Construction Law Summer School, Cambridge September, 2014 - PowerPoint Presentation

Construction Law Summer School, CambridgeSeptember, 2014 International construction law: latest developments in civil law jurisdictions 01/09/2014 © 2014 - Frilet Société d'Avocats 1 Marc Frilet Managing Partner «  Frilet – Société d’ Avocats  » Chair of the Management Committee of GcilA French Representative of the DRBF Vice-President of IFEJI Co-chair of IFEJI CICA working group on Contracts and PPPs Co-promoter of UNECE PPP International Centre of Excellence: “Best practices, Laws, Institutions”

The World Bank contract conditions for Civil Law countries (1)Origin: Back to the 90s: World Bank Problems to finance projectsWB effort to develop projects that it could finance around the worldWB requirement for projects well prepared and implemented in accordance with policies of the Bank and best value for moneyRecognition that in most developing countries the applicable procurement framework would not meet WB requirementsWB staff not sufficient to participate to the procurement and monitoring of all projects 01/09/2014 © 2014 - Frilet Société d'Avocats 2

The World Bank contract conditions for Civil Law countries (2)WB moves in the 90’s: Aggressive procurement programs for LDCsExtensive due diligence programs for evaluating procurement conditions in LDCs: Country Assessment (CAS). Outcome : - World bank Programs on procurement international best practices - World Bank and other IFI’s assistance programs on country basis for drafting procurement codes and related procedures: 07/03/2014 © 2014 - Frilet Société d'Avocats 3

The World Bank contract conditions for Civil Law countries (3)WB implementation of the programs: some key findings:Many similarities in the institutional and legal framework for performance of civil works around the worldWorld Bank decision to harmonize procurement and contract conditions in LDCs complying with WB policies (transparency, governance, non-objection procedures, etc ).Recognition of benefits of standard bidding documents and of Users ’ Guides 07/03/2014 © 2014 - Frilet Société d'Avocats 4

The World Bank contract conditions for Civil Law countries (4)Development of Standard Bidding Documents (SBDs)Initial objectives: SBDs and guidelines comprising standard contract conditions for universal useOutcome: Issuance of SBDs including FIDIC Red Book, 1987 as standard contract conditions (General conditions + particular conditions to be adapted to the project and local particulars).Issues: - FIDIC Red Book 1987 essentially based on ICE conditions and UK contract law and related construction practice.- Difficult implementation in Napoleonic civil law countries due to the particular of Contract Law and related construction practice 07/03/2014 © 2014 - Frilet Société d'Avocats 5

The World Bank contract conditions for Civil Law countries (5)Reevaluation and decision to promote standard contract conditions for civil law countriesMain issues for implementing FIDIC Red Book 1987 in Napoleonic civil law LDCs: - Engineer extensive role and impartiality sometimes at doubt - Detailed contract conditions conflicting with civil law tradition and concept, with traditional industry organization, and usages and with relationship between public employers and Contractors - Public Order provisions from civil code or construction statutes and from public contract case law at odds or superseding contract provisions World bank decision: drafting standard conditions for civil works in civil law countries. 07/03/2014 © 2014 - Frilet Société d'Avocats 6

The World Bank contract conditions for Civil Law countries (6)Development of standard contract conditions for civil law countries Background of the draft: general conditions of French origin (CCAG public works often mandatory in francophone civil law countries, sometimes for decades) Additional objective: convergence when possible with FIDIC contract conditions.Contract conditions for civil works in civil law countries first published in 1995Contract conditions became part of the suite of standard bidding documents mandatory for civil law countries (referred to as DTAO). The DTAO published in French, never been formally translated in English: official translation in Spanish only. DTAO and contract conditions widely used in Latin-America and francophone Africa 07/03/2014© 2014 - Frilet Société d'Avocats 7

The World Bank contract conditions for Civil Law countries (7)Excerpts of the World Bank Foreword for the DTAO including civil law countries contract conditions (free translation) 1“The “DTAO”, included in this publication has been prepared for the borrowers having a civil law tradition and which consequently use administrative law for the procurement of work for international call for tenders. The use of this DTAO is mandatory for works partially or totally financed by the World Bank, in accordance with the provisions of the 2011 edition of the Directive “procurement for good works and services (other than consultancy services)” by the World Bank borrowers for loans from BIRD and credits in grants from AID, when the following conditions are fulfilled (value of the work above US $10 millions). “ “The practical procedures which are proposed are the result of a wide international experience and comply with the above Directives.” 07/03/2014 © 2014 - Frilet Société d'Avocats 8

The World Bank contract conditions for Civil Law countries (8)Excerpts of the World Bank Foreword for the DTAO including civil law countries contract conditions (free translation) 2“In addition the bank has published, for borrowers of common law tradition, standard bidding documents where the contract conditions are the one published the Fédération Internationale des Experts Conseils (FIDIC).”The foreword provides also: “The DTAO is based on previous editions of the French Cahier des clauses administratives applicables au marché public de travaux, as well as other similar documents in use in other francophone countries , as amended to include the mandatory provisions of the Directives, and included essentially in the other divisions of the english edition Dossier type d’appel d’offres de la Banque M ondiale pour les travaux de Génie Civil, mars 2012, based on the master bidding documents for procurement of works prepared by the multilateral development banks and the international financial institutions.”07/03/2014© 2014 - Frilet Société d'Avocats 9

The World Bank contract conditions for Civil Law countries (9)Comparison between the current FIDIC MDB and the current CCAG civil law: increasing convergence between clauses. Over the years both contract forms have been revised and a lot of convergence has taken place between the two sets of contract conditions. Several working groups from the industry led by the Confederation of International Contractor Association (CICA) in regular contract with MDBs and their head of procurement (HOP) and FIDIC have exchanged and participated to the revision. Examples of convergence now included in the contracts: Engineer role of FIDIC MDB close to the “Maître d’oeuvre” in CCAG civil law: as such, far less risks of conflict in Napoleonic Civil Law countries.Definition of “Force majeure” and its consequences.Definition of unforeseen sub-soil conditions and their consequences. 07/03/2014 © 2014 - Frilet Société d'Avocats 10

The World Bank contract conditions for Civil Law countries (10)Comparison between the current FIDIC MDB and the current CCAG civil law: convergence remains in surface. A clause by clause comparison, with its effective consequences in respective legal cultures is a very difficult exercise which remains to be carried out:It would no doubt confirm progress. However several caveats:Example: why if there is a common objective of having a contract performed for the satisfaction of the employer and on time and on budget: the FIDIC MDB comprises more detailed clauses in comparison with the CCAG civil law? the CCAG civil law is much more detailed for some sets of clauses ? Does it mean that in one or in the other document the outcome is more secure or more predictable? Not really. Useful comparison can be made with the aborted attempt to harmonize European contract law: tests have shown that based on a same set of contractual clauses, whatever their specificity and with the same factual situation, the final outcome in case of a dispute is often different.07/03/2014© 2014 - Frilet Société d'Avocats 11

The real world of Napoleonic civil law and its impact on civil works contract conditions. Many legal practitioners and industry representatives experienced in both jurisdictions can summarize the situation in one image: In Napoleonic civil law countries contract conditions for civil works are only the tip of the iceberg, whereby in common law contracts are the essence of the buoyancy. A key illustration: article 4.2 of the CCAG Civil Law relating to the order of precedence of the project documents Ranking 2 (4.2 b): the Tender and its annexes. Ranking 9 (4.3 e) the CCAG contract conditions.This single fact explains why “entire agreement clauses” are not part of the Napoleonic Civil law culture. 07/03/2014 © 2014 - Frilet Société d'Avocats 12

Some key Napoleonic Civil Law consideration impacting on contract implementation.(1) I- Content of the agreement:Civil code provisions - Article 1135: agreements are binding not only upon their express terms, but also for all consequences that equity usage or law give to the obligation, in consideration to its nature. - Article 1160: clauses which represent a usage although non-written are deemed to be supplementary in a contract. - Article 1159: in case of ambiguity, the contract must be interpreted in accordance to usages of the country where it is concluded. Practical consequences: The engineer’s duty in civil works projects- Engineer’s duties in projects preparation and design are based on well-known usages; some laws refer to them: MOP Law. - In civil works remeasurement contracts the employer must provide “Avant P rojet Sommaire ” (APS) and “Avant Projet Détaillé” (APD) - The Contractor is only responsible for “Etude d’Exécution” (EXE), i.e. more or less shop drawings.- APS and APD are further defined in the engineering industry guide of 2006 (SYNTEC), which clarifies with a lot of details the duty of engineers and design professionals for APS and APD. - In practice, any dispute on APS and APD completeness and quality will be primarily determined on the basis of the above. Contractual clauses to the contrary will have little relevance in practice. 01/09/2014© 2014 - Frilet Société d'Avocats 13

Some key Napoleonic Civil Law consideration impacting on contract implementation.(2)II: Contract interpretation: Good Faith and related duty to adviseArticle 1134 of the civil code relating to the implementation of the agreements provides: “they must be implemented in good faith.” This one line provision has given rise to many developments by the case law which qualify sometimes heavily the black letter of the contract and related allocation of risk and benefitsOriginally, only bad faith conducts were sanctioned. However, very early the case law decided that the good faith requirements should extend beyond the black letter of the contract and trigger a positive and far-reaching duty to advise upon the party having the professional knowledge and practice (consequently in most cases the duty falls on the Contractor for the benefit of the employer). Due to the particular nature of a construction contract under the Napoleonic civil code, the duty for the Contractor to warn or to advise the employer leads in some circumstances to a duty to challenge an engineer’s instruction or an employer’s decision. 01/09/2014 © 2014 - Frilet Société d'Avocats 14

Some key Napoleonic Civil Law consideration impacting on contract implementation.(3)III: Underlying of Contractor’s obligation: entrepreneurship contract and strict liabilityEntrepreneurship contract: under Napoleonic Civil law, construction and civil works contracts qualify as “contrat d’entreprise”. - Under contrat d’entreprise, the obligation of the Contractor is to reach results: i.e. work completed in accordance with scope and conditions: very few excuses: force majeure, employer default, third party interference. - In case of failure to reach the result, the employer can repudiate the contract and has no obligation to pay.Strict liability: the Contractor in jointly and severally liable with architects, engineers and other professionals having participated to the process for ten years after completion. Liability is for any damage which affects the strength of the building or the works, or of one of their constituent part and render them unfit for the intended purpose. It cannot be contracted out, but is always insured under a mandatory insurance scheme. 01/09/2014 © 2014 - Frilet Société d'Avocats 15

Some key Napoleonic Civil Law consideration impacting on contract implementation.(4)IV- Industry organization The combination of three major concepts: contrat d’entreprise; duty to advise and decennial liability in existence for over two centuries, have led to an integrated organization of the Contractors.French Contractors consider essential to prevent legal and statutory risks to have sufficient in-house engineering and technical skills to comply with their duty to advise, to achieve results and to meet the strict liability requirements. This triggers a natural trend of Employers and Engineer to leave a large freedom to the Contractor to organize itself for developing the work methodology and progress,When an Employer or Engineer becomes too prescriptive without obvious justifications and when the Contractor disagrees, the case law often rules in favor of the Contractor ( “immixtion remedy”). In a nutshell; the respective role of engineer and Contractors are in a day-to-day practice on site substantially different from the common law situation. 01/09/2014 © 2014 - Frilet Société d'Avocats 16

Some key Napoleonic Civil Law consideration impacting on contract implementation.(5)V- Impact of public contract lawNapoleonic civil law country, distinguish between 1) private law, which includes contract law which is codified; and 2) administrative law which includes public contract law which is not codified.Two different set of courts have a distinctive jurisdiction up to the highest level. For private contract law: the supreme court is the Cour de cassation. For public contract law, the supreme court is an another supreme court: : le Conseil d’Etat. All contracts entered into between a public employer and a Contractor are governed by private contract law as refined or superseded as the case may be by public contract law. Rationale for having a distinctive set of public contract law: contracts entered into between a Contractor and a public authority are not concluded for the exclusive interest of each party, but also for general interest and for the benefit of the public at large. Consequences: general interest overrides private interest and justifies, in some situations, legal rights and obligations not available in private contract: “droits exorbitants du droit commun”, 01/09/2014© 2014 - Frilet Société d'Avocats 17

Some key Napoleonic Civil Law consideration impacting on contract implementation.(6)VI - Example of public contract law provisions: I- Special rights of the Public Employer Unilateral right to terminate: - Termination at any time: such termination is possible when justified by a legitimate public interest, which may include financial reasons, notwithstanding any clause to the contrary. - Termination for default: the right of termination in case of gross default is available notwithstanding any clause to the contrary. When events of termination are listed in a contract, a judge will only confirm the termination if he considers that a gross default is characterized . Unilateral right to amend a contract (concept broadly similar to European case law): - Those rights may be limited by contract. This is the case in World Bank civil law standard conditions, when the proposed amendment is beyond a certain threshold. 01/09/2014 © 2014 - Frilet Société d'Avocats 18

Some key Napoleonic Civil Law consideration impacting on contract implementation.(7)VII- Exemple of public contract law provisions: II-Special Rights of the ContractorUnforeseen ground conditionsThis right of public order nature benefit to the Contractor in case of material impediments during the performance of the works of exceptional nature, unforeseeable at the conclusion of the contract and deriving from a cause external to the parties. Right to be compensated for a performance of works of absolute necessity. When some additional works are imperative in order to complete the works described in the contract, the Contractor may carry out such work, even in the absence of notification to proceed. HardshipIn case of occurrence or a major change of economic circumstances unforeseeable at the time of the conclusion of the contract the contract has a right to indemnification based on the rebus sic stantibus principle (hardship). Hardship only applies above a certain threshold in certain situations. Right of indemnification: quantum of damages T he principle is a right to full indemnification including loss of profits ( damnum emergens, and lucrom cessens),01/09/2014© 2014 - Frilet Société d'Avocats 19

Public contract law: the decisive role of the French Conseil d’Etat. Public contract law is the product of a case law developed by administrative courts and by the Conseil d’Etat. Conseil d’Etat is a most prestigious institution, created by Napoleon for advising the State and public authorities and making final decision on administrative cases.As a custodian of general interest, he has the authority and duty to safeguard both the private and public interest in public contracts. He has the authority to rule in equity. The equitable public contract law developed by the Conseil d’Etat is a result of a well organized institutional set up including the conditions of instructing the cases, the guarantee of continuity and development of public contract law. For industry and legal practitioners, public contract law key principles and their developments are relatively easy to know and widely acceptable. The Conseil d’Etat itself plays an important role in careful and synthetic drafting of major decisions, their interpretation, their publication, and authoritative comments: one leading and semi-official source of information and of interpretation of the case law for many decades: the AJDA journal. In practice, several leading cases have more or less the status of a legal or regulatory provision. 01/09/2014 © 2014 - Frilet Société d'Avocats 20

Conclusion: legal reasoning for implementing contract conditions for civil works in Napoleonic Civil Code practice. Legal reasoning is based on a “top-down” approach. This contrasts with Common Law essentially based on a “bottom-up” approach. Example of traditional steps for preventing or resolving a dispute. - First step: Dig into the contract environment, and of course the factual situation. - Second step: identify a governing concept or a family of concepts, categories or principles deriving either from civil law of contract (or equitable public law of contract as the case may be) for identifying the boundaries of the dispute. - Third step: identify related usages and common practices. - Fourth step: review appropriate scholars opinions and French Conseil d’Etat advices to State and public authorities and of course, case law in an appropriate order. 01/09/2014 © 2014 - Frilet Société d'Avocats 21