systech solicitors legal update 1st edition april 2016 · 2017-05-10 · 2 introduction welcome to...

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SYSTECH SOLICITORS

LEGAL UPDATE 1st EditionApril 2016


INTRODUCTION

Welcome to the Systech Solicitors Legal Update

We are delighted to welcome you to the first edition of our Legal Update which provides informative comment on recent legal issues and cases from around the world.

The Update has been prepared by Solicitors, Trainee Solicitors and Paralegals from across our regions of operation with a focus on the practical issues for contracting organisations.

Systech International has been established for 25 years and in this time we have become a leading provider of consultancy services to contractors in the construction, engineering, infrastructure and energy sectors, supporting the delivery of projects on time and to budget.

Our integrated approach allows us to offer high quality multi-disciplinary services, including legal, from a single business under a single point of responsibility; our solicitors and counsel combine with commercial managers, claims consultants, forensic planners and experts to offer an innovative and cost effective legal services solution.

We hope you enjoy the read and we would be delighted to receive your feedback.

Rebecca and Tom

Rebecca Redhead, Director of Legal Services, Europe

Tom Allen, Director of Legal Services, MEA and APAC

These articles are intended to provide general information about legal topics and have been compiled by Solicitors, Trainee Solicitors and Paralegals. Nothing in these articles or in the documents available through it, are intended to provide legal advice. You should not rely on any information contained in these articles, or in the documents available through it, as if it were legal advice. Systech International is not responsible for the operation or content of any external

website or hyperlink referred to in these articles.


CONTENTS

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John BlackshawTrainee SolicitorReliance and the imposition of pre-contractual obligations in English law

Susanna TruongTrainee SolicitorSecurity of payment under FIDIC - is an interim DAB award enforceable by the Singapore courts?

Adam PerrySolicitorProtecting commercially valuable information

Phil GazzolaSolicitorCherry picking in adjudication

Julia SimParalegalSingapore International Commercial Court

Young ByunParalegalClient’s guide to enforcing arbitration settlements in the UAE

Dai EdwardsTrainee SolicitorA practical guide for contractors as to how they can recover delayed payments on construction projects in the UAE

Terry KimTrainee SolicitorThe enforceability of FIDIC Sub-Clause 20.1 in the UAE

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RELIANCE AND THE IMPOSITION OFPRE-CONTRACTUAL OBLIGATIONS INENGLISH LAWJohn Blackshaw

JOHN BLACKSHAWTrainee Solicitor

[email protected]



The first question to ask is: is reliance an issue within the construction industry?

The global construction industry has changed significantly in the last fifty years, moving from predominantly companies who employ all necessary trades to large management organisations, who employ little or no tradesmen, preferring to secure labour, plant and materials from specialist sub-contractors. This was brought about by the growth of new forms of contract and procurement methods which has resulted simultaneously in bigger companies operating both nationally and internationally working on projects which have become larger and more complex requiring specialist knowledge in many areas. A further reason for this shift was a reduction of risk and the fact that with larger projects it would be almost impossible for a single company to employ all of the required specialist trades under one roof to complete a project.

This paradigm shift has resulted in a dramatic growth in the number of smaller specialist sub-contractors. On the one hand this has provided a larger pool to choose from but has also increased the dominance of small companies in the market.

Passing responsibility and risk to specialist sub-contractors has allowed main contractors to operate as a more streamlined and professional organisation and better manage costs. However, the result of this transformation in the market is that main contractors have become more reliant on specialist sub-contractors and reliance in general has taken a more dominant role.

A scenario to consider

A main contractor is looking to secure a major new project and requires specialist sub-contractors to carry out specific packages of the works. He contacts suitable companies who provide him with a price, which he considers favourable and consolidates these prices into a single sum for his competitive tender submission to his client. A couple of weeks later he is delighted to learn he has been awarded the project and subsequently commences work on site. What can possibly go wrong?

Well one possibility is that before he appoints one of the proposed specialist sub-contractors, whose prices were consolidated into the main bid, the company withdraws and notifies him that they have had second thoughts. In order to cover certain “unknown eventualities” they wish to increase their prices by 25% across the board. This, even though they are fully aware that you have already incorporated the original prices into your own tender submission and relied upon them to win the work. Despite your protestations they are adamant that

they will not stick to the original prices.

Due to this change in circumstances the main contractor cannot now profit from the works

What does he do in this situation? The answer depends largely on where he is. The one place he may not like to be at this moment is in England or Wales as the law provides little or no protection in cases like this, unlike many other jurisdictions. Indeed England and Wales stand out amongst the major common law jurisdictions in not providing protection to the main contractor in this case. The main options available then are to either accept a higher price from the sub-contractor or look for someone else. The latter not always being an easy option. Redress through a legal means would not normally be afforded to the main contractor.

So why is the main contractor in this situation?

The reason you are now stuck with no redress against the subcontractor is that under English law there are little or no consequences for breaking off pre-contractual negotiations or withdrawing a tender before it is accepted even when the withdrawing party knows that his prices had been acted upon in good faith and relied upon by another party in securing a project. The subcontractor will in this case not normally be liable for any losses incurred by the main contractor. The English courts will not enforce a gratuitous promise and in these circumstances the tender submission from your specialist sub-contractor amounts to little more than this. For the promise to become an obligation there must “in general” be consideration.

Is this fair?

It certainly does not sound fair as it appears to allow subcontractors the opportunity to effectually blackmail main contractors into giving them work at prices they know they would not have secured otherwise. This being even more so the more specialised a sub-contractor may be.

So is there a solution?

There are several possible solutions including collateral agreements but one potentially less formalised solution which is used in relation to the submission of tenders and pre-contractual negotiations in many jurisdictions is in the form of an equitable remedy called Estoppel (common law jurisdictions) or Culpa in Contrahendo (civil law jurisdictions). Both are used to place an obligation on one party brought about by reliance on the part of the other. There is no need in this case for consideration. Reliance is the key issue.

In the words of Lord Denning in the case of Central

1{1947] KB 130


London Property Trust Ltd v High Trees House Ltd (1947)1 “Estoppel…….is a principle of justice and of equity. It comes to this: when a man, by his words or conduct, has led another to believe in a particular state of affairs, he will not be allowed to go back on it when it would be unjust or inequitable for him to do so.” He further stated that “a promise made which was intended to create legal relations and to the knowledge of the promisor would be acted upon by the promisee and was in fact acted upon would be binding.”

So long as the promise was not made under duress then estoppel may be available to prevent the promisor going back on his promise (D & C Builders v Rees (1966) 2 QB 617 (CA)).

So we are in the clear?

Not if you are in England or Wales. For then you find yourself in one of the very few jurisdictions in the world which is out of step with everyone else and refuses to use Estoppel in a situation like the example above.

Why should this be?

When other common law jurisdictions including Canada, South Africa, Australia and the USA already afford protection to a main contractor in this situation and the House of Lords when judging cases from Commonwealth countries also have applied Estoppel why should things be different in regard to cases in England and Wales? Are we out of step

and should a remedy of Estoppel be available to main contractors caught in the above quandry?It is evident that many other jurisdictions, both civil and common law, apply obligations during the pre-contractual negotiations phase. They do this in different ways but there are obligations none-the-less.

The fact that English courts are loathed to enforce pre-contractual obligations eminates from the doctrine of freedom of contract with its roots in the formation and rise of the British Empire since 1770. There is also the problem of accepting a duty to act in good faith during negotiations, unlike many other jurisdictions where good faith and fair dealing have been in ascendance. In many other countries there is a sense of “fair trade” rather than the English concept of “free trade”, with English law viewing a duty to act in good faith as “utterly repugnant to the adversarial nature of contractual negotiations” (Watford v Miles (1992) 2 AC 128) coupled with a belief in freedom to negotiate contracts without incurring legal liability.

The issue then boils down to the way the courts view contractual relationships in England and Wales compared to other jurisdictions. Pistols at dawn to secure an advantage over the other party rather than a partnership to secure mutual advantage. The implications are not only relevant here but in general during the development of contractual negotiations. The question is whether this attitude can persist in light of the growth of international companies and projects and the way such relationships will be viewed in the future.


Young Byun

CLIENT’S GUIDE TO ENFORCING ARBITRATION SETTLEMENTS IN THE UAE

YOUNG BYUNParalegal

[email protected]



The most prevalent form of contract in the construction industry in the UAE is FIDIC. Despite the recent emphasis on amicable resolutions to disputes, if parties are not able to reach a universally acceptable conclusion, arbitration provides an alternate means of settling issues. Therefore, it is of great importance and practicality to be familiar with every stage of the arbitration process, especially where the likelihood of disputes is high. This article will focus mainly on the enforceability of an arbitral award as it is clear that an unenforceable settlement has no value.

Dubai International Financial Centre (DIFC) is one of the Free Zone in Dubai, which unlike the rest of the UAE, has its own legislation on arbitration. Settlement awards made in the Financial Centre are often given the same weight as court judgements within the Free Zone jurisdiction and therefore binding on the parties. Due to the relatively small size and low volume of construction, it will be sufficient to add that judgements made by the DIFC Courts can be enforced in Dubai courts outside the Free Zone.

The UAE does not have comprehensive legislation dedicated to arbitration. However, despite the limitation that its primary purpose was to regulate domestic legal proceedings, the UAE Civil Procedure Code1 (CPC), has provisions, which set out the rules to be followed in the arbitration process. Articles 203-218 are concerned with the award and enforcement of arbitration decisions made domestically while Articles 235-238 deal with the application of foreign arbitration decisions in the UAE courts. Procedural rules for execution of decisions are set out in Articles 239-243.

For a domestic arbitration award to be enforceable, the following requirements specified in Article 203 have to be met: • The arbitration agreement has to be in writing • The subject matter of the dispute must be clearly

indicated in the agreement.• It has to be signed by the arbitrator• Material facts of the case and the legal

explanation for the decision has to be stated clearly

• It must be supplemented by the written arbitration agreement

Once the criteria above have been satisfied, the final stage of enforcing an arbitral award is to have it ratified by a court in the UAE. Article 215 of CPC dictates that the application process for ratification by the court be same as that for commencing legal action in the Court of First Instance. As an award can only be enforced after successful ratification in the court and agreement by both parties to accept the

award. This requirement can be an opportunity for a disadvantaged party to challenge the ratification in the court.

If challenged, a court hearing will be held in which a decision can only be made on account of procedural grounds. The historical trend of the UAE courts not enforcing arbitral awards is illustrated in the 2004 case of International Bechtel v Department of Civil Aviation of Dubai2. As had generally been the pattern, the award was rejected on the basis of minor procedural technicalities. In the Bechtel case, the arbitrator had failed to comply with Article 41(2) of CPC pertaining to the swearing in of witnesses. Recent cases seemingly show UAE Courts taking a more favourable approach on the subject of award ratifications. However, some anomalies bring this general trend into question. When the judgment was made in 2012 for Case No.: 180/2011, the Court of Cassation rejected the arbitral award on the grounds that in matters of public policy an arbitrator lacks the authority to adjudicate. Under UAE law, ‘public policy’ is given a liberal interpretation; even commercial matters can be argued to fall under public policy as it affects the distribution of wealth and freedom of commerce. Moreover, given the Civil Law system of the jurisdiction, previous court decisions may provide persuasive arguments but do not guarantee a consistent outcome.

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards came into effect in the UAE on 19th November 2006. Under Article 5 of the Convention, a signatory state has the obligation to enforce an arbitral award made in another signatory nation unless specified exceptions apply.

In order to enforce a foreign arbitral award in the UAE, an authenticated original of the award or its certified copy must be submitted to the court along with the authenticated original arbitration agreement or its certified copy. Additionally, where the documents to be submitted are in a foreign language, they are required to be translated into Arabic.

Article V (1) of the Convention sets out scenarios where a foreign award can be refused for not meeting the procedural requirements of the awarding state. Article V (2) allows refusal on the grounds of public policy. However, the greatest obstacle to enforcing foreign awards in the UAE is domestic legislation. Article 235 (a) – (e) of CPC provides a checklist that must be satisfied for enforcement of foreign awards. Paragraph (e) deals with public policy, which is given the same wide interpretation as when trying to enforce domestic awards. The fact that ‘public policy’ is not defined in legislation means that

1Federal Law No.11 of 1992 (CPC)

2300 F. Supp. 2d 112


virtually any matter can be argued to fall under this heading. The traditional reluctance of the local courts in complying with the Convention duties was challenged by the case of Airmech Dubai LLC v Macsteel International LLC3. The Court of Cassation cited Article 238 CPC in its decision that domestic rules on foreign awards do not prejudice the obligations rising from an international convention to which UAE is a signatory. The Court of Cassation Case 156/2013 seemed to revert to the traditional stance. However it can be distinguished in that the court refused enforcement as neither party was domiciled in the UAE. Moreover, the verdict may have been influenced by the fact that the award had already been refused in other jurisdictions.

UAE Courts are becoming comfortable with following the Convention duties in enforcing foreign awards

and the mainstream opinion is that Articles 235-238 CPC are set aside in favour of the Convention. However, in the enforcement of both foreign and domestic awards the greatest obstacle remains the challenges made at the ratification stage, especially under Article 216 CPC for domestic awards. This means that entire process becomes very long and drawn out, adding further financial burden. There is no doubt that parties seeking enforcement can mitigate risks by strictly following all procedural requirements and being aware of additional factors that may render an award vulnerable to challenges. However, the core of the issue can only be resolved by input from the UAE Legislature by streamlining the bureaucratic requirements and redefining the scope of ‘public policy’ in the enforcement of arbitral awards.

3Court of Cassation of Dubai, 18 September 2012

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Dai Edwards

A PRACTICAL GUIDE FOR CONTRACTORS AS TO HOW THEY CAN RECOVER DELAYED PAYMENTS ON CONSTRUCTION PROJECTS IN THE UAE

DAI EDWARDSTrainee Solicitor

[email protected]

10


It is a fairly common scenario in the Middle East to be faced with a situation whereby a client unlawfully withholds payment from the contractor. This will often cause the contractor severe problems in terms of cash flow. So what options are available to the contractor in order to get the client to pay?

1. Contractual measures can be used in order to pressurise a party into paying

Some contracts will contain a suspension clause whereby a party can suspend work until it has received payment. An example of this is Clause 16.1 contained in the FIDIC Red Book (1999). This gives the contractor the right to suspend work where there has been:• Failure to certify;• Failure to demonstrate the ability to pay; or• Failure to pay.

Strict compliance with contractual notice provisions is critical. The UAE Civil Code can also assist under Article 247. This states that “In contracts binding upon both parties, if the mutual obligations are due for performance, each of the parties may refuse to perform his obligation if the other contracting party does not perform that which he is obliged to.”

It is important to note that the contractor’s suspension of work will need to be reciprocal and proportionate to the employer’s breach. The pervasive application of the Civil Code is not always advisable as there is much that can be subject to interpretation and so it is best to ensure that the contract contains an appropriate suspension clause.

2. Threaten to terminate the contract for non- payment

Under Clause 16.2 of the FIDIC Red Book a party can terminate a contract on 14 days’ notice if:• There has been a failure to demonstrate the

ability to pay after 42 days of suspension;• There has been a failure to certify;• Failure to pay• Failure to substantially perform the obligations

under the contract;• Prolonged suspension of the works; or• If the employer is insolvent.

A contract can still be terminated even if the contract is silent on this matter as Article 892 of the UAE Civil Code provides that: “A contract of Muqwala shall terminate upon the completion of the work agreed or upon the cancellation of the contract by order of the court.” Article 272 of the UAE Civil Code deals with termination based on breach and provides for either an order of specific performance or for the contract to be cancelled and for damages to be paid for the breach. In construction it is far more common for damages to be paid rather than for specific performance to be ordered.

Threatening to terminate a contract is normally a measure of last resort as the consequences are severe. Parties also need to be careful to ensure that their actions are not deemed to be unlawful by breaching the overriding duty of good faith provisions that are contained within UAE law. The courts will take a dim view of a party terminating a contract where it is not really justified (for example if the underpayments were only very minor).

3. Retention of title clause

A retention of title clause acts to protect the contractor by seeking to limit the extent of the debt owed by the employer. There needs to be an express provision for this made in the contract. Article 513(1) of the UAE Civil Code states that “If the price is deferred or payable in instalments, the seller may stipulate that the transfer of ownership to the purchaser be suspended until he pays the whole price, notwithstanding that the goods be delivered.”

Alternatively, the contractor can ask the client’s parent company (if there is one) to provide a guarantee or payment bond.

4. Non-contractual remedies - rights/liens over property

The contractor can refuse to handover physically attached property upon completion if payment has not been made under Article 879(1) of the UAE Civil Code. This provides that “If the work of the Contractor produces (a beneficial) effect on the property in question, he may retain it until the consideration due is paid.” However, a cautious approach needs to be taken as it may result in a possible trespass action.

Registering a right / lien over the property is another option. This is possible under Article 1527(1) of the UAE Civil Code. Registration of the property has to be recorded in the Land Register with the Dubai Land Department (Dubai Law No.7 of 2006 Concerning Land Registration in the Emirate of Dubai).

It may also be worth pursuing a softer approach by using a local sponsor to liaise with the other party’s sponsor in order to try and obtain payment. In this way the sponsors act in a similar way to mediators.

5. Sanctions through the courts

The contractor may seek one of the following orders:

• Order for payment – This is similar to a “summary judgment”. It requires unequivocal and fully documented debts substantiated by commercial instruments (i.e. engineers’ certificates, dishonoured cheques).


• Precautionary Attachment Order – This prevents money from being wrongfully dispersed, so the client will not be able to wrongfully call in a performance bond. There are 2 ways to do this. The bond monies can either be frozen in the contractor’s account (i.e. “pre-call”) or in the client’s account if the order has already been made (i.e. “post-call”).

• Performance Order / Incarceration Order – In order for this order to be made the debt has to be uncontested (i.e. there has to be a written acknowledgement that the amount is due), the due date has to have passed, and the debt should be unconditionally payable. The debtor should have been served a demand notice via registered mail giving him no less than 5 days in which to pay up. For this order a summary proceedings is necessary. The judge will then issue a decision within 3 days. Non-compliance with a Performance Order to pay can lead to the debtor being sent to prison.

Conclusion

It is clear that in any contract, prevention is better than cure. The above are options available to the contractor when payment issues arise, however raising disputes are a last resort. Amicable resolution and remaining within the parameters of the contract are always the best approach.

Caution must be taken before considering the application of provisions of the Civil Code and parties should seek local law advice. The local courts of the UAE are not always at ease with the complex nature of international construction contracts and, as such, the results of what may on paper seem a straightforward action can often be quite the opposite.

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Phil Gazzola

CHERRY PICKING IN ADJUDICATION

PHIL GAZZOLASolicitor

[email protected]

13


The TCC case of St Austell Printing Company Limited v Dawnus Construction Holdings Limited1 has presented some interesting feedback from the courts in relation to the ‘cherry picking’ of a claim in adjudication proceedings.

The project involved the construction of two industrial units under a JCT D&B 2005 contract. In December 2013, some months after the works had been completed; the contractor (Dawnus) issued an interim application for payment for the net amount of approximately £2.3 million, which included circa £1.9 million for variations, of which circa £900,000 was for the measured work element of those variations.

St Austell’s advisors, also in December 2013, issued a payment notice which stated that the payment to be made was nil, along with a ‘letter of clarification’ which referred to various reasons as to why no payment would be made but stating that a comprehensive response would be issued in January 2014 which would set out details of defects along with a response to the loss and expense element of the application for payment.

No ‘comprehensive response’ was issued by St Austell, and so in August 2014 Dawnus started adjudication proceedings. The notice of adjudication, which set the adjudicator’s jurisdiction, stated “The Referring Party limits submissions in this adjudication to these 115 Changes as identified in the attached schedule, and reserves its right to deal with other matters in Interim Certificate 18, and later certificates, in the future.”

The adjudicator decided in favour of Dawnus and ordered St Austell to make payment to Dawnus of circa £400k plus his fees. The case before the court was Dawnus seeking to enforce this decision, with St Austell seeking to resist enforcement by stating that the adjudicator lacked jurisdiction on two grounds.

The first was, as Mr Justice Coulson described it, the “well-worn suggestion” that a dispute had not crystallised between the parties at the time of the notice of adjudication because St Austell had not formally responded to the claimed amounts. The second ground was the “rather more novel” jurisdictional challenge that the adjudicator could not order St Austell to make payment as the dispute that was referred was strictly limited to one element of the interim application.

During the adjudication the adjudicator had dismissed both of these jurisdictional challenges; however St Austell sought to rely on both of these grounds to resist enforcement. At court, the first ground was dismissed, with the judge stating that it was “unarguable” that the dispute had not

crystallised.

It is the second ground of challenge, and the resulting comments from Mr Justice Coulson, which are of more interest.

The judge firstly referred to the case of Fastrack Contractors Ltd v Morrison Construction Ltd2 in which the court had stated that it was permissible for a claiming party to “prune” elements of a claim as long as this did not transform the pre-existing dispute into something different. For example, if an interim application is for measured works and a loss and expense claim, a claiming party may solely present the measured work element of its application if it feels the loss and expense claim could be difficult to pursue. Mr Justice Coulson said “That is not only permissible, but it is a process that is to be encouraged.”

St Austell had argued that the contract did not confer a liability on St Austell to make payment for part of an application, only for the whole application. St Austell did not claim that there had been a previous overpayment or that it had a counterclaim against Dawnus. As a result, the judge said that the only outcome if the adjudicator had been asked to consider the entire application for payment would be that he would have awarded more than, or at the very least not less than, the sums he awarded in this adjudication.

Mr Justice Coulson went on to say that it would have been entirely permissible for St Austell to present a counterclaim in its defence to this adjudication, and that the wording of the Notice of Adjudication could not have prevented this. This is based on the case of Pylon Ltd v Breyer Group3 in which the same judge said “...subject to questions of withholding notices and the like, a responding party is entitled to defend himself against a claim for money due by reference to any legitimate available defence (including set-off)...”

The interesting point in this case is that the court stated its encouragement for parties to cherry pick the better elements of their claims for adjudication. Therefore if a party lacks confidence on the merits of certain items within its application, it is encouraged to exclude those items from the adjudication proceedings. This may seem like common sense, but there are a lot of adjudications which contain everything the claiming party can throw in to increase the value of its claim; following this judgment it is sensible to temper the desire to throw the kitchen sink at an adjudicator and to only include those items which are based on a solid foundation.

The point regarding the ability to include a counterclaim to set-off the value of any claims

1 [2015] EWHC 96 (TCC)

2[2000] BLR 168

3[2010] EWHC 837 (TCC)


from the responding party from sums due claimed by the referring party is also interesting. If there had been a previous overpayment or a valid counterclaim for items such as liquidated damages or defectrectification that fell for assessment at the time of the application for payment, the judge confirmed that this could not be excluded as a defence from the adjudication by the drafting of the Notice of Adjudication. Such a defence would only be permissible if a valid Withholding Notice (or Pay Less Notice under the new regime) had been issued. This confirms for a paying party the importance of ensuring that the contractual payment regime is adhered to which would ensure that any such claim could be used as a defence in adjudication proceedings if required.


Terry Kim

THE ENFORCEABILITY OF FIDIC SUB-CLAUSE 20.1 IN THE UAE

TERRY KIMTrainee Solicitor

[email protected]



When it comes to construction and standard forms of contract, FIDIC is synonymous with the Middle East. But to what extent are its provisions enforceable in the UAE?

For contractors, a claim for an extension of time and or additional costs is preceded by serving a notice under the applicable provision of the contract. This will be followed by bringing a formal notice of claim within the prescribed time period under sub-clause 20.1 of the current suite of FIDIC standard forms of contract. Such notice periods are commonly condition precedents that effectively discharge a contractor’s entitlement once the period has lapsed causing difficulties for the contractor.

However, not all notice periods are strictly enforced and in many cases will depend on the wording of the contract. The House of Lords in Bremer Handelgesellschaft v Vanden Avenne1 provided a useful guideline in ascertaining a condition precedent. As per Lord Salmon, the clause should state the “precise time” within which the notice was to be served and clearly express that unless the notice is served within the time, the Contractor would “lose its rights” under the clause.

In the recent case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar2, the Technology and Construction Court considered the condition precedent in FIDIC sub-clause 20.13:

“If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment…the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware…”

“If the Contractor fails to give notice 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…”

The court ruled that sub-clause 20.1 was a condition precedent to the contractor making a claim. However, it was said that the clause should not be construed strictly against the contractor, and provided that a clear notice in writing was served on the engineer, the onus would then be on the employer to prove the contractor was out of time. Moreover, in reference to sub-clause 8.4, it was suggested that a contractor has a choice to give either a “retrospective notice” when completion is

delayed or a “prospective notice” when completion will be delayed. This suggests that a contractor can consider the event to only begin when there is an actual impact on the project.

Contractors out of time in the UAE may be able to rely on the Civil Code for additional protection against time barring. The particular legislation that contractors should draw their attentions to is the UAE Commercial Transactions Law4. As per Article 95:

“The obligations of traders towards each other and concerning their commercial activities, shall not be actionable on the expiry ten years from the date on which the performance of the obligation falls due, unless the law stipulates a shorter period.”

This provision potentially imposes a ten-year time limit for commercial claims. So how would Article 95 apply to contractors?

The Commercial Transactions Law is applied to all commercial activities including construction contracts. Article 2, of the same law states that commercial activities are firstly governed by the contract entered into between the parties. It is noted, however, that pursuant to Article 31 of the UAE Civil Code, contracts are subject to mandatory provisions in the law which include statutory time limits.

As per Article 487(1) of the Civil Code:

“It shall not be permissible to waive a time-bar defense prior to the establishment of the right to raise such defense, nor shall it be permissible to agree that a claim may not be brought after a period differing from the period laid down by law.”

Subject to the aforementioned clauses, it would appear that FIDIC sub-clause 20.1 is unlikely to apply in the UAE, as it provides for a period of time less than ten years.

Further consideration should be given to Sharia law. Like many of its neighboring countries, Sharia is a main source of legislation in the UAE and the case of Harley and others v Smith and another5 in the UK explored limitation periods in Sharia law. Although this was not a construction case the court had to consider whether the claimants were time-barred by the expiry of the relevant period of limitation, which in this case was a one year period under Saudi employment law.In delivering its judgment, the court consulted two experts on Islamic law – Professor Adnan Amkhan, an Honorary Fellow at the

1[1978] 2 Lloyd’s Rep 109

2[2014] EWHC 2291 (TCC)

3The Yellow Book: Conditions of Contract for Plant and Design-Build (First Ed, 1999)

4Federal Law No. 18 of 1993

5[2010] EWCA Civ 78


University of Edinburgh, whose primary expertise is in Islamic law, and Mr Alissa, an attorney licensed to practice in the KSA. In the judgment, both experts concluded in a joint statement as follows:

“Unlike modern Arab legal systems, Sharia does not recognise the concept of time limitation…” In considering time bars, it is also helpful to understand the principles of good faith which is at the core of the UAE Civil Code.

Article 246(1) stipulates that a “contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith.” Article 246(2) provides that a “contract shall not be restricted to an obligation upon the contracting party to do that which is expressly contained in it.”

The principle of good faith could be widely interpreted and require the contracting parties to act in a manner of good faith, which includes the duty not to cause unjustified damage to the other.

Article 106 of the Civil Code states that a party will be held liable for unlawful exercise of his rights if the interests desired are disproportionate to the harm that will be suffered by the other party.

This suggests refusing a valid claim for extension of time on the grounds that a contractor is time-barred, would be acting in bad faith by the employer and or unlawful as the contractor is likely to suffer harm which is unjustified and disproportionate to the right of receiving notice.

Nevertheless, it remains to be seen how the local courts would actually apply Article 95 to construction contracts. Whilst contractors may take away from this article that it would be difficult for an employer to waive a contractor’s entitlement to an extension of time in the UAE by imposing a short notice period, contractors should always, by means of good practice, keep and maintain accurate records and notices to ensure its right of claim is protected.


Adam Perry

PROTECTING COMMERCIALLY VALUABLE INFORMATION

ADAM PERRYSolicitor

[email protected]

19


The drafting of confidentiality agreements, also referred to as Non-disclosure agreements is a small but important part of knowledge required by those involved in the construction and engineering field.

The English ‘law of confidence’ is commonly used by international parties as the basis for agreements used to protect commercial and technical data. This article will look at the challenges of protecting confidential information, the key terms that need to be included in a confidentiality agreement and the common mistakes made.

The origin of the law of confidence is in equity and contract. A duty of confidence will arise naturally in many situations under the jurisdiction of English law, although not in enough some footballers may say!

Around twenty years ago a Japanese manufacturer invented a material that was used in super absorbent nappies. It was keen to expand its business overseas and develop process plants in strategically placed locations around the world. It was faced with the question how it could best protect its intellectual property.

One option would have been to register a patent. One downside being the protection would only last for a set period and the necessary public disclosure of the information would eventually lead to competitors copying the product.

A second option would have been only to proceed if like Coca-Cola the information could be kept a closely guarded secret. The practicalities of such an approach are often challenging. Manufacturers are required to provide detailed information on its plant and process before a partner has confidence to invest.

The Japanese manufacturer decided rather than registering a patent it would be appropriate to disclose the necessary information to its partner under the terms of a confidentiality agreement, albeit trying to limit information provided as far as possible. Now the Japanese manufacturer is faced with competitors in Europe and China who have built competing plants that manufacture very similar products yet it has no remedy. Although the breach of IP rights is a well known problem in China the lack of a remedy in Europe relates to the inadequacy of the negotiated terms of the confidentiality agreement highlighting the need for careful consideration when drafting the terms of agreement.

Having reviewed hundreds of confidentiality agreements it is quite common to receive the instructions: we would like to keep it very simple, is the attached okay to sign?

Although around 80% of a well drafted confidentiality agreement will be almost identical to another well drafted agreement the critical terms will require a detailed understanding of the specific facts. Before answering you need to ask:• Are you disclosing information, receiving

information or both?• What is the information being disclosed? • What is the purpose of disclosing the information?• How can the other party use the information?• How long will the information remain valuable?

After obtaining the pertinent facts you need to reflect them in the confidentiality agreement.

If you are just receiving information, your only concern is whether the agreement places any restrictions on the information that will constrain your intended use. If you are disclosing information under either a unilateral or bilateral agreement much greater care is needed over how ‘confidential information’ is defined and how it can be used.

When defining confidential information parties will often take the kitchen sink approach, believing all information will be caught. The danger of this if some information does not ‘have the necessary quality of confidence’ as defined by English law it will not be protected. Although no clear definition of this test exists it can be appreciated that there must be some value in the information. Plans to meet up for lunch do not fulfil the requirement, a top secret missile plan would, the grey area in between is much harder to define. Clear drafting that certain technical information or commercial data should be treated as confidential is likely to be persuasive to a judge, rather than a catch all provision.

A confidentiality agreement should also include administrative procedures that are proportional to the sensitivity of the information. A top military secret may warrant being stored on an offline computer, in an encrypted format, in a secure room where only limited personnel, who have signed an individual declaration, can access. However disclosure of less sensitive information will require less onerous obligations in order to maintain business efficiency.

The other key clause is the purpose clause. It is not uncommon to see agreements where a detailed definition of confidential information is given. The party receiving the information is placed under onerous obligations to avoid disclosure to third parties but can freely make commercial use of the confidential information as long as it is not disclosed.

Finally it is important to consider the term of the agreement. A confidentiality agreement will typically contain two terms; a disclosure period in which the parties will finish exchanging information and a period in which the information will remain confidential. The former is often short and easily agreed. The latter


can be fiercely negotiated and range from a year up to an unlimited period. Many parties are particularly reluctant to accept an unlimited period.

Returning to the Japanese manufacturer of super absorbent material used in nappies, unable to obtain an unlimited period it accepted 20 years. This was at a significant detriment to its future business. The confidentiality term is not something that should be horse-traded in negotiations but set based on the predicted time period the information will remain valuable.

Conclusions In conclusion when reviewing confidentiality agreements it is important to make sure that critical terms reflect your intentions. Although most clauses of an agreement will be very familiar it is the subtle differences that lead to the effective protection of your commercial interests.


Julia Sim

SINGAPORE INTERNATIONAL COMMERCIAL COURT

JULIA SIMParalegal

[email protected]

22


The last year brought about an exciting development in Singapore’s legal landscape, when the Singapore International Commercial Court (SICC) opened its doors in January 2015.

An Asian “Dispute Resolution Hub”

The SICC joined the Singapore International Arbitration Centre and the Singapore International Mediation Centre to set the stage for a dispute resolution hub in the region. This provided parties with the options of litigation, arbitration or mediation as the need arises, within the framework of Singapore’s business friendly legal system.

In view of the region’s bustling trade activity and economic growth, the Dispute Resolution Hub will significantly lower the cost of settling disputes for parties in Asia and even internationally. The SICC, with its commercial focus and specific expertise, aims to provide an avenue where disputes are settled quickly through the litigation process and costs are kept low.

The need for the SICC

The SICC was first proposed as a response to the increase in international commercial litigation work. The Court and the litigation process will also be able to address the perceived limitations of arbitration. While the Singapore International Arbitration Centre has enjoyed great success, arbitration has come under increasing criticism that it is costly, takes a long time to resolve, and lacks transparency due to its confidential nature.

Litigation is also a key option when certain subject matters are not amendable to arbitration, or where multiple arbitrations for the same project are prohibited. Arbitration may result in multiple proceedings over a main contract and subcontract, and litigation may prove to be the better option. It is therefore imperative that litigation, especially those catered to international parties, is effective and affordable. The SICC provides an avenue for disputes to be resolved more quickly, due to its commercial focus, such that the usual perceived pitfalls of the court-based avenue will not be a deterrent for the parties involved.

How the SICC works

The SICC is part of the Supreme Court of Singapore, constituted as a statutory division of the High Court and having identical jurisdictional limits to the High Court1. Appeal cases will be heard in the Singapore Court of Appeal2.

The SICC will be hearing cross border disputes that are “of an international and commercial nature” as a neutral third party if parties have submitted to the jurisdiction under a written jurisdiction agreement. A recent case heard by the court involved a joint venture between the subsidiary of an Australian company and an Indonesian company. The court will determine if a case is relevant, but unlike traditional courts will not decline jurisdiction if there is a more appropriate forum (the forum non conveniens principle). Judges, unlike in arbitration, cannot be nominated by the parties, but one with the right qualifications or experience may be appointed from

1 Singapore International Commercial Court (2015) <http://www.sicc.gov.sg>

2 ibid

WHAT?

The SICC confirms Singapore as a Dispute Resolution Hub, with the Singapore International Arbitration Centre and Singapore International Mediation Centre

WHO?

Parties can bring their cross border disputes to a Court that can handle the international focus and commercial demands of the cases

WHERE?

Singapore, as a neutral third party, will allow representaiton of foreign lawyers in the International Court


the international panel of judges, thereby reinforcing the commercial focus of the court that will help to ensure a timely resolution.

The SICC will offer great flexibility, hearing cases governed by both Singapore and foreign law, with the court taking judicial notice of the foreign law3. Cases that involve foreign law will allow the court to make an order allowing any question of foreign law to be determined on the basis of submissions by both parties, which is a simpler process than theusual basis of proof.

Foreign lawyers will be able to make representation in the SICC as long as it is an “offshore” case, i.e. there is no substantial connection to Singapore or Singapore law, and they are registered with the SICC under the Legal Profession Act4. A foreign lawyer with more than 5 years of court or tribunal advocacy experience can apply for a full registration, otherwise a restricted registration is available. A foreign lawyer who is granted restricted registration may still appear in relevant proceedings and provide advice, but may not plead in the relevant proceedings or represent any party. The registration is done through a simple process of submitting a completed form and an affidavit attesting to his/her good standing5. The application can be processed within 14 days for a fee of SGD 300 (£150/USD$220). This eases the process of international litigation, ensuring the same lawyer can see his client through the entire dispute resolution without worries about jurisdiction.

Enforceability

The international nature of the court comes in handy where it may be more appropriate to coerce parties in a multi-party dispute to a certain jurisdiction, and still have the decision be fully effective for enforcement in other jurisdictions.

The reach of the binding decision is a cause of great concern, but judges have alleviated them, with Justice Vivian Ramsey (UK) expressing that “international enforceability is rarely resisted because both parties comply it as a contractual agreement to have the dispute resolved either in the Court or by arbitration”6.

Courts outside of Singapore are also keen to uphold the SICC’s authority, where Australian courts have

ruled to freeze a Perth-based company’s shares pending the decision of the SICC. Furthermore, there are reciprocal enforcements of Commonwealth judgments in most states in India and Australia, and in Malaysia, England and Hong Kong, providing assurance to those who are concerned about enforceability.

Impact on construction law practice

With international construction dispute resolution experiencing a rapid shift of workload from the West to the Middle East and Asia, and specifically South East Asia, the construction industry can greatly benefit from the presence of the SICC, which provides the option of a more cost-effective litigation avenue when dealing with disputes.

Arbitration is sometimes preferred over litigation in construction disputes because of a perceived neutrality, as local parties are seen to have an advantage in court. Furthermore, detailed technical issues that become points of legal arguments are seen to be better decided by arbitrators who may have the competency and experience to tackle complex construction disputes, rather than judges who may also deal with other areas of law. These concerns can arguably be mitigated by the SICC, which as an international court affirms it as a neutral third party venue, and where judges may be better equipped to deal with complex issues and be mindful of the parties’ commercial concerns.

On a larger perspective, the SICC also helps to develop the legal landscape of the industry due to the transparency of litigation. Arbitration’s confidential nature poses a problem whereby the private resolution of disputes, unlike a public court process, does not help to develop the set rules and guidelines that provides a basis for the construction industry. Litigation, and especially an authority on the international level, will be able to form case precedence and help to build the framework that the international construction industry can operate within.

Experts have predicted that with the renown of the London Commercial Court and the Dubai International Finance Centre’s Court, and the lively activity of arbitration in Singapore, the SICC is poised to serve the region and the industry well.

3 http://www.lawgazette.com.sg/2014-11/1177.htm

4 Legal Profession Act s. 36P

5 Rules 5 and 6 of the Legal Profession (Foreign Representation in SICC) Rules 2014

6 n 2


Summary

While arbitration as an alternative dispute resolution method has been increasingly popular, there are many areas in which this method alone cannot adequately serve the needs of the construction industry. Arguably the most important benefit of the SICC will be the ability to provide parties the opportunity to “tailor processes to serve particular needs”7.

The SICC places great emphasis on its international and commercial nature, attempting to save time and eliminate practical procedural issues by allowing foreign lawyers representation in the court, while also

being able to tackle issues of foreign law. Its neutral venue provides a great advantage for parties doing business in the region, and will provide flexibility in “catering to the ever-growing market for international commercial dispute resolution in Asia”8, filling the gap to “provide an internationally accepted dispute resolution procedural framework … in accordance with substantive principles in international commercial law”9.

The SICC now poises business-friendly Singapore as a one-stop dispute resolution hub where parties have the luxury of options to best resolve their issues quickly and prevent unnecessary costs, and its success and efficiency are eagerly awaited.

7 iThomas J Stipanowich, “Arbitration: The Choice is Yours” (2010) 3(1) Jams Global Construction Solutions 7

8 Duane Morris and Selvam, “Singapore International Commercial Court” (Press Centre) <http://www.duanemorrisselvam.com/news_singapore_

international_commerical_court.html> 9

n5


Susanna Truong

SECURITY OF PAYMENT UNDER FIDIC - IS AN INTERIM DAB AWARD ENFORCEABLE BY THE SINGAPORE COURTS?

SUSANNA TRUONGTrainee Solicitor

[email protected]


The question as to whether the Singapore Courts will enforce an interim Dispute Adjudication Board (DAB) award under FIDIC has long caused uncertainty amongst construction practitioners. Many thought that the issue had been clarified in 2014 with the High Court decision in the long running case known as the ‘Perusahaan Saga1’, however the defendants, true to form, appealed throwing the issues back into contention.

Unfortunately, and much to the dismay of those in the construction industry, the Court of Appeal2 (CoA) decision did not provide the resonant ending that we were all hoping for.

Security of Payment

Payment disputes often require time and money in order to settle matters with any finality, invariably leaving the contractor in a weakened financial position and vulnerable to the Employer’s increased leverage.

The Security of Payment (SOP) regime, established within sub-clauses 20.4 – 20.7 of FIDIC 1999 Red Book, is a pragmatic mechanism used within the construction industry with the central purpose of addressing the imbalance between contractor and employer when payment disputes arise.

Under the SOP regime, the contractor refers the dispute to the DAB under sub-clause 20.4. If the award is granted in their favour, the DAB can require the employer to pay the disputed sum to the contractor, without preventing the employer’s future entitlement to argue the merits of the payment at a later date. It thereby facilitates the contractor’s cash flow by granting an instant right to payment despite the employer’s right to further determination. For this reason, the mechanism is commonly referred to as ‘pay now, argue later’.

The effectiveness of the SOP regime depends fundamentally on the enforceability of the DAB award and its ability to compel the employer to make payment.

If the employer does not dispute the DAB’s decision, according to sub-clause 20.4, it is considered as ‘final and binding’. However, if the employer issues a notice of dissatisfaction within the contractually prescribed deadline, usually 28 days, then the award is only considered as ‘binding’. The only way of gaining any finality is by proceeding to arbitration3.

What concerned contractors were recalcitrant Employers who used this to their advantage to refuse payment in discordance with the SOP regime.

The Background

The ‘Perusahaan Saga’ started when PGN, an Indonesian state owned company, contracted with CRW (under FIDIC 1999 Red Book) for the installation and construction of a pipeline in Indonesia. A dispute arose between the parties in relation to a number of variation claims (Underlying Dispute).

The issue was referred to the DAB who held in favour of CRW, ordering PGN to pay USD$17 million in line with the SOP regime. PGN issued a notice of dissatisfaction with the DAB’s decision disputing CRW’s right to enforce immediate payment (Secondary Dispute).

In 2009, CRW commenced arbitration proceedings seeking enforcement of payment. PGN argued that as it had issued a notice of dissatisfaction, the DAB’s decision was binding but not final and therefore sub-clause 20.6 could not compel immediate payment unless the arbitral tribunal heard the merits of the Underlying Dispute too. However, the tribunal held in favor of CRW and a final award issuing immediate payment was granted.

Undaunted from the ruling, PGN continued to refuse payment. The matter was taken to the High Court and later to the CoA where they both set aside CRW’s application, albeit on different grounds. The CoA stated that the arbitral tribunal by making a final award was denying PGN the opportunity to reopen the case. The CoA did state however that it would have been permissible for the tribunal to order an interim award. The CoA also held that the Underlying Dispute must be settled in the same arbitration proceedings so that the full merits of the case could be decided.

In 2011, undeterred from the setback, CRW brought a second round of arbitral proceedings this time seeking an interim award to enforce DAB decision as well as the final award to settle the Underlying Dispute, as advised by the CoA.

PGN resisted with a new line of argument that a tribunal had no power to issue an interim award as this would be contrary to Singapore’s International Arbitration Act (IAA)4.

S19B of the IAA states that “an award whether final or interim, made by an arbitral tribunal pursuant to an arbitration agreement is final and binding on the parties, and that the arbitral tribunal must not vary, amend, correct, review, add to or revoke the award”.

PGN argued that the interim award according to IAA was final and binding and therefore could not be altered by a final award which would unjustly deny

1 PT Perusahaan Gas Negara (Persero) TBK (PGN) v CRW Joint Operation (Indonesia) [2014] SGHC 146

2PT Perusahaan Gas Negara (Persero) TBK (PGN) v CRW Joint Operation (Indonesia) [2015] SGCA 30

3Sub-clause 20.6 – Arbitration

4International Arbitration Act Chapter 143A 2002 Revised Edition


them the right to seek future determination.

The majority of the arbitral tribunal were not convinced of PGN’s defence and issued an interim award compelling PGN to make payment under the DAB’s decision pending the tribunal’s decision on the Underlying Dispute. Once again PGN disputed the arbitrator’s award and took it before the High Court.

High Court in 2014

The High Court agreed with the tribunal majority and rejected PGN’s argument that an interim award was in breach of s19B of the IAA, stating that the award was final and binding on the specific subject that it dealt with. The award was there to “decide with finality CRW’s substantive but provisional right to be paid promptly without having to wait”, whilst still preserving PGN’s right to argue the case later. The High Court stated that it was important to look at the intentions of the contracting parties when they signed the contract, which in this case clearly saw both parties agreeing to the SOP regime and its facilitation of provisional relief.

PGN subsequently appealed the decision to the CoA.

Court of Appeal in 2015

Unable to come to a unanimous decision the CoA split 2:1 in favour of CRW. In Justice Chan’s 95 page dissenting judgment he rationalised that FIDIC’s original intention, traced back from its history, was for DAB decisions to go through the local courts and advocated in favour of the ‘gap’ in enforcement of a DAB decision. The majority however, affirmed the High Court’s decision stating that sub-clause 20.4 imposed a distinct contractual obligation on

the parties to comply with a DAB decision which was final and binding, regardless of whether a notice of dissatisfaction was given or whether it was subsequently revised.

What is also of note is CoA’s disagreement from the earlier 2011 CoA judgment, where the latest decision held that the parties did not require the Underlying Dispute and Secondary Dispute to be settled in the same arbitration. The Secondary Dispute was a dispute within its own right and was capable of having a standalone decision.

Conclusion

Where a payment dispute arises, incorporating dispute resolution sub-clauses 20.4 to 20.7 from FIDIC (not only Red but also those using Silver, Yellow and Pink Books) the Singapore courts have shown that they are willing to enforce interim relief granted by the DAB to a contractor in accordance with the contract. The CoA reiterated the importance that delay is contrary to the intended purpose of the SOP regime. As a result, this judgment hopefully provides a deterrent to employers who wish to use these clauses to shield themselves from making prompt payment to the contractor.

It is a shame that the conclusion of this saga is not more convincing as the detailed dissenting judgment as well as the majority’s deviation from a previous CoA decision may encourage other employers to try their luck, however, it is understood that FIDIC Drafting Committee is presently working on revising their suite of contracts to incorporate an express right to enforce non-final DAB decisions. Parties to a construction contract are advised to adopt this if they want a fool proof means of avoiding the commotion.


Systech Solicitors offers a truly unique service – a global legal solution from a single business.Our solicitors and counsel combine with commercial managers, claims consultants, forensic planners and experts from Systech International to offer contractors an innovative and cost effective approach to legal services.

We provide contentious and non-contentious advice to our clients over the full lifespan of a project – from initial involvement in the structuring and drafting of contracts to formal dispute resolution and advocacy. Our solicitors are also available for short and medium term secondments, becoming part of your team and working under your instruction.

Our solicitors, counsel, advocates and paralegals, who are regulated by the SRA in England and Wales, operate across different jurisdictions from both civil and common law systems and a number of our team sit as part-time judges, arbitrators or adjudicators and on dispute review boards.

Our consultants work together under a single point of responsibility to provide a fully co-ordinated and seamless service from the outset of a project to its conclusion, avoiding the abortive work that often arises when using multi-party advisors.

Our cost effective performance fee based service is half the cost of that charged by traditional solicitor practices and also benefits from full legal professional privilege (Water Lilly v Mackay).

Legal issues are often complex and we are able to use our in-house visualisations expertise to demonstrate the key facts pictorially, aiding communication with the key decision makers and avoiding the confusion that can be caused by language issues.

We operate from our offices across Europe, the Middle East and Africa, Asia Pacific and the Americas, locations that are ideally placed for the global seats of arbitration.• International Chamber of Commerce, Paris [ICC]• Dubai International Arbitration Centre [DIAC]• Singapore International Arbitration Centre [SIAC]• London Court of International Arbitration [LCIA]

Contentious and non-contentious services • Procurement strategy• Contract advice• Contract risk • Partnering / JV / framework agreements• PPP / PFI• Dispute management and resolution• Adjudication, mediation, arbitration and litigation• Training• Interim legal services

Contacts

Rebecca Redhead

London

Director of Legal Services, Europe

[email protected]: +44 (0) 207 940 7656

Tom Allen

Dubai

Director of Legal Services, MEA and APAC

[email protected]: (+971) 4 420 8900

Sectors• Construction [Building, civil engineering, MEP]• Transportation [rail, air, highways] • Energy [power, oil and gas, mining]• Telecommunications and IT• Shipping and marine• Industrial and process• Facilities Management


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