from Pakistan’.100 In contrast, in Salini
v. Morocco, the tribunal found that a Moroccan company, ADM, in which the state held at
least 89 per cent of the shareholdings and whose board of directors included the Minister
of Infrastructure and other officials, was effectively state-controlled.101 In addition to the
structure of ADM, the tribunal also looked to the functional role of the company – ‘ADM’s
main activity is the construction, maintenance and operation of the highways and com-
munication routes of a large dimension, granted by the State’.102
In circumstances where the state itself is generally unlikely to be a direct counter-party
to a construction contract, questions of attribution of conduct are likely to continue play-
ing a significant role in investment claim involving the construction industry.
Conclusion
ICSID’s regional statistics on the percentage of all cases registered under the ICSID
Convention and Additional Facility Rules demonstrate a continuing rise in investment
arbitration in the construction sector:
• from 2014–2016, construction disputes represented 1 per cent of all ICSID cases involv-
ing an EU state party;103
Jurisdiction, 11 September 2009, Paragraphs 51–60.
Jurisdiction, 11 September 2009, Paragraph 53.
100 Impregilo SpA v. Islamic Republic of Pakistan (ICSID Case No. ARB/03/3) Decision on Jurisdiction,
22 April 2005, Paragraph 209.
101 Salini Costruttori SpA v. Kingdom of Morocco (ICSID Case No. ARB/00/4) Decision on Jurisdiction,
23 July 2001, Paragraphs 31–32; See also Impregilo SpA v. Islamic Republic of Pakistan (ICSID Case No.
ARB/03/3) Decision on Jurisdiction, 22 April 2005, Paragraphs 212–214.
102 Salini Costruttori SpA v. Kingdom of Morocco (ICSID Case No. ARB/00/4) Decision on Jurisdiction,
23 July 2001, Paragraph 33.
103 ICSID Caseload Statistics, Special Focus – European Union (April 2016); ICSID Caseload Statistics,
Special Focus – European Union (April 2015); ICSID Caseload Statistics, Special Focus – European Union
(March 2014).
159
• from 2014–2016, construction disputes represented 8–10 per cent of all ICSID cases
involving a state party from the South and East Asia and the Pacific region;104 and
• in 2015, construction disputes represented 9 per cent of all ICSID cases involving a state
party from Africa.105
Investment treaties increase the reassurance of foreign contractors and provide protec-
tion when entering a market of political upheaval and economic turbulence, as has been
observed in the surge of ICSID claims against Egypt and Libya following the Arab Spring
uprisings.106 With the recent fall in commodities prices globally, and growing political
unrest, contractors would be well advised to consider whether they may benefit from the
additional protection of an IIA.
104 ICSID Caseload Statistics, Special Focus – South & East Asia & The Pacific (October 2016); ICSID Caseload
Statistics, Special Focus – South & East Asia & The Pacific (October 2015); ICSID Caseload Statistics, Special
Focus – South & East Asia & The Pacific (October 2014).
105 ICSID Caseload Statistics, Special Focus – Africa (April 2016). As of 30 April 2016, ICSID had registered
563 cases, with 131 of these cases (23 per cent) involving an African State Party.
106 See, for instance, Strabag SE v. Libya (ICSID Case No. ARB(AF)/15/1); Hussain Sajwani, Damac Park Avenue for
Real Estate Development SAE and Damac Gamsha Bay for Development SAE v. Arab Republic of Egypt (ICSID Case
No. ARB/11/16); Yosef Maiman, Merhav (MNF), Merhav-Ampal Group, Merhav-Ampal Energy Holdings v. Arab
Republic of Egypt (UNCITRAL 2012).
160
15
Construction Arbitrations in the Nuclear Sector
Jane Davies Evans1
The nuclear sector has given rise to some of the most high-profile construction arbitra-
tion in recent years. The nature of nuclear power plant (NPP) projects means that many of
these arbitrations take place in the full gaze of the nuclear industry press and environmental
campaigning media. These arbitrations are often long running, and involve large teams of
lawyers and technical nuclear experts, in addition to the ‘usual’ delay and quantum experts.
The sums at stake (frequently in the multiple billions of dollars) and the technical com-
plexities of the issues in dispute can test even the most experienced construction counsel
and arbitrators.
International arbitration in the nuclear sector

Three examples provide a good starting point to understand the nature of construction
arbitration in the nuclear sector.
The International Chamber of Commerce (ICC) arbitration concerning the delayed
completion and increased cost of the Olkiluoto 3 NPP in Finland has been ongoing since
2008. The NPP itself was originally planned to be operational in 2009; as of writing, the
NPP is anticipated to be operational in 2018.The press reporting of this arbitration is more
akin to that of an investment treaty arbitration than a construction dispute; be it increases in
sums claimed and counterclaimed, failed attempts at settlement, hearing dates, the issuing of
partial awards, etc., the minutia of the arbitration is readily available for public consumption.
In parallel, the Finnish nuclear regulator STUK has been producing regular reports on the
project, setting out its detailed findings on a broad range of issues potentially relevant to the
delay and financial claims before the tribunal. 2
1 Jane Davies Evans is a barrister at 3 Verulam Buildings.

2 See http://www.stuk.fi/web/en/topics/nuclear-facility-projects/olkiluoto-3/news-concerning-olkiluoto-3.
161
Another widely reported ICC arbitration concerned the San Onofre Nuclear
Generating Station (SONGS) in California, USA. SONGS contains three reactor units,
only two of which were operational at the relevant time (Units 2 and 3), Unit 1 having
been permanently shut down in 1992. Mitsubishi Heavy Industries (MHI) designed and
fabricated a number of replacement steam generators for Units 2 and 3 as part of a 10-year
upgrade programme. In January 2012, after only 11 months of operation, one of the Unit
3 replacement steam generators experienced a radioactive coolant leak. Unit 3 was taken
out of service in order to prevent further leakage and allow investigations as to the cause
of the failure. Unit 2 (which was offline at the time due to planned maintenance) was
also inspected. Investigations revealed that the replacement steam generators in both units
were failing. In June 2013, the owner of SONGS, Southern California Edison (SCE),
announced that it would permanently shut down the units, and begin decommissioning
SONGS. In September 2013, the US Nuclear Regulatory Commission (NRC) issued its
findings; NRC identified that the computer codes used by MHI to design the replacement
steam generators were flawed, inaccurately predicting thermal hydraulic conditions in the
steam generators, leading to tube vibration and wear, and ultimately to stem generator tube
leak. One month later, SCE filed a Request for Arbitration against MHI seeking damages
of US$4 billion, subsequently increased to US$7.57 billion. In March 2017, the tribunal
issued its award. The tribunal (by a majority) upheld a contractual limitation provision
and ordered MHI to pay the owners only US$125 million.3 In addition, the owners were
ordered to pay US$52 million to MHI in costs.
A third ICC arbitration in the sector determined liability as between the Bulgarian state
energy firm NEK and the Russian NPP supplier, Atomstroyexport, following the cancel-
lation of the Belene NPP project. The supplier sought more than €1 billion in compensa-
tion. In an award that was over 700 pages, the tribunal awarded the supplier €550 million
in compensation, with the parties to discuss whether the NPP would be built or sold on
to a third party.4
Not only was this arbitration played out in the public view, but in each case the ICC
arbitration was only one part of the story. Public scrutiny, criticism and court action from
environmental groups, together with investigations and public reporting by the nuclear
regulators, were running in parallel. This is typical of arbitration in the nuclear sector,
requiring counsel (and arbitrators) – to a far greater extent than in many construction
arbitrations – to pay attention to the wider picture.
Nuclear safety – the overriding requirement

In conventional power projects, owners and suppliers5 juggle the competing constraints of
time, cost and quality, with priorities driven by the commercial objectives as reflected in the
underlying construction or supply contract.
For a nuclear project, nuclear safety – overseen by the local nuclear regulator – is
superimposed over these constraints. Quality is non-negotiable, limiting the parties’
3 Press reports from the owner report that the dissenting arbitrator would have awarded the owners more than
US$1 billion in damages.
4 Reuters 16 June 2016.
5 In this chapter, the term ‘supplier’ is used to denote the Tier 1 supplier who contracts directly with the owner.
162
ability to compromise on time and cost. Every aspect of the project must comply with
the relevant nuclear safety requirements, irrespective of how long or how costly it is to
achieve compliance.
This overriding requirement generates three risk streams, one or more of which will be
in issue in any construction dispute in the nuclear sector:
• the licensing risk;
• the risk of constructing in a nuclear environment; and
• nuclear liability.
The licensing risk

Any nuclear project carries with it a substantial licensing risk:
• Will the nuclear facility be licensed at all?
• If so, how long will it take for the nuclear facility to be licensed?
• What conditions will be attached to the licence?
Most nuclear regimes provide a two-track process: a high level licensing procedure, and
day-to-day detailed regulation. Understanding these two separate processes, and know-
ing what are the ‘hold points’ – points beyond which the project cannot progress with-
out approval from the regulator – is key when presenting or determining disputes in the
nuclear sector.
High-level licensing
The high-level licensing process is often very political and public. While the terminology
varies from regime to regime, most regimes include the following four gateways:
• an initial licence to build a NPP;6
• a construction licence (typically the ‘hold point’ for the pouring of First Concrete7 or
safety classified manufacture, for example, forging of the reactor pressure vessel);
• the licence to permit the transportation to and loading of nuclear fuel, at the NPP; and
• the operating licence required to commence operation of the NPP.
The first gateway will often have been passed before the supplier is committed to the
project. The remaining gateways will typically be key milestones in the project schedule,
often linked to the payment of liquidated damages for delay. As such, they will likely feature
prominently in any construction arbitration where a supplier, key component vendors or
subcontractors, are claiming additional time or money, or the owner is seeking to deduct
liquidated damages. Nuclear experts (often retired regulators from other states, who have
experience of the particular regime)8 will usually be needed to explain the licensing process
6 In some states this will involve a public referendum.

7 ‘First Concrete’ is the term used in the nuclear construction sector in relation to the first pour of safety
classified concrete, typically the base slab under the reactor.
8 There is significant collaboration between many state regulators, together with the international bodies who
oversee nuclear activities on an international basis, meaning that many regulators will have substantial personal
experience of the regulatory regime of other states.
163
to the tribunal, and provide opinions as to the cause of delayed achievement of each gate-
way, or the foreseeability of any pre-conditions imposed by the regulator.
Detailed regulation
The less public, but no less important, licensing process relates to the oversight, supervision
of and intervention into the day-to-day workings of the full supply chain by the nuclear
regulator. While the most onerous regulations apply to contractors and suppliers whose
work carries a high safety classification, the reality is that the nuclear regulator will take
an interest (and potentially intervene) in all the tiers of the supply chain, supervising each
phase of the project, from basic through to detailed design, procurement, manufacturing,
factory testing, construction/erection and installation through to commissioning.
Common claim events arising from the implementation of the detailed regulatory
regime include:
• delayed approvals or extended and repeated approval cycles;
• additional or revised requirements imposed during the approval process. For example,
the regulator may require additional engineering studies to be carried out to justify the
proposed design prior to approval;
• additional testing required to demonstrate the quality of components, materials and
as-built works;
• the imposition of different ways of working during manufacture, construction or com-
missioning, which may cause delay, reduced productivity and/or additional cost; and
• the imposition of changes to the NPP design as a pre-condition to approval of the works.
In a highly regulated environment, it is unrealistic for the parties to anticipate no changes

or unforeseen regulator requirements. In addition, the nuclear regulator – charged with
achieving the objective of nuclear safety – will typically supervise and intervene on nuclear
works to a much greater degree than an owner’s representative supervising conventional
projects. Further, the regulator does not bear the cost of these interventions; the regulator’s
only concern should be nuclear safety. However, these changes, interventions and addi-
tional or different requirements can have substantial impacts on the project schedule and
cost, giving rise to claims in arbitration between the owner and supplier or through the
supply chain as to who must bear the financial consequences.
The relatively limited recent activity in NPP construction in many parts of the world
means that it can be difficult for owners and the supply chain to predict what the regula-
tors will require from them. On the one hand, while the nuclear regulations may not have
changed substantially from the last NPP construction, the individuals who interpret and
implement the regulations may well be different and have their own views as to what com-
pliance requires. Alternatively, the regulations may have been updated but not implemented
since the last NPP construction in the jurisdiction, leaving the owner and supply chain
with little guidance as to what the new regulations actually require of them. Parties will
often seek to mitigate this risk through the use of existing NPP as ‘reference plants’ against
which regulator-imposed change can be measured. However, unless the existing NPP is a
‘twin’ the comparison may not be straightforward. Indeed, where the new NPP involves
significant developments from the earlier NPP, is a ‘first of a kind’, or is being constructed
in a different state with a different regulator, the utility of a reference plant as a benchmark
164
can be of limited benefit, and may generate considerable technical and legal argument dur-
ing an arbitration.
In practice, it is often this daily oversight and supervision of the project that gives rise
to the majority of claims during the construction phase. Expert evidence from experienced
nuclear experts as to the foreseeability and consequences of the regulator’s conduct will
form an essential part of the contractor’s case, together with the usual evidence from delay,
disruption and quantum experts as to the time and financial impacts.
The risk of constructing in a nuclear environment

Constructing in a nuclear environment poses additional risks to contractors beyond those
found on any conventional major project. It is essential that counsel, experts and tribunals
fully appreciate these risks, in order to be able to quantify the full impact of claim events
on the project schedule and the supplier or contractors’ costs. In particular, the limited
ability to work ‘at risk’, and the limits on the supplier or contractors’ ability to use normal
project management techniques to mitigate potential delays and cost overruns, mean that
when a nuclear project encounters difficulties, these can result in substantial delay and
additional cost.
Limited ability to work at risk

Many construction contracts will permit a contractor working on a conventional project
to work ‘at risk’. The contractor can choose, for example:
• to place long lead item procurement contracts before the component vendor has been
approved in order to guarantee a manufacturing slot and delivery date, or fix a favour-
able price;
• to start construction before engineering drawings have been issued ‘for construction’ in
order to gain time; or
• to undertake a major concrete pour before concrete test results are available, in order to
take advantage of good weather.
The contractor does so knowing that if the vendor, drawings or test results are not approved,
the owner will inevitably require opening up and investigation of the works at the contrac-
tor’s expense to check that the physical works conform with the contractual specifications.
Where these investigations show that the work is non-compliant, the contractor may be
instructed to remove and rework at the contractor’s time and cost. However, the contractor
may well take the view that it has confidence in its own internal quality controls and the
quality of its supply chain, engineers and supervisors, such that there is minimum risk in
practice or that the risk is worth taking given the liquidated damages for delay that may be
due if the contractor does not keep to the project schedule.
In the nuclear sector, many nuclear regulations prevent or severely restrict the ability of
the supplier to work ‘at risk’, prohibiting contractors from placing contracts or progressing
work without prior formal approval. This is a particular issue where the works concern
safety classified features of the NPP. Where contractors are unable to work ‘at risk’, it can
be very difficult (if not impossible) for delays or additional costs to be mitigated. As a result,
any delay in approval by the owner or the regulator can have a very significant impact on
the project schedule (and create substantial additional cost). These ‘hold’ points must be
165
understood by the delay experts engaged by the parties, in order that they can properly
assess the full impact of even small delays on the overall project.
Limited ability to manage internal processes

A further significant difference between conventional and nuclear projects is the extent to
which the applicable nuclear regulations limit both the owner and the contractor’s ability
to manage their internal processes.
In a conventional major project there will, of course, be project procedures in place
that govern how the contractor manages the project. However, typically, these procedures
are provided by the contractor, and can be amended or deviated from as the contractor
sees fit. The situation is quite different when constructing in a nuclear environment, with
the owner and contractor’s internal processes often requiring approval from the regulator,
and limited to no ability to amend or deviate from the processes without prior approval.
Where the regulator requires the contractor to work in a non-usual way, or is slow (or
refuses) to approve proposed changes, this can create inefficiencies in the contractor’s work-
force, or limit the contractor’s project team from improving productivity through changed
work practices.
For example, in a conventional project the contractor can typically manage late design
developments on the construction site, through a site-based engineering team who deal
with buildability issues as and when they arise on the shop drawings. In a nuclear project,
where limited work is possible without formal approved construction drawings, the con-
tractor may be prohibited from adopting this approach. A small construction issue can cause
large areas of site works to stop while the design is reworked and processed, rather than the
contractor implementing a suitable workaround on-site.
Another example concerns welding; a significant part of any NPP project. On a con-
ventional project, the contractor is free to reallocate welders around the site as and when
work is available. In contrast, under many nuclear regimes, the approval of welders is highly
regulated, with different welds requiring different certifications and approvals. Accordingly,
the contractor is unable to reallocate welders freely, and must match specific welders to spe-
cific tasks. This is an important issue when considering loss of productivity claims, increas-
ingly one of the most significant financial claims put forward in construction arbitration.
Welding productivity is closely monitored on both conventional and nuclear projects, with
experts normally able to assess with some accuracy the actual and anticipated productivity
of welding teams, and quantify the loss of productivity. On nuclear projects, the greater
variability of weld types, and the inflexibility of the workforce, makes the analysis much
more complex than for conventional projects.
The intensive supervision of the works by the nuclear regulator – and in particular,
the supervision of safety classified works – will also limit the contractor’s ability to revise
construction, erection and commissioning sequencing in order to progress the works. For
the same reason, the owner’s freedom on conventional projects to agree substitutes and
compromises in order to keep the project on schedule (or to mitigate delays) is restricted,
with almost any change requiring review and approval by the regulator before it can
be implemented.
As for working at risk, the experts and counsel must understand each of these com-
ponents of constructing in a nuclear environment, and be able to explain to the tribunal
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how the regulatory environment impacts on the owner and supply chain, and who bears
the risk.
Nuclear liability9
Civil liability for nuclear damage
The third risk stream for participants in nuclear projects relates to their potential lia-
bility for nuclear damage.10 This liability can arise only after nuclear material has been
brought on-site: during or after fuel loading, commissioning, operation, maintenance or
upgrade projects.
The Chernobyl disaster provided the clearest reminder that nuclear damage does not
respect international borders; notwithstanding the significant emphasis on nuclear safety at
every stage of a nuclear project, a nuclear incident11 has greater potential to cause damage
across a widespread geographical area than almost any other form of energy production or
industrial process. Liability for nuclear damage suffered within the same jurisdiction as the
civil nuclear installation is governed by domestic legislation. In addition, many states have
signed up to a series of international conventions addressing civil liability for nuclear dam-
age suffered in a state other than the state where the nuclear incident occurred.
The international nuclear liability regimes

The four most significant international conventions are:
• the Paris Convention on Third Party Liability in the Field of Nuclear Energy 1960 (the
Paris Convention) produced under the auspices of the Nuclear Energy Agency within
the Organisation for Economic Co-operation and Development;
• the Brussels Supplementary Convention 1963 to the Paris Convention (the Brussels
Supplementary Convention);
• the Vienna Convention on Civil Liability for Nuclear Damage 1963 (the Vienna
Convention) produced under the auspices of the United Nations International Atomic
Energy Agency; and
9 A full description of nuclear liability is outside the scope of this book, but counsel appearing in construction
arbitrations in this sector should be familiar with the basics of the international nuclear liability regime. See, for
example, ‘Liability for Nuclear Damage’ (updated May 2017), World Nuclear Association, www.world-nuclear.
org/information-library/safety-and-security/safety-of-plants/liability-for-nuclear-damage.aspx.
10 ‘Nuclear damage’ is defined in the Vienna Convention on Civil Liability for Nuclear Damage (the Vienna
Convention) as:
(i) loss of life, any personal injury or any loss of, or damage to, property which arises out of or results from the radioactive
properties or a combination of radioactive properties with toxic, explosive or other hazardous properties of nuclear fuel or
radioactive products or waste in, or of nuclear material coming from, originating in, or sent to, a nuclear installation; (ii) any
other loss or damage so arising or resulting if and to the extent that the law of the competent court so provides; and (iii)
if the law of the Installation State so provides, loss of life, any personal injury or any loss of, or damage to, property which
arises out of or results from other ionizing radiation emitted by any other source of radiation inside a nuclear installation.
11 ‘Nuclear incident’ is defined in the Vienna Convention as ‘any occurrence or series of occurrences having the
same origin which causes nuclear damage’.
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• the Joint Protocol Relating to the Application of the Vienna Convention and the Paris
Convention 1988 (the Joint Protocol).12
The Paris Convention and the Brussels Supplementary Convention are in force in most
Western European countries;13 the Vienna Convention has a broader geographical reach, in
force in 40 states including some signatories to the Paris Convention.14 While the detail of
the conventions differ, the conventions are founded on the same basic principles:
• liability for nuclear damage is channelled exclusively to the operator of the
nuclear installation;
• the operator’s liability is absolute irrespective of fault;
• the operator’s financial liability per incident is subject to certain limits;
• compensation claims must be brought within the state courts of the place where the
nuclear incident occurred (normally the location of the nuclear facility) within a set
period of time;
• the operator must maintain insurance or other financial security commensurate to the
liability. If this security proves insufficient to meet the specified liability, the state where
the nuclear facility is located must make up the difference; and
• the state court of the contracting state where the nuclear incident has exclusive juris-
diction over claims.
The Joint Protocol was introduced in 1988, following the Chernobyl disaster, which had
exposed the difficulties in having two similar (but not identical) conventions. The Joint
Protocol seeks to extend the application of the Paris and Vienna Conventions as between
the signatories, while avoiding duplication or inconsistencies.15
A fourth convention – albeit one that is currently in force in nine states only16 – is the
Convention on Supplementary Compensation for Nuclear Damage. This convention sup-
plements the Paris and Vienna conventions, bringing into the international liability regime
notable absences (in particular, the US and Japan) and establishing provisions for enhanced
cover to be provided by the contracting states.
Nuclear liability and construction arbitrations

Given the channelling of liability to the operator, the supply chain for nuclear facilities
located within a contracting state should not face direct claims in relation to nuclear dam-
age. However, nuclear damage claims may still feature in construction arbitrations if the
supply contract between the operator and the supplier allows the operator to pass liability
for nuclear damage down to the supplier, or does not expressly exclude it.17
12 All three conventions have been supplemented by subsequent protocols. www.iaea.org/Publications/

Documents/Conventions/liability_status.pdf.
13 See www.oecd-nea.org/law/brussels-convention-ratification.html.
14 As at 1 June 2017. See www.iaea.org/Publications/Documents/Conventions/liability_status.pdf.
15 See www.iaea.org/Publications/Documents/Conventions/jointprot_status.pdf for current status.
16 The convention is in force in Argentina, Ghana, India, Japan, Montenegro, Morocco, Romania, the UAE and
the US. See www.iaea.org/Publications/Documents/Conventions/supcomp_status.pdf (as at 1 June 2017).
17 Alternatively, the supplier may seek to pass down liability to lower tiered suppliers in arbitrations
under subcontracts.
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Practical issues to consider when arbitrating in the nuclear sector

Arbitrating in the nuclear sector gives rise to a number of practical issues that must be
addressed in order to ensure an efficient construction arbitration.
The scale of the project and potential issues in dispute

The first issue is the need to appreciate the scale of NPP projects.
Even a project that proceeds from start to finish without any unforeseen difficulties will
likely take more than 10 years from conception to operation.18 Where a dispute arises in the
early years of the project, there is every possibility that the arbitration may last for 10 years
or more as it tracks the progress of the project itself. This has practical issues when staffing
the arbitration, in particular, when choosing fact witnesses, experts and arbitrators.
The volume of documentation generated through the licensing, design, procurement,
construction and commissioning of a NPP is unequalled in the construction industry.
Hundreds of thousands of flow diagrams and isometrics, civil, mechanical, electrical and
I&C drawings will be created, in addition to technical design justifications, work method-
ologies, procurement documentation, QC records, etc., to say nothing of correspondence,
meeting minutes and reports.The volume of documentation – and server capacity required
to store and access this quantity of technical documentation – will be impossible with any
standard litigation software, and will likely require bespoke document management systems
to be developed and maintained. Filtering the documentation into manageable quantities
of relevant material for the arbitration team to work with, and the tribunal to review and
base their decisions on, is a project in itself.
Traditional methods for analysing the impact of events on time and cost may not
be appropriate
The complexity of a project to develop a NPP cannot be overstated. Every stage of the
process will likely involve thousands of engineers, manufacturing and construction person-
nel in an iterative process that cannot fully be reflected in a traditional project schedule.
Project schedules for NPP projects can easily include over 100,000 separate activities in
each phase; the logic links between these activities cannot possibly reflect every iteration
that will occur during the life of the project. While the schedules provide an essential tool
to the project managers, they must be used with care by the delay experts. An expert who
adopts a very schedule-based approach to delay analysis will quickly find themselves strug-
gling to provide a meaningful opinion.
18 To take an extreme example, the ITER project – an international 35-year collaboration to design and
construct the first magnetic nuclear fusion plant currently under construction in France – commenced
site works in 2007. Construction of the Tokamak Building commenced in 2014 with a seven-year build
phase, First Plasma is planned for 2025 and Deuterium-Tritium Operation currently planned for 2035. See
www.iter.org/faq#We_hear_the_project_is_delayed_Are_the_ITER_Members_prepared_to_contribute_
additional_budget. The earthquake and tsunami in Japan on 11 March 2011 caused a one-year delay to First
Plasma owing to damage to the installations producing the superconducting magnet and neutral beam test
equipment. See www.iter.org/faq#Was_the_ITER_Project_schedule_affected_by_the_natural_disaster_
in_2011_in_Japan.
169
Another difficulty is caused by the fact that the scheduling software used on most
construction projects models on a linear basis. This is broadly representative of how a sim-
ple project responds to change and delay. However, a major project – and in particular, a
project as complex as a NPP project – does not respond to change and delay in a linear
fashion; it responds dynamically. The same is true of productivity and cost. The supplier or
contract will require additional expert opinion on the actual consequences of change and
delay, which will often far exceed the consequences assessed by reference to traditional
linear analysis. While not often seen in conventional construction arbitration, reference to
experts in systems dynamics may be required. A developing science in litigation or arbitra-
tion, systems dynamics has been widely used by management within the energy and other
sectors for many years to predict outcomes when making significant investment decisions,
etc. It is possible to create a systems dynamics model (sometimes referred to as a dynamic
simulation) for the purposes of arbitration supported by appropriate independent expert
evidence. Alternatively, if the party already uses dynamic simulation to model risk and busi-
ness decisions as part of its normal business management, this model might be used with
the expert evidence complemented by factual witness evidence from a senior risk manager
or similar individual who can explain the build-up and historical reliability of the model.19
Sampling and extrapolation

It is not uncommon for contractors on conventional projects to attempt to quantify mul-
tiple claim events by reference to sampling and extrapolation.
The approach most frequently presented in construction arbitrations uses non-statistical
sampling. Most often due to constraints of time, resources or money, the contractor’s arbi-
tration team will review in detail a limited sample of claim events that the contractor says
caused a loss.This sample will be presented supported by factual witnesses or contemporary
records, with technical experts opining on the technical aspects, and the quantum experts
opining as to the resulting loss.The contractor’s fact witnesses or the experts will opine that
the sample was representative, and the contractor will ask the tribunal to infer the overall
loss from the sample.While this approach can result in a large claim number, it is frequently
easy to undermine the analysis by demonstrating that the sample is unrepresentative.
For a nuclear project, the contractor may have literally hundreds of thousands of claim
events. It is clearly impossible to present each of these claim events – and no tribunal would
thank the arbitration counsel who put forward its client’s case on this basis. Engaging an
expert statistician to develop and supervise a statistically robust sampling and extrapolation
process can allow the financial impacts of a large number of claim events to be presented in
a comparatively cost-efficient and digestible format, suitable for the tribunal to determine
within a reasonable period of time.20
19 Non-linear analysis may also be appropriate for construction arbitrations outside the nuclear sector where the
project involves multiple interactions that are not properly reflected in the traditional analyses. Until such time
as non-linear analysis is widely accepted by construction arbitrators, the author recommends that this evidence
is presented in conjunction with traditional delay and quantum analysis.
20 In the author’s view, statistical sampling is also suitable for use on many construction arbitrations concerning
conventional projects as a mechanism for saving time and cost.
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Export regulations
A further practical issue that arises on construction arbitrations in the nuclear sector is the
need to comply with domestic and international regulations concerning the transfer of
nuclear technology.
Nuclear technology often lies at the heart of a construction arbitration, with claims for
additional time and money founded on alleged changes to existing technology or the time
and cost incurred in developing new or enhanced technologies. Determination of these
issues requires detailed information regarding the technologies to be transferred to the
independent experts, counsel and the tribunal. Where that technology involves a transfer
across an international border, the transfer may require advance permission from a regulator
or export authority.
Counsel must be aware of these regulations, and ensure compliance across their internal
and expert teams. The tribunal and arbitral institution (if applicable) must also be made
aware of applicable regulations and terms of any permissions granted. For example, many
international law firms and expert witness providers staff matters across offices, or hold data
on servers in multiple jurisdictions to manage the risk of data loss in a given jurisdiction.
However, the synching of data between servers in multiple jurisdictions may constitute the
transfer of technology requiring advance permission from the relevant regulators. The use
of cloud storage may also constitute a transfer of technology, as may a member of the legal
or expert team (or the tribunal) travelling internationally with data about the technology
on their laptop. Similarly, the filing of expert reports and submissions, or taking bundles to
a hearing, may constitute the exporting of restricted nuclear technology.
Security issues
Every nuclear facility will incorporate security measures protecting the facility from both
physical attack and cyberattack. The development, approval and incorporation of these
measures into the facility is a matter of extreme sensitivity. Information regarding these
measures is strictly controlled and often classified, with only a limited number of individu-
als within the supplier and the owner authorised to know what the measures are, let alone
the status of the measures and the extent to which these measures may be a cause of (or
impacted by) delay, disruption and additional cost.
Where a security measure gives rise to a claim, this will create additional practical dif-
ficulties in arbitration. Counsel, experts and arbitrators will likely require security approval
from the relevant security agencies in order to be able to receive information regarding
the measures. All information regarding the security measures will be subject to strict safe-
guarding requirements, and a failure to comply with the prescribed procedures may result
in criminal sanctions against the individuals. These restrictions will permeate through the
entire arbitration; for example, thought must be given when appointing the tribunal and
staffing the counsel and expert teams to whether certain individuals may be prohibited
from having access to information due to their nationality. Practicalities, such as whether
a transcript can be taken of the part of the hearing where the measures are discussed, and
if so, by whom, and on what terms, need to be considered. Where the arbitration is super-
vised by an institution that would normally receive a copy of the award (and in particular,
for ICC arbitrations, where awards are scrutinised by the ICC Secretariat and ICC Court),
171
discussions will need to take place at an early stage to agree with the relevant authorities
how the arbitration can proceed.
‘Lessons learned’
Transparency is a fundamental part of the nuclear sector, with the nuclear sector investi-
gating and publishing ‘lessons learned’ regarding every aspect of nuclear projects that did
not proceed as planned. It is therefore entirely possible, and indeed, likely, that the nuclear
regulator will not be alone in publishing findings as to the cause of problems on the pro-
ject. Counsel on a construction arbitration in the nuclear sector may well find that senior
personnel from its own client are publishing papers setting out ‘lessons learned’ on the very
issues that are before the tribunal.
Conclusion
This brings this discussion back full circle to the start of the chapter. The nature of nuclear
power is such that any nuclear project will be developed – and disputes determined –
in the full gaze of the industry and, on occasion, the world’s press. Nuclear safety takes
priority over everything, including arbitration strategy, however, much money is at stake.
The key skills for counsel working in this area are (1) to know what to expect; (2) be
prepared to distil an unprecedented volume of material into manageable parts that can be
understood and determined by the tribunal; and (3) present the public findings regarding
the cause of your client’s claim events as a virtue, not a weakness. And remember, once
you have presented or determined a construction arbitration in the nuclear sector, every
non-nuclear construction arbitration you are involved with thereafter (however compli-
cated) will seem straightforward!
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16
Construction Disputes in the Energy Sector
Mark Beeley1
The energy sector is replete with major, complicated infrastructure and construction pro-
jects. In addition to the technical challenges they present, and the scope of the projects,
the energy sector couples these pressures with extreme price sensitivity and interlocking
deadlines. Accordingly, it should be no surprise that construction disputes are rife in this
area, and often come with significant attendant publicity, given their political importance
and the vast sums invested.
By way of example, when Finnish power producer TVO and construction consortium
Areva-Siemens went to arbitration in a bid to resolve an ongoing €3.5 billion Finnish
nuclear dispute over construction delays to the 1.6GW Olkiluoto 3 nuclear plant, it was
widely reported, even in the mainstream press. There are, of course, bigger disputes in the
world from time to time, but not many. This dispute has been live for eight years at the
time of writing.
In addition to the normal issues (for construction arbitrations) of delay and defects
(frequently relating to subterranean and subsea works, and thus difficult to rectify and rem-
edy), energy construction disputes often also feature attendant disputes arising out of either
the integrated nature of such projects or the nature of the materials involved. By way of
example, the owner of a late-running power plant project is likely to face penalties under
its offtake arrangements if power production is delayed – can these penalties be passed on
to the delinquent contractor? If an oil pipeline suffers defects in its construction, who is
responsible for the resulting environmental contamination? Is the contractor responsible
just for the costs of remedying the defect, or is it on the hook for the wider damage caused
– including potential loss of reputation of the employer?
1 Mark Beeley is a partner at Vinson & Elkins RLLP. Thanks are expressed to Ms Antonia George and Mr Craig
Rischmiller for their assistance in the preparation of this chapter.
173
Such disputes are also complicated by the high likelihood of the project being financed
(whether on a sole-recourse/project finance basis or otherwise) and the involvement con-
sortiums of owners (energy projects often being both on such a scale and so risky that even
the biggest oil major is reluctant to go it alone). Evolving technologies (particularly in the
renewables sector), frequently harsh environments, and political pressure to deliver projects
and avoid environmental damage also ramp up the stakes in this area.
The projects
The construction projects that arise in the energy sector are many and varied – but
most are linked by the common themes of high technology and low tolerance of errors.
Examples range from the large civil engineering projects for dam building (in support of
hydro-electric projects) to the high-tech installation of fields of solar arrays. Typical con-
struction projects in the energy sector include:
• laying pipeline (buried sub-surface, sunk in hundreds of metres of water, and across
land, including pristine wildernesses) – see, for example, the South Stream cross-Black
sea pipeline;
• constructing power transmission infrastructure (see, for example, Peru’s cross-Andes
high-voltage transmission network);
• power plants (ranging from traditional coal through to the huge nuclear power projects);
• refineries;
• LNG liquidation and regasification facilities;
• port facilities for the loading and unloading of oil and LNG;
• offshore platforms and supporting facilities (storage tanks, processing facilities, pipes,
etc.); and
• wind farms.
Each present their own unique challenges, particularly those crossing international borders,
or involving construction in ultra-harsh conditions (spare a thought for those trying to
construct facilities in the North Sea, offshore Alaska or off the Falkland Islands), and each
have given rise to disputes – either because the projects have not been delivered on time
or on budget (or both), or because they do not work as designed, or where the design
itself was fundamentally flawed (for example, one dispute in the Philippines concerned a
co-generation facility that was meant to harmoniously produce electricity, water and CO₂,
but, in fact, due to a design failing, the production of electricity positively impeded the pro-
duction of the other two products). As such matters almost inevitably give rise to substantial
losses, they also inevitably give rise to disputes and, given the cross-border nature of such
investments, this almost as equally inevitably means arbitrations.
The players
Although the contractors, EPC managers and material suppliers are often the same regard-
less of whether the project is the energy sector or not (although most of the large engi-
neering consultants do have specialist sub-teams, focusing on power, pipelines or the like),
those siting on the owner’s side of the table can be different from in many other construc-
tion projects.
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In relation to large projects (for instance, the Kashagan development in Kazakhstan,

featuring the building of multiple offshore facilitates and the construction of a sub-surface
92 kilometre offtake pipe), frequently there is no one sole owner but rather a consortium of
owners. There may or may not be an operating company, but even if such a company does
exist, it will still be infected with the dynamic that comes of having to answer to multiple
masters, who often have competing agendas, or at least differing stakes depending on their
level of investment and the number of roles they may be taking in the overall project. This
can lead to added levels of bureaucracy, slowing down projects (particularly when matters
start to go wrong, and would benefit most from decisiveness) or resulting in unexpected
changes of direction. Even the most stable consortium will come under pressure to break
ranks and point fingers when multibillion dollar projects encounter significant overruns of
time or money.
Inevitably, energy sector projects are designed in some fashion to exploit energy sources
for a profit. Accordingly the owner is faced with the challenge of trying to design and build
in an environment where the justification for doing so can evaporate with a change in a
commodities index. In a world of $100-barrel oil, projects can afford grand designs, ‘nice-
to-haves’, multiple levels of redundancy and the use of the very best materials. However, a
collapse in the oil price can lead to an entirely different dynamic, causing owners to seek
to engage in ‘value engineering’, or to vary the timing (either by accelerating or delaying)
in order to catch an anticipated market upcycle or to get out of capital costs as quickly
as possible. This can radically alter the dynamic between owner and employer, changing a
successful project relationship to one under extreme pressure. As a general matter, though,
the goal is to achieve maximum efficiency for the least possible cost – a particular factor in
the world of upstream oil and gas developments where the capital costs of construction are
often recovered out of oil production, lessening the profits available for distribution to both
the investors and the host states. Recent years have shown strong trends towards ever more
interventionist host states in this regard, with projects being audited to ensure that no ‘gold
plating’ is occurring, often by unleashing audit bodies designed to root out corruption and
checking for black and white compliance with procurement regimes.This approach comes
at the expense of specialist understanding of the real world dynamics of how construc-
tion decisions are taken, or what normal industry practice is in the energy sector (with its
belt and braces approach to safety and reliability, and the constant conflict between using
ex-patriot expertise and complying with ‘local content’ requirements).
The eye of the state is frequently not only focussed on initial cost recovery, but con-
tradictorily also on ensuring that the facilities represent a good bargain for it. Whether in
the area of upstream oil and gas development (where facilities are typically used by the
international investor for 20 or 25 years and are then handed over to the host state for the
remainder of the field life at no cost to the state) or in the construction of power plants
on a ‘BOOT’ or ‘BOT’ basis (‘build, operate, own, transfer’ or ‘build, operate, transfer’)
where it is normal for the owner to have a certain number of years to earn an operating
tariff before handing the power generation facility over to the state, the state party wants
to ensure that it is getting value for its money. Will the facilities still be in good working
condition decades after they are first commissioned? Will it get a return on its investment
when the investor is out of the way and it can, hopefully, enter a pure profit phase? A
175
tension is created by between the desire to build something that will last, and the desire to
not depress short-term profits.
Indeed, in some projects, the owner is the state or a state entity and not a commercial
actor.This can lead to headaches for the contractor, with day-to-day decision making dele-
gated to committees or requiring multiple levels of approval. In some countries, direct state
involvement may also dramatically limit the contractor’s ability to protect its own contrac-
tual rights. If the state, or a major state entity, is sued, then it will frequently black-ball the
contractor – meaning that an arbitration claim has to be very financially significant before
it is worth giving up the opportunity to operate in country at all in the future.
Claims like ripples in a pond

Problems in energy construction projects give rise to many of the same claims that other
construction projects do – however, these claims often spiral and have knock-on conse-
quences that can be significantly greater than the basic problem of the project not being
delivered as specified.
Let us take a hypothetical example: a consortium of companies is working together
to develop an oil and gas field. In addition to specialist drilling works, they require the
construction of numerous processing and initial storage facilities, along with the means to
move the product to their markets. The consortium agrees that it will construct a pipe-
line to a local refinery company and enters into a crude oil supply agreement with the
refiner (who then will on-sale refined products to its own customers). At the same time it
is decided that the associated gas produced with the oil will be sold to a local power sta-
tion, which in turn enters into a power purchase agreement with the government, with a
guaranteed level of dispatch.
The consortium hires a major EPC contractor, who in turn hires multiple subcontrac-
tors. The project is delivered late. Still worse, when the oil pipeline is commissioned it is
found to be leaking due to defective welding, causing significant environmental damage. It
has to be immediately shut in pending repairs. Given the limited storage tanks on site, this
quickly has the effect of suspending oil and gas production for several weeks.
Clearly in this scenario the employer consortium has a claim against the EPC contrac-
tor (and likely the EPC contractor against its sub-contractors) under the classic headings
of delay and defective work. At the least, they would be entitled to the inevitably specified
liquidated damages for delay and for the costs of remedying the defective work. However,
do such standard remedies even begin to properly compensate the employer consortium
in the circumstances?
Almost certainly not.
The likely issues arising in the circumstances will include:
• the levying of environmental fines for contamination by the host state on the consortium;
• potential public interest litigation by concerned environmentalists seeking to block
further work on the projects;
• claims from the refiner against the consortium, who has lost substantial profits as it has
been unable to produce refined products while the pipeline is shut in for repair, a par-
ticular issue where commodities prices are falling;
• claims by the power producer, who has had fines imposed under its own contract with
the state for failing to dispatch enough power as it did not have enough gas to burn;
176
• the consortium’s own lost profits in not being able to sell the hydrocarbons they would
otherwise have produced;
• potential moves by the host state to revoke the consortium’s right to continue to
develop the hydrocarbon resources at all (which in turn might lead to a bilateral invest-
ment treaty claim by the investors against the state); and
• claims within the consortium about whether the lead consortium member selected the
right EPC contractor and managed it properly.
Can all, or any, of these additional losses that the consortium faces be passed through to the
delinquent contractor?
It’s all about the boiler (plate)

At this point, all eyes should hopefully turn to two clauses in the EPC contract: the liqui-
dated damages provisions, and the waiver of consequential loss provisions. This, of course,
assumes that such clauses exist in the EPC agreement at all, though all the major inter-
national industry forms tend to have such provisions in one form or another. Bespoke
contracts (or those which have been subject to heavy one-sided negotiation (e.g., because
the employer is a very dominant state entity)) may lack such clauses; the contractor may
therefore face very significant exposure, depending on the default rules that apply at law
(whatever that law may be, per the contract).
As is discussed elsewhere in this book, general practice in construction contracts is for
the remedy for delayed completion to be in the form of liquidated damages. This common
sense device means that an employer does not have to prove actual loss; thus the contractor
is incentivised to hit the target date. However, often in the energy sector, when a situation
such as our hypothetical one arises, the liquidated damages do not begin to reflect the scale
of loss the employer actually suffers. The question then becomes whether the liquidated
damages clause is intended as an exclusive remedy, such as to shield the contractor from
greater exposure. Is the liquidated damages provision both a floor and a ceiling, or merely a
floor? The devil will be in the detail, but the financial consequences are likely large enough
to guarantee arbitration where there is any scope for doubt.
As to the wider claims, the focus will be on the consequential loss exclusion clause.
General practice in standard form industry contracts is to include exclusions for lost prof-
its and other more remote measures of damage. How tightly these exclusions are drafted
will be a significant issue in circumstances such as in our example. This question will
need to be examined in light of the governing law of the contract. English law has, until
recently, always read such clauses narrowly. However, the recent Court of Appeal decision
in Transocean v. Providence2 suggests a new approach of seeking to give such exclusions their
literal meaning – which may have the impact of giving contractors significantly wider pro-
tection than may have been understood when the contract was being negotiated. Equally,
problems often arise when the industry standard form contracts (which are largely drafted
to work under English law) are instead governed by a law from the civil law world. Literal
(and some time last minute) transpositions often forget that common law concepts such as
2 Transocean Drilling UK Ltd v. Providence Resources PLC [2016] EWCA Civ 372.
177
‘direct’ and ‘indirect’ loss do not translate well (or at all) into many civil law systems – leav-
ing significant uncertainty as to what was intended. The result? Almost certain arbitration.
Issues wider than owners and contractors

Construction disputes in the energy sector can also be at the mercy of international poli-
tics, owing to the importance of natural resources to sovereign and other international
actors. One reason is that determining the entitlement to natural resources often requires
the involvement of international law, since many reserves lie in areas to which claims are
disputed – this is particularly the case for offshore assets – including production facilities
and pipelines. By way of example, in August 2014, Somalia filed an application seeking an
International Court of Justice (ICJ) ruling based on the United Nations Convention on the
Law of the Sea. The question was essentially whether the maritime border should follow
the land border (as Somalia wanted) or simply cut east. At stake are 64,000 square kilome-
tres of what are currently Kenya’s territorial waters, including part of the Lamu oil explora-
tion basin. The oil exploration blocks were leased to Total and Eni, which Somalia contests
contravenes Somali Law No. 37, which defines Mogadishu’s continental shelf and territo-
rial seas at 200 nautical miles. In response to Somalia’s actions, Kenya voluntarily halted its
(or rather Total and Eni’s) oil exploration in the disputed part of the Indian Ocean as an
‘expression of its good faith’, according to Professor Muigai, Kenya’s Attorney-General. But
where does that leave the international oil companies and the facilities they are developing?
As already noted, construction projects in the energy sector are also distinguished from
general construction projects by their sheer scale and scope, which invariably warrants
international cooperation. Pipe-laying, for example, often requires passage through mul-
tiple nations or seas. When a project is contemplated, the initiating country may have a
choice of routes through different states – a decision with a considerable effect on inter-
national relations.
For example, Uganda has been planning a $4 billion oil pipeline that would connect
landlocked Uganda to foreign markets. Both Kenya and Tanzania had been lobbying for the
pipeline to cross their territory, with Kenya pushing for the Lamu pipeline, which would go
through its oil-rich Turkana region, while Tanzania was competing with the Kabaale-Tanga
port route. In October 2015, Uganda and Tanzania signed an agreement to explore the pos-
sibility of building a crude oil pipeline between the two countries, while Kenya believed
it had already agreed a deal with Kampala, thus setting the stage for fierce competition
between the countries.
Uganda has ultimately elected to export its planned crude oil production via a pipeline
through Tanzania and estimates that it could have reserves of around 6.5 billion barrels of
oil in place, with recoverable oil estimated at 1.8–2.2 billion barrels, and 0.5 trillion cubic
feet of gas. Major investments will be made, and significant construction projects will be
entered into on the basis of this sort of investment, but there are instances (particularly in
the Black Sea) of such decisions being subsequently reversed.
Clearly the presence of energy construction projects is of great importance to national
leaders, owing to the international recognition and associated foreign investment. It is,
therefore, important to see construction projects in the energy sector against the backdrop
of turbulent international relations, since such projects may assume a pivotal role in the
maintenance, progression or deterioration of relations between sovereign actors – a factor
178
out of the control of the contractor, and which may also be outside of the influence of
the employer, unless investments have been carefully structured to give access to protec-
tion under a bilateral or multilateral investment treaty (such as the Energy Charter Treaty),
which may give access to a remedy via an international tribunal.
Additionally, recognition of the reliance on, and significance attributed to, natural
resources can present other complications for construction projects in the energy sector.
Indeed, the energy sector itself is an obvious target when there is disagreement among
nations. Construction projects in the energy sector may, therefore, be subject to a greater
risk of complications since the energy sector may be ‘taken hostage’, as a means of trying
to coerce another nation to adopt, or cease, a particular course of action.
For example, it is no secret that the relations between Russia and the European Union
have deteriorated in recent years. In particular, the destabilisation of eastern Ukraine has
resulted in sanctions against Russia, many of which are directed against its energy sector,
upon which it is largely reliant. As a commodity holding so much financial and political
clout, the ability to deal with natural resources freely is not guaranteed, as these sanctions
demonstrate. It is clear, therefore, that construction projects in the energy sector are among
some of the riskiest in the world as a result of the often unpredictable moves of various
international and national actors, whether as a result of unclear territorial boundaries, bat-
tles over securing a project on national territory, or use of the energy sector as a pawn in
international disagreements.
Even in circumstances where all is smooth between the investor and the host state, there
is the additional problem that such projects are a ready subject of hostile action by terrorist
groups – either those seeking to make an environmental point, or those engaged in hostile
actions to press an agenda with the host state. The gas pipelines in Pakistan’s Balochistan
region remain subject to regular attack.Those seeking to complete infrastructure and refin-
ery projects in Iraq face the hostilities of ISIS and other terrorist threats. Such matters give
rise to both practical problems in terms of security, but also to legal ones – insurance claims
abound, as do claims on ‘knock for knock’ indemnities – and, of course, there are peren-
nial questions regarding at what point a country or regime becomes so unstable that force
majeure conditions may be satisfied (a question increasingly asked in the energy sector in
Libya, for example).
Fighting the good fight

As to the conduct of these disputes themselves, many of the same issues arise as in any con-
struction arbitration. It is clearly desirable (depending, perhaps, on the strength of your case)
to find arbitrators who have experience in both construction and energy matters. Potential
sources of information on such individuals include the Permanent Court of Arbitration
(who maintains lists of experienced energy arbitrators and energy expert witnesses) and
the International Center for Dispute Resolution’s ‘Energy Arbitrator List’, which is freely
available online.3 As ever, word of mouth also remains an invaluable resource. In addition to
experience, (long-term) availability will be a factor worth particular consideration. Energy
construction disputes are typically highly document-heavy, involve multiple sub-issues and
3 At www.energyarbitratorslist.com.
179
often are resolved over the course of years rather than months. Good availability, running
far into the future, is key.
The multiplicity of parties and multiple related disputes (with interlocking contracts)
also gives rise to the issue of whether or not consolidation of disputes is possible, or indeed
even desirable. While always a case-specific question, anecdotal evidence suggests that
despite ever greater access to consolidation mechanisms via the latest editions of the vari-
ous institutional rules, parties in this sphere often prefer to keep each step in the dispute
chain separate. This can, and does, of course lead to the danger and reality of inconsistent
results and contractual gaps. However, there often appears to be a preference for preserving
a second bite at the apple, and, as observed by Lord Justice Longmore in Sun Life,4 such a
result is an inevitable and inbuilt feature of arbitration.
Given the political and environmental dimensions of these cases, energy construction
disputes can also see attempts by third parties to intervene. This is particularly the case
where arbitrations are being fought in the World Bank’s ICSID mechanism, where there
are trends to permit both greater visibility in what is normally a confidential world as well
as active intervention by way of amicus curiae briefing and interjection. At best, such inter-
ventions delay awards and increase cost. At worst, they take otherwise private disputes in
different directions from those which either of the original parties would intend or desire.
Second bites at the apple

Among the reasons why arbitration is popular in energy disputes is the perceived finality
of the process – typically, appeals are not permitted unless something can be shown to have
gone fundamentally wrong with the arbitration process itself. ‘Wrong’ results are tolerated
as part of the process, in favour of avoiding multiple levels of appeal and dragging cases on
still longer. This narrow approach has been re-enforced in England by the judges of the
Commercial Court, who have typically heard applications to challenge arbitration awards
rendered in England, and who have respected the pro-arbitration, anti-interventionist
approach envisioned by the drafters of the Arbitration Act 1996. Indeed, the Court has
gone so far as to now punish attempts to reopen the merits of arbitrations with awards of
indemnity costs, which has had a cooling effect on attempts to encourage the Court to
reverse awards. However, a recent high-profile case has shown that in construction cases
that door is less closed.
In a 2015 decision of the English Technology & Construction Court, the UK govern-
ment managed to achieve what came suspiciously close to such a reversal, in the cases of
Raytheon I 5 and Raytheon II.6 Although couched to fall within the scope of the existing
procedural unfairness grounds of challenge, the decision of Mr Justice Akenhead came (in
the eyes of many commentators) very close to a reversal on merits grounds. The decision
was appealed, although a settlement was reached before the appeal was heard.The question
remains though as to whether the judges of the TCC will be more willing as a general
matter to second-guess arbitral tribunals in matters that fall within their ambit. This may
4 Sun Life Assurance Co of Canada & Ors v. Lincoln National Life Insurance Co [2004] EWCA Civ 1660.
5 Secretary of State for the Home Department v. Raytheon Systems Limited [2014] EWHC 4375 (TCC).
6 Secretary of State for the Home Department v. Raytheon Systems Limited [2015] EWHC 311 (TCC).
180
well offer those involved in disputes in the energy sector an opportunity to fight on where
previously they would have conceded defeat.
Covering the bases

Construction disputes in the energy sector involve the marriage of three specialist worlds
– construction, energy and arbitration. Each has its own argot, secret signs and world
views. Inevitably this leads to traps for the unwary and potential unexpected exposure.
Generally when energy construction projects go wrong, there is the potential for massive,
headline-grabbing arbitrations that need to be approached with knowledge of all three
industries. More than anything, however, there must be an awareness that nothing happens
in isolation. Every design error, or badly welded joint, risks leading to a cascade of claims.
The allocation of the risk of such claims as between employer and contractor, and contrac-
tor and subcontractor, will be key to the issue of who is dragged into the fight, and who
will be left carrying the can – and that is before the impact of third-party interventions
from states, public interest groups and other concerned parties is felt.
181
17
Construction Arbitration and Concession Contracts
Philip Dunham and José Manuel García Represa1
Concession contracts are considered, for present purposes, instruments for the construc-
tion, financing and management of infrastructures and services of public interest,2 such as,
for example, residential development, roads, ports, airports, mines, power plants and other
energy-related projects.They are characterised by the existence of a long-term relationship
between a public entity, be it a state or a state entity (the conceding entity), and a private
person, usually a company (the concessionaire). Frequently, the concessionaire will either
be itself a foreign company or a company set up within the jurisdiction in which the con-
cession has been granted, and controlled, for the purposes of the concession, by another,
foreign, company, thus adding an international element to the mix.
Concessions represent one way for states to obtain private financing for key public
service projects, thereby reducing the strain such projects would place on public finances.
Given states’ interest to ensure the continuity of public services (a core principle of public
administrative law in civil law jurisdictions), concessions will generally be concluded for
long terms and will often be subject to state scrutiny and monitoring.
Concession contracts can well require initial construction and subsequent mainte-
nance works, such as refurbishment and repair, or can otherwise involve the extension and
upgrade of existing facilities (involving phased works, ongoing repair works and so on).
In other words, construction-related obligations can extend for part or indeed the entire
duration of the concession. The concession terms are intended to allow the concessionaire
to recover the cost of investment, plus a reasonable return thereon, bearing in mind that
such projects may well involve the participation of third-party financiers, through project
finance schemes.
1 Philip Dunham and José Manuel García Represa are partners at Dechert (Paris) LLP. The authors extend their
thanks to Ms Ruxandra Esanu for her assistance with the research leading to this contribution.
2 R. Jaidane, ‘La gestion des contrats internationaux de concession’, 3 Revue de droit des affaires internationales 289
(2005), p. 290.
182
Construction sector concessions, given the elements described above, raise a number
of issues and challenges at the level of the relationship between the conceding entity and
the concessionaire. This contribution aims to briefly address such matters, and to provide
suggestions and recommendations for avoiding or otherwise handling disputes that may
arise therefrom.
First, this contribution considers a number of aspects that may arise at the jurisdictional
stage of a dispute, and which are closely linked to the identities of the conceding entity
and the concessionaire. Second, a selection of substantive issues is addressed, insofar as such
issues may affect the performance of the concession contract and give rise to a dispute
between the parties.
Recourse to arbitration in concession contracts

Concession contracts bring about an array of specific challenges, particularly in light of
their aim to provide, or to ensure the provision of, a continuous public service. From the
perspective of the foreign private entity concessionaire, it is important that such challenges
may be capable of being resolved, to the extent they give rise to a dispute, through a dispute
resolution mechanism offering an alternative to local courts.
This is because the latter option translates into naming the state or an entity controlled
by the state as a defendant, or indeed being named as a defendant by such parties, before
the courts of that very state. Foreign investors might be reluctant to do so, fearing bias on
the part of the courts. Moreover, absent a choice of law provision submitting the conces-
sion contract to a foreign or international body of law (and, indeed, such provisions are
often not an option in state contracts), in such proceedings, the local courts would be
assessing the state or the state entity’s behaviour through the lens of domestic law. Given
that the state can modify that body of law (for example, by introducing new levies or by
altering the zoning legal framework), local court proceedings are often not an attractive
venue for foreign investors’ claims. However, the state will rarely accept the jurisdiction of
a foreign court.
Finally, international financial institutions might only agree to fund projects if the
underlying contracts contain dispute resolution mechanisms removing such contracts from
the jurisdiction of local courts. It may, therefore, also be in the interest of the state or the
state entity to include such mechanisms in the concession contract, as otherwise private
financing might not be forthcoming.3
The preferred dispute resolution mechanism in this context is international arbitration.
However, the effectiveness of clauses providing for the submission of disputes to arbitra-
tion depends on a number of factors, as explained below. Such factors include, for example,
whether or not a state entity has the capacity to enter into arbitration agreements, whether
3 For example, it is worth mentioning that Egypt’s recent bid to expand its renewable energy sector
encountered financing difficulties when the government excluded international arbitration from its proposed
contract terms for the power purchase agreement. See www.iarbafrica.com/news-list/201-egypt-
includes-mandatory-arbitration-in-cairo-in-ppa-agreements; www.thenational.ae/business/energy/
egypts-renewable-energy-sector-faces-delay-to-funding (last accessed on 24 October 2016).
183
the resulting award can be meaningfully enforced should the state refuse to voluntarily
comply, and whether the parties can agree to a neutral arbitration seat.4
First, local law may set out certain requirements as to the content of concession con-
tracts. For instance, local law may prohibit certain state entities from consenting to submit
disputes arising out of public sector contracts to arbitration or may require that, prior to
giving their consent to arbitration, the state entities in question secure the authorisation
of the parliament.5 Another requirement may be that any such arbitration must be seated
within the jurisdiction of the state, which would allow for the intervention of local courts
in the proceedings (most importantly, at the annulment stage).
Accordingly, a state entity having concluded a contract containing an arbitration clause
may well (self-servingly) object to the jurisdiction of the arbitral tribunal, on grounds of
lack of capacity.6 This issue is also referred to as subjective or rationae personae arbitrability.7
For example, a dispute arose in relation to a build-operate-transfer (BOT) contract
concluded by the Lebanese state with France Télécom, for the creation and exploitation of
a GSM network. Difficulties arose during the performance of the contract and ultimately
such contract was terminated by the state.The concessionaire initiated an arbitration, seated
in Beirut, under the auspices of the ICC, pursuant to the arbitration clause contained in
the BOT contract. Subsequently, the Lebanese Ministry of Justice applied to the Lebanese
Council of State to have the arbitration clause declared null and void.8 According to the
Council of State, the public law nature of that contract, together with the public policy
principle prohibiting recourse to arbitration in respect of such contracts, did indeed ren-
der the clause null and void. However, the Council of State also held that the dispute
in question could be resolved through investment treaty arbitration, on the basis of the
French-Lebanese treaty.9 Ultimately, the dispute was resolved in an UNCITRAL arbitra-
tion, by agreement of the parties.
4 See for instance P. Dunham, S. Greenberg, ‘Balancing Sovereignty and the Contractor’s Rights in International
Construction Arbitrations Involving State Entities’, 23(2) The International Construction Law Review 130 (2006).
5 For example, Article 139 of the Iranian Constitution of 1979, which reads as follows: ‘The settlement of claims
relating to public and state property or the referral thereof to arbitration is in every case dependent on the
approval of the Council of Ministers, and the Assembly must be informed of these matters. In cases where one
party to the dispute is a foreigner, as well as in important cases that are purely domestic, the approval of the
Assembly must also be obtained. Law will specify the important cases intended here.’ See Iran’s Constitution of
1979 with Amendments through 1989, available online at www.constituteproject.org/constitution/Iran_1989.
pdf?lang=en (last visited on 24 October 2016). See also E. Silva Romero, ‘Requiem for the Rule of Article
177(2) of the Swiss Private International Law Act’ in G. Aksen et al., Global Reflections on International Law,
Commerce and Dispute Resolution, Liber Amicorum in Honour of Robert Briner, ICC Publication No. 693 (2005), p. 827.
6 See for instance ICC Case No. 6474, Partial Award dated March 1992, 15(2) ICC International Court of
Arbitration Bulletin 102 (2004), p. 102 et seq.; ICC Case No. 4381, Award dated 1986, Collection of ICC
Arbitral Awards 1986-1990, p. 361 et seq.
7 See for instance L.Yves Fortier, ‘Arbitrability of Disputes’, G. Aksen et al., Global Reflections on International Law,
Commerce and Dispute Resolution. Liber Amicorum in Honour of Robert Briner, ICC Publication No. 693 (2005), pp.
269-270.
8 See The Lebanese Republic v. France Télécom Mobiles International S.A., 4P.98/2005/svc (Lebanon v. France Télécom),
Swiss Federal Tribunal, Judgment of the First Civil Chamber dated 20 December 2005, p. 3.
9 See Lebanon v. France Télécom, Swiss Federal Tribunal, Judgment of the First Civil Chamber dated
20 December 2005, pp. 3-4.
184
If, however, the arbitration is seated in a jurisdiction different from that of the conceding
entity or state, such jurisdictional objections should be dismissed pursuant to the principle
of international law according to which a state cannot rely on its national law to escape its
obligations arising from an arbitration agreement in an international contract.10 However,
there is some debate as to whether this is indeed an absolute principle of international law
or something rather more flexible, akin to a corollary of the principle of good faith or to
international public policy.11 For example, following the suggestion of some commentators,
such a jurisdictional objection by the state entity could, and should, be upheld if the private
contractor knew or should have known about the limitations governing that entity’s capac-
ity to conclude an arbitration agreement.12 In this way, the private entity’s (intentionally)
negligent conduct would be sanctioned, and not overlooked.
A state entity may also raise jurisdictional objections regarding the arbitrability of a dis-
pute (also referred to as objective, or rationae materiae arbitrability). As ‘the law applicable
at the seat of the arbitral tribunal is the law which, in general, determines whether the sub-
ject matter of the agreement is arbitrable or not,’13 the seat of the arbitration is particularly
relevant and should be neutral (i.e., not located within the jurisdiction of the conceding
entity). Indeed, in certain jurisdictions, termination through caducidad of a concession con-
tract is deemed not arbitrable.14
At the outset, prior to the conclusion of a concession contract with a state entity, it
would be advisable for the private party to seek legal advice as to the capacity of that state
entity to enter into arbitration agreements. If possible, the private party should also press for
a neutral seat of arbitration. Absent such capacity, the private contractor should request that
the state entity remedy this problem, if necessary by securing the relevant authorisations, or
that the concession contract be concluded with another, duly authorised entity.
Second, local law may require that the state and state entities only enter into conces-
sion agreements with locally incorporated companies,15 traditionally so that the conceding
10 See E. Gaillard, J. Savage (eds.), Fouchard, Gaillard, Goldman on International Commercial Arbitration, Kluwer Law
International (1999), p. 322. See also ICC Case No. 1939, Award dated 1971, cited in Y. Derains, ‘Le statut des
usages du commerce international devant les juridictions arbitrales’, Revue de l’arbitrage (1973), p. 122.
11 See for instance C. Seraglini, J. Ortscheidt, Droit de l’arbitrage interne et international, Montchrestien (2013), Section
624, p. 527; P. Leboulanger, ‘Some Issues in ICC Awards Relating to State Contracts’, 15(2) ICC International
Court of Arbitration Bulletin 93 (2004), p. 93.
12 See E. Silva Romero, ‘Some Remarks on the Contribution of ICC Arbitrators to the Development of
International Commercial Arbitration Involving States and State Entities’, in A. Carlevaris et al. (eds.),
International Arbitration under Review: Essays in Honour of John Beechey, ICC Publication No. 772E (2015), p. 408.
13 R. Briner, ‘The Arbitrability of Intellectual Property Disputes With Particular Emphasis on the Situation in
Switzerland’, Worldwide Forum on the Arbitration of Intellectual Property Disputes, 3-4 March 2002, Geneva,
WIPO Publication No. 728, Paragraph 3.7, cited in L.Yves Fortier, ‘Arbitrability of Disputes’, G. Aksen et
al., Global Reflections on International Law, Commerce and Dispute Resolution. Liber Amicorum in Honour of Robert
Briner, ICC Publication No. 693 (2005), p. 275.
14 Such is the case, for instance, under Ecuadorian law. Article 196 of the 1998 Ecuadorian Constitution,
mirrored in Article 173 of the 2008 Constitution, provides for the exclusive jurisdiction of the Ecuadorian
courts in respect of claims pertaining to the legality or to the validity of administrative acts, including caducidad.
pursuant to the provisions of the Constitution. See www.igm.gob.ec/work/files/Lotaip2015/Baselegal_2015/
Constitucion_de_la_republica_del_Ecuador.pdf (last accessed on 24 October 2016).
15 See for instance the Ecuadorian executive decree Reglamento Sustitutivo del Reglamento General de la Ley
de Modernización del Estado, Privatizaciones y Prestación de Servicios Públicos por parte de la Iniciativa
185
entity may have a party against whom to act locally, if necessary. Such companies may be
mere shells, set up solely for the purposes of concluding the contract, once the bidder has
successfully participated in the tender. In fact, the sole asset of the local entity will often be
the concession itself.
This requirement may backfire on the conceding entity, in the event of a default of the
local company, as the conceding entity will face the prospect of starting an action against
an impecunious party. It would be advisable, in order to avoid such a situation, for the con-
ceding entity to seek to obtain suitable performance and other guarantees from the mother
company or another affiliate.
It will also often be the case that the entity involved in the performance of the conces-
sion (for example, by securing or providing the necessary funding or by carrying out the
actual construction works) will not be the local company. Instead – at least in part – the
foreign parent or another company of the same group might assume that role. Should an
arbitration arise out of such a contract, the state entity might wish to join the foreign parent
company in the proceedings.
Various legal theories exist that allow for the extension of an arbitration agreement to
a non-signatory party. They include, inter alia, the group of companies doctrine and the
piercing of the corporate veil theory, which are not the object of the present contribu-
tion. Instead, another legal foundation for the extension of an arbitration agreement to
a non-signatory is considered, as it may flourish in the context of construction projects,
where the local company’s performance of the contract is taken over by other companies.
That is the theory pursuant to which an arbitration agreement may be extended to a third
party due to that party’s involvement in the negotiations, signing, performance or termina-
tion of the contract.16
In one recent, unpublished case, a company participated in a public tender process per-
taining to the upgrade and operation of a port infrastructure in a Latin American country
for over US$500 million. The successful bidder was a foreign company, the credentials of
which played a significant role in it being awarded the concession.
The bidder incorporated a local company in order to conclude the contract, as required
by local law. The local company withdrew early from the concession, and the conced-
ing state port authority initiated arbitration proceedings pursuant to the arbitration clause
contained in the relevant contract. It named as respondents the concessionaire (the first
respondent), the foreign company that had submitted the bid and another foreign company
pertaining to the same group (the second and third respondents).The arbitration was seated
in a neutral venue, Panama.
The second and third respondents did not, at first, participate in the proceedings and did
not raise any objections to the tribunal’s jurisdiction17 – and neither did the first respondent.
Privada, Executive Decree No. 2328, 2 December 1994, which requires, in its Article 172, that a successful
bidder must, within 90 days from the date of the award to them of the bid, incorporate an Ecuadorian
company, with which the Ecuadorian authorities are subsequently to conclude the concession contract.
16 See for instance B. Hanotiau, ‘Multiple Parties and Multiple Contracts in International Arbitration’, in
Permanent Court of Arbitration (ed.), Multiple Party Actions in International Arbitration, Oxford University Press
(2009), Paragraph 2.29.
17 The third respondent raised concerns as to the jurisdiction of the local arbitral institution administering the
case, by way of a letter addressed to that institution. Such letter did not, however, address the third respondent’s
186
The tribunal therefore asserted jurisdiction over the state port authority’s claims, but clari-
fied in its decision that such a holding was without prejudice to the question of whether or
not a subsequent award on the merits would extend to the second and third respondents.
The second and third respondents subsequently participated in the arbitration. They
requested leave to submit objections as to the jurisdiction of the arbitral tribunal, but such
leave was rejected. The arbitral tribunal held that such tardy objections were not capable
of retroactively affecting in any material way the tribunal’s decision on its own jurisdiction
and recalled that the issue of whether an award on the merits could cover the second and
third respondents was still pending.
In its award on the merits, the majority held the second and third respondents liable
under the concession contract, together with the first respondent, for breach of contract
(the President of the tribunal dissented). Even though they were not signatories to that con-
tract, the second and third respondents could still be bound by it, according to the majority.
On the one hand, the second and third respondents had made certain promises during
the formation phase of the contract, including to finance the project investment.
On the other hand, the second and third respondents had also been involved in the
performance of the concession contract and had directly executed some of the obligations
contained therein (such as approving the blueprints for the port construction, providing
technical support or directing decisions). In addition, the decision to withdraw from the
concession contract had been taken by the second and third respondents.
Conversely, the private entity may wish to commence arbitration proceedings in respect
of a dispute arising out of the concession contract, against a non-signatory state entity or
against the state itself. In that case, it would be for the concessionaire to show that the
non-signatory state or state entity did in fact implicitly consent to arbitration. In other
words, that party will have to prove that, rather than acting as part and parcel of the
public law administrative supervision process, the non-signatory was driven by a contrac-
tual intent.18
One of the most significant recent examples in this regard is the Dallah case.19 A Saudi
company, Dallah, entered into an agreement with a Trust established by ordinance of the
Pakistani government, for the construction of accommodations for Pakistani pilgrims visit-
ing Mecca. Not long after the conclusion of the contract, the trust ceased to exist as a legal
entity. Subsequently, Dallah commenced arbitration proceedings against the government,
on the basis of the arbitration clause in the agreement, which provided for ICC arbitration
seated in Paris.
The tribunal asserted jurisdiction over the Pakistani government, despite the latter par-
ty’s objections that it was not a signatory, and awarded Dallah approximately US$20 million
non-signatory status as regards the concession contract. The third respondent’s concerns were accounted for in
the tribunal’s analysis, but did not warrant a negative finding on jurisdiction.
18 See G. Petrochilos, ‘Extension of the Arbitration Clause to Non-Signatory States or State Entities: Does It
Raise a Difference?’, Dossier of the ICC Institute of Words Business Law: Multiparty Arbitration (2010), p. 123.
19 For a commentary of the French and English court decisions, see F.-X. Train, ‘L’affaire Dallah ou de la
difficulté pour le juge anglais d’appliquer le droit français, note sous Paris, Pôle 1 – Ch. 1, 17 février 2011 et
Cour suprême du Royaume-Uni, 3 novembre 2010’, 2012(2) Revue de l’arbitrage 374 (2012).
187
in damages plus legal costs. The government thereafter sought to set aside the ensuing
award in France, while Dallah sought to have the award enforced in the United Kingdom.
The Dallah award was denied enforcement successively by the High Court, the Court
of Appeal and the Supreme Court. According to the Supreme Court, it had not been the
common intention of Dallah, the Trust and the Pakistani government that the latter be a
party to the contract.
In reaching this decision, the English courts applied French law, as the law of the seat
of the arbitration, and undertook a detailed analysis of the facts.The Supreme Court noted,
for instance, that, prior to the creation of the trust, Dallah had executed a memorandum of
understanding with ‘the President of the Islamic Republic of Pakistan through the Ministry
of Religious Affairs’.20 That memorandum contained a different dispute resolution clause
from the one in the final agreement between Dallah and the Trust, was governed by Saudi
Arabian law and contained an express waiver of sovereign immunity – unlike the agreement
between Dallah and the Trust. This suggested that the parties in fact wished to exclude the
government from the final agreement. In addition, the final agreement only referred to the
government in its capacity as guarantor of loans to the Trust.21
Moreover, as regards the government’s involvement in the performance of the contract
(for example, through the Ministry of Religious Affairs’ involvement in the appointment of
a trustee bank to manage the Trust’s fund and other related correspondence with Dallah),
the English courts found such involvement to be ‘understandable’22 and insufficient to
make the government a party to the contract.
The Paris Court of Appeal also applied French law, but reached the opposite result
and upheld the award. Analysing the same factual matrix, the French court held that the
government’s continuous involvement, both at the pre-contractual stage and in the perfor-
mance of the contract, paired with the lack of involvement on the Trust’s part, showed that
such Trust had been created as a matter of formality only.23 The Pakistani government was
therefore held to have been the true other party to the contract.
This case is a testament to the subjectivity involved in such an analysis, seeing as though
different fora, applying the same law to the same set of facts, reached opposite results. Such
subjectivity was also evident in the much older Pyramids case,24 involving a contract for the
construction of a residential and tourism complex in the vicinity of the Gizeh Pyramids.
In that case, a foreign investor had concluded an initial, tripartite agreement with the
Arab Republic of Egypt and the Egyptian General Organisation for Tourism and Hotels
(EGOTH). Subsequently, a joint venture agreement had been concluded between the
investor and EGOTH, bearing the words ‘approved, agreed and ratified by the Minister
of Tourism’, together with the Minister’s signature, on the last page. The project was
20 Dallah Real Estate and Tourism Holding Company (Appellant) v.The Ministry of Religious Affairs, Government of
Pakistan (Respondent) (Dallah v. Pakistan), [2010] UKSC 46, Paragraph 134.
21 Dallah v. Pakistan, [2010] UKSC 46, Paragraph 136.
22 Dallah v. Pakistan, [2010] UKSC 46, Paragraph 44.
23 Cour d’appel de Paris, Pôle 1 – Chambre 1, RG No. 09/28533, 09/28535, 09/28541, Judgment of
17 February 2011, p. 6.
24 See J. Paulsson, ‘The Pyramids Case’, in The Berthold Goldman Lecture on Historic Arbitration Stories (2012),
available at www.arbitrationacademy.org/wp-content/uploads/2014/01/Arbitration-Academy-Jan-Paulsson.
pdf (last visited on 24 October 2016).
188
commenced, but the performance of the contract was impeded and ultimately prevented
through acts of the Egyptian government. The investor subsequently commenced an ICC
arbitration against EGOTH and the Egyptian state. In its award, the tribunal emphasised
that the investor had relied on the government’s approval of the project, as evidenced by
the fact that it had signed the tripartite agreement and approved the joint venture agree-
ment. Moreover, the Minister’s signature on the latter agreement concerned promises that
only the government was able to make to the investor and that were intended to bind that
party. Accordingly, the Egyptian government was found to be a party to the joint venture
agreement and was held liable on the merits.25
However, the Paris Court of Appeal set aside the award, on the basis that the arbitral
tribunal had erred in holding that the government’s actions had rendered it a party to the
joint venture agreement.
Situations such as the ones described above are a common occurrence in construction
projects. Several different parties, not all of which are contractually linked to one another,
may be called to intervene at one or more stages in the project. Such parties should be
weary of their involvement in the different phases of the concession, as this may result in
their being joined in an arbitration in which they never intended to be embroiled.
Conversely, from the outset, parties should bear in mind that, if a dispute arises, they
might wish to be able to name as respondent not only the party they are directly contract-
ing with (the locally incorporated company, the government-established trust), but also
a more solvent or more perennial entity (the foreign parent, the government itself). In
those circumstances, demonstrating the involvement of such a third party remains a highly
fact-dependent exercise26 and it would thus be advisable for parties to keep accurate records
of the pre-contractual negotiations and of the performance of the contract. However, it
must also be borne in mind that different fora might interpret the same facts differently
and, even applying the same law, reach different conclusions.The odds of success of such an
attempt to extend an arbitration clause are thus not easy to predict.
Substantive issues
A distinction can be drawn between two types of construction-related concession con-
tracts. On the one hand, a concessionaire might be given control of an already existing
infrastructure, which it would then expand, refurbish and operate for a certain period of
time, for instance under a transfer-operate-transfer (TOT) framework. On the other hand,
a concession might require that the concessionaire start from scratch, by building and
then subsequently operating the project. This is the case, for example, of build-operate-
transfer (or BOT) projects. Selected challenges specific to these two types of projects are
discussed below.
First, the scenario of an existing infrastructure that the concessionaire would operate
may relate to projects such as airports, railways or ports that the conceding entity wishes to
25 See SPP (Middle East) Ltd, Southern Pacific Properties Ltd v. Arab Republic of Egypt General Company for Tourism and
Hotels, ICC Case No. 3493, Award dated 16 February 1983, 9 Yearbook of Commercial Arbitration 111 (1984).
26 See for instance B. Hanotiau, ‘Multiple Parties and Multiple Contracts in International Arbitration’, in
Permanent Court of Arbitration (ed.), Multiple Party Actions in International Arbitration, Oxford University Press
(2009), Paragraph 2.25, citing ICC Case No. 9517, Partial Award dated 30 November 1998 (unpublished).
189
modernise or maintain, with a view to ensuring the continuity and quality of public ser-
vices. For this purpose, the conceding entity will seek to incentivise the concessionaire to
make substantial investments throughout the term of the concession. One way to achieve
this goal is through tariff regulation mechanisms, which can be based on a rate-of-return
or price cap formula.
A price cap tariff formula implies, through what is often referred to as an efficiency
factor (EF), that the maximum amount of tariffs that the concessionaire may charge (by
way of tolls on a highway or taxes for take-off and landing in an airport) is capped, though
indexed to consider inflation.The concessionaire’s ability to charge that maximum amount
is conditional upon its compliance with a certain set of norms or its observance of specific
milestones provided in the contract. Accordingly, the concessionaire is incentivised to invest
in the concession, to expand the infrastructure and to ensure it functions at high standards
of quality, as this will increase the demand for services and allow it to perceive a higher
revenue by way of higher tariffs. Conversely, a concessionaire that does not maintain the
concession and fails to invest in it will see its revenue diminish through the EF, as it will be
forced by the conceding entity to charge lower tariffs.
Such a price cap tariff formula is one of the issues in a pending dispute that arose out of
a concession for the operation, maintenance and expansion of three international airports
in Bolivia.27 The concessionaire, a locally incorporated company allegedly controlled by
a Spanish entity, failed to make the necessary investments in the airports throughout its
17-year operatorship. Such failure to invest led to the deterioration of the infrastructure
and ultimately to the nationalisation of the concessionaire.The Spanish entity subsequently
commenced arbitration proceedings on the basis of the bilateral investment treaty between
Bolivia and Spain, arguing that the state had breached its obligations under that treaty and
its contractual obligations to the concessionaire.
Another case that involved price cap tariff formulas arose out of a concession for the
refurbishment and operation of an international airport in Costa Rica. In that case, the
consortium of foreign banks that had provided financing to the concession suspended such
financing and conditioned it upon the concessionaire being allowed to charge an increased
amount in tariffs from airport users.The increased tariffs would have compensated the con-
cessionaire’s operation, maintenance, financing and development costs, but such a change
in the tariff scheme was rejected by the Office of the Comptroller General. As a result, the
concessionaire commenced arbitration proceedings against the Civil Aviation authorities of
Costa Rica (responsible for setting air traffic tariffs), seeking damages of over US$70 million.
The tribunal ultimately dismissed the claim, holding that the subject matter of the
dispute was inarbitrable and should have been instead impugned before the local adminis-
trative law courts.
Tariff regulation mechanisms are thus key to the economic equilibrium of concession
contracts. The concessionaire’s ability to effectively operate the concession will be depend-
ent, inter alia, on the profitability of such operation, which, in turn, is intrinsically linked
to the evolution in time of the tariff scheme. It may be the case that such evolution is
unfavourable to the concessionaire, to the extent of affecting the equilibrium of the con-
tract and even suspending international financing. The concessionaire will therefore seek
27 Abertis Infraestructuras S.A. v. Plurinational State of Bolivia, PCA Case No. 2011-14.
190
to charge higher tariffs. Conversely, the conceding entity will press to impose lower tariffs
on the concessionaire, in order to ensure access to, and continuity of, public services. It is
important that such diverging interests be conciliated by the parties, so as to avoid serious
issues in the operation of the concession, which may ultimately lead to the irremediable
breakdown and even the premature termination of the concession (by way of the nation-
alisation of the same).
Second, scenarios where the concessionaire must start from scratch, construct and oper-
ate an infrastructure project may also relate to power plants, dam structures, roads and high-
ways. It is often the case, in such projects, that the concessionaire’s contractual performance
is dependent upon certain legislative or administrative measures that the conceding entity
or the state itself must implement. If such measures are not implemented, the construc-
tion works may not be capable of being carried out or otherwise face significant delays.
For example, a conceding entity might fail to provide to the concessionaire the land on
which the latter party was due to build – either by failing to nationalise it28 or by failing
to issue necessary zoning and construction permits, or by revoking such existing permits.
Given the complexity of construction projects, any such delays might well significantly
impact the contemplated works and result in claims for damages from the concessionaire
or other impacted third parties (such as contractors, subcontractors, and suppliers of goods
or services).
By way of example, the current construction of the metropolitan railway in Peru’s
capital, Lima, has given rise to a potential investment arbitration. Delays in delivering the
land permits necessary to commence excavations have, according to the concessionaire,
significantly hampered its ability to advance the construction works in a timely manner.
Moreover, they have also led to financial penalties and additional costs being supported by
the concessionaire, inter alia for the storage of equipment and materials required for the
excavations. A similar claim has been brought against the state, in relation to a pier conces-
sion agreement, the performance of which was affected by permitting delays.29
Private entities are increasingly showing a tendency to resolve such disputes through
treaty-based arbitration against the state. Such a trend can be easily explained. One, claim-
ants will seek to direct their claims for damages at a respondent which is likely to be able
to satisfy a potential award on damages. Indeed, a state will be more likely to dispose of the
resources necessary than a state (conceding) entity. Two, it may be the case that the dispute
resolution mechanism contained in the concession contract is inadequate – either because,
as discussed above, the conceding entity may not have had the capacity to enter into an
arbitration agreement or because the subject matter of the dispute may be inarbitrable.That
dispute resolution provision might, in some cases, also be pathological – for instance, if it
provides for arbitration under the auspices of the International Centre for Settlement of
Investment Disputes (ICSID), but the potential respondent state entity has not been des-
ignated by the state under Article 25(1) of the ICSID Convention. Finally, it may be, as in
the Pyramids case discussed above, that the dispute truly arises out of actions or omissions
of the state, and not of the state entity.
28 As argued by the claimants in Convial Callao S.A. and CCI – Compañía de Concesiones de Infraestructura S.A. v.
The Republic of Perú, ICSID Case No. ARB/10/2 (Convial v. Peru).
29 APM Terminals Callao S.A. v. Republic of Peru, ICSID Case No. ARB/16/33.
191
In such cases, the concessionaire resorting to treaty-based arbitration must pay particu-
lar attention to the cause of action underpinning its claims. Indeed, if such claims do not
amount to breaches of treaty and are instead contractual in nature, they may be dismissed
for lack of jurisdiction.
One interesting example in this regard is that of a case brought against Peru by an
Argentinian investor,30 on the basis of the Peru-Argentina investment treaty, and in relation
to a concession contract by a municipal entity (containing a pathological ICSID arbitra-
tion clause) for the design, construction, and operation of a highway leading to Peru’s main
international airport. The claimants argued that Peru had expropriated their investment by
terminating the concession contract, and that the state had acted towards the concessionaire
in an arbitrary, discriminatory and unfair manner.
The respondent raised objections to the jurisdiction of the arbitral tribunal, arguing
that the claims put forth were contractual in nature and thus could not be decided in a
treaty arbitration.31 This was all the more so since the treaty did not contain an umbrella
clause, which would have been capable of elevating breaches of contract to the level of
treaty breaches.32
The tribunal dismissed Peru’s jurisdictional objection, holding that the investors had
not limited themselves to a mere invocation of the treaty in order to dress up purely
contractual claims. Instead, notably, the claimants had argued that the termination of the
concession contract amounted to an act attributable to the state acting in its sovereign
capacity. Moreover, the claims submitted to the tribunal were grounded in, and argued
under international law.33
However, on the merits, the tribunal decided against the claimants and found that
the state had not breached the treaty. Indeed, the concession contract contained a provi-
sion allowing for the termination of the same by the conceding authority at any time on
grounds of public interest. The tribunal thus found that the concession had been termi-
nated through the exercise of a contractual prerogative of the conceding municipal author-
ity and not in a manner involving the state acting in its sovereign capacity.34 In other words,
though the claimants were held to have submitted treaty claims, the underlying actions of
the municipal entity were of a contractual nature and therefore not sanctionable under
the treaty.
Surprising as it may be, the outcome of this case illustrates one of the main challenges
of treaty-based arbitration involving concession disputes, which is, for the claimant, to show
that the claims are not contractual in nature and that the conduct complained of pertained
to the state acting in its sovereign capacity. Such issues do not arise in contract-based arbi-
tration and may, depending on the circumstances, weigh in on a decision as to the type of
proceeding to be resorted to by the private party.
Third, private companies interested in a concession in a foreign state, as well as the
state itself, should bear in mind that, though such concession may be granted by the public
30 Convial v. Peru.
31 Convial v. Peru, Final Award dated 21 May 2013, Paragraphs 293-297, 443.
32 Convial v. Peru, Final Award dated 21 May 2013, Paragraph 444.
33 Convial v. Peru, Final Award dated 21 May 2013, Paragraphs 449-450.
34 Convial v. Peru, Final Award dated 21 May 2013, Paragraphs 504, 509, 516 et seq.
192
authorities, a social licence to operate might also be necessary. Such a licence can be
deemed to exist ‘when a project has the ongoing approval within the local community and
other stakeholders, [as] ongoing approval or broad social acceptance and, most frequently,
as ongoing acceptance.’35 As such, it may be the case that the performance of a conces-
sion contract is adversely impacted not by the actions or omissions of the concessionaire
or the conceding entity, but by the absence of a social licence to operate from the local
community. Often, such situations arise due to the foreign identity of the concessionaire,
which may appear to be detracting from its legitimacy to act, or due to the environmental
or social impact the concession might have. The latter is often the case in mining and large
infrastructure construction projects, which generally require the nationalisation of land and
the displacement of communities.
It would thus be advisable that both the potential concessionaire and the local authori-
ties seek to gain community approval for the construction project, for example, by dis-
seminating information, engaging in social dialogue and setting up community relations
programmes as appropriate.
35 http://socialicense.com/definition.html (last accessed on 24 October 2016).
193
18
Construction Arbitration and Turnkey Projects
James Doe, David Nitek and Michael Mendelblat1
Introduction
A ‘turnkey’ project is so called because (in theory at least), the employer, after taking over
the project, has only to ‘turn the key’ to activate the plant or other project that has been
constructed. It is a frequently used model of procurement for power stations, processing
plants and where the works are funded by way of project financing. The contractor takes
the vast majority of responsibility in terms of design, engineering, procurement and con-
struction. The owner specifies the output or performance that it requires of the facility or
plant but rarely provides detailed specifications. It is for the contractor to determine how it
intends to achieve the required output or performance. The contract price is almost always
lump sum and there is a fixed completion date which can only be adjusted in a limited
number of circumstances (e.g., acts of prevention by the owner).
The performance of the plant will be assessed against a range of detailed criteria speci-
fied in the contract documentation (normally in a lengthy schedule). In practice, comple-
tion will only be achieved after extensive rounds of taking over and performance tests. As
well as delay and disruption-type claims, which are a common feature of arbitrations con-
cerning construction projects, arbitrations concerning turnkey projects frequently involve
issues concerning fitness for purpose, non-compliance with owner requirements and dis-
puted variations to the specification.
While contractors are likely to price higher for taking on the increased risk as com-
pared to more traditional forms of procurement, extreme competition in some interna-
tional markets (most notably but not exclusively the Middle East) has led contractors to
bid lower prices, which in turn leads to claims that can result in disputes. The size and
1 James Doe and David Nitek are partners, and Michael Mendelblat is a professional support lawyer at Herbert
Smith Freehills LLP.
194
complexity of turnkey projects often means these disputes (and the arbitrations required to
resolve then) are also large and complex.
Standard forms
While some turnkey projects are procured on bespoke forms of contract, frequently par-
ties will use a modified version of a standard form. A form commonly encountered is the
FIDIC Silver Book. Consistent with the philosophy of turnkey procurement, the terms of
this standard form place a heavy burden on the contractor in terms of design responsibility
and risk. Fitness for purpose is a contractual requirement. The intended effect is to achieve,
so far as possible, certainty of final price and completion date. However, there are excep-
tions to the extent of risks that the contractor takes on and these often form the basis of
disputes that can lead to arbitration. These are discussed below.
Other forms commonly encountered include the Japanese ENAA contract, ICC
Model Turnkey Contract, the American AIA Contract, the British I.ChemE International
Contract Suite (although this needs some adaptation to make it properly ‘turnkey’) and
the Belgian Orgalime Turnkey Contract. While the terms of these contracts vary in some
respects, the FIDIC Silver Book is discussed below on the basis that it is a typical example
of a turnkey contract standard form.
The contractor’s key obligations, as set out in the Silver Book, are as follows:
• when completed the works are to be fit for the intended purposes defined in the contract;
• the works are to include any work that is necessary to satisfy the employer’s require-
ments, implied by the contract and all works that (although not mentioned in the
contract) are necessary for the stability or for the completion, or safe operation of
the works;
• the contractor is deemed to have scrutinised the employer’s requirements and is respon-
sible for the design of the works and for the accuracy of the employer’s requirements;
• the employer is not responsible for any error, inaccuracy or omission of any kind in the
employer’s requirements and any data or information received by the contractor, from
the employer or otherwise, does not relieve the contractor from his responsibility for
the design and execution of the works;
• there are limited exceptions to the above where the employer is responsible for the
correctness of certain portions of the employer’s requirements and data and informa-
tion provided by him. These are portions, data and information stated in the contract
as being immutable or the responsibility of the employer; definitions of intended pur-
poses of the works or any parts thereof; criteria for the testing and performance of the
completed works, and portions data and information that cannot be verified by the
contractor, except as otherwise stated in the contract.
The parties may agree to mitigate the above terms by, for example, providing for the con-
tractor only to assume risk following a specified period for inspection or adopting existing
ground condition reports as a benchmark to divide the employer’s and contractor’s risks.
The precise scope and application of these exceptions can be areas of dispute between
the parties.
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The contract sum

The above does not mean that the final contract sum will not vary from that specified at
the time the contract was executed. The contract sum will usually be fixed price. However,
an employer will usually have the right to issue variation instructions, although he or she
must recognise that substantial extra costs may be incurred, both as to the cost of the vari-
ation works themselves and disruption to the contractor’s regular progress. The undesirable
phenomenon known as ‘scope creep’ may also arise where the scope of a project is not
properly defined at the outset and unplanned variations become necessary, notwithstanding
the initial definition of what is required in the employer’s requirements. Such a process will
inevitably lead to substantial increased cost which in turn can lead to disputes over whether
these costs should be borne by the contractor or the employer.
Often these disputes can be characterised as a difference between design development
(which is usually at the contractor’s risk) and variations (for which the employer is usu-
ally responsible).
Another form of increased cost that may not be fully budgeted for will be the inter-
face with other works being carried out by or on behalf of the employer on other sites.
The turnkey contract may be part of a much wider scope of work under other contracts
at several different sites adjoining each other. Site and workspace boundaries may not be
well defined and there may be scope for works being carried out for the employer that are
unconnected with those within the turnkey contract, but that affect its regular progress,
again causing more expense.
Yet another source for additional cost may be the employer’s failure to comply with
the requirements in the contract for him or her to supply feedstock or other materials or
components. If these are not supplied at the times specified, then the contractor may have
further scope to claim for increased cost.
In all the above cases, a contractor may also claim for extra time so as to extend the
completion date and reduce his or her liability to liquidated damages for delay. As with
other forms of construction contract, allocating responsibility for delay can result in signifi-
cant and complex disputes in turnkey projects.
Testing and completion

Turnkey contracts typically impose a complex regime for takeover and performance test-
ing. Before the plant can be taken over by the employer, tests will have to be carried out
to demonstrate its compliance with the contract documentation and this may itself be a
lengthy process. Following takeover, performance tests may also be required in order to
observe the performance of the plant in action. The contractor’s compliance with the out-
turn specification will be assessed and any failure will give rise to retesting.
If it emerges that the plant cannot be operated at the levels required in the contract,
then the contractor may have to pay liquidated damages in respect of such a failure (repre-
senting the losses suffered by the employer as result) and it will be for the employer to take
on other contractors to bring the plant up to specification if he chooses to do so. Given the
severe consequences of failing these tests, the reasons why can often be contentious issues
ultimately resulting in arbitration. For example, with processing plants and power stations
there can be disagreements over the feedstock or fuel that the employer was obliged to
196
provide. Normally a turnkey contract will specify that it must be of a particular quality or
composition and provided in sufficient quantities.
The contractor will usually be liable for liquidated damages should he or she be in
delay as regards the completion date, unless he or she can demonstrate that he or she has an
excuse for late completion that is allowable within the contract.
Liability
It is rarely the case that turnkey contractors will accept unlimited liability for any breaches
of contract they commit. Liability may be limited in nature, for example, so as to exclude
some or all of the consequential economic loss resulting from a defect, as opposed to its cost
of repair. Other limitations may relate to the total amount of damages that may be payable
as a result of breach.These may be limited to a percentage of the contract sum or capped as
a specific figure or both. FIDIC provides for a range of limitations both as to consequential
loss and total liability. Sometimes these contractual liability limits are in addition to any
sums payable by way of liquidated damages for delay or lack of performance. The scope
of these limitations and their effect are also common areas for dispute in turnkey projects.
Profitability
An employer’s margins (and indeed the contractor’s) may be relatively slim. In some cases,
the employer may be using project, as opposed to corporate, finance and therefore relying
largely on borrowed money which adds a layer of finance costs to what may already be
an expensive contract package. Even if the employer does not obtain finance on this basis,
a contractor will usually price heavily for the risks he or she is taking on, in particular
because he or she will be adopting the employer’s design as his or her own in addition to
the design he or she supplied to complete that specified in the employer’s requirements.
He or she may also add a premium for having to tender within a limited time scale,
especially where this has allowed him or her little time to carry out a comprehensive site
assessment and he or she will be largely accepting responsibility for site conditions, even if
these are unforeseeable in the circumstances.
All the above factors have a significant effect on the content and process of a typical
construction arbitration concerning a turnkey contract. Both parties may be reluctant to
give ground to protect slim margins.
Typical claims
In most arbitrations the contractor will be the claimant seeking an extension of time or loss
and expense. In the Silver Book the scope for claiming an extension of time is relatively
limited. As is the case in virtually all construction contracts, the contractor can claim for
time as a result of variations (changes in the scope of work). In addition, a contractor can
claim under the following clauses:
• employer’s delay in giving possession – Clause 2.1;
• discovery of fossils – Clause 4.24;
• delayed testing – Clause 7.4;
• any act of prevention by the employer – Clause 8.4;
• delays caused by authorities – Clause 8.5;
197
• employer’s suspension – Clause 8.9;

• interference with tests on completion – Clause 10.3;
• changes in legislation after the base date – Clause 13.7;
• contractor’s suspension – Clause 16.1;
• employer’s risks – Clause 17.4; and
• force majeure – Clause 19.4.
Under the Silver Book (as is frequently the case in turnkey projects), there is no recovery
for the contractor if he or she is delayed or incurs additional cost as a result of unfavourable
site conditions, whether or not these were unforeseeable, or in respect of inaccuracies in
data provided to him or her by the employer. Any deficiency in the employer’s require-
ments is at the contractor’s risk with only limited exceptions.
Claims may also arise as a result of inconsistency between contract documents. Differing
standards (e.g., as to level of output required) may appear in documents produced by one
or other of the parties, leading to disputes as to the correct standard and which party bears
the risk of any extra work necessary for compliance.While there is a priority of documents
clause in the Silver Book, this may not assist when the relevant documents are at an equal
level of priority so that an arbitrator must interpret the contract documents as a whole to
identify the parties’ intentions. An example of the difficulties this can cause is to be found
in the recent MT Hojgaard case,2 which is currently being appealed to the Supreme Court.
In response to the contractor’s claims, the employer may seek liquidated damages for
delay or failure to meet performance tests. The employer may also seek general damages
in respect of defects in the works where these are not covered by the performance testing
regime. Issues may arise as to the contractor’s responsibility for defects where they arise
from failures of proprietary items, as the contract may contain limited exclusions for failures
in this regard.
Both parties may contend that the justification for serving a notice of termination
has arisen. In the case of the contractor, common grounds are failure to make payment
on the due date, the occurrence of a force majeure event or failure to submit reasonable
evidence that proper financial arrangements have been made for the contract price. The
latter argument succeeded in the recent Trinidad 3 case, even though the employer was a
public authority.
The employer may contend that he or she is entitled to terminate by reason of the con-
tractor being materially in breach, in particular, in failing to proceed with the works with
due expedition and without delay. He or she may also contend that a performance security
has not been provided or that a force majeure event has arisen.
The employer will typically claim for the additional costs for completion of the works.
The contractor will claim loss of profit on uncompleted works. Such a claim is preserved
in the FIDIC Silver Book, notwithstanding the general exclusion of loss of profit claims.
2 MT Hojgaard A/S v. E.ON Climate and Renewables and another [2015] EWCA Civ 407.
3 NH International Caribbean Ltd v. National Insurance Property Development Company Ltd [2015] UKPC 37.
198
Procedure
In most turnkey contracts, the contractor must give proper notice of any claim for exten-
sion of time or additional payment describing the event or circumstance giving rise to the
claim. In the Silver Book such notification must be done as soon as practicable and not later
than 28 days after he or she became aware, or should have become aware, of the event or
circumstance. Failing such notice, he or she will not be entitled to additional time or pay-
ment. Experience suggests that contractors often fail to give adequate notice, which unnec-
essarily hinders their ability to recover what would otherwise have been a legitimate claim.
Under the Silver Book, the contractor must, within 42 days of becoming aware of a
claim, submit a fully detailed claim which the employer proceeds to determine. Therefore,
unlike FIDIC’s other books, there is no independent determination at this stage, thus
increasing the likelihood of claims being taken to arbitration.
Common issues
The battleground on which the contractor must base his or her claim may therefore be as
to whether he or she can take advantage of the very limited grounds available to him or
her to seek recompense. While the contract contains no exclusive remedies clause, so that
the contractor is entitled to resort to claims at common law where the contract does not
preclude such claims, he or she may have to produce pleadings of some ingenuity in order
to succeed on a claim for, say, misrepresentation as to site conditions. However, extracon-
tractual claims are not uncommon in turnkey projects.
As a result of the limited scope for claims, it will often be the case that the contractor
will need to analyse events surrounding the tender process and subsequent progress of the
contract in minute detail in order to put together his or her pleadings. It follows that any
resultant arbitration will be document-heavy and inevitably involve extensive expert evi-
dence on technical matters such as engineering and design.
Choice of arbitrator
As with most forms of arbitration, the choice of arbitrator is a key decision. Given the size
and complexity of disputes involving turnkey contracts, it is often advisable to choose a
tribunal with extensive experience of these types of projects.
An arbitrator faced with a contention from a contractor that he had been unfairly
disadvantaged by a short tender period combined with the onerous terms of the turnkey
contract may be tempted to consider favourably any argument (even extracontractual) to
mitigate the harshness of the situation, such as misrepresentation or quantum meruit. This is
where knowledge of the international construction industry, its procurement processes and
the execution of projects becomes invaluable to an arbitrator.
Pre-arbitration
It is likely that the parties will have agreed on some means of interim dispute resolution
prior to a full-blown arbitration. In the Silver Book, the dispute adjudication board (DAB)
is selected as and when a dispute arises in the same way as an arbitrator. In other forms of
contract, it may be that the parties have agreed to hold negotiations or a mediation prior
to commencing arbitration.
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An arbitrator may be invited to make an award enforcing a DAB’s decision. If so, the
receiving party would be well advised to consider the Singapore decision known as Persero.4
There, the court decided that a DAB’s decision could only be enforced on the wording of
the FIDIC form if an application to enforce by way of interim award was made within an
arbitration where all issues before the DAB were raised.To remedy this situation, FIDIC has
issued a suggested amendment to its standard form construction contracts5 but there will
be many contracts where the original wording has been used. Care must therefore be taken
when attempting to enforce a DAB’s decision by way of arbitrator’s award.
Choice of law
Arbitration will generally be the method of dispute resolution chosen in turnkey contracts
as many, if not most, of them involve parties from more than one country. Parties frequently
contract on the basis that the procedural law of the arbitration and its seat (location) will
be that of a neutral jurisdiction, thus avoiding possible adverse consequences of proceeding
in the courts of one or other party. In turnkey contracts, the choice of substantive law and
the seat of the arbitration will often be different.
Procedural issues
In most cases, the contractor is the claimant as the matter referred to arbitration will gener-
ally be his entitlement to an extension of time and (usually) loss and expense. Given that
most of the risk and responsibility for the works lies with the contractor, the bulk of site
records and other information in relation to the progress of the project will be held by the
contractor, in particular, those documents related to design and engineering matters, sup-
pliers and subcontractors.
This may put the employer at a disadvantage in the early stages of any arbitration as he
or she may only have had a small team on site, without the capacity to keep abreast of every
development as to the contractor’s progress.The contractor, by contrast, will often be ready
to ‘hit the ground running’ and his or her initial statement of case will have been subject of
extensive preparation. The employer’s time to respond before arbitration commences may
have been limited and such documents as he or she has been provided with during the
project may not be comprehensive.
There is a distinct issue with regards to turnkey contracts that employers’ disclosure will
probably be limited compared to that produced by contractors, given the employer’s input
into the project as well as limited supervision on site. For this reason, sequential disclosure is
not uncommon, as well as orders for disclosure in phases to suit the progress of the arbitra-
tion. Disputes over the extent of the contractor’s disclosure are not uncommon.
The IBA rules on the Taking of Evidence in International Arbitration6 may be adopted
or even expressly referred to in the arbitration clause. These provide a framework and
guidelines for the approach to document disclosure for the arbitrator to consider. Given
4 PT Perusahaan Gas Negara v. CRW Joint Operation [2015] SGCA 30.

5 http://fidic.org/sites/default/files/FIDIC Guidance Memorandum to Users of the 1999 Conditions of
Contract dated 1 April 2013.pdf.
6 www.ibanet.org/Publications/publications_IBA_guides_and_free_materials.aspx.
200
the potential complexity of disclosure issues in turnkey projects, using the IBA rules
is recommended.
While the IBA rules contemplate that either party may submit a request to produce,
the employer may continue to be at a disadvantage in this respect until relatively late in
the arbitration by reason of his or her relative lack of familiarity with the contractor’s, and
particularly the subcontractor’s, activities. This problem may be especially acute where a
contractor seeks permission to amend his or her statement of case to take account of
developing subcontractors’ claims against him or her, which he or she is then ‘passing on’
to the employer.
The employer will need to engage outside experts and, unless they have had a ‘watching
brief ’ throughout the project (which is unusual), he or she will have a substantial learning
curve when preparing his or her response and any counterclaim. By contrast, the contractor
is likely to have begun assembling an expert team once it became apparent to him or her
that claims were likely to result in arbitration.
Preliminary points
It is common for preliminary points to be taken in an arbitration in order to resolve mat-
ters that, in some cases, can be determinative of the issue as a whole. A common example
is whether the contractor complied with the claim notification time limits, such as those
found in Clause 20.1 of the Silver Book.
Other common issues subject to preliminary determination concern matters of con-
tractual interpretation, the existence and affect of any collateral agreements and the extent
of any limitations of liability.
Bifurcation
As well as preliminary issues, the complexity of turnkey project disputes often results in
tribunals having to bifurcate issues to make submissions and hearings more manageable.
Usually this bifurcation is between liability and quantum, but sometimes the project is so
complex that tribunals decide to divide between different issues of liability. For example,
the causes of delay to distinct sections of the project.
Other issues
In many cases contractors will largely be passing through subcontractors’ claims, not neces-
sarily adapting them to suit the terms of the main contract as opposed to the various sub-
contracts. Ideally, these contracts should be ‘back to back’ but it is not uncommon for there
to be a mismatch between main and subcontracts. Although some of the standard form
producing bodies (for example FIDIC) produce subcontracts intended to integrate with
their main contracts, they are not always adopted and bespoke forms may be encountered.
If the main contractor does not ‘disentangle’ differing provisions of the subcontract from
the claims he or she puts forward to the employer, the arbitration is likely to be prolonged
with the need for additional rounds of pleadings and requests for further information.
Employers will generally resist any proposal by the contractor to join subcontractors
into the main contract arbitration. Employers will generally refuse on grounds of increased
cost and delay. It is unusual for turnkey contracts to contain provision for multiparty
201
arbitration although the possibility is referred to by FIDIC in its discussion of particular

conditions annexed to the Silver Book. Multiparty arbitration will only be available if all
parties concerned agree, whether before or after the dispute has arisen. In complex turnkey
projects with numerous contractors and suppliers with an integrated scope of work, it is
sometimes the case that all participants are required to sign a dispute resolution deed that
acts as consent for them to be joined in multiparty arbitrations. Provisions in the applicable
arbitral rules, such as articles 7 to 10 of the ICC Rules of Arbitration, may also be useful in
certain circumstances.
Conclusion
Turnkey projects differ from other construction projects in terms of the high level of risk
undertaken by the contractor. In particular, the risks associated with design, engineering
and fitness for purpose can cause major disputes to arise. In addition, the limited grounds
on which a contractor is able to seek recompense can result in the deployment of complex
legal arguments surrounding the interpretation of the contract documents, in particular, the
specification and scope of work to be performed. Any inconsistencies between the contract
documents or gaps in the specification that have had to be reconciled or filled by perform-
ing more work may give rise to a claim for additional time and money by the contractor.
Overall, this allocation of risks can give rise to a range of large and complex disputes
that can, in turn, impact on the way in which an arbitration has to be conducted in order
to resolve them. For example, they often require significant amounts of factual and tech-
nical expert evidence. This evidence needs to be marshalled and presented in an efficient
way. The conduct of these arbitrations often benefits from having a tribunal experienced
in these types of disputes.
202
Part IV
Regional Construction Arbitration
19
Construction Arbitration in Australia
Andrew Stephenson and Lindsay Hogan1
Introduction
In Australia, two regimes exist that regulate arbitration, depending upon whether the arbi-
tration is characterised as international or domestic. Prior to 2010, there were significant
differences between the policy settings for international and domestic arbitration.Therefore,
in respect to cases prior to 2010, it is important to consider whether the arbitration in ques-
tion was international or domestic. Australian cases relating to domestic arbitration, prior to
this time, have often been the subject of international criticism where commentators did
not understand that those cases related to domestic arbitration only.
There was, however, some legitimate criticism of cases that related to international arbi-
tration where the Australian courts had failed to understand the policy setting stipulated
by the New York Convention,2 and the Model Law (as at 1985),3 both of which had been
incorporated into the law of Australia for the purposes of international arbitration.
By 2010, there was a ground swell of support for significant reform of the law relating
to both international and domestic arbitration. Both regimes are now based on the Model
Law (as at 2006).4 However, there are subtle differences between the two regimes that are
discussed below.
1 Andrew Stephenson is a partner and Lindsay Hogan is a senior associate at Corrs Chambers Westgarth.
2 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature
10 June 1958, 330 UNTS 3 (entered into force 7 June 1959) (‘New York Convention’).
3 UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations
Commission on International Trade Law on 21 June 1985).
4 UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations
Commission on International Trade Law on 21 June 1985, and as amended by the United Nations
Commission on International Trade Law on 7 July 2006) (‘Model Law’).
205
The 2010 reforms involved amendments of the existing International Arbitration Act
1974 (IAA),5 and the repeal of the mid-1980s version of the Commercial Arbitration Act
(the Old CAA) of each state and territory (except that relating to the Australian Capital
Territory which retains the Old CAA) and enactment of a new Commercial Arbitration
Act by each state and territory (collectively the CAA).6 The principal reforms relate to:
• confidentiality;
• stays (for domestic arbitration);
• the capacity to contract out of the Model Law for international arbitration; and
• recourse against the award.
Before embarking on a detailed discussion of these issues, it is appropriate to first consider

how Australian law distinguishes between international and domestic arbitration.
Characterisation of arbitration agreements – international v. domestic

Pursuant to Section 1(3) of the CAA an arbitration is domestic if at the time of the conclu-
sion of the arbitration agreement the parties had their places of business in Australia and the
Model Law (as given effect by the IAA) does not apply.
Article 1(3) of the Model Law provides that an arbitration is international (and there-
fore not domestic) if:
(a) the parties to an arbitration agreement have, at the time of conclusion of that agreement,
their places of business in different States;7 or
(b) one of the following places is situated outside the State in which the parties have their places
of business:
(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;
(ii) any place where a substantial part of the obligations of the commercial relationship is
to be performed or the place with which the subject matter of the dispute is most closely
connected; or
(c) the parties have expressly agreed that the subject-matter of the arbitartion agreement relates
to more than one country.
Accordingly, it is possible for an arbitration between two Australian entities to be regulated

by the international regime.
Confidentiality
In other common law countries, confidentiality has been a hallmark of arbitration, rooted
in principles of self-determination and the parties’ ability to choose to keep both their
5 International Arbitration Act 1974 (Cth).

6 Commercial Arbitration Act 2010 (NSW); Commercial Arbitration (National Uniform Legislation) Act
2011 (NT); Commercial Arbitration Act 2013 (QLD); Commercial Arbitration Act 2011 (SA); Commercial
Arbitration Act 2011 (TAS); Commercial Arbitration Act 2011 (VIC); Commercial Arbitration Act 2012
(WA).
7 Meaning in this context, countries, and not to be confused with Australian states.
206
dispute and its resolution private and confidential.8 The confidentiality associated with a
private arbitration in those countries has meant that commercially sensitive information or
awards will not be in the public domain.9 The risk of reputational damage associated with
publicly airing a dispute in open court is also avoided if the dispute is kept confidential.10
Prior to the enactment of the CAA in Australia, there was no presumption of confi-
dentiality in Australia. In the 1995 case Esso Australia Resources Ltd v. Plowman (Minister for
Energy and Minerals) (‘Esso’),11 the High Court of Australia held that there was no implied
obligation of confidentiality in arbitration agreements. Confidentiality was an obligation
only if expressly specified in the arbitration agreement.
In Esso, Plowman sought to disclose information Esso had provided during the course
of the arbitration. Esso argued that the arbitration agreement contained an implied term of
confidentiality, which meant that documents obtained during the course of the arbitration
could not be disclosed to third parties.The High Court held by majority that while arbitra-
tion proceedings are private, they attract no greater confidentiality than a court proceeding,
and that confidentiality is not a necessary attribute of such privacy.
In practice, parties could circumvent Esso by expressly agreeing that the arbitration was
confidential as well as private.12
The Australian position following Esso was out of step with international commercial
arbitration. Accordingly, some argued that this was an important reason why foreign dispu-
tants chose not to arbitrate in Australia.13
The CAA brought Australian domestic arbitration law back in line with international
best practice by imposing a statutory duty of confidence. Section 27E of the CAA prohib-
its the parties and the tribunal from disclosing confidential information, subject to certain
exceptions. Pursuant to Section 27E(1) the parties may agree to opt-out of the statu-
tory duty.
The IAA, which deals with international arbitration, provided for confidentiality on
an opt-in basis. However, in October 2015, the IAA was amended to mirror the duty of
confidence required in respect of domestic arbitration.
Stays
As discussed above, the IAA gives effect to both the New York Convention and the Model
Law (2006 version). The Model Law has, by virtue of Section 16 of the IAA, the force of
8 L. Kratky Doré, ‘Public Courts Versus Private Justice: It’s Time to Let some Sun Shine in on Alternative
Dispute Resolution’ (2006) 81 Chicago-Kent Law Review 463, 468.
9 Professor Dame H. Genn, ‘Why the Privatisation of Civil Justice is a Rule of Law Issue’, (36th F A Mann
Lecture, Lincoln’s Inn 19 November 2012), 10.
10 J. Galatas, ‘The Role and Attitude of the Courts in Australian in Relation to International Commercial
Arbitration’ (2005) 1 The International Construction Law Review 27, 47.
11 (1995) 183 CLR 10. See also J. Galatas, ‘The Role and Attitude of the Courts in Australian in Relation to
International Commercial Arbitration’ (2005) 1 The International Construction Law Review 27.
207
law in Australia. Section 7 of the IAA enforces ‘foreign’ arbitration agreements,14 and pro-
vides that a court must upon an application by a party to the proceedings stay any court
proceedings within the ambit of the arbitration clause.
Article 8 of the Model Law relates to international arbitration as defined in the Model
Law (as discussed above), which also stipulates that a court must, on application by a party
to the proceedings, grant a stay of proceedings commenced contrary to the arbitration
agreement. This article has been adopted in the domestic regime.
Both the international and domestic regimes are subject to the usual exception that a
stay will not be granted if the arbitration agreement is ‘null and void, inoperable or inca-
pable of being performed’.
The issues that arise in respect of stays are twofold:
• Is the dispute the subject of the proceedings within the scope of the arbitration clause?
• Is the arbitration clause null and void, inoperable or incapable of being performed?
Is the dispute the subject of the proceedings within the scope of the arbitration
clause?
This issue is to be resolved by a proper interpretation of the arbitration clause. Like in
England and Wales, prior to Fiona Trust & Holding Corp v. Privalov,15 Australian courts had
read arbitration clauses strictly, including making distinctions between clauses that referred
to arbitration disputes ‘arising under’, ‘connected with’ or ‘relating to’ the contract.This has
in the past given rise to serious inconvenience where a court has stayed part of the pro-
ceedings that were held to fall within the scope of the arbitration clause, while allowing the
balance of the dispute to proceed to litigation.16
However, by the 1990s, a line of authority developed that arbitration clauses should
be construed widely,17 so as to allow claims based on the contract and claims based on
non-contractual remedies (arising from the same or similar facts) to be determined together
in arbitration. The House of Lords decision in the Fiona Trust case arguably went further
than this line of authority, and was accepted by the Western Australian Court of Appeal.18
14 Being agreements where the procedure of the arbitration is governed by the law of a convention country;
the procedure of the arbitration is governed by a non-convention country and a party to that agreement
is a person who, at the time of the arbitration agreement, was ordinarily resident in Australia; a party to the
arbitration agreement is a convention country; or the parties to the arbitration agreement are ordinarily
resident in a convention country (being a country other than Australia).
15 [2007] 4 All ER 951 (Fiona Trust).
16 See for example Allergan Pharmaceuticals Inc v. Bausch Lomb Inc [1985] FCA 507 and Hi-Fert Pty Ltd v. Kuikiang
Maritime Carriers Inc (1998) 159 ALR 142.
17 See for example, the decision of Gleeson CJ (subsequently Chief Justice of the High Court of Australia – the
final court of appeal in Australia) in Francis Travel Marketing v.Virgin Atlantic Airways Ltd (1996) 39 NSWLR
160 at [165]; Comandate Corp v. Pan Australian Shipping Pty Ltd (2006) 157 FCR 45 at [164]; Walter Rau Neussel
Oelund Fett AG v. Cross Pacific Trading [2005] FCA 1102 at [41]-[42]; Global Partners Fund Ltd v. Babcock & Brown
Ltd (in liq) [2010] NSWCA 196 at [60]-[65] per Spigelman CJ, Giles and Tobias JJA agreeing – interestingly,
Spigelman CJ expressly referred to Fiona Trust at [63] in support of the liberal interpretation proposed in that
case; Lipman Pty Ltd v. Emergency Services Superannuation Board [2011] NSWCA 163 at [6] to [8].
18 See Paharpur Cooling Towers Ltd v. Paramount (WA) Ltd [2008] WASCA 110 at [39].
208
However, the Fiona Trust case was recently considered by the New South Wales Court
of Appeal in Rinehart v. Welker.19 In that case the relevant arbitration clause provided that
disputes ‘under this deed’ were to be referred to arbitration. Bathurst CJ referred to the
decision of the High Court of Australia in Toll (FGCT) Pty Ltd v. Alphapharm Pty Ltd,20
which stands for (inter alia) that the correct interpretation of a contract is to be determined
objectively, by reference to what a reasonable person would have understood the words to
mean. However, he went on to observe:21
That does not mean that the court is entitled to disregard clear and unambiguous language used
by the parties to produce results which the surrounding circumstances may indicate are more
commercial or business-like:Western Export Services Inc v. Jireh International Pty Ltd [2011]
HCA 45; (2011) 86 ALJR 1. Resort may only be had to surrounding circumstance where the
words in question exhibit uncertainty or ambiguity: Codelfa Construction Pty Ltd v. State Rail
Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 at 352.
He then referred to the line of authority that had developed since the mid-1990s, which
supported a liberal interpretation of arbitration clauses, and then stated:22
That is not to say that the words of the clause can be given a meaning they do not have to satisfy
a perceived commercial purpose. Such an approach would be inconsistent with the approach to
construction of contracts to which I have referred above. As stated by French J in Paper Products
the scope of disputes covered by an arbitration clause must depend on the language of the clause.
Similar statements were made by Allsop P whilst a judge of the Federal Court, in Walter Rau
and Comandate Marine Corp and in this court in Lipman Pty Ltd. Rather, the words of an
arbitration clause should be, to the extent possible, consistent with the ordinary meaning of the
words, liberally construed.
It follows that it is not appropriate for this court to adopt what Lord Hoffman described in
Fiona Corporation as a ‘fresh start’ and construe clauses irrespective of the language in accord-
ance with the presumption that the parties are likely to have intended any dispute arising out
of the relationship into which they have entered to be decided by the same tribunal unless the
language makes it clear certain questions were intended to be excluded.Whilst the presumption
that parties intended the same tribunal to resolve all their disputes may justify a liberal approach
consistent with the plain meaning of the words in question, the approach suggested by Lord
Hoffman is contrary, in my opinion, to the approach laid down by the High Court as to the
construction of commercial contracts.
19 [2012] NSWCA 95 (Rinehart).

20 (2004) 219 CLR 165.
21 [116].
22 [120] (references omitted).
209
The approach taken in the Fiona Trust case by Lord Hoffman was put succinctly as follows:23
In approaching the question of construction, it is therefore necessary to inquire into the purpose
of the arbitration clause. As to this, I think there can be no doubt.The parties have entered into
a relationship, an agreement or what is alleged to be an agreement or what appears on its face to
be an agreement, which may give rise to disputes.They want those disputes decided by a tribunal
which they have chosen, commonly on the grounds of such matters as its neutrality, expertise
and privacy, the availability of legal services at the seat of the arbitration and the unobtrusive
efficiency of its supervisory law. Particularly in the case of international contracts, they want a
quick and efficient adjudication and do not want to take the risks of delay and, in too many
cases, partiality, in proceedings before a national jurisdiction.
If one accepts that this is the purpose of an arbitration clause, its construction must be
influenced by whether the parties, as rational businessmen, were likely to have intended that
only some of the questions arising out of their relationship were to be submitted to arbitration
and others were to be decided by national courts. Could they have intended that the question of
whether the contract was repudiated should be decided by arbitration but the question of whether
it was induced by misrepresentation should be decided by a court? If, as appears to be generally
accepted, there is no rational basis upon which businessmen would be likely to wish to have
questions of the validity or enforceability of the contract decided by one tribunal and questions
about its performance decided by another, one would need to find very clear language before
deciding that they must have had such an intention.
A proper approach to construction therefore requires the court to give effect, so far as the
language used by the parties will permit, to the commercial purpose of the arbitration clause.
But the same policy of giving effect to the commercial purpose also drives the approach of the
courts (and the legislature) to the second question raised in this appeal, namely, whether there is
any conceptual reason why parties who have agreed to submit the question of the validity of the
contract to arbitration should not be allowed to do so.
The second paragraph quoted above is of particular importance to Lord Hoffman’s reason-
ing, specifically the question:
Could they [the businessmen who entered into the arbitration agreement] have intended that
the question of whether the contract was repudiated should be decided by arbitration but the
question of whether it was induced by misrepresentation should be decided by a court?
He concludes that it is not rational to read the clause narrowly. That is, having regard to
the purpose of the clause, it is extremely unlikely that rational businesspersons would have
wanted the resolution of a dispute to be dealt with by two different tribunals.
Since Rinehart was decided, the High Court has again considered the correct approach
to contractual interpretation. In Mount Bruce Mining Pty Ltd v. Wright Prospecting Pty Ltd,24
French CJ, Nettle and Gordon JJ observed:25
23 [6]–[8].
24 (2015) 256 CLR 104.
25 [47].
210
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a
reasonable businessperson would have understood those terms to mean.That inquiry will require
consideration of the language used by the parties in the contract, the circumstances addressed by
the contract and the commercial purpose or objects secured by the contract.
With all due respect to the New South Wales Court of Appeal, the decision in Rinehart
puts too much emphasis on what it contends is the plain meaning of the words (construed
by lawyers having regard to old authority) rather than the likely (objective) meaning of the
same words used by businesspersons, not schooled in the law. Accordingly, it is respectfully
suggested that, in time, Rinehart will be regarded as an anomaly, inconsistent with the mod-
ern authority that had been developing since the mid-1990s.
The result is that it is likely that the logic of Lord Hoffman will be adopted in Australia
because it is consistent with the High Court’s requirement that clauses be construed in a
manner consistent with what a reasonable businessperson would have understood them
to mean.
Is the arbitration clause null and void, inoperable or incapable of being

performed?
This exception was considered by the Supreme Court of New South Wales in Siemens Ltd
v. Origin Energy Uranquinty Power Pty Ltd.26 In this case, Siemens sought to recover amounts
the subject of payment claims made under the Building and Construction Industry
(Security of Payment) Act 1999 (the SOP Act).27 Origin sought a stay under Section 8(1)
of the relevant CAA arguing that the matter was the subject of an arbitration agreement.28
The parties fell into dispute about the payment claims in early 2009. At that time, under
the terms of their existing contract, either party could refer an unresolved dispute to arbi-
tration. However, in late 2010, they expressly agreed that all pre-existing disputes had to be
resolved by arbitration.
The facts of this case are complex. However, in summary, the defendant sought a stay of
proceedings brought pursuant to Section 15(2)(1) of the SOP Act. That legislation stipu-
lated that the plaintiff could issue a payment claim pursuant to the legislation. The defend-
ant had a limited time to respond to such a claim. If it did not do so, the plaintiff could
recover the amount claimed as a debt due in any court of competent jurisdiction. The
defendant failed to respond within time, but contended that its failure was induced by
misleading and deceptive conduct, which, pursuant to other legislation29 and authority,30
entitled it to defend the claim. The defence was a matter which could not be dealt with by
the adjudication regime prescribed by the legislation. Accordingly, the dispute could only
be dealt with by a court or arbitration.
Ball J concluded that while the dispute fell within the ambit of the arbitration clause,
it was not arbitrable. His conclusion is best explained by the contention that Section 15(2)
26 Siemens Ltd v. Origin Energy Uranquinty Power Pty Ltd (2011) 80 NSWLR 398.
27 Building and Construction Industry (Security of Payment) Act 1999 (NSW).
28 Commercial Arbitration Act 2010 (NSW).
29 Trade Practices Act 1974 (Cth) Section 52.
30 Bitannia Pty Ltd v. Parkline Constructions Pty Ltd (2006) 67 NSWLR 9.
211
is part of the mechanism which leads to adjudication, a quick interim decision which can
be reversed by a court or arbitrator subsequently. While the dispute in the case related to
whether the right of the plaintiff to sue in court for a statutory debt created by Section 15(2)
had been adversely affected by misleading and deceptive conduct, his Honour had regard
to the overall scheme of the legislation in concluding that the dispute was not arbitrable.
While the reasoning in this case can be criticised, it is unique. As the reasons in this case
establish, for an arbitration clause to be held null and void, inoperable or incapable of being
performed, a serious issue of public policy must arise.
The capacity to contract out of the Model Law for International Arbitration
In an unfortunate 2001 decision, the Queensland Court of Appeal held in Australian
Granites v. Eisenwerk that where parties choose to have their disputes determined accord-
ing to institutional rules, they implicitly choose to exclude the operation of the Model
Law.31 The decision created several difficulties, the most significant being that the lex arbitri
became the relevant Old CAA. The important differences between the IAA and the Old
CAA included:
• the granting of a stay of court proceedings was a matter of discretion for the courts; and
• there was, subject to leave being granted, a general right of appeal in respect of the
merits of an award.
While Eisenwerk was rejected by the Supreme Court of New South Wales in Cargill
International SA v. Peabody Australia Mining Ltd,32 it was followed in other cases.33 The effect
of Eisenwerk was not consistent with the policy settings evident from the IAA. Accordingly,
the federal parliament amended Section 21 of the IAA to provide that if the Model Law
applies to an arbitration, the law of a state or territory does not apply to that arbitration.
The amendment did not end the controversy, however, because the question remained
about whether Eisenwerk applied to arbitration agreements struck before the amendment
to Section 21.34 To put the controversy beyond all doubt, the federal parliament gave the
amended Section 21 retrospective effect in 2015.35
Recourse against the award

Prior to the law reform in 2010, the policy settings for domestic arbitration were very
different to those for international arbitration. In domestic arbitration there was a general
right of appeal. That right was subject to the court granting leave. The legislation con-
tained the criteria for granting leave, which were similar in effect to the ‘Nema Rules’
established pursuant to the Arbitration Act 1979 in England and Wales.36 Under the Old
CAA it was not possible to contract out of the right of appeal until after the dispute had
31 Australian Granites Ltd v. Eisenwerk Hensel Bayreuth Dipl.-ing Burkhardt GmbH [2001] 1 Qd R 461 (Eisenwerk).
32 Cargill International SA v. Peabody Australia Mining Ltd (2010) 78 NSWLR 533.
33 See for example Lightsource Technologies Australia Pty Ltd v. Pointsec Mobile Technologies AB (2011) 250 FLR 63.
34 See for example Castel Electronics Pty Ltd v.TCL Air Conditioner Co Ltd (2012) 201 FCR 209 cf Rizhao Steel
Holding Group v. Koolan Iron Ore (2012) 43 WAR 91.
35 Civil Law and Justice Legislation Amendment Act 2015 (Cth).
36 Established in Pioneering Shipping Ltd v. BTP Tioxide, the Nema [1981] 2 All ER 1030.
212
arisen. This was rarely, if ever, agreed. Accordingly, the default position was that there was a
general right to have the merits of an award reviewed, if leave was granted. In addition, the
award could be challenged pursuant to Section 42 of the Old CAA if the arbitrator had
engaged in misconduct. Misconduct related to both extreme behaviour (such as fraud) and
non-blameworthy conduct, such as falling into some technical jurisdictional error.
Pursuant to the new legislation an appeal is only possible in respect of a domestic arbi-
tration if the parties so agree (which can be done at any time). Even where there is such an
agreement, the right of appeal is subject to leave being granted by a court. The criteria for
granting leave have been tightened.37
Where the parties to a domestic agreement have not agreed to make the award the
subject of an appeal, recourse against the award is limited to those matters prescribed by
the Model Law. Therefore, in this circumstance the position is the same as that for inter-
national arbitration.
In the context of international arbitration it is relevant to consider the extent to which:
• an Australian international award can be challenged in Australia; and
• an Australian court will refuse to enforce an international award from a non-Australian seat.
Setting aside an award made in Australia

When choosing a seat of arbitration it is important to understand the extent to which an
award may, at the seat, be annulled or set aside by the local courts. This issue is not dealt
with by the New York Convention, as it relates to enforcement of foreign awards (i.e.,
enforcement in a state that is not the seat).
Some jurisdictions have sought to distinguish themselves from others by allowing a
merits review (i.e., an appeal), however, Australia has not adopted this approach. Instead,
Article 34 of the Model Law entitles a party to seek to have an award set aside in limited
circumstances, which largely mirror the grounds for refusing to enforce a foreign award in
Article V of the New York Convention.
Article 34 of the Model Law provides that an award may only be set aside where:38
(a) the [applicant] furnishes proof that:

(i) a party to the arbitration agreement ... was under some incapacity; or the said agree-
ment is not valid under the law to which the parties have subjected it or ... the law of
this State; or
(ii) the [applicant] was not given proper notice of the appointment of an arbitrator or of the
arbitral proceedings or was otherwise unable to present [its] case; or
(iii) the award deals with a dispute not contemplated by or not falling within the terms of
the submission to arbitration, or contains decisions on matters beyond the scope of the
submission to arbitration ...; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance
with the agreement of the parties, unless such agreement [conflicted with a mandatory
term of, or was not in accordance with, the Model Law]; or
37 See Section 34A.

38 Model Law Article 34(1)-(2).
213
(b) the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the
law of this State; or
(ii) the award is in conflict with the public policy of this State.
Internationally, in the context of Article V of the New York Convention, the most contro-
versial issue has been the circumstances in which a court will refuse to enforce an award
because it is against public policy. Public policy may also result in the setting aside of an
Australian international arbitration award and it is therefore important to consider that
ground in further detail.
Setting aside an award on the grounds of public policy

In TCL Air Conditioner (Zhongshan) Co Ltd v. Castel Electronics Pty Ltd,39 the defendant, an
Australian company, commenced an arbitration against the plaintiff, a Chinese company,
claiming breaches of a distribution agreement between them. An arbitral tribunal seated in
Australia awarded Castel over $3 million, which was calculated by reference to the financial
impact of the breaches on Castel’s sales. TCL sought to set aside the award under Article
34 of the Model Law, and resist enforcement under Article 36 (as Castel had sought to
enforce the award under Article 35) on two grounds: first, the arbitrators failed to provide it
with procedural fairness such that the rules of natural justice were breached in connection
with the making of the award, and second, the award was in conflict with, or contrary to,
public policy in Australia.
TCL failed on both counts, with the Full Federal Court (Allsop CJ, Middleton and
Foster JJ in agreement) making important findings concerning the nature of the applica-
tion made by TCL, and what is required to prove a successful claim. Their Honours held:40
If the rules of natural justice encompass requirements such as the requirement of probative
evidence for the finding of facts or the need for logical reasoning to factual conclusions, there is
a grave danger that the international commercial arbitral system will be undermined by judicial
review in which the factual findings of a tribunal are re-agitated and gone over in the name of
natural justice, in circumstances where the hearing or reference has been conducted regularly and
fairly. That danger is acute if natural justice is reduced in its application to black-letter rules,
if a mindset appears that these rules can be ‘broken’ in a minor and technical way and if the
distinction between factual evaluation of available evidence and a complete absence of supporting
material is blurred.
In this particular case, the application made by the plaintiff was:41
a disguised attack on the factual findings of the arbitrators dressed up as a complaint about
natural justice.
39 TCL Air Conditioner (Zhongshan) Co Ltd v. Castel Electronics Pty Ltd (2014) 232 FCR 361.
40 [54].
41 [54].
214
From a practical view, the court identified what is required to trigger the requirement,
noting that:42
An international commercial arbitration award will not be set aside or denied recognition or
enforcement under Arts 34 and 36 of the Model Law (or under Art V of the New York
Convention) unless there is demonstrated real unfairness or real practical injustice in how the
international litigation or dispute resolution was conducted or resolved, by reference to established
principles of natural justice or procedural fairness. The demonstration of real unfairness or real
practical injustice will generally be able to be expressed, and demonstrated, with tolerable clar-
ity and expedition. It does not involve the contested evaluation of a fact-finding process or ‘fact
interpretation process’ or the factual analysis of asserted ‘reasoning failure’, as was argued here.
In Emerald Grain v. Agrocorp, the plaintiff asked the Federal Court to set aside an award
under Article 34(2)(b)(ii) of the Model Law on the ground that the award conflicted with
public policy in Australia.43 Section 19 of the IAA clarifies that an award will conflict with
public policy for the purpose of Article 34(2)(b)(ii) if a breach of the rules of natural justice
occurred in the making of the award.
The parties fell into dispute over a delivery of canola. Agrocorp commenced and won
at arbitration. Emerald sought to have the award set aside for a breach of the rules of natural
justice. It argued there was no evidence of probative value before the tribunal to make the
findings made (‘no evidence rule’) and the tribunal based its findings on its own opinions
and ideas without giving Emerald adequate notice to argue its case (‘no hearing rule’).44
The applicant failed on both counts with Pagone J confirming that the court must be
vigilant not to allow a party to run a merits review through the backdoor.45 His Honour
further confirmed that an arbitral award will not be viewed in the same way as a reasoned
court decision, as a court’s role to ensure compliance with the rules of natural justice is
supervisory only – there is no expectation that an arbitral award must analyse every argu-
ment put before the tribunal and identify all facts by reference to the supporting evidence.46
Enforcing foreign arbitration awards in Australia

The IAA provides that a foreign award may be enforced in a court of a state or territory or
in the Federal Court, as if the award were a judgment or order of those courts.47 Further,
an Australian court (either federal or state or territory) can only refuse to enforce an award
in limited circumstances.48 These largely mirror the grounds contained in Article V of the
New York Convention.
42 [55].
43 Emerald Grain Australia Pty Ltd v. Agrocorp International Pte Ltd (2014) 314 ALR 299.
44 [5].
45 [10].
46 [16].
47 International Arbitration Act 1974 (Cth) Section 8(2)-(3).
48 International Arbitration Act 1974 (Cth) Sections 8(3A), 8(5), 8(7).
215
Section 8(1) of the IAA provides that a foreign arbitral award is binding on the parties
to the arbitration agreement in pursuance of which it is made.49 Section 8(3A) further
provides that a court may only refuse to enforce a foreign arbitral award where a ground
to resist enforcement is proved under Section 8(5) or Section 8(7).50 These grounds largely
reflect those in Article V of the New York Convention and Article 36 of the Model Law
(which, in the context of setting aside an award, are the same as those in Article 34 of the
Model Law, set out above).
There have now been numerous cases concerning the grounds to refuse enforcement.
The logic from these cases will be applied equally in the context of setting aside an award
because the basis for challenging the enforcement of an award and setting an award aside
have effectively been the same since 2011.
Third parties to the arbitration agreement

Under Article V of the New York Convention and Section 8(5) of the IAA, a court may
refuse to enforce a foreign award if a party proves (inter alia), to the satisfaction of the court,
that it was not able to present its case or the award did not deal with a difference falling
within the submission to arbitrate.51 These grounds were the focus of the Victorian Court
of Appeal in IMC Aviation Solutions Pty Ltd v. Altain Khuder LLC,52 a case concerning the
enforceability of a foreign award against an Australian company who was not a party to the
arbitration agreement. However, this case was ultimately decided by reference to an issue
which was considered a precondition to determining whether one of the grounds in Article
V of the New York Convention had been made out, namely whether the awarded debtor
was a party ‘to the arbitration agreement in pursuance of which it was made’ (Section 8(1)
of the IAA). The case also considered the onus of proof which the award creditor needed
to satisfy in respect of this precondition.
The respondent was incorporated in Mongolia.53 It entered into an operations manage-
ment agreement (OMA) with IMC Mining Inc (IMCM), a company incorporated in the
British Virgin Islands. IMCM executed a consulting agreement with a related Australian
company, IMC Mining Solutions Pty Ltd (IMCS) to perform some of its obligations under
the OMA.
Altain terminated the OMA and commenced an arbitration in Mongolia under the
OMA. An arbitral tribunal awarded in excess of $6 million to Altain with IMCM (a party
to the arbitration agreement and arbitration) and IMCS (a non-party to the arbitration
agreement and arbitration) named as entities responsible to pay the award to Altain.
Altain successfully enforced the award against both companies in the Supreme Court
of Victoria.54 During the hearing IMCS, which was not a party to the arbitration agree-
ment or arbitration, argued that before it needed to address whether enforcement should
be refused under Article V of the New York Convention (being Section 8(5) and (7) of the
49 International Arbitration Act 1974 (Cth) Section 8(1).

50 International Arbitration Act 1974 (Cth) Section 8(3A).
51 An equivalent ground is contained in Article 36(1)(a)(iii) of the Model Law.
52 (2011) 38 VR 303.
53 The facts are set out in the joint judgment of Hansen JA and Kyrou AJA at [79]-[115].
54 Altain Khuder LLC v. IMC Mining Inc (2011) 276 ALR 733.
216
IAA and Article 36 of the Model Law), the award creditor had to prove that it was a party
to the arbitration agreement.
At first instance, the judge held that the onus of proving that there was a ground justify-
ing a refusal to enforce rested with the award debtor.55 This burden, he noted, was a ‘heavy’
one, particularly in light of the pro-enforcement and pro-arbitration environment the IAA
and New York Convention exemplify.56
IMCS, which was not a party to the arbitration agreement or the arbitration, appealed.
The other award debtor, IMCM, did not. One of the key grounds of appeal concerned the
question of onus.57 IMCS argued that the legal onus fell on the award creditor to prove
that it was a party to the arbitration agreement. If this was not established then there was
no entitlement to enforce and therefore it was unnecessary to consider whether any of
the grounds for a refusal to enforce had been made out. Altain argued that once the award
creditor had produced to the Court duly authenticated originals or certified copies of the
award and arbitration agreement (a precondition to enforcement stipulated by Section 9 of
the IAA, consistent with Article IV(1) of the New York Convention), the onus shifted to
the award debtor.
The majority confirmed that the award creditor, in its capacity as the party invoking the
court’s jurisdiction, bears the evidential onus of satisfying the court, on a prima facie basis,
that the court has jurisdiction to make the order to enforce the foreign arbitral award.58
Once this is precondition met, the court may refuse to enforce an award where the award
debtor proves a ground to support its claim.59
Further, there could be no prima facie proof that IMCS was a party to the arbitration
agreement if, on the face of the arbitration agreement and award, the person against whom
the award was made was not a party to the agreement.60 This is consistent with the House
of Lords decision in Dallah.61
In a dissenting judgment, the Chief Justice determined that Section 8(3A) circum-
scribes the defences open to an award debtor once the ‘preliminary burden’ has been met;62
that is, the threshold question under Section 8(1). Her Honour was not persuaded by the
overseas decisions on point (which supported the majority) and construed the IAA accord-
ing to the strict rules of statutory interpretation to arrive at a different position.
While the court was split, the reasoning of the majority seems more appealing: it is
based on similar approaches taken internationally, and consistent with the purposes of the
IAA and international arbitration generally. It is therefore likely to be followed, or at least
be persuasive, in future cases heard in the region.
The majority also made interesting findings in relation to onus. At first instance, Croft J
held that the award debtor faces a heavy onus to prove that one of the grounds for refusing
55 [60]-[61] (at first instance).

56 [61]-[62], [88] (at first instance).
57 [125].
58 [134].
59 [134].
60 [138].
61 Dallah Real Estate and Tourism Holding Company v. Ministry of Religious Affairs of the Government of Pakistan
[2011] 1 AC 763.
62 [40].
217
enforcement was made out.63 The majority held that the reasoning was incorrect; in the
absence of express words to the contrary, the appropriate onus is the balance of proba-
bilities.64 Croft J, their Honours held, unnecessarily imposed a higher burden than that
required under these provisions.
Resisting enforcement on the grounds of public policy

As is addressed above, a party can apply to have an award set aside on the ground that it
offends public policy under Article 34(2)(b)(ii) of the Model Law. In addition, Section 8(7)
(b) of the IAA provides the same ground to resist enforcement of a foreign arbitral award.
It is the equivalent to Article V(2)(b) of the New York Convention. While the exception
under the New York Convention was only intended to apply in narrow and exceptional
circumstances, unfortunately it has been applied in wider circumstances than expected in
some jurisdictions.
To clarify the operation of the public policy exception in the IAA, the federal legisla-
ture inserted Section 8(7A) into the IAA. This section provides, non-exhaustively, that the
enforcement of a foreign award is against public policy if the making of the award is induced
or affected by fraud or corruption, or a breach of the rules of natural justice occurred in the
making of the award. In 2014, the Full Federal Court in TCL Air Conditioner (Zhongshan)
Co Ltd v. Castel Electronics Pty Ltd determined that, in the context of Article V of the New
York Convention, Article 34 and Article 36 of the Model Law, and lastly, Section 8(7A)
of the IAA, the public policy is very much restricted to fundamental issues of justice and
morality.65 This sets a high bar to relief and rests comfortably with the approach adopted
in the leading United States decision of Parsons.66 It has been, and will continue to be, a
persuasive case for decisions that follow.67
63 [61]-[62], [88] (at first instance).

64 [192].
65 (2014) 232 FCR 361.
66 Parsons & Whittemore Overseas Co Inc v. Societe Generale de l’Industrie du Papier (RAKTA) 508 F 2d 969 (2d
Cir 1974).
67 See for example Sauber Motorsport AG v. Giedo Van Der Garde BV and Others (2015) 317 ALR 786.
218
20
Turkey
Serdar Paksoy and Simel Sarıalioğlu1
Turkey’s construction industry

Despite all the domestic, regional and global challenges of recent years, Turkey remains an
important regional power and is active in bilateral relations and at international platforms.
Being a G20 Member State,Turkey has the 18th largest economy, is the 28th largest export
economy and the 59th most complex economy in the world, according to the Economic
Complexity Index.
The main driving industries of the Turkish economy are agriculture, construction,
manufacturing and the service industry. The Turkish construction industry’s employment
ratio is around 7 per cent and its gross national product ratio is 6 per cent.
The Turkish construction industry is not only influential locally, it is also one of the most
competitive and dynamic industries worldwide. Forty Turkish construction companies are
ranked in list of Engineering News Record 2016 Top 250 International Contractors –
seven of them ranked among the top 100. With such numbers, Turkey is the second-largest
construction nation after China. Operations of Turkish contractors are spread widely, over
100 countries, the majority of which are in Russia and CIS countries, the Middle East and
North Africa.
The Turkish government provides full support to the industry.With the aim of improv-
ing international competitiveness and integrating regional potential to the national econ-
omy, governmental incentives have been introduced to boost the sector. Within this scope,
a number of incentives such as VAT exemption, exemption from customs duty, tax reduc-
tion, social security premium support for employer’s share, interest support, social security
premium support (employee’s share), income tax withholding, allocation of the place for
investment and VAT refund are granted by the Turkish government.
1 Serdar Paksoy is senior partner and Simel Sarıalioğlu is a senior associate at Paksoy.
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Turkey
The infrastructural transformation of major cities in Turkey is also one of the reasons
for the rise of the construction industry. During 2006–2015, the amount of infrastructure
investments totalled US$140 billion in Turkey. According to the statistics of the General
Directorate for Infrastructure Investment of the Ministry of Transport, Maritime Affairs
and Communication, five major railway projects, 21 port projects and 15 airport projects
have been completed in the past 11 years; 21 railway projects and 15 airport projects are
pending; and 15 port projects are in tender processes. These were all extremely large pro-
jects and have been or are still being constructed with involvement of major international
construction companies and financing institutions. The following are some examples of
major infrastructure projects in Istanbul:
• Istanbul’s Third Airport Project at a cost of €22.2 billion;
• Canal Istanbul Project at a cost of US$5.5 billion;
• Haydarpaşa Port Project at a cost of US$5 billion;
• Istanbul Finance Centre Project at a cost of US$4.5 billion;
• Three-Level Subsea Tunnel Project at a cost of US$3.5 billion;
• Ataköy Marina Project at a cost of US$1.5 billion; and
• Haliç Port Project at cost of US$1.4 billion.
Similar projects are being carried out all around Turkey by various governmental authorities.
The Ministry of Health is supervising 31 hospital projects, which are implemented
under the public–private partnerships model.
The legal framework in relation to construction contracts assists the industry. The
relevant legislation is being adapted to the rapidly developing changes. In addition, the
Turkish Court of Appeal has a dedicated Division, the 15th Division, which has handled
the appellate review of construction disputes of all kinds for many years. These are not
purely contractual disputes – the Division is also responsible for reviewing construction
arbitration-related issues.Therefore, there is a relatively established case law and legislatorial
system for construction contracts in Turkey.
The same can also be said for the arbitration regime. Despite some of the rather debat-
able recent decisions of the 13th Civil Division of the Court of Appeal in relation to
public policy issues in arbitration, Turkey’s arbitration system is aligned with the rest of the
world. Arbitration is on the rise in Turkey, and, following the establishment of the Istanbul
Arbitration Centre, the government also promotes arbitration as a dispute resolution mech-
anism. Recently, a circular was issued by the Turkish Prime Ministry that encourages gov-
ernmental authorities to choose arbitration in their contracts.
Legal framework for construction contracts in Turkey

Relevant legislation
There are no standalone regulations with respect to construction contracts. The legal
framework for construction contracts and other relevant legal issues find their roots in
numerous pieces of legislation:
• the main legislation is the relevant provisions of the Turkish Code of Obligations No.
6098 (TCO), namely Articles 470–486 under the ‘Agreement for Work’ Section. While
these provisions are being applied to all types of agreements for work, they are appli-
cable for construction contracts that constitute a subcategory. Most of these provisions
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are not mandatory, and the freedom of contract principle governs the implementation.
Usually, construction contracts are drafted in a detailed way and are not silent in rela-
tion to the contractual terms. In circumstances where the contract is silent, the relevant
provisions of the TCO, as the general legislation, and other relevant laws may apply to
the interpretation of matters where the contract does not regulate such matters;
• issues such as right of construction (superficies right) and ownership following the com-
pletion of the construction are regulated under the Turkish Civil Code;
• Zoning Law No. 3194 regulates all planning activities and structures to be constructed
inside and outside municipal boundaries, urban land project areas, cadastral records and
boundary conflicts;
• Environment Law No. 2872 governs general binding factors in construction contracts,
such as licences and permits, environmental standards and rules that should be obeyed
in construction plans and projects;
• in construction works of government institutions, the following laws may be relevant:
• Public Procurement Law No. 4734 and State Bidding Law No. 2886, which govern
tenders of governmental authorities;
• Law No. 3996 on Commissioning Certain Investments and Services within the
Framework of Build-Operate-Transfer Model, which is applicable for build-operate-
transfer projects and construction works that are based on special know-how and
high expense;
• Law No. 6428 on Construction, Renovation and the Purchase of Services by
the Ministry of Health by way of the Public–Private Partnership Model and
Amendments to Certain Laws and Decrees with the Force of Law, which is applica-
ble for Ministry of Health’s public private partnership construction and renovation
projects; and
• other laws in relation to construction works of governmental authorities may also
be relevant depending on the identity of the contracting governmental authority.
General characteristics of a construction contract (form requirements and parties)

Construction contract is an onerous, consensual, instantly executional and a mixed type of
agreement. Under Turkish law, there are no specific form requirements for the validity of a
construction contract; yet, in practice, in particular for large-scale construction projects, the
parties often execute written contracts and sometimes in official form.2 Parties may either
incorporate into their contract an internationally recognised form such as FIDIC terms,
or agree on their own conditions and terms based on the necessities of the project. Only
certain agreements require specific form requirements or specific requirements for validity
of certain clauses, such as an arbitration clause.
The construction contract is signed by the employer and the contractor. Under Turkish
law, consortiums and joint ventures may also be a party to a construction contract. In
general, the contractor is free to subcontract the construction. In situations where the
construction contract restricts subcontracting or the work is based on the personal skills
2 Eren, Fikret, Borçlar Kanunu Açısından İnşaat Sözleşmeleri, İnşaat Sözleşmeleri (Construction Contracts in
respect of the Code of Obligations), Banka ve Ticaret Hukuku Araştırma Enstitüsü, Third Edition, 1996, p. 57.
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of the contractor, such as in cases where the employer has special benefit in construction
work that will be specifically done by the contractor and not by a third person, or the work
includes properties that depend on the contractor itself, the contractor may not subcontract
the construction.3
Obligations of the parties

Obligations of the contractor
In general, the contractor has the obligation and responsibility of performance of the works.
This performance shall be done in compliance with the construction contract. Moreover,
pursuant to the TCO, the contractor has the following obligations:
• the contractor shall comply with the delivery schedule while performing the work;
• the contractor shall start the work on time and conduct it with the same level of work;
• damages and expenses might arise due to delays, and these are under the responsibility
of the contractor;
• the performance shall also be in compliance with the required permits and land
rights, as well as with relevant health and safety regulations and social security obliga-
tions. Liability of the contractor persists for failures regarding breach of such permits
and rights;
• the principle of care is essential along with the principle of loyalty while fulfilling this
duty. A reasonable standard of care is expected from the contractor, and the contrac-
tor shall protect and regard the interest of the employer and shall not act against the
employer’s benefit; and
• according to Article 356/3 of the TCO, unless it is agreed otherwise, the contractor
shall provide its own equipment and supplies, and as a result, the price of equipment
cannot be added to the price determined in the agreement.
When it comes to the issue of subcontraction, essentially it should be noted that subcon-
tractors are not a third party of the main construction contract. Unless provided otherwise
in the agreement, the employer does not have any obligation that arises from the contract
towards the subcontractor. However, in case of a failure to pay social security payments of
the employees, the related amount might be directly claimed from the employer in accord-
ance with the Social Security Act. Following the payment, the employer may claim these
amounts back from the contractor. The contractor has the liability of services, equipment
and material payment to each subcontractor, and the contractor should notify the employer
at the occurrence of any dispute. It is the contractor’s duty to ensure that the subcontract is
consistent with the terms and conditions of the main contract.
Obligations of the employer

The main duty of the employer is the payment of the price. The parties may freely deter-
mine the form of the contract price, for example, as lump sum or as unit price under the
agreement. For the lump sum, the payment is previously fixed as an exact amount. Even
if the work costs more than the agreed fixed price, or more work is required to complete
3 Selimoğlu,Yaşar Engin, Eser Sözleşmesi (Contract for Work), Ankara 2016, pp.101–103.
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the project, the contractor has to perform the works and cannot request more than the
amount agreed. In order to balance the parties’ rights and obligations, Turkish law provides
that in case of unanticipated and unforeseeable conditions the court might exceptionally
decide to raise the lump-sum price or cancel the contract depending on the specifics of
each case. The contract price may also be determined as a unit price, or in other words as
a bill of quantity. The TCO states that in circumstances where the consideration price is
not previously determined, it will be fixed based on the work and expenses undertaken by
the contractor.
In cases of partial performance, as a rule, pursuant to Article 484 of the TCO, provided
that the consideration of the partial work is paid and all the damages of the contractor are
compensated, the employer may terminate the contract. In return of the partial payment,
the employer may request delivery of partial work performed by the contractor.4
General conditions for validity of an arbitration clause under Turkish law,

and arbitrability of construction contracts
Conditions for validity of an arbitration clause
Under Turkish law, as a condition for validity, arbitration agreements must be in writ-
ing. In line with the UNCITRAL Model Law on International Commercial Arbitration,
Article 412 of the Turkish Civil Procedure Law No. 6100 (CPL) and Article 4 of Turkish
International Arbitration Law No. 4686 (IAL) provide that an agreement is in writing if
it is contained in a document signed by the parties or in an exchange of letters, telex, tel-
egrams or other means of telecommunication, or in an exchange of statements of claim
and defence in which the existence of an agreement is alleged by one party and not denied
by another.
One of the other essential elements for the validity of an arbitration clause is the parties’
clear and precise intention to arbitrate their disputes. According to the Court of Appeal, an
arbitration clause must be clear and precise; in other words, the will of the parties to arbi-
trate must be clear and there must not be an optional choice of court proceeding.5 Option
to litigate should not be granted to one, both or all parties to the agreement.
The other conditions for validity of an arbitration clause under Turkish law are that:
• the arbitration clause should relate to an existing relationship;6 and
• if a contract containing an arbitration clause is signed by a representative of a party, the
proxy given to the representative should include an express authority for the repre-
sentative to sign an arbitration clause on behalf of such party.7
4 Eren Fikret, ‘İnşaat Sözleşmesinin Sona Ermesi’ (Termination of Construction Contract), BATIDER No. 381,
Ankara 1996, p. 95.
5 Court of Appeal 15th Civil Law Division, 22 May 2015, No. 2015/2198-2758; 15th Civil Law Division,
1 July 2014, No. 2014/3330-4607; 19th Civil Law Division, 29 May 2012, No. 2012/4065-9080; 11th
Civil Law Division, 13 April 2006, No. 2005/4053-4040; 11th Civil Law Division, 12 April 2005, No.
2004/6686-3600; 11th Civil Law Division, 10 June 2002, No. 2002/2228-5894.
6 Article 4 of IAL.
7 Article 503 of TCO.
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Turkey
While these are the general conditions for validity of an arbitration clause under Turkish
law, additional conditions may be required in relation to an arbitration clause contained in
a contract executed by a governmental authority. This is because, in principle, all the con-
tracts of a governmental authority are considered as administrative contracts and admin-
istrative contracts cannot contain an arbitration clause unless otherwise provided by laws.
Therefore, disputes arising from administrative contracts may only be resolved by adminis-
trative courts.To this effect, it is important to check whether any relevant legislation allows
a governmental authority to execute a contract that contains an arbitration clause.
Arbitrability
There are limits to arbitrability under Turkish law. According to Article 1 of the IAL, dis-
putes regarding rights in rem (real rights) on immoveable properties in Turkey and disputes
that are not subject to the will of both parties are not arbitrable. The same rule prevails
for arbitrations held under the CPL, which applies to disputes where there is no foreign
element within the meaning of the IAL and where the place of arbitration is designated
as Turkey.
In principle, disputes arising from construction contracts are arbitrable under Turkish
law. Nevertheless, the Court of Appeal decided that, although relevant to a construction
contract, disputes in relation to cancellation and registration of title deed are not arbitrable.8
In another dispute regarding division of flats in a construction that has been done on the
basis of a construction contract in return for flats, the Court of Appeal decided that the
dispute was not arbitrable because it related to title deed registration.9
Multi-tier arbitration clauses in construction contracts

Construction contracts are, by nature, complex contracts where several disputes may arise
between parties throughout the project. In large-scale construction projects that are built in
Turkey, parties often have disputes but only a small number of these disputes end up in arbi-
tration. In practice, Turkish employers and contractors have familiarised themselves with
pre-arbitration procedures such as engineer, dispute adjudication board (DAB), mediation,
etc., and the successful exhaustion of these procedures, as well as the parties’ efforts to avoid
disputes, positively affect the number of disputes.
The Turkish Court of Appeal has dealt with the issue of multi-tier arbitration clauses
on different occasions. The High Court approached the issue from validity perspective and
examined the effect of multi-tier dispute resolution clauses on the validity of the arbitra-
tion clause, and as a result decided that multi-tier dispute resolution clauses are valid under
Turkish law. It is the parties’ right arising from their contract to first wait for the exhaustion
of the pre-arbitration procedures.10
In a decision dated 17 December 1987, the 15th Civil Law Division of the Court of
Appeal discussed the effect of a multi-tier path on the validity of the arbitration clause.The
Court came to the conclusion that if parties apply to mediation, reconciliation, engineer
8 Court of Appeal 15th Civil Law Division, 18 June 2007, No. 2680/4137.
9 Court of Appeal 15th Civil Law Division, 13 December 1990, No. 4306/5400.
10 Akıncı, Ziya, Milletlerarası Tahkim (International Arbitration), Fourth Edition, Istanbul 2016, p. 105.
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or another expert to settle their disputes but fail to find an amicable way, then they may
commence arbitration as a last resort. The fact that the parties apply to pre-arbitration pro-
cedures before arbitration does not have any effect on the validity of the arbitration clause.
In principle, the Court of Appeal looks for an undisputable will of the parties to refer their
disputes to arbitration. The clauses that give the parties the options to litigate and arbi-
trate are deemed invalid by the High Court. However, according to the Court of Appeal,
multi-tier arbitration clauses that enable the parties to apply to mediation, engineer, etc.,
before arbitration do not jeopardise the will of the parties to arbitrate.11
In a Commercial Court decision that was approved by the Court of Appeal, the
Commercial Court stated that:
as stated in the agreement, the dispute shall be firstly be referred to the engineer before initiating
arbitration proceedings and settled by the engineer. After the engineer delivers his decision, the
parties can apply to arbitrator if desired so by them. However, this provision does not invalidate
the arbitration clause. Regardless of the parties’ application to the engineer, the dispute shall be
ultimately resolved by arbitrators.The pre-arbitral procedure [recourse to engineer before arbitra-
tor] and the decision given by the engineer are not binding for the parties.The dispute should be
resolved by the arbitrator as the relevant clause [application to the engineer] does not invalidate
the arbitration clause.12
In a case regarding extending the duration of a construction contract executed as per the
FIDIC Red Book (1987), where the Turkish courts had competence to hear disputes aris-
ing from such contract, the Court of Appeal decided as follows:
it is a known fact that under FIDIC Contracts claims for time extension are subject to strict
form requirements and the request for time extension can be examined in case the form require-
ments are complied with. Besides, as per Article 287 of Code of Civil Procedure, the Clauses
44, 53 and 67 of the contract are accepted as an evidence agreement between the parties …
This being the case, the first claims of the plaintiff should be examined and evaluated as per
Articles 44 and 53.3 of the contract, and the claims where one submission was made should be
considered as per Articles 53.4 and 67 of the contract.13
In this case, the Court of Appeal acknowledges that in the event the parties agreed to finally
settle their disputes by arbitration, the relevant clauses for referring to the engineer are con-
sidered as a written evidence agreement rather than a step before arbitration or litigation.
11 Court of Appeal 15th Civil Law Division, 17 December 1987, No. 3643/4505; Ekşi, Nuray, Tahkim
Öncesi Uyuşmazlık Çözüm Usulleri ve Bu Usuller Tüketilmeden Tahkime Başvurulmasının Sonuçları
(Pre-Arbitration Procedures and Consequences of Commencing Arbitration Without Exhausting These
Procedures), İstanbul 2015, p. 47.
12 Istanbul 5th Commercial Court of First Instance, 12 October 1994, No. 1994/571 E., 1994/1212 K.
(approved by Court of Appeal 15th Civil Law Division, 7 February 1995, No. 295/578).
13 Court of Appeal 15th Civil Law Division, 17 September 2002, No. 2001/5595 E., 2002/3931 K.
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Turkey
Enforcement of arbitral awards

Foreign arbitral awards
The main piece of legislation on the enforcement of arbitral awards in Turkey is the
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards
dated 1958 (NY Convention). An arbitral award resolved in a contracting state would
be enforceable in Turkey under the NY Convention. In addition, International Civil and
Procedural Law No. 5718 (Law No. 5718) may also apply to the enforcement case, which
in essence follows the NY Convention. Law No. 5718 applies if the award is issued by a
non-contracting state of the NY Convention.
In order to enforce a foreign arbitral award in Turkey under the NY Convention, the
claimant party must seek an enforcement decision from a Turkish court.The court’s exami-
nation of the application is limited to the procedural issues, or requirements, set forth in the
NY Convention; thus, the court is not allowed to review or re-examine the merits of the
case. The grounds for refusal of enforcement are stipulated in the NY Convention; and the
court, therefore, can only refuse enforcement if the respondent party successfully challenges
enforcement on one of those grounds.
Domestic arbitral awards

The enforcement of arbitral awards issued by an arbitral tribunal sitting in Turkey is subject
to two different laws. Provisions of the IAL apply to arbitral awards issued in Turkey with
a foreign element or where the provisions of the IAL have been adopted by the parties or
the arbitral tribunal, whereas the provisions of the CPL are applicable to arbitral awards
without a foreign element within the meaning of the IAL and where the seat of arbitration
is in Turkey.
As per Article 15 of IAL, only an annulment action (action to set aside) can be initiated
against an arbitral award. The grounds to set aside the arbitral award mostly resemble those
set forth in the UNCITRAL Model Law on International Commercial Arbitration and the
NY Convention. Accordingly, an arbitral award can be set aside in cases of the following:
• if the requesting party proves that:
• the counterpart to the arbitration agreement does not have the capacity to sue or
the arbitration agreement is not valid according to the law chosen by the parties to
apply to the arbitration agreement, or according to Turkish law if the parties did not
choose any applicable law;
• the procedure of appointment of arbitrators agreed by the parties has not
been followed;
• the award has not been given within the period of arbitration;
• the arbitral tribunal lacked jurisdiction, or wrongfully declined its jurisdiction;
• the award is not related to the subject matter of the arbitration agreement or the
award does not embrace all issues that referred to arbitration, or was made in excess
of powers;
• the arbitration proceedings were not conducted according to the agreement of the
parties, or, in absence of such an agreement, with the provisions of the IAL, and this
default affects the substance of the award;
• the rule of equality of the parties was not complied with; or
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Turkey
• if the court ascertains that:

• under Turkish law, the dispute is not arbitrable; or
• the award is in breach of public policy.
Among the conditions cited above, experience shows that parties often rely on public
policy issues in actions for setting aside.
There is no definition of public policy under Turkish arbitration laws. According to the
prevailing opinion in the legal writings, the breach of public policy should be explicit14 and
while determining whether or not there is a breach of public policy, the judge should use
his or her discretion to prevent irreparable harm.The judge should use his or her discretion
by taking into consideration the specifics of each case. To that effect, the breach of public
policy should be explicit and should be evaluated as a norm that is beyond systematic dif-
ferences.15 In general, public policy is defined as the set of rules that determines the funda-
mentals of a society in respect of political, social, economic, moral and legal issues and that
protects fundamental interests of the society.16 When it comes to international arbitration,
the judge should apply criteria that would suit the practice of international arbitration
rather than domestic litigation.17
The decision of the Joint Chambers of the Court of Appeal, which is a binding decision
for all levels of Turkish courts, dated 10 February 2012, 2010/1 E, 2012/1 K, sets important
guidelines for the courts in determining a breach of public policy and states that:
whether or not the actual consequences of enforcing a foreign court decision would breach Turkish
policy public should be evaluated, one should not evaluate the law applied in the foreign court
decision and the criteria taken into account in the application of such law ...The enforcement of
foreign court decision should be rejected if the consequences that will arise as a result of enforce-
ment would breach Turkish public policy. One cannot examine whether the law applied to the
merits of the foreign court decision breaches Turkish public policy ... In most cases, it would be
deemed that a breach of a mandatory rule of Turkish law would constitute a breach of Turkish
public policy; however, it is not possible to say that all foreign court decisions which violate a
mandatory Turkish law rule would also violate Turkish public policy.
In a much-debated decision of the 13th Civil Chamber of the Court of Appeal,18 the
high court evaluated an appeal that was lodged in accordance with Article 15 of the IAL,
and examined an arbitral award that was against the favour of three Turkish governmental
14 Gökyayla, Cemile Demir,Yabancı Mahkeme Kararlarının Tanınması ve Tenfizde Kamu Düzeni (Public Policy
in Recognition and Enforcement of Foreign Court Decisions), First Edition, Ankara 2001, p. 135.
15 Tanrıver, Süha, Makalelerim (My Articles) (1985–2005), First Edition, Ankara 2005, pp. 111–112.
16 Tanrıver, pp. 110–111; Şanlı, Cemal, Uluslararası Ticari Akitlerin Hazırlanması ve Uyuşmazlıkların Çözüm
Yolları (Preparation of International Contracts and Settlement of Disputes), fifth edition, Istanbul 2013, p. 394;
Şanlı, Cemal, Milletlerarası Ticari Tahkimde Esasa Uygulanacak Hukuk (Law Applicable to Merits of the
Dispute in International Arbitration), Istanbul 1986, p. 379; Çelikel, Aysel, Milletlerarası Özel Hukuk (Genel
Kurallar) (International Private Law, General Rules), Istanbul 1984, p. 175.
17 Akıncı, p. 281.
18 13th Civil Law Division of the Court of Appeal dated 23 February 2016, No. 2013/16287 E., 2016/5292 K.
227
Turkey
authorities.This decision is relevant to parties that sign a contract with Turkish governmen-
tal authorities because:
• the arbitral award that was evaluated in this decision was between a Turkish global
system for mobile communications (GSM) operator and three Turkish governmen-
tal authorities;
• the place of arbitration was Istanbul. The arbitration was governed by International
Chamber of Commerce (ICC) Rules and the IAL;
• the underlying dispute arose from a concession agreement signed between the GSM
operator and a governmental authority;
• the arbitral award dealt with whether or not certain income items of the GSM operator
fall within the base of the monthly payment that the GSM operator had to make to the
state entities in accordance with the concession agreement;
• the arbitrators awarded that the disputed income items did not fall within the base of
the monthly payment that the GSM operator had to make to the state entities;
• the state entities filed an action for set aside of the arbitral award on the basis that the
award breached Turkish public policy;
• the local court dismissed the requests of the state entities and decided that there was no
breach of public policy; and
• the Court of Appeal, which reviewed the file after the appeal application, decided that
‘the arbitral award is against Turkish public policy because it is against the characteris-
tics of the concession agreement, the Turkish State’s purpose to generate a continuous
income, mandatory rules of law and public interest.’
In reaching to this conclusion, the Court of Appeal stated that:
in case there are objections raised by one of parties in relation to breach of public policy, it may
be necessary to analyse the merits of the arbitral award in part in order to evaluate the public
policy issues.
This decision has been severely criticised in the legal writings. It is stated by one of the
eminent scholars on Turkish international arbitration practice that:
the issues discussed within the decision relate to the merits of the arbitral award and they are
outside the scope of the action to set aside. In addition, the use of breach of public policy to
review the merits of the arbitral award does not fit the interest which is sought to be protected
with the concept of public policy.19
This was not the first time the 13th Division relied on the same reasoning to examine the
merits of an arbitral award in part. In the decision dated 9 July 2015, No. 2014/27460 E,
2015/23707 K, in relation to enforcement of a foreign arbitral award (ICC award), 13th
Division reversed the decision of the first instance court on the basis that:
19 Akıncı, pp. 282–285.
228
Turkey
in order to determine whether or not the foreign arbitral award, enforcement of which is sought,
breaches Turkish public policy, and therefore, to determine whether the award can be enforced in
Turkey, the concrete case should be analysed from a tax law perspective.Therefore, the local court
had to obtain an expert report from a panel of three tax law specialists.
The High Court quoted the above-mentioned reasoning in this decision too. Therefore,
the explanations above in relation to public policy in annulment actions also prevail for
the public policy criteria in enforcement of foreign arbitral awards as the Court of Appeal
applies more or less the same public policy criteria for both proceedings.
229
21
The Nuts and Bolts of Construction Arbitration in the MENA:
Principles and Practice
Mohamed S Abdel Wahab1
Introduction
The MENA region, from the Arabian Gulf to the Atlantic Ocean, has witnessed progres-
sion and development in the construction industry and infrastructure projects over the past
two decades.2 Statistics show that foreign direct investment in the region is growing fast.3
Various commonalities exist among the legal systems of Arab countries throughout the
MENA region, owing to them having a similar constitutional and legal framework, where
Islamic shariah forms the basis for legislation in the region. Having the oldest existing and
most influential legal system in the MENA region, Egypt has impacted and influenced the
laws of other civil law Arab countries, including Algeria, Bahrain, Kuwait, Libya, Oman,
Qatar, Syria and the UAE.
Given the importance of the construction industry in the MENA region, it would be
useful to briefly scrutinise certain legal principles pertinent to construction contracts that
regularly surface in construction disputes in the MENA region.These principles, which are
largely influenced and shaped by Egyptian law and practice, include good faith,4 implied
1 Mohamed S Abdel Wahab is a founding partner at Zulficar & Partners Law Firm.
2 The region is witnessing large-scale infrastructure projects and international events such as Qatar’s
2022 World Cup and Dubai World Expo 2020, Egypt’s New Administrative Capital City and mega power
generation plants.
3 See M. Allen, ‘Global Construction Disputes: A Longer Resolution’, Global Construction Dispute Report (2013),
p. 2: ‘the Middle East still experienced the largest disputes at of an average US$65 million’; M.A.M. Ismail,
R.A. Koura, ‘International Construction Contracts Arbitration in the MENA Region’, (2015), p. xiii.
4 See, for example, Article 148/1 Egyptian Civil Code (ECC) (1948), Article 107/1 Algerian Civil Code
(1975), Article 129 Bahraini Civil Code (2001), Article 197 Kuwaiti Civil Code (1980), Article 148 Libyan
Civil Code (1953), Article 172 Qatari Civil Code (2004), Article 149 Syrian Civil Code (1949), Article
202 Jordanian Civil Code (1976) and Article 246 UAE Civil Code (1985).
230
Construction Arbitration in the MENA
terms,5 abuse of right,6 liquidated damages,7 exceptional circumstances (imprévision),8 force

majeure,9 contractual liability10 and decennial liability.11
It is also common knowledge that the construction industry is dispute-rich and
claims-oriented. Construction projects seldom end without dispute; disputes are common
and not unexpected. Usually, such disputes revolve around time, cost, variations, liability
or quality issues. Construction disputes are complex, multi-faceted, time-consuming and
dynamic depending on the nature of the project (as delivered, as planned, as built), the type
of contract (fixed lump sum or re-measured) and the specific sector involved (energy, tel-
ecommunications, hospitality, real estate, etc.)
Construction disputes also involve multiple parties (employers, contractors, subcontrac-
tors, suppliers, insurers, funders, etc.) with divergent interests, risks and expectations. Such
disputes may have adverse consequences on not only the specific project but the status of
foreign investment from the region and beyond on the long run.12 Arbitration remains the
MENA region’s effective and preferred dispute resolution process for the entangled web of
intricate legal issues and risks arising from construction contracts. However, a framework
of international principles and standards that allow for more certainty and visibility is much
desired. It is in this context that the FIDIC forms of contract offer a working model utilised
by employers and contractors throughout the region for diverse projects across all sectors
involving construction works.
5 See, for example, Article 148/2 ECC, Article 107 Algerian Civil Code (1975), Article 127 Bahraini Civil Code
(2001), Article 195 Kuwaiti Civil Code (1980), Article 148 Libyan Civil Code (1953), Article 156 Omani
Civil Code (2013), Article 172 Qatari Civil Code (2004), Article 149 Syrian Civil Code (1949), Article
202 Jordanian Civil Code (1976) and Article 246 UAE Civil Code (1985).
6 See, for example, Article 5 ECC, Article 124 Algerian Civil Code (1975), Article 28 Bahraini Civil Code
(2001), Article 30 Kuwaiti Civil Code (1980), Article 28 Libyan Civil Code (1953), Article 59 Omani Civil
Code (2013), Article 63 Qatari Civil Code (2004), Article 6 Syrian Civil Code (1949), Article 66 Jordanian
Civil Code (1976) and Article 106 UAE Civil Code (1985).
(2001), Article 303 Kuwaiti Civil Code (1980), Article 226 Libyan Civil Code (1953), Article 266 Qatari Civil
Code (2004), Article 225 Syrian Civil Code (1949) and Article 390 UAE Civil Code (1985).
8 See, for example, Article 147/2 ECC, Article 107 Algerian Civil Code (1975), Article 130 Bahraini Civil Code
(2001), Article 198 Kuwaiti Civil Code (1980), Article 147(2) Libyan Civil Code (1953), Article 159 Omani
Civil Code (2013), Article 171 Qatari Civil Code (2004), Article 148 Syrian Civil Code (1949) and Article
249 UAE Civil Code (1985).
(2001), Article 437 Kuwaiti Civil Code (1980), Article 360 Libyan Civil Code (1953), Article 339 Omani
Civil Code (2013), Article 402 Qatari Civil Code (2004), Article 371 Syrian Civil Code (1949) and Article
472 UAE Civil Code (1985).
10 See for example, Article 157 ECC; Article 171 Omani Civil Code (2013), Article 159 Libyan Civil Code
(1953), Article 119 Algerian Civil Code (1975), Article 192 Kuwaiti Civil Code (1980), Article 140 Bahraini
Civil Code (2001) and Article 272 UAE Civil Code (1985).
11 See for example, Article 650 ECC, Article 553 Algerian Civil Code (1975), Article 615 Bahraini Civil Code
(2001), Article 667 Kuwaiti Civil Code (1980), Article 651 Libyan Civil Code (1953), Article 688 Qatari Civil
Code (2004), Article 616 Syrian Civil Code (1949), and Article 877 UAE Civil Code (1985).
12 ‘Construction Arbitration in the Middle East’, Article available at www.globalarbitrationreview.com/
chapter/1036967/construction-arbitration-in-the-middle-east, published on 20 April 2016.
231
That said, this chapter aims to provide an overview of certain legal principles invoked
in construction-related disputes in the MENA region, so that the specificities of these legal
principles and their application can be properly addressed and considered in construction
arbitrations governed by the laws of certain MENA region countries.
The role of FIDIC in the construction industry in the MENA region

The FIDIC forms of contract have been used in the MENA region since 1970.13 While
these forms are English common law-based texts, they have, nonetheless, been widely
adopted and applied in Arab states in the MENA region, where legal systems are primarily
civil law and Islamic shariah-based. The public sector has led the way for the adoption of
FIDIC forms of contract in the region in response to tendering laws and the requirements
set by governmental entities.14
However, owing to the codification of civil legal principles throughout the MENA
region, certain tension or concerns may arise regarding the application of the FIDIC con-
ditions of contract and the legal principles prevailing under civil law in certain jurisdictions.
Among the disputes that regularly arise in this context and in relation to projects proliferat-
ing throughout the MENA region are:
• the engineer’s administration of works and specifically the likelihood of late approvals,
incorrect or insufficient instructions;
• lack or delayed determination on extension of time (EoT);
• cost;
• changes and variations to the stipulated obligations, contractual breaches by the
employer or contractor;
• non-payment;
• defective construction and performance;
• non-conformity of materials;
• warranties and representations;
• concurrent delay;
• force majeure and hardship (imprévision);
• termination; and
• liquidated damages.
It is in this context that FIDIC offers an effective contractual regime that has been tested
and applied with success throughout the region. Nevertheless, it is not always the case
that the agreed contractual model offers a framework that is consistent with the applica-
ble law and norms, hence the need to ascertain and distill the applicable legal principles
13 M. Grose, Construction Law in the United Arab Emirates and the Gulf W
iley (2016) p. 6.
14 www.fidic.org/sites/default/files/FIDIC%20in%20the%20Middle-East.pdf. The public sector has adopted and
modified to some extent the FIDIC forms of contract in countries such as Algeria, Tunisia, Iraq, Oman, Qatar,
Saudi Arabia and Kuwait. Furthermore, international institutions such as the World Bank have adopted the
FIDIC conditions when entering into contracts with MENA countries to fund engineering and infrastructure
projects. See generally www.worldbank.org. See also M. Bell, ‘Will the Silver Book become the World
Bank’s new gold standard? The interrelationship between the World Bank’s procurement policies and FIDIC
construction contracts’, International Construction Law Review (2004), p. 164.
232
and how they apply in the context of construction contracts and disputes throughout the
MENA region.
Construction contracts and disputes in the MENA region – civil law principles
The French Civil Code has influenced the civil codes of many MENA countries including
Egypt, which in turn is viewed as the source and model on the basis of which many Arab
countries have modelled their laws.
Construction contracts often involve issues arising from the interpretation of the vari-
ous documents forming part of the contract.15 As previously stated, the most common type
of FIDIC form of contract used in the MENA region is the Red Book, and it is submitted
that among the legal issues and principles at the heart of construction disputes governed
by MENA region civil laws are: good faith, abuse of rights, estoppel, force majeure and
imprévision, global claims, accelerated claims, delay damages, implied terms and decennial
liability, which are addressed below.
Good faith
Good faith is a sacrosanct principle of law recognised all throughout the MENA region.16
It is a prevailing principle in the laws of Arab states, where it governs all aspects of a con-
tractual relationship starting from the negotiation phase, through the conclusion of the
contract, its performance, and to its termination.
It is submitted that the duty of good faith is generally not limited to the performance of
contracts but extends to the pre-contractual negotiations.17 Indeed, once the parties agree
to enter into negotiations, such agreement to negotiate must be performed in good faith.
The duty of negotiation in good faith has several variants including, an obligation to nego-
tiate transparently,18 as well as an obligation not unilaterally revoke what has been agreed.19
Acting in ‘good faith’ involves certain constraints and positive duties including:
• an obligation of cooperation among the parties for the proper execution of a contract;
• an obligation to transparently disclose any matter or event that may impact or influence
the performance of the contract;
15 J. Bailey, Construction Law Routledge (2011), p. 131 [3.20].

16 The principle of good faith forms part of the Islamic shariah principles, where the maxim that ‘no
harm and no reciprocated harm’ unequivocally remains a fundamental tenet in a contractual and
non-contractual relationships.
17 See R. Karim, Negotiating the Contract, First Edition, (2000), pp. 416–417, also see R.R. Abdel Rahman Sheikh,
The Consequences of Bad Faith in Bilateral Contracts in Civil Law (2015), p. 65.
18 See R. Karim, Negotiating the Contract, First Edition, (2000), pp. 424, 426, 428, where he states: ‘In order to act
in good faith, the negotiating party shall disclose information to the other party in full transparency without
any dissimulation, and without keeping the latter deceived by a matter known by the former. He/She shall
inform the other party of all acquired information without concealment or hiding as long as such information
is important for the purpose of contracting in order to ensure that the negotiations are based on transparency
and sincerity.’
19 Most importantly, the duty to negotiate in transparency and to offer advice is derived from Islamic shariah,
which binds a negotiating party to enlighten [inform] the other party of the reality of the subject matter of
negotiation and disclose its vices before its benefits: See R. Karim, Negotiating the Contract, First Edition, (2000),
pp. 474–475.
233
• an implied obligation to avert any act or omission that may adversely impact the per-
formance of the contract;20
• an obligation to act reasonably and avert abuse of discretionary power or rights;21
• an obligation not to misrepresent any fact pertaining to the performance of the
contract;22
• an obligation to notify the other contracting party within a reasonable period of time;
• an obligation to avert dilatory and surreptitious behaviour;
• an obligation to act consistently with prudence and observe commercial standards of
dealing;23
• an obligation to act in accordance with the objective or objectives of the contract and
the justified [legitimate] expectations of the parties;
• an obligation to avert deviation from the purpose the right was prescribed for 24 (i.e.,
achievement of a serious and legitimate interest);25
• an obligation to abandon strict adherence to a literal interpretation if the latter leads
to absurd results contrary to the spirit of the contract, its proper performance and the
parties’ common intention;
• an obligation to mitigate damage or harm if sustained by either party;
• an obligation to avoid any third-party communications and dealings that jeopardise or
adversely impact the existing contract;26 and
• an obligation to avoid reaping the greatest advantage from the contract at the expense
or to the detriment of the other party by choosing to implement its right in a prejudi-
cial way to its counterparty.27
The variants of the principle of good faith have been further considered by an arbitral tri-
bunal applying Egyptian law in the specific context of a construction contract, where the
tribunal ruled that:
It is accepted in all international construction contracts that: (a) whereas it is the duty of the
contractor to do what the contract requires to be done (as designed and specified by the employer,
the employer shall allow the contractor to do that which is to be done without hindrance; and a
party cannot benefit of its breach to the detriment of the injured party … (b) Whereas a contract
20 More specifically, acting in good faith necessitates the consideration of honesty, moderation and care so that
the performance of the contracts does not adversely impact the interests of the other party. See S. Morkos,
Explanation of the Civil Law,Volume 2, Fourth Edition, (1987) p. 509.
21 Egyptian Court of Cassation, Challenge No. 3473 of judicial year 75, hearing session dated 27 April 2006.
22 Under Egyptian law, a party who had committed, in the performance of its contract, an act of wilful
misconduct or fraud is considered to be acting in bad faith, regardless of its real intentions. See A. Tolba,
Explanation of Civil Law,Volume 1 (2010), p. 747.
23 See footnote 20.
24 See Egyptian Court of Cassation, Challenge No. 3473, judicial year 75, hearing session dated 27 April 2006.
25 See M.K. Abdelaziz, The Civil Code in light of the Jurisprudence and Doctrine,Volume 1 (1985), pp. 79–80.
26 Egyptian Court of Cassation, Challenges Nos. 4726 and 4733 of judicial year 71, hearing session dated
15 April 2004.
27 By way of illustration, this would be the case of a contractor who chooses to perform its obligations by using
unnecessary expensive material within its possession in order to dispose of the same at the expense of the
employer. See footnotes 20 and 26.
234
provides for a date for completion of the works, but the employer through its acts or omissions
prevents the contractor from achieving that date and there is no entitlement to extensions of time
under the contract in such event the time for completion is nullified. This in turn means that
the employer loses his right to levy liquidated damages and, while the contractor’s obligation to
complete the Works remains, he must do so only within a reasonable time.28
Good faith extends to administrative contracts (including public works construction con-
tracts), where the Egyptian Supreme Administrative Court concluded that good faith
requirements equally apply to administrative contracts. The Court held that:
It is also established that a performance of the contract in accordance with its content and in a
manner conforming to good faith requirements, is a general principle which applies to adminis-
trative contracts, same as it applies to all civil contracts ….29
It is submitted that good faith involves both acts and omissions (passive and active duties),
and necessitates the absence of bad faith. In the specific context of construction contracts,
an arbitral tribunal has tackled good faith, essential mistake and fraudulent misrepresenta-
tion in the conclusion of the contract and stated that if one party knew of a mistake per-
taining to the conclusion of the contract and refrained from communicating it to the other
party, the former shall be deemed to be acting in bad faith.30 As previously alluded to, good
faith does not solely concern refraining from acts or omissions of bad faith, but supposes
in addition, respecting a cooperation obligation when it comes to the implementation
the contract.
The question of identifying the criteria of good and bad faith is left to judicial
discretion,31 to verify whether each party’s conduct was in good or bad faith.32 In the
performance of construction contracts, a party will be considered to be acting in bad faith
if it is determined to perform or terminate the contract with a bad intention or for a bad
purpose. In this context, one may distinguish between three types of situations:
• The first situation is the case where a party to the contract is determined to take a posi-
tive action or to refrain from acting in a certain manner while being absolutely aware
that such action or omission will cause detriment to its counterparty. In such circum-
stances, such person is acting in bad faith.
28 Case No. 310/2003. Extract from final award dated 8 August 2005, cited by Mohi-Eldin Ismail Alam-Eldin,
‘Construction Arbitral Awards Rendered Under the Auspices of CRCICA’, (2010), p. 5.
29 The Egyptian Supreme Administrative Court, Challenge No. 1226 for hearing session dated 23 April 1996.
Moreover, the General Assembly of Advice and Legislation of the Egyptian State Council concluded in one
of its opinions that good faith is a prevailing principle in all contracts whether in the context of determination
of its subject matter or the manner of its performance. See State Council, General Assembly for Advice and
Legislation, Session No. 157, dated 6 June 2007.
30 See Mohi-Eldin Ismail Alam-Eldin, ‘Construction Arbitral Awards Rendered under the Auspices of CRCICA,’
Case No. 43/1995 dated 15 November 1995, p. 228 et seq.
31 Challenge No. 3473 of judicial year 75 for hearing session dated 27 April 2006 and Challenge No.163 of
judicial year 32 for hearing session dated 15 November 1966.
32 Challenge No. 811 of judicial year 43 for hearing session dated 16 June 1977, and Challenge No. 323 of
judicial year 37 for hearing session dated 9 May 1972.
235
• The second situation is the case where a party to the contract is determined to take a
positive action or to refrain from acting in a certain manner, while being unaware that
such action or omission may be detrimental to its counterparty. In this case, it may be
difficult to discern that the said party was acting in bad faith, as this will largely depend
on whether such party was acting with an understanding that this constitutes a breach
of the contract or not, irrespective of whether such breach will cause a detriment to the
other contracting party.
• The third situation concerns the case where a party to the contract acts or refrains from
acting in a certain manner, while it is foreseen that such action or omission may cause
the other contracting party certain detriment, yet the former chooses to act in this way.
In that case, while the acting party had no intention or purpose to cause any detriment
to its counterparty, it actually foresaw the possibility of detriment and accepted, in view
of the benefit that it may reap, that such detriment may materialise. Accordingly, that
party may (depending on the facts and circumstances) have contravened good faith,
since it knowingly proceeded while foreseeing the likely prejudice that may ensue and
which outweighs the benefit it desires to reap.
In manifestation of the duty of cooperation, it is submitted that an employer is expected

to exert all possible efforts to allow the contractor to complete the works without impedi-
ment.33 If the works require the intervention of the employer, it shall do so within the
contractually agreed period or within the period customarily required for that specific
type of work.34 That said, the parties remain under an obligation of cooperation during
the performance of the contract (as a variant of good faith), even if the contract does not
specifically include all its manifestations.
Implied terms
Consistent with the good faith obligations, Arab laws include legislative provisions dealing
with implied terms, where a contract is not exclusively limited to its express terms, but
extends to cover implied terms.35 Article 148(2) ECC, which inspired many similar provi-
sions proliferating throughout the MENA region,36 states: ‘A contract must be performed
in accordance with its content, and does not only bind the contracting party to its content,
but also to all that which is a necessary sequel thereof, in accordance with the law, custom
and equity.’
33 See A. Sanhoury, Al Wasit in the Explanation of the Civil Code,Volume 7 (2010), pp. 122–123.
34 Furthermore, it is established that the employer shall issue the required licences within a reasonable time so
that completion is not delayed. If the employer is required to submit the construction material or equipment,
it shall do same within reasonable time in order to allow the contractor to complete the works. If the works
shall be performed according to the drawings or data provided by the employer, the latter shall submit the
same within the contractually agreed period, or within reasonable time. See footnote 33, p. 123.
35 See S. Morkos, El Wafi in the Explanation of Civil Law,Volume 2 (1987), pp. 502–503. See Mohamed Kamal Abd
AlAziz, The Civil Codification in light of the Judiciary and Doctrine,Volume 1 (1985), p. 428.
36 See Article 107 Algerian Civil Code (1975), Article 127 Bahraini Civil Code (2001), Article 195 Kuwaiti Civil
Code (1980), Article 148 Libyan Civil Code (1953), Article 156 Omani Civil Code (2013), Article 172 Qatari
Civil Code (2004), Article 149 Syrian Civil Code (1949) and Article 246 UAE Civil Code (1985).
236
Since pacta sunt servanda is overarching fundamental principles, it is worth noting that
the doctrine of implied terms is not inconsistent with pacta sunt servanda, as the sequels
of a contract remain subject to the parties’ agreement and are intended to complement
and supplement the same. This means that implied terms may not amend, contradict or
override the express terms of a contract agreed by the parties.37 Nevertheless, it should be
noted that even a detailed and sophisticated construction contract may possibly be silent on
a certain matter or circumstances and even the nature of the obligations and their proper
performance, in good faith, may warrant the inclusion of certain implied terms as a mat-
ter of law, custom or equity. Thus, if the parties’ agreement is silent on a certain provision,
whether because the parties have failed to agree thereon or did not envisage the same, then
the necessary sequels of a contract could intervene to fill the gap.
That said, it is not uncommon to imply terms in construction contracts, such as the duty
of cooperation, which is also a variant of good faith. Similarly, even if it is not expressed in
the contract, a contractor is expected to perform the works as deemed fit for the intended
purpose, and the employer is subject to an implied obligation not to impede or interfere
with the contractor in the performance of its obligations under the contract or the progress
of the works.
Abuse of right
A person is entitled to use his or her rights as mandated by the law or as agreed in a con-
tract. However, a person is not entitled to use its right in an illicit or abusive manner.38
While not expressly included in legal provisions regulating contracts, nothing prevents uti-
lising abuse of right, where necessary, in the context of contractual arrangements, especially
that it is arguable that non-abusive use of rights can only be characterised as an application
of the overarching principle of good faith.
Article (5) ECC39 sets the criteria for abuse of right. The first criterion deals with the
illegitimacy of the pursued interests. This denotes the absence of a legitimate and seri-
ous interest.40 Indeed, the prevailing views confirm that the provisions of Islamic shariah
may have a role to play in assessing the illicit nature of the pursued interests.41 The second
criterion deals with the existence of an intention of aggression. This would be the case if
a person’s main intention is to inflict harm, even if its act or omission is associated with a
secondary intention to achieve a benefit.42 The third criterion denotes disproportionality
37 See S. Morkos, El Wafi in the Explanation of Civil Law,Volume 2 (1987), p. 503.

38 Qatari Court of Cassation, Challenge No. 176 of judicial year 2013, hearing session dated 7 January 2014.
39 Article (5) ECC provides that: ‘Usage of right shall be illicit in the following cases: (a) if it was only intended
to harm a third party, (b) if the interests pursued are of minor importance, so that they are manifestly
disproportionate to the harm caused to a third party, (c) if the interests pursued are illicit.’ Article (63) Qatari
Civil Code (2004) added to the ECC’s criteria: ‘if the usage of right would cause outrageous unfamiliar harm’.
Article Omani Civil Code (2013) added to the ECC’s criteria: ‘if the usage of right exceeds customs and
habit’. Article 104 UAE Civil Code (1985) considers usage of right abusive if it contradicts Islamic shariah
principles, laws, public policy or morals.
40 See M.K. Abdelaziz, The Civil Code in light of the Jurisprudence and Doctrine,Volume 1 (1985), pp. 79–80.
41 M.K. Abdelaziz, The Civil Code in Light of the Jurisprudence and Doctrine,Volume 1 (1985), p. 83, citing the
Preparatory Works of the ECC.
42 See A. Sanhoury, Al Wasit in the Explanation of the Civil Code,Volume 2 (1998), pp. 758–759.
237
between the benefits and prejudices resulting from the exercise of the right.This is the case
whether the person who exercised the right was recklessly inconsiderate of the damage
others may suffer for the sake of a minor benefit, or had a hidden intent to inflict harm
under a pretext of a fictitious or minor benefit that is clearly outweighed by the damage
sustained by another person.43 The person exercising such right would be deviating from
the usual conduct of an ordinary person, and is committing a breach for which he or she
must be held liable.44
Estoppel
While the principle of estoppel may not be legislatively captured in civil codes throughout
the MENA region, estoppel, or ‘allegans contraria non est audiendus’, is a well-established legal
principle derived from fundamental tenets of Islamic Shariah and forms part of the legal
systems of several countries in the MENA region.45 According to this sacrosanct principle,
he or she who seeks to revoke what has been agreed, or engages in contradictory behav-
iour, shall be barred from doing so. Moreover, estoppel is explicitly endorsed and upheld
by the judgments of Arab courts,46 and it is validly argued that estoppel is a variant of good
faith.47
In the specific context of construction contracts, if the employer or contractor engage
in contradictory behaviour or either seeks to revoke what has been agreed or endorsed,
estoppel and good faith will militate against validating such actions or omissions.
43 See footnote 42, p. 761.

44 Egyptian Court of Cassation, Challenge No. 2 of judicial year 46, hearing session dated 25 April 1981.
45 Egyptian Court of Cassation, Challenge No. 171 of judicial year 20, hearing session dated 17 April 1952;
Egyptian Court of Cassation, excerpts of Challenge No. 76 of judicial year 73, hearing session dated
13 March 2007; Kuwaiti Court of Appeal, Appeal No. 14 of judicial year 87, hearing session dated
16 November 1987.
46 See the Kuwaiti Court of Cassation, challenges No. 59, 64, 65, 71 of judicial year 1995, hearing session
dated 12 December 1995. In this regard, the Kuwaiti Court of Cassation held that: ‘the principle of fraus
omnia corrumpit … is founded on moral and social considerations combating fraud, deceit and cheating, as
well as considerations of non-deviation from the principle of good faith that should be generally upheld in
transactions and dealings in order to safeguard the interests of people and the society. The court deciding
the dispute enjoys the discretion to infer satisfaction of elements of fraud from the facts supporting it. … In
this regard, the Explanatory Memorandum has elaborated that good faith and honorable dealing invalidate a
contract not only with regard to its content, but also with regard to its means of performance. This is indeed
in application of the principle entailing that ‘a person attempting to revoke what has been endorsed thereby
shall be barred from succeeding in this attempt’. See also the Cairo Court of Appeal Case No. 35, 41, 44 and
45 of judicial year 129, hearing session dated 5 February 2013: ‘In Arbitration practice, in compliance with the
overarching principle of good faith, prevailing in the commercial arena, the ‘Estoppel’ doctrine has become
fortified and well-vested. According to the said doctrine, it is possible to frustrate an opponent’s efforts to
benefit from its contradicting statements, behavior, and legal positions in order to acquire privileges to the
disadvantage of its counterparty. The aforementioned principle – noting the different classification according
to the legal system in application – has become explicitly and directly applied, and even a rule of thumb, as
one of the primary legal principles, which may not be disregarded or denied, or else this shall be a serious
encroachment on the values of justice, which any community considers indispensable.’
47 Ibid.
238
Force majeure and imprévision

The laws of Arab countries in the MENA region recognise and regulate the concepts of
‘force majeure’ and ‘exceptional circumstances’ (imprévision or rebus sic stantibus). Both con-
cepts deal with unforeseen and inevitable events beyond the control of a contracting party.
However, while force majeure leads to impossibility of performance, imprévision, which
only operates with respect to contracts whose performance is stretched over time, renders
the performance of obligations excessively onerous (but not impossible) and threatens the
debtor of the obligations with exorbitant loss, if forced to specifically perform the exorbi-
tant obligations.
Moreover, on one hand, force majeure generally leads to extinguishing the obligations
that become impossible to perform, unless the parties agree in their contract to regulate
the ramifications of force majeure differently by allocating the risk of impossibility among
themselves as they deem fit.48 On the other hand, imprévision does not lead to extinguish-
ing obligations, but to the possible moderation thereof by restoring the excessively onerous
obligations to reasonable limits through a court judgment or an arbitral award. This could
be achieved by awarding compensation or reasonably reducing the limit and scope of the
cumbersome obligations. Imprévision also requires the unforeseen and inevitable superven-
ing events to be of a general character (i.e., not exclusive to the debtor).
Unlike force majeure, imprévision is generally subject to an overriding mandatory legis-
lative regulation that does not allow the parties to a contract to derogate from such manda-
tory regulation by agreement.49
It is of utmost importance to note that, in the context of construction contracts, both
force majeure and imprévision are subject to specific legislative provisions. By way of illus-
tration, Article 664 ECC regulates force majeure (in the specific context of construction
contracts) and states: ‘A contract for works [construction contract] is extinguished if the
performance of the work for which the contract was concluded becomes impossible.’ 50,51
48 Article 373 ECC states: ‘An obligation is extinguished if the debtor establishes that its performance has
become impossible by reason of causes beyond his control.’ Similar provisions can be found under Article
307 Algerian Civil Code (1975), Article 364 Bahraini Civil Code (2001), Article 437 Kuwaiti Civil Code
(1980), Article 360 Libyan Civil Code (1953), Article 339 Omani Civil Code (2013), Article 402 Qatari Civil
Code (2004), Article 371 Syrian Civil Code (1949) and Article 472 UAE Civil Code (1985).
49 Article 147(2) ECC states: ‘If, however, as a result of exceptional and unforeseen events of a general character,
the performance of the contractual obligation, though not impossible, becomes excessively onerous in such
a way as to threaten the debtor with exorbitant loss, the judge may, according to the circumstances, and after
weighing the interests of both parties, reduce the onerous obligation to reasonable limits. Any agreement to
the contrary is void.’ Similar provisions could be found under Article 107 Algerian Civil Code (1975), Article
130 Bahraini Civil Code (2001), Article 198 Kuwaiti Civil Code (1980), Article 147(2) Libyan Civil Code
(1953), Article 159 Omani Civil Code (2013), Article 171 Qatari Civil Code (2004), Article 148 Syrian Civil
Code (1949) and Article 249 UAE Civil Code (1985).
50 See Article 567 Algerian Civil Code (1975), Article 608 Bahraini Civil Code (2001), Article 685 Kuwaiti Civil
Code (1980), Article 663 Libyan Civil Code (1953), Article 646 Omani Civil Code (2013), Article 704 Qatari
Civil Code (2004), Article 630 Syrian Civil Code (1949) and Article 892 UAE Civil Code (1985).
51 The FIDIC Red Book, which had its origin in the common law system used the doctrine of ‘Frustration’
until its fourth edition when Clause 66 was renamed ‘Release from Performance’. In its 1999 Edition, FIDIC
shifted to the civil law concept of force majeure. In 2008, FIDIC abandoned both concepts in favour of having
these events identified as exceptional risks in its Gold Book.
239
With respect to imprévision, Article 658(4) ECC, which exclusively applies to ‘lump sum’
construction contracts (not re-measured contracts such as the FIDIC forms) states:
However, if the economic equilibrium between the obligations of the employer and the contractor
collapses, due to exceptional events of general character, which were unforeseen at the time of
contracting, causing the basis for the monetary valuation of the contract to fizzle, the Court may
order an increase in payment to the contractor or the rescission of the contract.52
Obviously, Article 658/4 ECC is a special application of the general principle enshrined in
Article 147/2 ECC.They share the same conditions of application, yet the court or arbitral
tribunal is not entitled to rescind the contract under Article 147/2, but can so order under
Article 658/4 ECC in the specific context of lump sum construction contracts.
Finally, a conventional loss cannot trigger imprévision, even if such conventional loss
is large in value;53 only an exorbitant loss (naturally exceeding loss of profit) can trig-
ger imprévision.
Global claims
An exceedingly pertinent question in relation to construction disputes subject to the civil
laws in the MENA region is whether global claims are recognised under Arab laws. While
global claims are well-established and regulated in common law countries, the terminology
‘global claim’ is alien to MENA region arbitrations subject to civil law principles. However,
the inexistence of a specific terminology or specific legislative rules to address global claims
does not mean that such claims are not capable of being analysed and assessed under the
prevailing civil law principles.
Global claim occurs when the claimant alleges two or more breaches and says that
those breaches cumulatively caused the loss or losses, but does not specify the proportion
of that loss that is attributable to each breach. As mentioned above, Arab laws and provisions
governing construction contracts make no express reference to global claims. However,
this does not mean that they are inadmissible outright. The matter ought to be carefully
scrutinised under the prevailing principles of contractual liability and specifically causation.
That said, a global claim may be permissible and may succeed as a matter of law under
the generally applicable legal principles of contractual liability,54 if the employer’s breaches
were interdependent, interconnected and inseparable to an extent that it is impossible or
52 See Article 561 Algerian Civil Code (1975) and Article 657(4) Libyan Civil Code (1953).
53 See A. Sanhoury, Al Wasit in the Explanation of the Civil Code,Volume 1 (2010), p. 556.
54 Articles 163 and 169 ECC deal with the situation where multiple tortfeasors are jointly and severally liable
in compensating the loss or harm sustained. Liability shall be apportioned equally between them, unless the
judge can attribute the contribution of each to the loss or harm. The same logic can apply in the context
of contractual liability. If the judge cannot finally estimate the final amount of compensation, he or she
can preserve the right for the aggrieved party to ask, within a prescribed period, for a recalculation of
compensation. For an overview of all pertinent legislative provisions regarding the joint liability of tortfeasors
and allocation of compensation, see Articles 163, 169 and 170 ECC; Articles 46, 176, 200 and 180 Omani
Civil Code; Articles 50, 51, 166, 167 and 172 Libyan Civil Code; Articles 47, 48, 124, 126 and 131 Algerian
Civil Code; Articles 77, 78, 94 and 99 Moroccan Civil Code; Articles 192, 227–29, 303-4 Kuwaiti Civil Code;
Articles 124, 140, 160 and 166 Bahraini Civil Code; Articles 272, 282–85, 290-91 UAE Civil Code.
240
impractical to segregate or separate same. In such event, if the contractor is able to prove
that such interdependent and intertwined breaches had a cumulative effect and contributed
altogether to the occurrence of the damage, without any separation, then the contractor’s
claim may be accepted, provided that the contractor can show that the breaches claimed
are all attributable to the employer. In such case, the burden of proof would shift to the
employer to avoid liability and disprove what the contractor established.
Accordingly, global claims in construction may be admissible as a matter of civil law,
if the all three elements of contractual liability are satisfied, namely: the fault (breach), the
damage and the causation,55 and if it is established that the breaches attributable to the
employer are inseparable.
Constructive acceleration
‘Constructive acceleration’ is a common construction claim derived from the common
law jurisprudence, and involves, in essence, the speeding up of the progress of the works
on the inferred or tacitly expressed instruction of the employer.56 As to the law regarding
acceleration, there are implied grounds for assertion of a claim. This has become known as
‘constructive acceleration’.
The doctrine of constructive acceleration is well recognised in the United States, and
is gaining traction in other legal jurisdictions around the world, including England and
Canada. The trend in addressing constructive acceleration is to look solely to whether:
• delays were excusable;
• the contractor was ordered to accelerate; and
• that actual acceleration caused the contractor to incur extra costs.
Most civil law jurisdictions do not recognise the term ‘constructive acceleration’ and Arab
laws do not have legislative provisions addressing such claims. However, alternative routes
to recovery exist, where the contractor is in excusable delay, but is not given corresponding
schedule relief and is ordered to accelerate, and so incurs additional costs. In these situa-
tions, the contractor may recover damages under different legal principles, such as breach
of contract, implied terms, mitigation of delay and damages.
In principle, it is established that a FIDIC contract does not necessarily oblige the
contractor to accelerate and make up for the delay, if the delay is an act of, and caused by,
the employer. Nevertheless, as a manifestation of good faith and cooperation in the per-
formance of construction contracts, the contractor may effect ‘constructive acceleration’.
Furthermore, if the contractor fears (notwithstanding a valid EoT claim) being penalised
through the imposition of liquidated damages, the calling of its security bonds or termi-
nation, it will have to accelerate and then attempt to claim the costs of acceleration from
the employer, assuming that the latter is wholly responsible for the delay. In such case, the
contractor may have a claim for breach of contract provided that:
55 In some civil law jurisdictions, such as Egypt, the aggrieved party need only prove the existence of the breach
and the damage or harm and causation would be presumed. The burden then shifts to the other party to prove
the inexistence of the breach, damage or harm, or causation.
56 R.W.W. Ray, ‘Constructive acceleration’, available at www.corporate.findlaw.com/litigation-disputes/
constructive-acceleration.html.
241
• the employer breached its obligations of good faith in the performance of contracts by
not granting an EoT;57
• the contractor suffered damages (i.e., additional costs incurred due to accelerating the
works); and
• a direct causality exists between the breach and damage.
Again, it is worth noting that the sheer inexistence of express legislative provisions on a
specific matter such as ‘constructive acceleration’ does not necessarily imply that such mat-
ter is inexistent or illegal; the matter ought to be carefully scrutinised under the prevail-
ing principles of contractual liability and other pertinent civil law principles to ascertain
whether it, or an equivalent thereof, can be recognised under the applicable law.
Maintaining the economic equilibrium in administrative public works contracts

A large part of constructions contracts in the MENA region come in the form of public
works administrative contracts that may be subject to specific principles and norms not
necessarily encountered in a standard civil law context. Given the proliferated use of FIDIC
in state contracts and the inherent difficulty associated with characterising a contract as
administrative (noting that not all state contracts are administrative contracts), it is worth
shedding some light on the specificity of administrative construction contracts as a feature
of the MENA region.
Generally, it is submitted that the classification of a contract as administrative relies on
the collective fulfillment of three conditions, namely:
• the administration (public entity) must be a party to the contract;
• the contract must relate to a public utility; and
• the contract must include exceptional conditions anomalous to private law contracts.
In this context, the Egyptian Supreme Administrative Court held that a contract is admin-
istrative if the administration’s intention to apply public law principles appears by the inclu-
sion of one or several anomalous conditions to private law contracts.58 In principle, there
are two types of exceptional conditions:
• conditions reflective of public authority privileges; and
• conditions in application of public law principles.59
57 An employer’s breach of good faith would be established by the fact that: (i) the delay was excusable (i.e.,
caused by the employer or otherwise not attributable to the contractor); (ii) the contractor should have been
granted its extention of time under the contract but was denied such right; and (iii) the contractor was forced
to take acceleration measures, in aversion of the employer’s threatened sanctions or penalties.
58 Egyptian Supreme Administrative Court, Challenge No. 576 of judicial year 11 for hearing session dated
30 December 1967.
59 Exceptional and anomalous conditions include: the administration’s right to unilaterally amend or terminate
the contract, the administration’s stringent monitoring and supervisory rights, the administration’s right to
impose contractual penalties (fines) or perform certain obligations at the expense of the other contracting
party, the administration’s right to revoke the contract without notifying the other contracting party, the
administration’s right to inspect the contractor’s works anytime, the administration’s exclusive and unilateral
right to amend the contract’s provisions or granting the administrative courts the power to amend the contract
to best suit the public utility.
242
In brief, the contract must reflect the state’s intention to showcase its jus imperii powers
and to uphold public law principles in its contract.60 In the context of construction (public
works) contracts, several legal principles may come into play, especially in the context of
maintaining the economic equilibrium of the contract. It is in this specific situation that the
administrative theories of fait du prince and imprévision gain importance.
As a general rule, fait du prince is defined as an act or measure, whether public or pri-
vate (targeting only the opposing contracting party), issued or undertaken by a contracting
public authority without fault or breach on its part, and which results in increasing the
contractual burden of a contracting party in an administrative contract. In such case, the
contracting authority is bound to compensate the other party for the damage sustained
(loss suffered).61
The Egyptian Supreme Administrative Court upheld this doctrine, in its judgment of
11 May 1968, and ruled that ‘the interference of the Administrative Court to achieve the
financial equilibrium of the administrative contract for the application of the doctrine of
‘fait du prince’ presupposes/requires the satisfaction of its conditions’.62 These conditions that
must be collectively fulfilled are:
• the existence of an administrative contract;
• the act is issued from the contracting authority and it is presumed that the contracting
authority is not in default or breach by undertaking such act;
• a harm results from the act and is suffered by the contracting party (i.e., without need
for a specific degree of gravity of harm);
• the act is unforeseen; and
• the damage suffered by the contracting party is specific so that others (third parties) are
not affected.
Additionally, the Egyptian Supreme Administrative Court upheld the doctrine of imprévi-
sion in the context of administrative contracts,63 where imprévision remains subject to the
same conditions discussed herein above. However, in an administrative public works con-
tract, the remedy would be compensation, whereas, in civil law, the courts have broader
powers to restore the cumbersome obligation to reasonable limits. Nevertheless, imprévi-
sion is not intended to compensate a contractor for all its losses; it only aims to restore the
60 For example, in Challenge No. 3128 for judicial year 35, hearing session dated 24 January 1995, the Egyptian
Supreme Administrative Court held that ‘It is established in the practice of this Court that an administrative
contract is concluded by public law entities with an intention of administering a public utility, or in the course
of operating same, and the intention of such entities in upholding public law methods is demonstrated by
the inclusion of contractual condition(s), which are anomalous to private law contracts. It is well established
in administrative law doctrines that the implementation of public law methods is the key condition in
distinguishing administrative contracts. While the pertinence of the contract concluded by the administration
to a public utility is a prerequisite for its administrative nature, it does not solely suffice to characterise the
contract as such.’
61 See S. El Tamawy, The General Principles of Administrative Contracts (2008), pp. 598, 602.
62 See Supreme Administrative Court in Cases No. 1562 of judicial year 10 and 67 of the judicial year 11,
hearing session dated 11 May 1968.
63 See Supreme Administrative Court, Challenges No. 549 and 801 of judicial year 35, hearing session dated
4 April 1993.
243
excessively onerous obligation to reasonable limits, so that the employer’s utility is not
affected and the contractor is not severely harmed.
Delay damages
It is common knowledge that delay damages or liquidated damages are the employer’s
strong tool and remedy for the contractor’s breaches, and they are regularly invoked and
flagged in construction-related arbitrations. Liquidated damages are also an area where
common law and civil law principles collide, and where administrative law principles inter-
vene to distinguish penalties from delay damages.64
In civil law contracts, a party may avoid damages by proving:
• it committed no breach;
• the breach is attributable to an alien cause or the other party’s acts or omissions;
• the inexistence of a causal link; and
• no loss or harm was suffered or sustained by the aggrieved party.
Generally, a contractor is under an obligation to achieve completion of the works by the

agreed time and his or her obligation to complete the works is an obligation to achieve
a result.65 Thus, the contractor’s liability for delay in completion cannot simply be obvi-
ated by establishing that the contractor has exercised the due care of a reasonable person.
Nevertheless, a contractor may avoid liability for delay by proving that the reason for
such delay was beyond the contractor’s control, such as force majeure, supervening events
beyond the contractor’s control, an act of a third party or the employer’s own fault.
64 The Abu Dhabi Cassation in Challenge No. 426 for judicial year 18, hearing session dated 17 February 1998,
stated that delay damages in private moqawala [construction] contracts are different from: ‘[T]he amount
specified in moqawala contracts concluded by the administration, which is payable by the contractor in case
of delay, which is in fact, one of the monetary penalties to which the administration resorts, as a penalty
imposed on the other contracting party in case of default and negligence, irrespective of any damage suffered
by the administration, and does not require a prior notification, because in administrative contracts, damage
materialises upon occurrence of the delay, as it deprives the beneficiaries of those utilities from the intended
benefit’. Thus, the Abu Dhabi Court of Cassation carefully differentiates between ‘delay damages in private
contracts’ and ‘delay penalties in administrative contracts’, where the damage or loss is irrebuttably presumed.
This does not apply if the contractor’s delay has not prevented the use of public utility by the beneficiaries.
The above distinction made by the Abu Dhabi Court of Cassation may be slightly different from the approach
taken by the Egyptian Supreme Administrative Court. While the Egyptian Supreme Administrative Court
equally differentiated between delay penalties in administrative contracts and delay damages in private
construction contracts, the Court still denied liability if the party (in a contract with the administration)
was able to prove that he or she has not committed a breach or fault. The Supreme Administrative Court in
Challenge No. 1226 for Judicial Year 35, hearing session dated 23 April 1996, stated: ‘It is established in the
doctrine of administrative law that the delay penalty in administrative contracts is prescribed to guarantee
performance of such contracts during the agreed duration to ensure the uninterrupted and systemic operation
of public utilities. Legal characterisation of delay penalty as a form of agreed compensation is different from
an agreed compensation in private law, owing to the existence of special terms, the most important of which
is that damage is presumed upon occurrence of the delay. However, the other party may prove the absence
of breach or fault, and once one of the conditions of liability is negated, there is no room to exercise the
administration’s right to receive compensation owing to the lack of the legal basis thereof.’
65 Prof Dr Al Sanhoury, Al Wasit in the Explanation of the Civil Code, Part 7,Volume 1 (2010), p. 64.
244
In addressing damages in general, Article (170) ECC grants courts a broad authority
in quantifying damages,66 and empowers courts and tribunals to quantify compensation,
through the mechanism set out in Articles (221) and (222) ECC.67
Moreover, it is also common in construction contracts that capped liquidated dam-
ages are agreed in respect of a contractor’s failure to achieve the contractually specified
and agreed performance standards.68,69 Capped liquidated damages clauses work to save
the employer the need to prove loss in events of delay by the contractor, and also to keep
contractors informed about the magnitude of their potential exposure resulting from delay
in performance. Accordingly, the general principle would be that courts or tribunals would
uphold the agreed liquidated damages clause insofar as:
• liability is not avoided;
• the harm or damage is existent; and
• the amount of liquidated damages is not excessively exaggerated.
Arab laws recognise and incorporate provisions regulating capped delay damages or liqui-
dated damages, and such laws are largely influenced by Egyptian law. Article 224 ECC states:
(1) Damages fixed by agreement are not due, if the debtor establishes that the creditor has
not suffered any loss. (2) The judge may reduce the amount of these damages, if the debtor
establishes that the amount fixed was grossly exaggerated or that the principal obligation has
been partially performed. (3) Any agreement contrary to the provisions of the two preceding
paragraphs is void.
While most Arab laws70 provide for equivalently similar provisions of equal overriding
mandatory nature, the new Omani Civil Code of 2013 offers a wider discretion to Omani
66 Article (170) states: ‘The judge shall quantify compensation for the damage(s) suffered by the aggrieved party
in accordance with Articles (221) and (222) taking into consideration the circumstances. If the judge was
unable, at the time of judgment, to finally quantify the compensation, he may reserve for the aggrieved party
the right to request revisiting the quantification within a specified period.’
67 Article (221) of the ECC stipulates that: ‘(1) if compensation was not quantified in the contract or by a
provision in the law, the judge shall quantify it. Compensation shall include the loss suffered, and profit lost
by the creditor, provided that they are a natural result of the non-fulfillment or delay in fulfilment of the
obligation. A damage shall be considered a natural result if the creditor could not have avoided it by exerting
reasonable efforts. (2) However, if the obligation originates from the contract, a debtor not involved in fraud
or gross negligence shall not be liable save for compensation of damage commonly foreseeable at the time of
contracting.’ Moreover, Article (222/1) of ECC states that: ‘(1) Compensation shall include moral damages,
however, in such case it may not be transferred to a third party unless specified by an agreement or claimed by
the creditor before courts.’
68 J. Jenkins and S. Stebbings, International Construction Arbitration Law,Volume 1 (2006), p. 43.
69 Clause 8.7 of the FIDIC Red Book 1999 edition (Red Book) provides for the contractor to pay delay
damages to the employer if it fails to complete the works, or each section of the works, by the time for
completion (subject to any extensions of time). The clause also states that such ‘delay damages shall be the
only damages due from the contractor for such default.’ The rate of such delay damages is quantified in the
Appendix to Tender: www.fidic.org/node/911, accessed on 22 Feb 2017.
70 See, for example, Article 184 Algerian Civil Code (1975), Article 226 Bahraini Civil Code (2001), Article
303 Kuwaiti Civil Code (1980), Article 226 Libyan Civil Code (1953), Article 266 Qatari Civil Code (2004),
Article 225 Syrian Civil Code (1949) and Article 390 UAE Civil Code (1985).
245
courts. Article (267) Omani Civil Code, also encapsulating an overriding mandatory
norm, stipulates:
(1) If the object of the obligation was not an amount of money, the contracting parties may deter-
mine in advance the value of compensation by stipulating same in the contract or a subsequent
agreement. (2) The Court may, in all events, based on a request by one of the parties, amend
such agreement to make the quantification equal to the damage. Any agreement to the contrary
shall be null and void.
Consequently, as a matter of Omani law, a party can apply to the court or arbitral tribunal
to override contractually agreed compensatory arrangements and adjust the specified com-
pensation to equate it to the actual damage or harm suffered.71 The court’s moderation of
the obligation to pay liquidated damages can also be sought on different grounds such as
exceptional general events, where partial or total discharge of the obligation may be also
sought on grounds of force majeure causing partial or complete impossibility of perfor-
mance, where applicable.
Decennial liability
Decennial liability is a mandatory strict regulation of a certain construction-specific liabil-
ity. In the context of construction contracts, MENA region construction-related regulation
includes mandatory strict decennial liability in the civil codes of countries such as Algeria,
Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Qatar, Syria and the UAE.72
Decennial liability imposes the joint and several liability of contractors, architects and
engineers regarding any defects affecting the structural integrity of the building or causing
total or partial collapse. This decennial liability operates as a mandatory overriding provi-
sion that may not be derogated from by agreement or choice of a foreign law, if such choice
of foreign law (in relation to construction contracts relating to immoveables) is legally
permissible in the pertinent jurisdictions.
Under decennial liability, architects, engineers and contractors are jointly liable for par-
tial failure or total collapse of constructions or other installations for a period of 10 years
from the date of handover. The burden of proving that the collapse resulted from an exter-
nal event beyond the jointly liable persons lies with such persons.
It is worth noting that the liability period generally extends to 10 years, unless the par-
ties intend to keep the building for a shorter period,73 or the pertinent civil law provides
for a shorter period, such as the former Bahraini rule providing for a five-year period.74
Following the enactment of the Bahrain Civil Code in 2001, the liability period was
71 D. Courtney-Hatcher, S. Tee, D. Hamilton and J. Barton, Dentons & Co, Construction and projects in Oman:
Overview. Available at: www.uk.practicallaw.com/7-519-6003?source=relatedcontent#.
72 See, for example, Article 651 of the ECC, Article 554 Algerian Civil Code (1975), Article 870 Iraqi Civil Code
(1951), Article 788 Jordanian Civil Code (1976), Article 692 Kuwaiti Civil Code (1980), Article 668 Lebanese
Civil Code (1932), Article 650 Libyan Civil Code (1953), Article 634 Omani Civil Code (2013), Article
711 Qatari Civil Code (2004), Article 617 Syrian Civil Code (1949) and Article 880 UAE Civil Code (1985).
73 See Article 651 ECC.
74 See Article 13(b) repealed Bahraini Buildings Organization Law No.13 of 1977.
246
extended to 10 years, as is the case in other Arab states.75 Furthermore, any clause intending
to limit or exclude the decennial liability shall be null and void.
The MENA jurisdictions share the following features of decennial liability:
• it runs from handover and lasts for a period of five or 10 years or such lesser period,
depending on the jurisdiction and whether the building is intended to last for a
shorter period;
• it arises notwithstanding that the collapse or defect resulted from a defect in the land;
• it is joint and several, where the employer can proceed against the contractor, the engi-
neer or the architect for the full amount of the claim; and
• it is considered of an overriding mandatory nature and so cannot be excluded or lim-
ited by contractual arrangements or possibly choice of foreign law (assuming such
choice is permissible).
Concluding remarks
The construction industry in the MENA region is booming and constructions contracts
and associated disputes are on the rise,76 and the majority of construction projects burgeon-
ing throughout the MENA region adopt the FIDIC form of contracts with noticeable
proliferation of the FIDIC Red Book form of contract.
However, the business, economic and legal reality confirms the existence of a direct
relationship between the proliferation of construction contracts in the MENA region and
the increase in construction disputes arising from said contracts. It has been suggested that
the top causes of construction disputes in the MENA region include:77
• failure to properly administer a contract;
• failure to make interim determination of EoT and compensation;
• employer-imposed change;
• contract selection was not a ‘best fit’ when compared to the project’s characteristics; and
• third-party events (force majeure, imprévision, etc.).
Construction contracts are complex agreements and require special expertise to negoti-
ate, draft, prosecute and hear disputes arising therefrom. This complexity is further com-
pounded in the MENA region owing to:
• certain gaps and possible friction between the agreed terms and conditions and certain
applicable civil law principles;
• the top causes of construction disputes, given above;
• the outdated legislative regulation of construction contracts in Arab laws;
• relative (unwarranted) avoidance of the needed in-depth scrutiny of the applicable
legal principles;
75 See Article 615 Bahraini Civil Code (2001).

76 ‘The Middle East and Africa (MEA) region’s construction industry will grow by 6.9 per cent annually
in 2016-20, according to Timetric’s Construction Intelligence Center (CIC)’; See www.venturesonsite.
com/news/the-middle-east-and-africa-mea-regions-construction-industry-will-grow-by-6-9-annually-
in-2016-20/, accessed on 22 March 2017. Presentation on Middle East and North Africa Regional Economic
Outlook; 19 October 2016, accessed on 22 March 2017.
77 EC Harris Global Construction Dispute Report 2013.
247
• the existence of a bipolar (civil law–administrative law) system existing in certain Arab
jurisdictions, which largely affects the characterisation and performance of construction
agreements; and
• prevailing misconceptions on the specificities of the MENA region laws.
It is in this context that the present contribution invites scholars, counsel, judges and arbi-
trators to carefully scrutinise the applicable civil law principles, so as to ensure that they
are capable of proper implementation and adaption to the specificities of construction
contracts and disputes. It remains for courts and arbitral tribunals to innovate and safeguard
the application of the pertinent legal principles under the governing law regime that may
not be ignored, overlooked or weighed under a totally alien legal system that may not be
relevant to the applicable laws.
Legal principles in the civil laws of the MENA region are capable of accommodating
the specificities and intricacies of the construction industry and catering for the disputes
arising thereunder, in due consideration of the fact that arbitration is the prominent dispute
resolution mechanism and the most favoured option for settlement of construction-related
disputes in the region. It has indeed been seen that the principles of good faith, implied
terms, abuse of right, estoppel, global claims, constructive acceleration, force majeure and
imprévision, delay damages and decennial liability are among the concepts that are regularly
invoked in arbitral proceedings, and so careful consideration as to their possible application
and scope is required.
For ease of reference, the summary table below captures the specific construction law
sections in Arab laws, as well as the pertinent arbitration legislation.
Egypt Libya Morocco Tunisia Oman Kuwait UAE

Civil Law
131/1948 1953 1913 1906 29/2013 67/1980 5/1985
(Code)
Construction 723–729 828–834
646–673 645–666 626–650 661–697 872–896
provisions 759–780 866–887
Arbitration
law/civil 27/1994 1953* 1974** 42/1993 47/1997 38/1980*** 11/1992****
procedures
Qatar Lebanon Algeria Jordan Syria Iraq Bahrain

Civil Law
22/2004 1932 58/1975 43/1976 84/1949 40/1951 19/2001
(Code)
Construction 624–628
682–715 549–570 780–804 612–633 864–890 584–620
provisions 657–689
Arbitration
law/civil 2/2017 90/1983***** 9/2008 31/2001 4/2008 83/1969 9/2015
procedures
*
Civil Procedures Law, Articles 739–777; ** Civil Procedures Law, Articles 306–327; ***Civil Procedures Law, Articles
173–188; ****Civil Procedures Law, Articles 203–218; *****Civil Procedures Law, Articles 762–821.
248
In specific reference to construction disputes, it is also clear that the International Chamber
of Commerce and the London Court of International Arbitration remain the leading arbi-
tral institutions that administer, inter alia, large-scale construction disputes and arbitrations in
the MENA region. Other notable regional arbitral institutions are the Bahrain Chamber for
Dispute Resolution, the Cairo Regional Centre for International Commercial Arbitration,
the Dubai International Arbitration Centre, the Abu Dhabi Commercial Conciliation and
Arbitration Center, and the up-and-coming newly established Casablanca International
Mediation and Arbitration Centre.
Finally, it is always preferable in the context of construction to adopt measures and
techniques for dispute avoidance. In this respect, it is advisable that the contracting parties
do the following:
• carefully select the best-fit contract with proper drafting;
• acknowledge the need for contractual balance;
• engage in proper and careful choice of law and forum;
• maintain a high-level team with sensible contract administration and implementation;
• maintain efficient policies for documentation, correspondences, records and claims;
• scrutinise legal and factual rights and follow procedures;
• evaluate and share risks;
• consider the proper utilisation of dispute avoidance and adjudication boards; and
• opt for amicable settlement options prior to proceeding with fully fledged arbitra-
tion proceedings.
249
Appendix 1
About the Authors
Mohamed S Abdel Wahab

Zulficar & Partners Law Firm
Mohamed S Abdel Wahab is a founding partner and head of international arbitration at
Zulficar & Partners Law Firm. He is professor and chair of private international law and
international arbitration at the Faculty of Law – Cairo University.
Prof. Dr. Mohamed S Abdel Wahab Vice is president of the ICC International Court
of Arbitration; court member of the LCIA; president of LCIA’s Arab Users’ Council; court
member of the CIMAC, vice president of the IBA Arbitration Committee; vice presi-
dent of the CIArb’s Egypt branch; chair of the CIArb’s Technology Committee; member
of the CIArb’s Practice and Standards Committee; member of the CRCICA Advisory
Committee; member of AAA-ICDR International Advisory Committee; member of the
SIAC African Users’ Council’s Committee; CEDR Accredited Mediator and Dispute
Resolution Consultant,World Bank. He served as arbitrator, presiding arbitrator and coun-
sel in more than 172 cases, including complex, high-value ad hoc arbitral and institutional
proceedings involving parties (including states and state-owned entities) from Africa, Asia,
Canada, Europe, the Middle East and the United States and administered under the auspices
of the AAA, BCDR-AAA, CRCICA, DIAC, DIFC-LCIA, ICC, ICSID, LCIA, LMAA,
SCC, SIAC, as well as ad hoc UNCITRAL proceedings. He is recognised as a world-leading
international arbitration practitioner and expert on Arab Laws, Islamic Shari’a, and online
dispute resolution. He has acted in proceedings governed by Bahraini, Egyptian, English,
French, Jordanian, Kuwaiti, Libyan, New York, Omani, Pakistani, Qatari, Saudi, Spanish,
Swiss, Syrian, Italian and United Arab Emirates laws, as well as the general principles of law.
Prof. Dr. Abdel Wahab features in Who’s Who Legal: Arbitration as a star arbitration prac-
titioner, the GAR Global Guide for Future Leaders in International Arbitration (2017) and the
GAR Guide on Thought Leaders in International Arbitration.
251
About the Authors
Ellis Baker
White & Case LLP
Ellis Baker is partner and head of White & Case’s global construction practice and a leading
authority on construction law.
Ellis undertakes project work for international clients in the negotiation, drafting and
tendering of contracts and also represents clients in contract administration and dispute
resolution. He acts as lead advocate in international arbitrations.
He has advised employers, contractors, lenders and consultants in over 30 countries
across five continents on projects involving power stations, oil and gas installations, metals
and mining, process plants, transport infrastructure and commercial developments.
An expert on international construction and engineering contracts, Ellis is lead author
of the principal text FIDIC Contracts: Law and Practice and has given conference papers and
seminars in many countries around the world.
Mark Beeley
Vinson & Elkins RLLP
Described by Chambers UK (2015) as ‘a very skilled individual who does a nice job of
exposing the argument’ and by Chambers UK (2014) as ‘highly knowledgeable’, Mark
is a partner in Vinson & Elkins’ international dispute resolution practice group based in
London and Dubai.
Mark’s practice is primarily focused on international dispute resolution (through arbi-
tration, litigation or ADR techniques). He acts as arbitrator, arbitration counsel and advo-
cate, with a particular focus on disputes arising from the energy sector, or involving the
Middle East, Africa or India. In the courts, Mark has acted as both solicitor and coun-
sel in proceedings before the English High Court and the Dubai International Financial
Centre Court.
He has acted as arbitration counsel and advocate under all the major arbitral rule sys-
tems (including ICSID, LCIA, ICC, UNCITRAL, DIAC, AAA, HKIAC and CIArb) and
in most common arbitral seats. His litigation practice includes arbitration-related applica-
tions (including challenges to awards) and also substantive commercial disputes. In addition,
he advises clients on the drafting and selection of dispute resolution, jurisdiction and forum
clauses, as well as nationality planning in connection with investments in foreign jurisdic-
tions. He also advises on bribery, corruption and international sanction violation issues,
particularly those connected with the UK.
Leith Ben Ammar

Quinn Emanuel Urquhart & Sullivan LLP
Leith Ben Ammar is an associate in Quinn Emanuel’s London office. His practice focuses
on complex, high-value international arbitration and commercial litigation. He has acted
for state entities, developers, contractors and multinational companies, primarily in the
construction, infrastructure and energy sectors.
Leith read law at SOAS, University of London, where he graduated top of his class in
contract law. He then completed the legal practice course (with distinction) at BPP Law
School in London.
252
About the Authors
Stavros Brekoulakis
Centre for Commercial Law Studies, Queen Mary University of London
Stavros Brekoulakis is a professor in international arbitration and commercial law at Queen
Mary University of London, as well as an attorney-at-law. His academic work includes
the leading monograph on Third Parties in International Commercial Arbitration (OUP 2010)
and numerous publications in leading law journals. He is the director of the Institute
for Regulation and Ethics at Queen Mary, and the co-chair of the ICCA-Queen Mary
Task Force on Third Party Funding and a member of the ICC Task Force on Emergency
Arbitrator Proceedings.
Mr Brekoulakis has been involved in international arbitration for more than 17 years as
counsel, arbitrator and expert. Having practised commercial law, arbitration and litigation
as an in-house counsel and private practitioner, he currently serves as arbitrator and expert.
He is regularly listed in Who’s Who Legal: Arbitration and was listed in Who’s Who Future
Leaders: Arbitration 2017 as one of the 10 most highly regarded future leaders, described as
‘very thorough and professional’ and ‘held in the highest regard’. He was nominated for
the ‘Best Prepared and Most Responsive Arbitrator’ GAR Award in 2016. Brekoulakis has
been appointed in more than 25 arbitrations, as chairman, sole arbitrator, co-arbitrator and
emergency arbitrator under the rules of the ICC, LCIA, SCC, CAS as well as in ad hoc arbi-
trations. His professional expertise focuses on arbitrations in the context of international
business and trade transactions, including construction projects, sales of goods, shareholders’
and distribution agreements, financial transactions as well as sports disputes.
James Bremen
James Bremen is chair of Quinn Emanuel’s construction and engineering practice and
has almost 20 years of experience in the world’s largest and most complex construction
projects and most difficult disputes. He has worked in over 25 countries on both project
documentation and claim resolution (including as counsel in some of the world’s largest
construction arbitrations) in the oil and gas, power and major infrastructure sectors. He is
considered one of the world’s leading lawyers in major project disputes in the emerging
markets, and has over a decade’s experience in representing the State of Qatar and the
Kingdom of Saudi Arabia on construction disputes.
David Brown
Clyde & Co
David Brown is a partner with Clyde & Co, based in Paris. He is both an English solicitor
and French avocat, and has more than 25 years of experience in construction dispute resolu-
tion across five continents. His experience in dispute resolution, which ranges from infra-
structure to hydro-electric and nuclear projects, includes international arbitration (particu-
larly ICC arbitrations), in which he acts as both counsel and arbitrator. He is also active in
dispute board proceedings and is on both the FIDIC President’s List of Approved Dispute
Adjudicators and its French List. David is a regular speaker at conferences on the resolution
of international construction disputes, and is listed in Who’s Who Legal as one of the lead-
ing construction lawyers in France as well as being recommended by European Legal Expert
253
About the Authors
for dispute resolution. He is a visiting lecturer for the Stuttgart University Masters course
in international construction law and practice as well as being a member of the advisory
board. David is a council member of the ICC Institute of World Business Law and a found-
ing member of the International Construction Law Association.
David Brynmor Thomas

39 Essex Chambers
David Brynmor Thomas practises as counsel in complex, high-value international com-
mercial litigation and arbitration. He has particular experience of energy, infrastructure,
joint-venture, post-M&A and shareholder disputes.
He has also been appointed as an arbitrator in institutional and ad hoc arbitrations, on
more than 50 occasions.
David is an honorary professor in the Centre for Commercial Law Studies, Queen
Mary University of London.
David presently serves as Chair of the Board of Trustees of the Chartered Institute of
Arbitrators, having represented the Chartered Institute at the United Nations Commission
on International Trade Law (UNCITRAL) Working Group on International Commercial
Arbitration for its work on amendments to the UNCITRAL Model Law and the
UNCITRAL Arbitration Rules. He is also a member of the International Chamber of
Commerce’s Commission on Arbitration.
Before being called to the Bar, David was a partner in the litigation and arbitration
practice at a City of London law firm, where he practised as a solicitor advocate.
David is recommended by The Legal 500 for international arbitration, both as arbitrator
and counsel; and by Chambers and Partners for international arbitration: arbitrators (Band 1).
Tim Chelmick
4 New Square
A barrister at 4 New Square in London, Tim Chelmick specialises in complex commercial
litigation and arbitration with a focus on international commercial disputes and construc-
tion disputes. He is now based in the UK, but lived and worked in Dubai for two years
and so many of his cases involve projects in the Middle East. He has been involved in
arbitrations conducted under a wide variety of rules including UNCITRAL, LCIA, DIAC,
ADCCAC and ICC.
Tim is recommended in the major UK legal directories. He has been described by cli-
ents in the directories as: ‘An incredibly commercial barrister, who is able to cut through all
extraneous information and drill down to the facts of the case’ who has ‘an uncanny ability
to adapt quickly to all kinds of instructions’; with ‘an extremely bright mind’, ‘excellent
advocacy skills’ and with ‘the potential to rise to the top of the profession’.
Tim is an editor of the seventh and eighth editions of Jackson & Powell on Professional
Liability, a leading practitioner text in the UK.
254
About the Authors
Adrian Cole
King & Spalding
Adrian Cole is a partner in King & Spalding’s international arbitration group and leads the
Middle East Dispute Resolution Practice. He is a construction law specialist advising on
disputes relating to energy and infrastructure development. Prior to becoming a lawyer,
Mr Cole qualified as an engineer/quantity surveyor and has first-hand experience of the
practical issues in the engineering and construction industries. Mr Cole has been listed by
Who’s Who Legal as one of the top 25 construction dispute resolution lawyers in the world.
He is an experienced arbitrator, adjudicator and mediator and is a Fellow of the Chartered
Institute of Arbitrators and a member of the Chartered Institute of Building.
Jane Davies Evans

3 Verulam Buildings
Jane Davies Evans specialises in international arbitration, focusing on disputes arising in
the energy, natural resources and infrastructure sectors. She is ranked as a leading junior for
energy disputes (The Legal 500), construction (Chambers & Partners) and Who’s Who Legal:
Construction, described by the The Legal 500 as ‘A superb lawyer and an excellent litigator’.
Jane has significant experience in the nuclear sector, having acted as counsel and advised
owners and Tier-1, Tier-2 and Tier-3 contractors in relation to nuclear projects in Finland,
Switzerland, China, Lithuania and the United Kingdom.
Jane has extensive international experience as counsel on international arbitrations aris-
ing on major projects in the Middle East, Africa, the Russian Federation and CIS, Latin
America, Europe and Asia Pacific. Jane also sits as a sole and co-arbitrator.
Prior to returning to the Bar in 2014, Jane spent many years working in the inter-
national arbitration practices of leading international law firms, including Shearman &
Sterling and Freshfields Bruckhaus Deringer. In addition, Jane is an experienced forensic
accountant and Fellow of the Institute of Chartered Accountants in England & Wales. Jane
worked for some years in the expert witness group at PricewaterhouseCoopers, and is par-
ticularly skilled in addressing complex issues of quantum.
James Doe
Herbert Smith Freehills LLP
James is a disputes specialist with over 15 years’ experience advising energy and infrastruc-
ture clients in the UK and internationally.
James is a member of the construction, engineering and infrastructure disputes group
and is based in London. James advises international oil companies, international contractors
and project sponsors on their most complex disputes involving major infrastructure, oil and
gas field development, drilling rigs, processing facilities and power stations.
As well as over 11 years’ experience working in the HSF London office, James has
considerable experience in the Middle East and Asia having headed up the firm’s disputes
practices in Qatar and in South Korea.
255
About the Authors
Philip Dunham
Dechert (Paris) LLP
Philip Dunham has concentrated his practice on international arbitration since 1992, hav-
ing worked in London and then Paris. His principal activity has been acting as counsel
in numerous international disputes, whether ad hoc (including under the UNCITRAL
Rules), or under the rules of the ICC, the LCIA, the SCC, or the ICSID. He has particular
experience advising on construction cases, as well as engineering, joint venture, oil and gas,
energy, and military procurement disputes in respect of which he has regularly acted for or
against state entities. He has also served as arbitrator in several significant arbitrations. Mr
Dunham is a regular speaker at various conferences and seminars on international arbitra-
tion in Europe, Asia and the United States. He has also published numerous articles on
international arbitration.
Ahmed El Far
Centre for Commercial Law Studies, Queen Mary University of London
Ahmed El Far is currently undertaking his PhD at the School of International Arbitration,
Queen Mary University of London. His proposed thesis pertains to ‘Abuse of Rights in
International Arbitration’, and aims to develop an innovative tool to address the growing
phenomenon of abuse in international arbitration.
Prior to starting his PhD, Mr El Far worked in the International Arbitration Group at
Zulficar & Partners Law Firm, in Cairo, Egypt. Mr El Far developed a broad expertise in
international commercial arbitration spanning the economic and business spectrums with
an emphasis on investment, energy, construction and sale of goods. He regularly advises
clients on diverse areas of law such as conflict of laws, international commercial and invest-
ment arbitration, international investment law and international commercial law. Mr El Far
obtained his LLM at New York University in 2012, where he specialised in international
commercial and investment arbitration, and private international law. He also obtained his
LLB with honours from Cairo University, Egypt.
José Manuel García Represa

Dechert (Paris) LLP
José Manuel García Represa is a specialist in international commercial and investment arbi-
tration, with a particular focus on cases involving Europe and Latin America. He has rep-
resented parties in disputes arising out of contracts and investments in the electricity sector
(generation and distribution), construction, oil and gas, mining, post-M&A purchase price
adjustments, joint ventures, telecommunications, insurance and risk coverage, sales and dis-
tribution contracts, and investment disputes. Mr García Represa also serves as arbitrator.
He has experience in cases involving multiple jurisdictions and procedural rules and has
appeared before ICC, ICSID and ad hoc UNCITRAL arbitral tribunals. He is also a regular
speaker at numerous conferences and seminars in Europe, the US and Latin America.
256
About the Authors
Mark Grasso
Mark Grasso is a specialist construction litigation and arbitration lawyer advising on dis-
putes arising out of large engineering and construction projects around the world. He has
acted for owners, employers, contractors, designers and insurers on a range of high-profile
projects, including rail, social infrastructure, oil and gas, petrochemicals and mining. He has
particular expertise in disputes involving construction projects in the Middle East.
Roger ter Haar QC

Crown Office Chambers
Roger ter Haar QC is an English QC who has practised as a barrister, adjudicator and
arbitrator for 40 years at what is now Crown Office Chambers, Temple, London. He has
a wide practice that is recognised by such directories as Chambers Directory, which list
him as a leading silk (i.e., Queen’s Counsel) for international arbitration, construction and
engineering, commercial dispute resolution, insurance, property damage, professional neg-
ligence, and energy and natural resources. He has been nominated as Silk of the Year for
construction in the United Kingdom twice and also for professional negligence. He was
selected as International Arbitration Silk of the Year in 2012.
His publications include Construction Insurance & UK Construction Contracts (co-editor),
Emden’s Construction Law (contributor) and Remedies in Construction Law (author). He is
editor-in-chief of the IBA’s publication Construction Law International.
He acts as counsel in arbitration and litigation (current cases include a US$750 mil-
lion construction dispute concerning an airport in the Middle East and a US$250 million
ICSID expropriation arbitration). He also acts as arbitrator and adjudicator, and sits as a
deputy high court judge in the Queen Bench Division, Technology and Construction
Court, and Administrative Court within the English High Court of Justice.
Christopher Harris
3 Verulam Buildings
Christopher Harris is one of the leading arbitration advocates at the English Bar, with his
services in demand from major international law firms and clients alike. He was named
International Arbitration Junior of the Year at the 2014 Chambers Bar Awards, is ranked
alone as a ‘Star Individual’ for arbitration by Chambers & Partners, and as the top junior barris-
ter by Who’s Who of Global Arbitration. Commonly retained as the lead advocate, Christopher
practises across a range of industry sectors including energy and natural resources, finance
and infrastructure projects. He is particularly sought after for his ‘razor-sharp mind and
great oral advocacy’ and his ‘highly effective’ cross-examinations, as well as being ‘extremely
good with clients’. In addition to his substantial international commercial arbitration prac-
tice, Christopher has to date conducted 14 investment arbitrations as counsel and is ranked
as a leading junior in public international law matters. He also has significant experience of
arbitration-related court applications including anti-suit injunctions, challenges to awards
and enforcement of awards. Christopher has been appointed as arbitrator (wing and chair)
in over 20 arbitrations, principally under ICC, LCIA or UNCITRAL Rules. Christopher
speaks French and German and studied French and Swiss law during his academic training.
257
About the Authors
Peter Hirst
Clyde & Co
Peter has arbitrated and litigated in more than 50 international jurisdictions, including the
Far East, Middle East, Central Asia, North Africa, US and South America, where he has
wide variety of experience in all arbitral institutions and areas of commercial law.
As well as being co-chair of the global arbitration group, Peter also leads the Clyde Latin
America team in London and is a registered foreign lawyer of the Brazilian Bar (OAB).
Peter sits as an arbitrator and mediator and as well as being an accredited CEDR media-
tor is a Fellow of the Chartered Institute of Arbitrators.
Peter is noted in Chambers as ‘proactive and streetwise’ and ‘an excellent negotiator, who
knows how the industry works’.
Clients say ‘It’s Peter’s vast know how and experience combined with his uncompli-
cated nature, which makes working with him a pleasure’.They add ‘he is not just a brilliant
lawyer but he also understands complex technical issues’ and ‘he has first-rate client skills
and is a very, very bright guy’ (Chambers).
Lindsay Hogan
Corrs Chambers Westgarth
Lindsay is a senior associate in the Melbourne office, specialising in construction disputes.
He has experience in litigation, including in the Federal Court of Australia and Supreme
Court of Victoria, and in both international and domestic arbitration. Recently he has
acted on two large-scale ($1 billion plus) arbitrations in the LNG and mining industries
(one a domestic arbitration and the other an international arbitration). Lindsay has also
acted for a range of key clients, including state and federal governments, listed and private
companies and foreign entities. He has completed a Masters of Construction Law at the
University of Melbourne.
Maurice Holmes
Maurice Holmes is an English barrister who practises at Crown Office Chambers, Temple,
London. The focus of his practice is commercial dispute resolution, particularly arising
within the context of insurance and reinsurance, financial services, civil fraud, professional
liability, and sport. He is instructed in both domestic and international arbitrations, and is
familiar with many of the varying institutional rules.
Maurice’s recent instructions in arbitral proceedings include a multi-million euro dis-
pute regarding alleged breaches of a sponsorship agreement; a claim engaging the protec-
tions of the TFEU that concerned the ‘sporting exception’ under EU law; and advising
as to the doctrine of proximate cause under English insurance law for the purposes of an
international arbitration in a foreign jurisdiction.
258
About the Authors
David Kiefer
King & Spalding
David Kiefer is a partner in King & Spalding’s International Arbitration Group in New York.
Mr Kiefer’s practice is focused on construction disputes, primarily arising from energy and
infrastructure projects. Mr Kiefer routinely counsels clients on avoiding disputes, resolving
claims and, when necessary, preparing for litigation or arbitration. In his nearly 20 years as
a litigator, Mr Kiefer has successfully prosecuted and defended large and complex claims
before federal and state courts, as well as domestic and international arbitration panels. He
has been named one of New York’s Best Lawyers in America for Commercial Litigation.
Mr Kiefer holds a JD from The George Washington University Law School.
Bartosz Krużewski
Clifford Chance
Bartosz Krużewski is a qualified Polish advocate. He is a partner, heading the Warsaw
litigation and dispute resolution department and co-heading the Clifford Chance Warsaw
restructuring and insolvency department. He has extensive experience covering commer-
cial litigation as well as local and international arbitration. He is also a member of the
international commercial arbitration practice, and is chairman of the arbitration committee
at ICC Poland.
In the 2017 ranking by Rzeczpospolita (one of the most influential Polish dailies), Bartosz
was named Top Litigator (for the sixth year in a row) and his team was ranked as having the
leading litigation, dispute resolution and arbitration practices in Poland.
Anthony Lavers
White & Case LLP
Anthony Lavers is counsel in the construction and engineering practice group of White
& Case’s London office. He provides research and advice on construction and engineering
projects and disputes and has worked on matters in over 20 countries worldwide. Anthony
is visiting professor of law in the Centre of Construction Law at King’s College, London
and is co-author of FIDIC Contracts: Law and Practice and joint editor of Studies in European
Construction Law.
Michael Mendelblat
Michael is a professional support lawyer for the construction, engineering and infrastruc-
ture group at Herbert Smith Freehills. He has over 15 years’ experience in this role pre-
ceded by over 20 years in practice in this field. While in practice he advised clients on all
sides of the industry both in private practice and as an in-house lawyer. In particular, he
acted in complex disputes concerning projects in the energy, regeneration and develop-
ment fields. He is the author of many articles on construction law and has lectured widely
on the topic. He has contributed to a number of publications, most recently Kendall on
Expert Determination, Fifth Edition.
259
About the Authors
Erin Miller Rankin

Freshfields Bruckhaus Deringer LLP
Erin Miller Rankin is a partner and head of construction for the Middle East and Asia. Erin
advises owners, developers, general contractors, engineering firms and various sub-trades
on all aspects of their projects including tendering, procurement strategies and contract
documentation for major infrastructure and construction projects. Erin also regularly
advises on resolving real estate, engineering and construction-related disputes including the
representation of clients in ad hoc ICC, ADCCAC, LCIA, SIAC, KLRCA and DIAC arbi-
tration proceedings. Erin is admitted as an associate of the Chartered Institute of Arbitrators
and sits as an arbitrator on projects-related disputes.
Robert Moj
Clifford Chance
Robert Moj is a qualified Polish legal adviser. Robert specialises in the resolution of complex
construction and engineering disputes, especially in the infrastructure and energy sectors.
Robert has represented clients in numerous arbitration and litigation proceedings that
concerned, in particular, claims for extensions of time and additional cost, alleged defects as
well as terminations of the contracts. Robert also advises on the management of claims, in
particular arising out of EPC and turnkey contracts.
Robert’s areas of expertise also include corporate and bankruptcy law.
Aisha Nadar
Advokatfirman Runeland AB
Aisha Nadar is a senior consultant specialised in infrastructure procurement and dispute
management at Advokatfirman Runeland AB, Stockholm, Sweden.
For over 30 years, Aisha has been actively involved in all phases of the negotiation and
implementation of large-scale cross-border infrastructure and defence programmes. Her
procurement and international contract management experience includes holding senior
level positions in the US, the Middle East and Europe.
Aisha joined Advokatfirman Runeland as a contract and dispute resolution consultant
in September 2012, where she regularly advises clients on strategic procurement plan-
ning, contract drafting, contract management and dispute resolution. She acts as arbitrator,
mediator and adjudicator and is retained regularly by parties, party counsel and arbitral
tribunals in matters involving international arbitration, mediation and dispute boards. She
has experience of ICC, LCIA, SCC, DIAC, AAA and UNCITRAL rules. Aisha has car-
ried out assignments related to dispute resolution for organisations such as the World Bank,
USAID and the US DOD, and is a regularly invited speaker at universities and specialised
conferences on construction contracts and dispute resolution.
Aisha is a member of FIDIC’s executive committee, the chair of FIDIC’s procurement
policy sub-committee and is listed on FIDIC President’s List of Accredited Adjudicators.
She is an officer of the international construction projects committee of the International
Bar Association, and has previously served as a member of the standing committee of the
ICC International Centre for ADR.
260
About the Authors
Aisha holds a BS in electrical engineering from University of Nebraska, an MBA from

University of Texas-Austin and an LLM in international commercial dispute resolution
from Queen Mary, University of London.
David Nitek
David specialises in the resolution of complex construction and engineering disputes, in
particular in the infrastructure and energy sectors. He has in-depth experience of major
standard form construction contracts, including the FIDIC suite, and the key forms of
dispute resolution in the construction sector, including adjudication, dispute boards, arbi-
tration and litigation.
David has represented clients in numerous arbitration proceedings arising out of EPC
and turnkey contracts, including claims for extensions of time and additional cost, and
claims arising from alleged defective plant performance and contested terminations. He
also advises on the management of claims, in particular the establishment of robust pro-
cesses for processing and resolving claims without the need for formal dispute resolution
proceedings. David has performed this role on a number of substantial projects, often in
conjunction with the client’s consultants and advisers.
Serdar Paksoy
Paksoy
Serdar Paksoy is the senior partner of Paksoy and the co-head of the firm’s litigation and
dispute resolution practice. For over 30 years, he has been actively advising foreign investors
and assisting them in their transactions and disputes work in Turkey and abroad. Mr Paksoy’s
practice focuses on corporate governance, mergers and acquisitions, white-collar crimes,
investigations and dispute resolution. He extensively advises clients on matters involv-
ing cross-border acquisitions, joint ventures, private equity investments, strategic invest-
ments, investigations and litigation across a wide range of sectors from financial services,
banking, retail, transportation, logistics and manufacturing to energy, insurance, healthcare
and pharmaceuticals.
Mr Paksoy has extensive experience in acting for many clients as an advocate in court
actions including commercial litigation, administrative lawsuits, corporate governance,
insolvency, investigations, white-collar crimes and crisis advice. He has represented inves-
tors and sovereigns in international arbitrations before various arbitral institutions, includ-
ing under the Istanbul Chamber of Commerce, The Union of Chambers and Commodity
Exchanges of Turkey, ICC, LCIA and ICSID rules. Mr Paksoy has acted for parties in
Turkish court actions relating to enforcement actions, shareholder conflicts, construction
law, investigations, internal controls, securities disputes, company law, contractual conflicts,
product liability, concessionary disputes, tax litigation and administrative law proceedings.
261
About the Authors
Matei Purice
Matei Purice is a senior associate in Freshfields’ international arbitration practice based in
Dubai. After joining the firm in 2008 as an intern in our Paris office, Matei worked as an
associate in the arbitration practice group of a leading Romanian law firm and qualified
as advocate with the Bucharest Bar in 2009. During that time, Matei was also an external
assistant lecturer in public international law at the Faculty of Law of the University of
Bucharest. Matei focuses his practice on investment treaty arbitrations as well as real estate,
engineering, construction and other major commercial disputes. He has acted as counsel in
matters before ICSID, ICC, DIAC and the Court of International Commercial Arbitration
of Bucharest. Matei also acts as arbitrator or as administrative secretary to arbitral tribu-
nals in ICC and DIAC arbitration proceedings. Matei is a regular external lecturer at the
International Arbitration LLM at the Bucharest University.
Luke Robottom
White & Case LLP
Luke Robottom is a partner in White & Case’s Abu Dhabi office and a specialist in the
development and financing of international construction projects.
He has experience of all the main types of procurement model, including EPC, EPCM,
DBOM, convertible LSTK, design/build and employer design and of PPP and PFI arrange-
ments including BOO, BOOT and O&M agreements. Luke has drafted and advised upon
contract documentation of all kinds, from purely bespoke to agreements based on FIDIC
and other standard forms. He has experience in Europe and the Middle East in the pet-
rochemical, oil and gas (offshore and onshore), power (including nuclear and renewables),
water, rail, road and shipbuilding sectors.
Simel Sarıalioğlu
Paksoy
Simel Sarıalioğlu specialises in commercial litigation, international arbitration and dispute
resolution and arbitration-related court proceedings. Prior to joining Paksoy, she practised
at an international law firm in Istanbul and did an internship in London at another interna-
tional law firm. She has experience in conducting institutional and ad hoc arbitrations under
a variety of different rules and acting for clients in complex, high-value disputes, with a
cross-border element. Ms Sarialioğlu’s clients have included government entities, major
Turkish telecom operators and multinationals from a number of sectors such as construc-
tion, telecommunication, insurance, customs, pharmaceuticals, manufacturing and retail.
Ms Sarıalioğlu is a Fellow of the Chartered Institute of Arbitrators, London (FCIArb)
(2010) and one of the ICC YAF Middle East and Africa Regional Representatives for the
2017–2019 mandate.
262
About the Authors
George Spalton
4 New Square
George Spalton is a barrister at 4 New Square in London. He specialises in international
commercial arbitration and commercial litigation. He has appeared in a number of signifi-
cant construction disputes in recent years, whether arbitrations in Dubai, PFI adjudications
or trials in the TCC (including Harlequin SVG v.WK). He was called to the Bar in England
in 2004 and the BVI in 2015. He also accepts appointments as arbitrator and in 2016 was
nominated as Chambers & Partners’ international arbitration junior of the year.
Andrew Stephenson
Corrs Chambers Westgarth
Andrew Stephenson is a partner in the projects and arbitration group of Corrs Chambers
Westgarth Melbourne. Andrew has over 30 years’ experience in contentious and
non-contentious matters relating to all types of major projects. Andrew’s practice relates
to both national and international projects. He has given advice or otherwise acted in
respect of projects situated in all Australian states and territories, New Zealand, Papua New
Guinea, United Kingdom, Iran, Kuwait, Singapore, Thailand, Peoples Republic of China,
Malaysia, India, Bangladesh, Central African Republic, Ireland and Dubai. He is a senior
fellow of Melbourne University Law School lecturing in project risk and dispute resolu-
tion. He has also lectured at Monash University, Queensland University of Technology and
Queensland University and regularly presents at industry conferences. He is a past co-chair
of the Project Execution Sub-committee of the International Construction Projects
Committee of the International Bar Association. He is also the Australian correspondent
for the International Construction Law Review, published in London and a board member
of the Australian Centre of International Commercial Arbitration and the International
Academy of Construction Lawyers.
Scott Stiegler
Scott Stiegler’s principal area of practice is major construction and infrastructure and has a
wide range of experience, focusing on international arbitration and dispute resolution in
construction and engineering disputes. The disputes Scott has been involved in have taken
him all over the world and are what can only be described as leading and truly international
construction and engineering disputes.To compliment his practice, Scott also provides stra-
tegic and commercially focused advice on the drafting and negotiation of various standard
form and bespoke contracts and was also recognised in The Legal 500 UK as a ‘rising star’.
Scott has practised across a range of disciplines, including mining, oil and gas, energy
and power, environment, building engineering, major infrastructure, water and transporta-
tion. In recent years, Scott has increasingly advised clients on major projects, particularly
large infrastructure and energy from waste plants.
Scott is dual-qualified in England and Wales and in Queensland, Australia and in addi-
tion to arbitration forums, has represented clients in various courts in Australia and in
263
About the Authors
England. He has also spent a number of years in-house working for an international con-
sulting engineering firm where he oversaw all legal matters within his jurisdiction.
Sami Tannous
Sami Tannous is a partner based in Freshfields’ Dubai office. He is an international arbitra-
tion specialist focusing on international commercial arbitration and investor-state arbitra-
tion. Sami has represented clients in international arbitrations under all major arbitration
rules including the ICC, LCIA, ICSID, DIAC, SCC and UNCITRAL rules, with seats in
London, Paris, Dubai, DIFC, Geneva,The Hague and Washington, and also sits as arbitrator.
His practice has a particular focus on matters arising in the oil and gas industry, although
he has also advised clients on disputes in the banking, real estate, defence, travel, media,
and construction sectors. In addition, Sami is a member of Freshfields’ global investigations
group and advises clients on internal corporate and regulatory investigations.
Crispin Winser
Crispin Winser is an English barrister practising from Crown Office Chambers, Temple,
London. He specialises in construction, engineering, energy, insurance, professional indem-
nity and general commercial litigation, arbitration and dispute resolution both in the
UK and internationally. He is recommended as a leading practitioner by The Legal 500,
Chambers UK and Chambers Global.
His publications include Emden’s Construction Law (contributor).
He is a fellow of the Chartered Institute of Arbitrators. He acts as counsel in domestic
and international arbitrations, particularly in connection with construction, engineering,
infrastructure and energy projects and related insurance disputes. Current cases include a
multi-billion dollar LCIA arbitration arising from an oil and gas project and a US$1 billion
ICC arbitration relating to an international airport.
264
Appendix 2
Contact Details
4 New Square Advokatfirman Runeland AB

4 New Square Sturegatan 12
Lincoln’s Inn 114 36 Stockholm
London WC2A 3RJ Sweden
United Kingdom Tel: +46 725 765 510
Tel: +44 207 822 2000 aisha.nadar@runelandlaw.se
t.chelmick@4newsquare.com
g.spalton@4newsquare.com
Centre for Commercial Law Studies
www.4newsquare.com
Queen Mary University of London
67-69 Lincoln’s Inn Fields
39 Essex Chambers London WC2A 3JB
81 Chancery Lane Tel: +44 207 882 8215 / +44 792 108 3248
London,WC2A 1DD Fax: +44 207 882 8101
United Kingdom s.brekoulakis@qmul.ac.uk
Tel: +44 207 832 1111 ahmedmelfar@gmail.com
david.brynmor.thomas@39essex.com www.law.qmul.ac.uk/staff/brekoulakis.html
www.39essex.com www.law.qmul.ac.uk/research/students
3 Verulam Buildings Clifford Chance

Gray’s Inn 19 Lwowska Street
London WC1R 5NT 00-660 Warsaw
United Kingdom Poland
Tel: +44 20 7831 8441 Tel: +48 22 627 1177
Fax: +44 20 7831 8479 Fax: +48 22 627 1466
charris@3vb.com bartosz.kruzewski@cliffordchance.com
jde@3vb.com robert.moj@cliffordchance.com
www.3vb.com www.cliffordchance.com
265
Contact Details
Clyde & Co Dechert (Paris) LLP

134 Boulevard Haussmann 32 rue de Monceau
75008 Paris 75008 Paris
France France
Tel: +33 1 44 43 88 88 Tel: +33 1 57 57 80 80
Fax: +33 1 44 43 88 77 Fax: +33 1 57 57 80 81
david.brown@clydeco.com philip.dunham@dechert.com
jose-manuel.garciarepresa@dechert.com
The St Botolph Building www.dechert.com
138 Houndsditch
London EC3A 7AR
United Kingdom
20th Floor, Al Fattan Currency House
Tel: +44 20 7876 4425
Tower 2
Fax: +44 20 7876 5111
DIFC, PO Box 506 569
peter.hirst@clydeco.com
Dubai
United Arab Emirates
www.clydeco.com
Tel: +971 4509 9100
Fax: +971 4509 9111
Corrs Chambers Westgarth erin.millerrankin@freshfields.com
Level 25 sami.tannous@freshfields.com
567 Collins Street matei.purice@freshfields.com
Melbourne VIC 3000 www.freshfields.com
Australia
Tel: +61 3 9672 3000
Fax: +61 3 9672 3010
Exchange House
andrew.stephenson@corrs.com.au
Primrose Street
lindsay.hogan@corrs.com.au
London EC2A 2EG
www.corrs.com.au
United Kingdom
Tel: +44 207 374 8000
Crown Office Chambers Fax: +44 207 7374 0888
2 Crown Office Row james.doe@hsf.com
Temple david.nitek@hsf.com
London EC4Y 7HJ michael.mendelblat@hsf.com
United Kingdom www.herbertsmithfreehills.com
Tel: +44 207 797 8100
Fax: +44 207 797 8101
terhaar@crownofficechambers.com
winser@crownofficechambers.com
mholmes@crownofficechambers.com
www.crownofficechambers.com
266
Contact Details
King & Spalding White & Case LLP

1185 Avenue of the Americas 5 Old Broad Street
New York London EC2N 1DW
NY 10036 United Kingdom
United States Tel: +44 20 7532 1000
Tel: +1 212 556 2100 Fax: +44 20 7532 1001
Fax: +1 212 556 2222 ebaker@whitecase.com
acole@kslaw.com alavers@whitecase.com
dkiefer@kslaw.com
www.kslaw.com 16th Floor, Al Sila Tower, Abu Dhabi
Global Market Square
Paksoy
PO Box # 128616, Abu Dhabi
Orjin Maslak
United Arab Emirates
Eski Büyükdere Caddesi
Tel: +971 2 611 3400
No. 27 K11 Maslak 34485
Fax: +971 2 611 3499
Istanbul
lrobottom@whitecase.com
Turkey
Tel: +90 212 366 47 00
www.whitecase.com
Fax: +90 212 290 2355
spaksoy@paksoy.av.tr
ssarialioglu@paksoy.av.tr Zulficar & Partners Law Firm
www.paksoy.av.tr Nile City Building
South Tower, Eighth Floor
2005A Corniche El Nil Street
Quinn Emanuel Urquhart &
Ramlet Beaulac
Sullivan LLP
Cairo
90 High Holborn
Egypt
London WC1V 6LJ
Tel: +20 24612 161/2/3/4
United Kingdom
msw@zulficarpartners.com
Tel: +44 20 7653 2000
www.zulficarpartners.com
Fax: +44 20 7653 2100
jamesbremen@quinnemanuel.com
leithbenammar@quinnemanuel.com
markgrasso@quinnemanuel.com
www.quinnemanuel.com

20 Fenchurch St, 24th Floor
London
EC3M 3BY
Tel: +44 20 7065 6000
Fax: +44 20 7065 6001
mbeeley@velaw.com
sstiegler@velaw.com
www.velaw.com
267
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Strategic Research Sponsor of the
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ISBN 978-1-912377-00-8

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Part I: International Construction Contracts

2 Parties to a Construction Contract�������������������������������������������������������������� 18

3 Bonds and Guarantees�������������������������������������������������������������������������������� 27

4 Introduction to the FIDIC Suite of Contracts��������������������������������������������� 38

5 Allocation of Risk in Construction Contracts��������������������������������������������� 51

6 Contractors’ Claims, Remedies and Reliefs������������������������������������������������� 63

7 Employers’ Claims and Remedies��������������������������������������������������������������� 72

Part II: International Arbitration for Construction Disputes

9 Subcontracts and Multiparty Arbitration in Construction Disputes�������������� 87

10 Interim Relief, including Emergency Arbitration, in Construction

11 Organisation of the Proceedings in Construction Arbitrations: General

12 Documents in Construction Disputes��������������������������������������������������������118

Part III: Select Topics on Construction Arbitration

15 Construction Arbitrations in the Nuclear Sector����������������������������������������161

16 Construction Disputes in the Energy Sector����������������������������������������������173

17 Construction Arbitration and Concession Contracts����������������������������������182

18 Construction Arbitration and Turnkey Projects������������������������������������������194

Part IV: Regional Construction Arbitration

21 The Nuts and Bolts of Construction Arbitration in the MENA: Principles

Stavros Brekoulakis and David Brynmor Thomas1

The construction industry is a major contributor to economic growth worldwide. In

employers,5 statutory prohibition of the pay-when-paid and pay-if-paid provisions6 and, of

5 For example, in France, Law No. 75-1334 of 31 December 1975 on Subcontracting.

An introduction through history

1 Aisha Nadar is a senior consultant at Advokatfirman Runeland AB.

The international construction contract

These characteristics result in construction projects being particularly sensitive to an

Project delivery methods and types of construction contract

Fixed-price or lump sum contracts

Standard form contract

26 J. Sweet, ‘Standard construction contracts: academic orphan’, 31 Construction Law 38 (2011).

Essential elements of the construction contract

1 Scott Stiegler is a senior associate at Vinson & Elkins RLLP.

Construction contract arrangements

Standard building contracts

Design and build contracts

With these advantages, there are also a number of potential disadvantages:

• While the transfer of risk may be appropriate in particular circumstances, contractors

Project management contracts

Build, own, operate, transfer

Parties to a construction contract

professional construction or development organisation. Indeed, in some circumstances the

The engineer or employer’s representative

Specialist professionals, including architects, quantity surveyors, project

Other possible interested parties, including funders and insurers

Christopher Harris and Jane Davies Evans1

Autonomous obligations – on-demand bonds and guarantees

8 See ‘Procuring the security’, infra.

Accessory obligations – conditional guarantees

14 Ibid, Paragraphs 40 and 41.

Procuring the security

Forms of security required on international construction projects

Tender security or bid bonds

Advance payment guarantees or bonds

Parent company guarantees

Retention bonds and guarantees

Claims under the construction contract relating to the security

Ellis Baker and Anthony Lavers1

2 Parties to a Construction Contract�� 18

3 Bonds and Guarantees�� 27

4 Introduction to the FIDIC Suite of Contracts�� 38

5 Allocation of Risk in Construction Contracts�� 51

6 Contractors’ Claims, Remedies and Reliefs�� 63

7 Employers’ Claims and Remedies�� 72

9 Subcontracts and Multiparty Arbitration in Construction Disputes�� 87

12 Documents in Construction Disputes��118

15 Construction Arbitrations in the Nuclear Sector��161

16 Construction Disputes in the Energy Sector��173

17 Construction Arbitration and Concession Contracts��182

18 Construction Arbitration and Turnkey Projects��194