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Onsite Insights - February Briefing Note

Cecily Davis
22/02/2016

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United Kingdom

Recent Court Appeal Judgment on FICIC Yellow Book: useful guidance as to the construction and operation of a number of clauses of the FIDIC Yellow Book.

Recent Court Appeal Judgment on FICIC Yellow Book

The Court of Appeal handed down judgment in Obrascon Huarte Lain SA v HM Attorney General for Gibraltar [2015] EWCA Civ 712 on 9 July 2015. Although the case largely turns on its facts and does not address any novel points of law, the judgments of the Court of Appeal and the Technology and Construction Court below give useful guidance as to the construction and operation of a number of clauses of the FIDIC Yellow Book.

The Facts and Issues

The facts of the case are briefly these. The Government of Gibraltar (GoG) engaged Obrascon Huarte Lain (OHL) to design and construct the Gibraltar Airport and Frontier Access Road. The Contract was let on an amended FIDIC Conditions of Contract for Plant and Design-Build 1999 (the “FIDIC Yellow Book”). The Works

essentially comprised the design...... and construction of a road and
tunnel under the eastern end of the runway of Gibraltar Airport. The time for completion was 2 years from the commencement date. After over 21/2 years’ work, little more than 25% of the work had been carried out and the contract was terminated with both parties claiming to have brought about the termination.

The overriding issue before the TCC was which party was legally and factually responsible for the termination of the contract. The main underlying issue was whether the extent and amount of contaminated materials in the ground to be excavated was reasonably foreseeable by an experienced contractor at the time of tender. OHL argued that: the contamination was not foreseeable; as a result it had to re-design the work, particularly in the tunnel area; the re-design was approved by the Engineer; it was willing to proceed with the work but could not do so because of various actions of the GoG; and, GoG’s notice of termination pursuant to clause 15.2 was in repudiatory breach of contract, which OHL accepted and brought the Contract to an end. The GoG argued that: the contamination was foreseeable; OHL should have carried on with the works as planned; it had issued notices to correct pursuant to clause 15.1; OHL failed to comply with those notices; and, as a result, the GoG terminated the Contract in accordance with clause 15.2.

In the Technology and Construction Court

Akenhead J ordered preliminary issues, including the question of which of the parties lawfully terminated the Contract. He held, inter alia, that: (i) the amount of contaminated soil which OHL encountered was not more than an experienced contractor should have foreseen; (ii) it was neither necessary nor reasonable for OHL to undertake the re-design; and, (iii) the GoG had lawfully terminated the Contract. The judgment ([2014] EWHC 1028 (TCC)) provides useful guidance on a number of issues, most importantly in relation to the construction or operation of:

1. Clause 20.1. The parties accepted that clause 20.1 provides a condition precedent to an entitlement to an extension of the Time for Completion. Akenhead J stated that: clause 20.1 should be construed reasonably broadly, given its serious effect on what could otherwise be good claims; an extension of the Time for Completion may be claimed either when it is clear that there will be delay (a prospective delay) or when the delay has been at least started to be incurred (a retrospective delay); and, the notice must be given as soon as practicable, but the longstop is 28 days after the Contractor has become or should have become aware of the event or circumstance giving rise to the claim.

2.        Clause 15.1. Akenhead J held that, on a commercially sensible construction of clauses 15.1 and 15.2, a breach required to terminate the Contract must be a significant or a serious breach, but it does not need to be so serious that it is analogous to a repudiatory breach of contract. A trivial failure does not lead to contractual termination. What is trivial and what is significant or serious will depend on the facts of the case.

3.        Clause 15.2. GoG delivered by hand its notice of termination to OHL’s site office; however, clause 1.3 required all notices to be delivered by hand or sent by mail or courier to OHL’s Madrid office. Akenhead J held that neither clause 1.3 nor clause 15.2 use words such as would give rise to any condition precedent making the giving of notice served only at OHL’s Madrid office a pre-condition to an effective termination and that, as a result, service of the notice at OHL’s site office was effective and valid service.

In the Court of Appeal

OHL appealed to the Court of Appeal on seven grounds, including that: (i) the Judge had erred in holding that the quantity of contamination which OHL had encountered was foreseeable by an experienced contractor; (ii) certain documents provided by the Engineer to the contractor constituted variation instructions under clause 13.1; and, (iii) the Judge had erred in holding that the GoG had validly terminated the contract. The Court of Appeal dismissed the appeal. The Judgment provides useful guidance on the construction or operation of the following:

1. Clauses 1.1.6.8 and 4.12. In respect of the alleged unforeseeable ground conditions and the data as to ground conditions provided on behalf of the GoG at the tender stage, Jackson LJ (with whom Gloster and Floyd LLJ agreed) warned that these clauses “require the contractor at tender stage to make its own independent assessment of the available information. The contractor must draw upon its own expertise and its experience of previous civil engineering projects. The contractor must make a reasonable assessment of the physical conditions which it may encounter. The contractor cannot simply accept someone else’s interpretation of the data and say that is all that was foreseeable.

2.        Clause 5.2. In relation to the fact that the Engineer had approved OHL’s re-design of the works, Jackson LJ (with whom Gloster and Floyd LLJ agreed) stated that: “When the Engineer is reviewing the contractor’s design under clause 5.2 of the FIDIC Conditions, he is considering whether the design is technically acceptable and whether, if the design is implemented, the completed works will accord with that which the contract requires. If the re­design is satisfactory in all those respects, it is not for the Engineer to reject the design because he thinks it will take too long to build.”

3.        Clause 8. In relation to the grounds for termination, Jackson LJ (with whom Gloster and Floyd LLJ agreed) stated that: “the obligation under clause 8 ... to proceed with the works with due expedition and without delay is not directed to every task on the contractor’s to-do list. It is principally directed to activities which are or may become critical.”

If you should like further information on any of the issues raised in this briefing or more generally in the context of construction or engineering projects, please contact Louise Elmes.

 

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