Applicability of the Red Book Clause in Legal Systems - Essay Example

Analysis of the Applicability of the FIDIC Red Book Clause 20 in the International, English and Emirati Legal Systems Table of Content Introduction...........................................................................................3 FIDIC Red Book and the 28-Day Rule.................................................3 Circumstances Under which FIDIC Rules can be disregarded.............5 A Recognition By Employer ….............................................................6 B Difficulty in Exercising Rights...........................................................6 C Unconscionability...............................................................................6 Elements of English Law that overrule the FIDIC Rules.......................7 Elements of UAE Civil Code that overrule FIDIC Rules.......................9 1. Conducting Business in Bad Faith..............................................9 2. Abusive and Oppressive Exercise of Contract............................9 3. Unjust Enrichment......................................................................10 Conclusion ….........................................................................................10 Bibliography............................................................................................11 Introduction The 1999 FIDIC Red Book provided that a contract who fails to give notice of claims within 21 days forfeit his rights to those claims at hand. This paper undertakes a thorough evaluation of the concept from a legal perspective. In doing this, the following objectives will be addressed: 1. The legal worth of the 1999 FIDIC Red Book. 2. Circumstances under which the FIDIC rules will be disregarded. 3. Elements of English Law and Common Law that contravenes the FIDIC rule on forfeiting claims. 4. Elements of UAE Civil Code that are similar to the pointers in English Law raised in (3) above FIDIC Red Book and the 28-Day Rule Construction contracts are legally binding agreements between the Employer (sponsor owner of the project) and the Contractor1. As such, the contract sets the parameters for the activities that would go on between the Employer and Contractor. It controls the relationship between the two parties as the project is being discharged. It also includes details of operations like payments and specific works to be done in the contract. Due to the fact that the construction contract comes with numerous elements which define the contractors tender, employers letter of acceptance, contract agreement, contract conditions and technical details2, it is prone to numerous issues that can affect its interpretation. This include misunderstanding, conflict and other disputes. In order to minimize these problems, FIDIC has a set of standardised rules and regulations that control the operation of construction contracts. The 1999 FIDIC Red Book sets out provisions for continuity of projects, encouragement of of constructive relationships and provisions for dealing with uncertainties3. Clause 20.1 provides an important guideline on how claims can be made and it regulates the relationship between Employers and Contractors on making claims for further payments and time extensions amongst other things4. Clause 20.1 states that: “If the Contractor considers himself to be entitled to any extension of the Time for completion and/or any additional payment, under any Clause of these conditions or otherwise in connection with the contract, the Contractor shall give notice to the Engineer describing the event or circumstances giving rise to the claim. The notice shall be given as son as practicable, and not later than 28 days after the Contractor becomes aware or should, after the contractor becomes aware, or should have become aware of the events or circumstances” This clause attempts to create a timeframe within which Contractors must report issues relating to time constraints need for further payments and other issues. This is necessary because there is the need for some kind of order to ensure that Employers and Contractors needs are respected and there is no indefinite right for Contractors to come back with their demands and requests for time extensions and further payments. The FIDIC Rules form a kind of broad framework within which most international construction contracts are formed. And since it is a simplified set of terms, it becomes an integral part of the conditions on which contracts are formed. This means that the Employer and Contractor automatically agree to work within these laws when the construction contract is created in the FIDIC framework. Thus, when disputes arise, the FIDIC rules are invoked to describe and analyse the circumstances in order to adjudicate the matter. The Clause 20.1 continues to state that: “If the Contractor fails to give information of a claim within such period of 28 days, the Time for completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim...” This implies that a Contractor will automatically forfeit his rights to time extensions and further payment if he fails to open up a case with the Employer within the stipulated period of 28 days. Being a fundamental clause of qualifying construction contracts, the rule is applicable by default. Thus, going by the strict Common Law principle of caveat emptor, the Employer can repudiate requests for time extensions that are not brought about within the 28-day timeframe. Circumstances Under which FIDIC Rules can be disregarded In practice, Clause 20.1 has been used to reject claims by various Employers5. This is because it becomes a valid term of a contract once the parties agree to incorporate the construction contract under the FIDIC rules. However, in practice, there are several amendments that can be made when claims are made outside the time limits set in the Clause. In other words, there are circumstances whereby this term could be sidelined in order to promote fairness. And although the employer can reject claims that are made later than 28 days after the contractor became aware or should have become aware of the circumstances in question, some relevant events can render them to be void and allow the Contractor to make claims successfully. Professor Rubino-Sammartano describes a number of pointers that puts a contract in this state: A Recognition By Employer In a situation where the Employer recognises that the Contractor had a right to make a valid claim renders it impossible for the Employer to use the Clause as a sword to press for repudiation. In other words, where the Employer acknowledges that the Contractor has a genuine right, then any attempt to demand revocation becomes invalid. B Difficulty in Exercising Rights In a case where it is excessively difficult for the Employer to exercise his right to repudiate the claim, then the rule may be disregarded. This is because in such cases, it might be clear that although there was a delay, there is a genuine reason to grant the Contractor his request. C Unconscionability In a situation where one party has drafted a standard contract which includes oppressive clauses or other apparently malicious conditions, then the Clause 20.1 cannot be used as a defence. This is because it might be clear and apparent that the party that drafted such an onerous contract had an intention to treat the other party in an inappropriate manner. In such a situation, the Clause would not be invoked successfully. These three situations renders it possible for the Clause 20.1 of the FIDIC Red Book of 1999 to be disregarded. Although it might appear differently in different jurisdictions around the world, they form the basis for a reason to disregard the Clause and use a different approach to interpret the situation at hand. Elements of English Law that overrule the FIDIC Rules The English legal system and other Common Law jurisdictions around the world treat construction contracts like all other contracts. As such, the invocation of the FIDIC Red Book Clause 20.1 to repudiate claims for time extension is limited by the elements of the legal system. Knutson identifies that there are three main elements of the English legal system that tends to keep the FIDIC Red Book Clause 20.1 requirements from standing alone as an absolute legal instrument that cannot be challenged6. First of all, Knutson declares that the Clause 20.1 cannot make any party of a construction contract immune to being rescinded. In other words, the fact that a contract is formed under the FIDIC rules does not mean that it cannot be rescinded if there is a good reason for that. Secondly, no clause can be used to limit any other right of a Contractor. This therefore means that the Contractor can always bring up a case if it is compelling enough and request for justice and fairness in court. This shows that the FIDIC Clause 20 is again not absolute and has its legal limits in English Law. Finally, in a situation where the Contractor can prove that the Employer and/or his Engineers is at fault will make it impossible for them to use Clause 20 as a defence. In De Zotell V Mutual Life Insurance Co7 it was held that “no one can obtain an advantage by his own wrong”. This therefore means that no Employer can create a limiting situation that would affect the Contractor negatively and expect to use that as a premise to invoke Clause 20.1 in order to deny further extensions for times and extra payments. This brings to mind the equitable maxims that “he who comes to equity must come with clean hands” and “equity must be used as a sword rather than a shield”. This implies that for an Employer to successfully use the Clause 20 to repudiate a claim for extension and further payments, the Employer needs to have discharged all his obligations or every requirement that can be reasonably expected of him. Hence, if there is any negative act that was undertaken by the Employer which contributed to the delay on the part of the Contractor, then the Clause cannot be invoked successfully to deny claims. In English Law, the Clause 20.1 is seen as a mere condition precedent and not an absolute legal tool for defence8. This means that the claimant which in this case is a contractor can always argue against it if there is a good case. In Peak Construction Ltd V McKunnay Foundations Ltd9, it was established that no exclusion clauses can be used to reject claims if they are unreasonable. As such, it can be concluded that in English Law, the Employer can only repudiate the claims for extension that falls outside the time frame if and only if it is justified. Additionally, statutes in Common Law jurisdictions make it difficult for the FIDIC Red Book Clause 20.1 to be used. Statutes like the Unfair Contract Terms Act (1977) and the Sale of Goods Act (1979) and its Service counterpart, Sale of Service Act (1982) provide various opportunities through which Contractors can argue against the Clause 20.1 if its invocation will be unfair to the Contractor and give the Employee extreme advantage in the construction contract. Elements of UAE Civil Code that overrule FIDIC Rules The legal system of the United Arab Emirates is steeped in Sharia Law which provides a framework for Civil and Criminal procedures. Most business transactions fall under the Civil Code which is known as the Civil Transaction Law Number 5 of 1985. These laws are meant to regulate the conducts of businesses operating in any of the Emirates. In relation to the conduct of business and the operation of the construction industry, the FIDIC Rules application might be restricted on the basis of certain Articles of the Civil Code. In this vein, it can be said that an Employer or his Engineers use of Clause 20.1 to disqualify claims for time extensions and further payments can be nullified on several grounds. The three main grounds that are found to be relevant are: 1. Conducting Business in Bad Faith: Article 246 of the Civil Code of the UAE stipulates that no party in a contract should act in bad faith. The definition of bad faith is quite broad but it comes with several indications which include the use of deception and unfairly harsh methods and systems to conduct business. This is in sync with the Knutsons description of the limitations of the use of Clause 20.1 in English Law which also seem to have a vision of preventing people from entering contracts in bad faith. As such, any attempt by an Employer to formulate a contract that makes it difficult for Contractors to make claims or the abuse of the strict terms of the Clause 20.1 can be considered to be something done in bad faith. This will enable the aggrieved party (who in this case is the Contractor) to make claims for redress. 2. Abusive and Oppressive Exercise of Contract: Article 106 makes it clear that neither party of a contract must exercise his rights in an abusive or oppressive way. This legal code argues for proportionality and in a situation where a party is not satisfied with the transaction and deems it to be oppressive, he has the right to go to court and demand for time extension and relevant payments under this Article. This is similar to the Unfair Contract Terms Act (1977) and the Sale of Goods and Services Acts (1979 & 1982) 3. Unjust Enrichment: Articles 318 – 319 of the Emirati Civil Code state that it is unlawful for a person to acquire wealth in an unjust manner. In a court case, if a Contractor can prove that the claims rejection under the FIDIC Clause 20.1 is so trivial and has led to the Employer or Engineer making unjust wealth, he can get the repudiation overturned. This is because abusive use of procedural technicality can be seen as a means to unjust enrichment. Conclusion Clause 20.1 of the FIDIC Red Book 1999 provides an important framework for the determination of the timeframe for Contractors to file requests for time extensions. If they fail to do so within the stipulated time of 28 days of identifying the need for extension, the Employers can repudiate the claim for the extension. However, the FIDIC rules can be disregarded if the Employer recognizes the right of the Contractor to an extension, there is difficulties in exercising the rights and where there is evidence of mischief or malice by a party in the contract. In English Law though, the Clause forms part of a term of a contract and can be disregarded if the rights of the Contractor is put in jeopardy by the strict interpretation of the Clause. In the UAE, elements of the Civil Code like conducting business in bad faith, abusive and oppressive exercise of the contract and unjust enrichment on the part of the Employer or his representatives can be cited to initiate a redress in court. Bibliography Academic Sources AMM Wood. Civil Engineering in Context (Thomas Telford, London, 2004) BW Totterdill, FIDIC Users Guide: A Practical Guide to the 1999 Red Book (2Edn Thomas Telford, London 2007). R Knutson, FIDIC: An Analysis of International Construction Contracts (3rd Edn Kluwer Law International, London 2005) Journals A Tweddle, “FIDICs Clause 20: A Common Law View” Construction Law International Vol 1 No. 2 June 2006. Jan-Bertram Hillig, Dauda Dan-Asabe, Sohrab Donyavi, Onur Dursun and Abdul Thampuratty. “FIDICs Red Book 1999 Edition: A Study Review” Management, Procurement and Law 163 Institution of Civil Engineering. 2007 M Rubino-Sammartano, “FIDICs Clause 20.1 – A Civil Law View” Construction Law International Vol 4 No 1, March 2009. Cases De Zotell V Mutual Life Insurance Co 60 SD 532 245 No 58, 59. Peak Construction Ltd V McKunnay Foundations Ltd (1970) BLR 111 Statutes Sale of Goods Act (1979) and Sale of Services Act (1982) Unfair Contract Terms Act 1977 Civil Transaction Law No 5 of the United Arab Emirates 1985 Read More