FIDIC Contracts / Middle East’s Laws provide Contractors with relief from the adverse impact of COVID-19

Presentation to Chartered Institute of Builders (Middle East)

John Coghlan

Principal

C&E Legal Solutions

1

• Boutique Law Firm

• Construction & Engineering Law only

• Full range of specialists C&E legal advice on international projects across the globe

• Over 30 years experience within the construction and engineering industry – subcontractor/lawyer

• Services

1. Contract Documents:

• Draft Clear and Concise Contracts

• Contract Reviews: Identify a contract’s risk profile to assist Clients to understand and manage the risk

2. Project Delivery - Outsourced Project Counsel (OPC):

• Our OPC resource works closely with a Client’s Project Delivery Team to provide specialist practical legal

solutions at any stage of a project’s lifecycle / avoid disputes / reaching their objectives

3. Dispute Resolution:

• Advise on litigation and all forms of alternative dispute resolution (ADR) to achieve the best outcome

• Sectors

• Built Environment’s Key Sectors: Commercial Property, Healthcare, Housing, Leisure, Oil & Gas, Power,

Transport and Water 2

• Approach

• Leading Cloud Based Legal Technology: Case Management Systems / Client Portal

• Modern Day Work Practices: Agile Working

• Global Reach

• Team / Global Network

• Principal: John Coghlan

• C&E Consult

• Modern day work practices and leading legal technology provides access to experienced and highly skilled construction and engineering legal consultants that work on a “project by project” basis

• Local Law Firms

• Strong relationships with key local law firms in all major jurisdictions including Qatar, Bahrain, Kuwait, Oman, KSA and the UAE

• Chambers: Construction and Engineering law

• Strong relationship with the leading barristers chambers - Identify the counsel/advocate which best suits the Client’s needs.

• Equates to Genuine Added Value – Significant Legal Cost Saving

3

Introduction: COVID-19

• On 31 December 2019 World Health Organisation’s (WHO) China office was informed of a new

virus – 44 cases

• On 11 March 2020 WHO Director General categorised the new coronavirus (COVID-19) as a

“pandemic”

• WHO produces a daily “Situation Report” (SR) - most recent SRs indicate that COVID-19 has

infected over 4 million people globally

• Governments around the world, including those in the Middle East, are implementing emergency

measures to delay and stop COVID-19 spreading further, including:

• Imposing travel bans;

• Prohibiting foreign visitors;

• Quarantining individuals; and

• Restricting social interaction / attendance at offices (lock down)

• Significant adverse impact on C&E projects in the Middle East

• Potential: Delay / Additional Costs

4

Structure: FIDIC 1999 - Yellow Book

1. Epidemic / Governmental Actions – Delay to the Works

• FIDIC: Cl/8.4

2. Change in Legislation - Delay to the Works / Additional Costs

• FIDIC: Cl/13.7

3. Force Majeure - Delay to the Works / Additional Costs

• FIDIC: Cl/19

4. Middle East Laws

• Force Majeure

• Exceptional and Unforeseeable Events

5. Strategy: Protect your Position

• Notices

• Fully Detailed Claims

• Records

6. Conclusion

• Q&A Session – send a query to johncoghlan@cels.global

5

(1) Epidemic / Governmental Actions – Delay to the Works

• FIDIC: Clause 8 Extension of Time for Completion

• Cl/8.4: Contractor has a right to submit a Claim for an “extension of Time to Completion” if the completion of the Works is or will be delayed due to:

“…(d) Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions,

If the Contractor considers himself to be entitled to an extension of the Time for Completion, the Contractor shall give notice to the Engineer in accordance with Sub-Clause 20.1 [Contractor's Claims]”(Cl/8.4 /final para.) (emphasis added)

• Cl/20.1: Contractor’s Claim

• Contractor must provide the Engineer with a Notice describing the event/circumstances

• No later than 28 days after the event occurred - if Contractor fails to give Notice in 28 days

then the Employer is “…discharged from any liability …”

6

(2) Epidemic / Governmental Actions – Delay to the Works

• FIDIC does not define “epidemic” or “governmental actions” – ordinary meaning

• WHO defines:

“Epidemic: The occurrence in a community or region of cases of an illness, specific health-related

behaviour, or other health-related events clearly in excess of normal expectancy…”

• WHO did not formally categorise COVID-19 as an “epidemic” in China

• On 11 March 2020, WHO categorised COVID-19 as a “pandemic” which it defines as:

“…an epidemic occurring worldwide…”

• Arguably - epidemic in China between initial report 31 December 2019 and 11 March 2020 i.e.

“pandemic” – may require epidemiological expert advice

• Collins Online Dictionary defines:

“Governmental actions…intervention by a government”

• Govt intervenes in a situation – such as providing “guidelines” and/or suspending flights etc

7

(1) Changes in Legislation – Delay to the Works / Additional Costs

• FIDIC: Clause 13.7 Adjustments for Changes in Legislation

“…The Contract Price shall be adjusted to take account of any increase or decrease in Cost resulting from a change in the Laws of the Country (including the [1] introduction of new Laws and the [2] repeal or [3] modification of existing Laws) or in the [4] judicial or [5] official governmental interpretation of such Laws, made after the Base Date…which affect the Contractor in the performance of obligations under the Contract. (Para. 1)

If the Contractor suffers (or will suffer) delay and/or incurs (or will incur) additional Cost as a result of

…changes in the Laws… made after the Base Date, the Contractor shall give notice to the Engineer

and shall be entitled subject to Sub-Clause 20.1…” (Para. 2) (emphasis added)

• EOT if the change in Laws causes delay to the Works; and

• Additional Costs - provided as an adjustment to the Contract Price

• FIDIC defines Laws broadly:

“…"Laws" means all national (or state) legislation, statutes, ordinances and other Laws, and regulations

and by-Laws of any legally constituted public authority…” (Cl/1.1.6.5)

• Cl/13.7 Para 1 includes 5 methods to change the Laws

8

(2) Changes in Legislation – Delay to the Works / Additional Costs

• Mindful

• Cl/20.1: Contractor must provide the Engineer with a Notice describing the event/circumstances

• No later than 28 days after the event occurred - if Contractor fails to give Notice in 28 days then the

Employer is “…discharged from any liability …” i.e. time barred

• E.G Qatar’s Government has introduced measures to stop the spread of COVID-19

• Supreme Committee for Crisis Management

• Council of Ministers provided several announcements:

• 20 April 2020 – announced the gradual reopening of the Industrial Area and that 6500 Workers were placed

into precautionary quarantine

• On 8 April 2020 – suspended all commercial activities in offices on Friday and Saturday although it does

not apply to “contracting companies on state projects”

9

(3) Changes in Legislation – Delay to the Works / Additional Costs

• On 1 April 2020 – introduced several measures including:

• No more than 20% of the private sector’s workforce may attend the “workplace” -the remaining 80% are required to work from home;

• The private and public sector workforce may work no more than 6 hours, starting at 07:00, a day at their “workplace”;

• The number of workers transported to projects on buses shall be reduced by 50%; and

• Extended the decision to suspend incoming flights, except transit and cargo, to Qatar.

• However – includes seven categories of individuals to whom the measures do not

apply including “Workers on major state projects” i.e. labour

10

(1) Force Majeure – Delay to the Works / Additional Costs

• FIDIC: Clause 19 Force Majeure

• Excludes the Contractor’s liability for an event beyond its control - renders performance impossible

• Cl/19.1 defines Force Majeure:

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

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

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

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

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

Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind listed

below, so long as conditions (a) to (d) above are satisfied…(emphasis added)

• Must satisfy all the above

• In addition Cl/19.1 (i) – (v) provides categories of “exceptional events or circumstances”

• Difficult to fit COVID-19 into the above

11

(2) Force Majeure – Delay to the Works / Additional Costs

• FIDIC’s use of “but is not limited to” - FIDIC’s list of Force Majeure Events (FME) is non exhaustive

• Contractor may categorise COVID-19 as a FME and rely on Cl/19

• Party required to provide:

• Notice of FME - no later than 14 days after it become aware, or should have become aware, of the event

(Cl.19.4)

• In addition – If the FME prevents the Contractor from completing its obligations and causes “delay

and/or incur Costs”

• Claim under Cl/20.1 for an “extension of time” and additional Costs

• Contractor must provide the Engineer with a Notice describing the event/circumstances

• No later than 28 days after the event occurred - if Contractor fails to give Notice in 28 days then the

Employer is “…discharged from any liability …” – time barred!!!

• Contractor entitled to:

• EOT; and

• Additional Costs

12

(3) Force Majeure – Delay to the Works / Additional Costs• Contractor only receives Costs if the FME:

• One of the events/circumstances listed in Cl/19.1(i) to (iv) – difficult to fit in these categories of events

• Occurs in Country

• Defined as “…the Country in which the Site (or most of it) is located…” (Cl/1.1.6.2)

• Cl/19.6 “Optional Termination”: Either Party may give Notice to terminate the Contract if the Force

Majeure Event prevents performance for:

• “a continuous period of 84 days”; or

• “for multiple periods which total more than 140 days due to the same notified Force Majeure” event.

• Invoking Cl/19.4 “Notice of FME” may lead to “Optional Termination”

• Cl/19.7 “Release from Performance”: Either Party may give Notice to terminate the Contract if:

• “…any event or circumstance outside the control of the Parties (including, but not limited to, Force

Majeure)…” makes it “impossible or unlawful” to perform; or

• Governing Law provides a right to be “released from further performance”

13

(1) ME Laws: Force Majeure

• Qatar Law recognises Force Majeure

• Art/188 of Qatar Civil Code 2004

“In contracts binding on both parties, where performance of an obligation by one party is extinguished by

reason of impossibility of performance due to force majeure beyond the control of the obligor such

obligation and correlative obligations shall also be extinguished and the contract deemed rescinded ipso

facto.

Where such impossibility is partial, the obligee may either enforce the contract to the extent of such part of the obligation that can be performed or demand termination of the contract” (emphasis added) (Bahrain: Art. 145, Kuwait: Art. 215, Oman: Art. 172 and UAE: Art. 273)

• Contractor must demonstrate that a “force majeure” event “beyond” its control renders it

“impossible” to preform the obligation/s under the Contract

• Arguably - Govt measures regarding COVID-19 have rendered it “impossible” to complete the

Works e.g. quarantined Workers and no other Workers available due to prohibiting entry to

foreign workers

14

(2) Qatar Law: Exceptional and Unforeseeable Events

• Qatar Law recognises Exceptional and Unforeseeable Events

• Article 171(2) of the Qatar Civil Code 2004 provides:

“Where, however, as a result of exceptional and unforeseeable events, the fulfilment of the contractual obligation, though not impossible, becomes excessively onerous in such a way as to threaten the obligor with exorbitant loss, the judge may, according to the circumstances and after taking into consideration the interests of both parties, reduce the excessive obligation to a reasonable level. Any agreement to the contrary shall be void.” (emphasis added) (Bahrain: Art. 130, Kuwait: Art. 198, Oman: Art. 159 and UAE: Art. 249).

• Courts/Arbitral Tribunal have a wide discretion

• Allows the Courts/Arbitral Tribunal to adjust the Contract’s effect re exorbitant loss, to complete the Works

• Mandatory Law

• Contractor demonstrates:

• COVID-19 is an “exceptional and unforeseeable event” – first global pandemic in approximately 100 years

• Causes “exorbitant loss” – quantify additional costs

15

(1) Strategy: Protect your Position

• Notices: Submit notice/s in accordance with the Contract’s requirements and reserve rights as a

matter of Contract and Law of the State of Qatar

• Cl/8.4 – EOT - submit a notice under Cl/20.1 “Contractor’s Claims” - for EOT only

• Cl/13.7 – Change in Laws - submit a notice under Cl/20.1 “Contractor’s Claims” - for EOT and

Costs

• Cl/19.1 – Force Majeure - submit two Notices

• (1) Cl/19.2 - “Notice of Force Majeure” no later than 14 days after becoming aware of the event = excused

from performance

• Not express Condition Precedent – no Notice, no defence for failing to perform due to FME

• (2) Cl/19.4 –”Consequences of Force Majeure” - submit Notice under Cl/20.1 “Contractor’s Claims” for

EOT and Costs

• Cl/20.1: Contractor’s Claim

• Contractor must provide the Engineer with a Notice describing the event/circumstances

• No later than 28 days after the event occurred - if Contractor fails to give Notice in 28 days then

the Employer is “…discharged from any liability …” - time barred

16

(2) Strategy: Protect your Position

• Fully Detailed Claim: Cl/20.1/Para.5

• Contractor is required to submit a “fully detailed claim” to the Engineer

• No later than 42 days from the date it became aware, or should have become aware, of the event giving rise to the claim

• Must include “…full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed…”

• However:

• COVID-19 is and will have a “continuing effect” (see Cl/20.1/Para.5/final sentence);

• In these circumstances the Contractor is required to submit:

• “Interim…fully detailed claim” which complies with the requirements set out in Cl/20.1; and

• “final claim”, no later than 28 days “…after the end of the effects…” of the event (CI/20.1/Para.5(c)) i.e. COVID-19.

• Records = Contemporaneous Evidence

17

(3) Strategy: Protect your Position

• Contractors concerned that submitting “Notices” and “Contractor’s Claim” may have a detrimental impact on its relationship with the Employer

• Merely a contractual mechanism which protect the Contractor’s rights/position and not a formal “dispute”

• A formal “dispute” crystallises if the Contractor disagrees with the “Engineer’s Determination” (Cl/3.5)

• Contractor may initiate the remainder of the FIDIC 1999 Yellow Book’s tiered dispute resolution mechanism:

• Dispute Adjudication Board (Cl/20.4)

• Amicable Settlement (Cl/20.5)

• Arbitration (Cl/20.6)

18

Conclusion• COVID-19: Adverse impact on C&E Projects in Qatar

• Relief under FIDIC:

• Epidemic / Governmental Actions – EOT (Cl/8.4)

• Change in Legislation - EOT / Additional Costs (Cl/13.7)

• Force Majeure - EOT / Additional Costs (Cl/19)

• Relief under Qatar ME Law

• Force Majeure – impossibility

• Exceptional and Unforeseeable Events – Mandatory Law

• Strategy: Protect your Position

• Notices

• Fully Detailed Claim

• Records = Contemporaneous Evidence

• Prudent to instruct an experienced C&E Lawyer ASAP

19

Thank You: Any Questions?

20

Contact

John Coghlan

Principal

E: johncoghlan@cels.global

Qatar: +974-5559-3797

UK: +44-(0)7938-948-131

C&E Legal Solutions Ltd is incorporated in England and Wales (Co. Number 12024735), its registered office being Office G03, The Gatehouse, Gatehouse Way, HP19 8D, and is regulated by the Solicitors Regulation Authority.

C&E Legal Solutions Ltd owns the copyright in this document and objects to any misuse of the same. The information within this documents is intended for general discussion surrounding the topic only and does not constitute

legal advice and should not be regarded as a substitute for obtaining legal advice. C&E Legal Solutions Ltd is not responsible and/or liable for any activity undertaken on the information in this document and makes no

representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability or suitability of the information contained herein.

21