FROM THE IBA INTERNATIONAL PROJECTS COMMITTEE OF THE ENERGY ENVIRONMENT, NATURAL RESOURCES AND INFRASTRUCTURE SECTION (SEERIL) Vol 15 ISSUE 4 ISSN 1819-1371 DECEMBER 2020

Concurrent delay: Differing site unliquidated Investor-state conditions: by disputes arising contrasting the employer and from the pandemic English and US disruption claim legal systems by contractor EXPERT ADVISORY & SERVICES FOR THE ONSHORE & , AND SHIPBUILDING INDUSTRIES CLAIMS – QUANTUM – DELAY – TECHNICAL +44 (0)20 3287 8518 • [email protected] Global Head Office Hanscomb Intercontinental, 5 Chancery Lane , London NEW YORK – LONDON – JOHANNESBURG– CONTENTS A Committee publication from the IBA Energy, Environment, Natural Vol 15 ISSUE 4 December 2020 Resources and Infrastructure Law Section tinyurl.com/IBA-SEERIL

REGULARS

2 FROM THE EDITORS 3 FROM THE CO-CHAIRS 4 FIDIC AROUND THE WORLD 4 Zambia 6 UAE 10 COUNTRY UPDATES 10 Uruguay 11 Argentina 12 15 Italy

FEATURE ARTICLES

Investor-state disputes arising from the pandemic 18 Joshua Paffey and Lee Carroll

Differing site conditions: contrasting the English and 23 US legal systems JB Kim

Concurrent delay: unliquidated damages by employer and 34 disruption claim by contractor International Association JB Kim 4th Floor, 10 St Bride Street, London EC4A 4AD, Concurrent expert in a post-pandemic world Tel: +44 (0)20 7842 0090 41 Nicholas Cousino and Kemi Wood Fax: +44 (0)20 7842 0091 www.ibanet.org Public works and dispute boards: a pending debate in Editorial: [email protected] 47 South America Advertising: andrew.webster-dunn Alex Wagemann Farfan and Claudio Inostroza Guajardo @int-bar.org

© International Bar Association 2020 All rights reserved. No part of this publication may be reproduced or transmitted in any form or any means, or stored in any retrieval system of any nature without the prior written permission of the copyright holder. Application for permission should be made to the Director of Content at the IBA address.

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CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 1 FROM THE EDITOR

Dear readers, While most of us continue to work remotely and increasingly rely on virtual meetings, we bring you a digital edition of International. This is a truly global edition that, as always, considers important issues that have an impact on construction projects around the world. For our FIDIC Around the World series, we are fortunate to have contributions from Bwalya Lumbwe, who discusses the application of FIDIC in Zambia, and Erin Rankin Miller and Samantha Lord Hill, who discuss in detail the use of the FIDIC forms in the . In the Country Updates section, we have two contributions from South America. Federico Carbajales provides an update on amendments to Uruguay’s construction defects decennial liability scheme. From Argentina, Santiago Barbarán considers the important role that renewable energy projects will play in the economic recovery from the impact of Covid-19. In Australia, Andrew Chew, Christine Covington and Louise Camenzuli discuss state-based that provides a comprehensive reform package to target defective building work. We are delighted to have a contribution from Italy, where Alessandro Paccione, Giada Russo, Marco Giustiniani and Giovanni Gigliotti provide an update on a recent Italian government , known as the Simplification Decree, which aims to simplify and streamline the administrative procedures that underpin the award of government . Moving to our feature articles, Joshua Paffey and Lee Carroll discuss the difficult balance between public health and corporate wealth in the context of investor-state disputes arising from the Covid-19 pandemic. JB Kim has provided us with two in-depth and well considered articles. The first focuses on differing site conditions, contrasting the English and United States legal systems in that context. His second piece discusses the perennial issues associated with concurrent delay. Continuing with concurrency, Nicholas Cousino and Kemi Wood provide their insights into the increased use of virtual hearings and the challenges that they present with respect to expert evidence. Lastly, Alex Wagemann Farfán and Claudio Inostroza Guajardo discuss the benefits to South American countries if dispute boards were more widely used on public sector projects. We thank our contributors for their insightful articles and we hope you will enjoy reading this edition. From country updates to feature articles, we invite you all to contribute your thoughts and insights to CLInt by submitting your articles to [email protected].

Thomas Denehy Committee Editor, ICP Committee Corrs Westgarth, Sydney [email protected]

2 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 FROM THE CO-CHAIRS

Dear fellow International Construction Projects members, As we write this, we are nine months into our term as Co-Chairs of the International Construction Projects Committee. At the start of the year, we had planned to attend our annual Working Weekend in beautiful Vevey, Switzerland, with a great working and social programme; the SEERIL Bi-annual Conference in Marrakesh, Morocco; and of course the IBA Annual Conference in Miami, United States. None of these events were able to take place so we, in common with many others, have had to take stock and adjust to what very quickly became a ‘new normal’ with a heavy reliance on technology. A McKinsey study suggests that, as a result of the pandemic, there has been five years’ worth of consumer and business digital adoption in about eight weeks,1 a quite astonishing statistic. Looking back, we are proud of the ICP’s achievements over this time, despite the changes we have been forced to make. We ran a series of events, including an open discussion forum on the topic of construction in quarantine, and webinars on topics including construction disputes in pandemic times; unforeseen subsurface conditions; how risk allocation is a determining factor in a successful project; and the Society of Construction Law’s Delay and Disruption Protocol. We also launched our diversity project with the first webinar, titled ‘Effective tools in managing diversity and inclusion challenges in the construction industry: multinationals’ Approach to Policy’. This is an important topic for the construction industry. Recent research by McKinsey supports the business case for diversity and inclusion: ‘Our latest analysis reaffirms the strong business case for both gender diversity and ethnic and cultural diversity in corporate leadership – and shows that this business case continues to strengthen. The most diverse companies are now more likely than ever to outperform less diverse peers on profitability.’2 Traditional roles in construction are changing as the industry increasingly adopts technology and there is a need for a highly skilled workforce equipped to deal with this. Diversity is one factor in driving innovation which, given other challenges faced in construction, will be key going forward. Look out for more on this in the future. We presented five sessions during the IBA’s Virtually Together Conference in November on a range of topics and with contributions from around the globe, and held a networking session as the nearest thing possible to being able to meet each other in person. All of this was only possible through the time and efforts made by ICP members to plan, prepare, present and participate in these sessions. Our officers have been very active over the year, not only with this but also looking forward to plan projects and topics for future sessions. We would like to thank each and every person who has contributed to the ICP over the year. We are also working on the Toolkit for Construction Projects, a booklet collecting best advice about all stages of construction projects and key issues to be considered from initiation to completion and . Please do contact us if you would like to make a contribution or if you have other ideas for topics for sessions or other activities you would like to see within the ICP. We will be delighted to hear from you. Looking forward, we are committed to continuing to do all we can to deliver a great programme of activities for the ICP over the coming year. We are already working on the programme of topics for the postponed Working Weekend and for the Annual Conference scheduled to be held in Paris, France, in October 2021. We would welcome any suggestions for topics you would like to see included so please do send us your ideas. We wish you and your families, friends and colleagues well and trust that we can all look forward to better times in 2021.

Shona Frame ICP Co-Chair [email protected]

Ricardo Barreiro-Deymonnaz ICP Co-Chair [email protected]

1 Aamer Baig, Bryce Hall, Paul Jenkins, Eric Lamarre and Brian McCarthy, ‘The COVID-19 recovery will be digital: A plan for the first 90 days’ McKinsey Digital (14 May 2020) www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-covid-19-recovery-will-be- digital-a-plan-for-the-first-90-days accessed 18 September 2020. 2 Sundiatu Dixon-Fyle, Kevin Dolan, Vivian Hunt and Sara Prince, Diversity wins: How inclusion matters McKinsey & Company (19 May 2020) www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters accessed 18 September 2020.

CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 3 FIDIC AROUND THE WORLD

the development of the Kenneth There are no common amendments Kaunda airport in Lusaka and in Zambia, except as stated in Harry Mwanga Nkumbula response to the previous question International Airport in Ndola. regarding implied or mandatory The short form of was terms for public procurement utilised in at least one contract for contracts. The principle of freedom a rehabilitation project at the to contract entitles parties in private University of Zambia. contracts to modify contract forms and terms to suit their objective, 3. Do FIDIC produce their forms provided that such modifications do ZAMBIA of contract in the language of your not violate Zambian law. ? If no, what language Bwalya Lumbwe, Lusaka do you use? 6. Does your jurisdiction treat The English versions of FIDIC forms Sub-Clause 2.5 of the 1999 suite of 1. What is your jurisdiction? are commonly available and used FIDIC contracts as a precondition Zambia in Zambia, as English is the official to Employer claims (save for business language. those expressly mentioned in the 2. Are the FIDIC forms of contract sub-clause)? used for projects constructed in 4. Are any amendments required Employer claims are generally your jurisdiction? If yes, which of in order for the FIDIC Conditions evaluated and processed according the FIDIC forms are used, and for of Contract to be operative in to terms agreed by the parties in what types of projects? your jurisdiction? If yes, what both public and private contracts. FIDIC contract forms are used amendments are required? Sub-Clause 2.5 of the 1999 suite of in Zambia, primarily for public Certain terms are implied by the FIDIC contracts is applied without procurement projects involving public procurement legislation any change to its provisions in public building and infrastructure works. and cannot be excluded by contracts, except as may be pre- Parties in private contracts or parties in public contracts. These approved by the Attorney-General projects may choose the terms of statutorily implied terms include on a case-by-case basis. However, their contract, including whether the requirement for the Attorney- employer claims in private contracts to adopt FIDIC forms. Zambia’s General’s approval before contract may be modified to comply with Public Procurement Act No 19 amendment; maximum variation terms pre-agreed by the parties. of 2008 mandates the use of the limits; the pre-authorisation of the 2010 version of the Pink Book contract awarding authority for 7. Does your jurisdiction treat in employer/contractor public contract termination; and other Sub-Clause 20.1 of the 1999 suite procurement contracts for building terms that have an impact on of FIDIC contracts as a condition and engineering works requiring project supervision and execution. to Contractor claims for open international bidding, It is pertinent to note that although additional time and/or money (not while the White Book is used in some mandatory legislative terms including Variations)? private client/consultant services for public procurement may There is no legal obligation not to agreements. Although Zambian law (inadvertently) be omitted from treat Sub-Clause 20.1 in the both does not compel the use of FIDIC certain FIDIC adopted contract the Red or Pink Book as condition model services forms, the Public forms, such statutorily omitted precedent to Contractor claims Procurement Act requires parties to terms shall be implied and binding involving time and/or money in adopt forms that conform to World on contract parties by the operation public contracts. In other words, Bank standard service agreements. of law. In this regard, it is advisable the Sub-Clause is applied as is unless The 1999 Red Book was applied for parties in public project contracts it is modified with the Attorney- in some private sector projects, to include or acknowledge the General’s approval. Parties in such as the Lumwana copper mine application of mandatory statutory private contracts may modify the and Chambeshi mine projects, and terms in their contract. terms as they may deem necessary. also in donor-funded public works, including the Lusaka water supply, 5. Are any amendments common in 8. Does your jurisdiction treat sanitation and drainage project. your jurisdiction, albeit not required Sub-Clause 20.1 of the 1999 suite This project involved at least six in order for the FIDIC Conditions of FIDIC contracts as a condition separate contract packages and was of Contract to be operative in precedent to Contractor claims funded by foreign donors. The your jurisdiction? If yes, what for additional time and/or money Silver Book was used in two (non-essential) amendments are arising from Variations? internationally funded projects for common in your jurisdiction? See the response to question 7.

4 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 9. Are dispute boards used as to be administered: (1) by an 11. Are there any notable local an interim dispute resolution arbitral institution designated in the decisions interpreting FIDIC mechanism in your jurisdiction? If contract and conducted under the contracts? If so, please provide a yes, how are dispute board decisions rules of such institution; short summary. enforced in your jurisdiction? or (2) if so specified in the contract, There is no known domestic Dispute boards are used under in accordance with the arbitration judicial decision interpreting FIDIC the FIDIC Pink, Red and Silver rules of the United Nations contracts in Zambia. Books. Generally, disputes are Commission on International Trade resolved according to contract Law (UNCITRAL); or (3) where 12. Is there anything else specific terms. Zambian respect the neither an arbitration institution to your jurisdiction and relevant to sanctity of parties’ contract and nor the UNCITRAL arbitration the use of FIDIC on projects being will refuse to litigate where there rules are specified in the contract, constructed in your jurisdiction that is a valid arbitration or dispute then in compliance with you would like to share? resolution clause in the contract; in proceedings administered by the The Public Procurement Act ascribes such instance, the court will require International Chamber of criminal liability for violation of parties to adopt the contractual Commerce (ICC) and conducted some of its provisions. For instance, dispute resolution procedure. under the ICC Rules of Arbitration. contractors and administrators There is no known legal The mandated public involved with public projects may precedent to enforcement procurement form of contract for be held criminally liable for failing proceedings; hence, it is not known small works construction also to comply with the procurement how Zambian courts will react. provides for arbitration as the legislation, terms of contract and Zambia is a country final tier. Local procedural rules other instruments. In addition, and English law and decisions of will usually apply in smaller parties to a public project may common law are likely contracts or projects; the only be criminally liable for failing to have persuasive effects on available local rules are those of to constitute a dispute board. A Zambian courts. Therefore, it is the Zambia Branch of the contract administrator may also likely that Zambian courts will Chartered Institute of Arbitrators. be criminally liable for failing to adopt the decision in Peterborough Where the contract is awarded to advise a client on the dispute board City Council v Enterprise Managed an international contractor or has provisions in the procurement Services Limited [2014] EWHC 3193 international dimensions, disputes legislation. The penalties for these (TCC), a case that supports the use arising therefrom are often criminal liabilities range from a fine of dispute boards. For disputes resolved in accordance with the to imprisonment or both. resolved by arbitration, the UNCITRAL Rules, or ICC Rules or Arbitration Act No 19 of 2000 the Arbitration Rules of the outlines the process for recognition Arbitration Institute of the Bwalya Lumbwe is a civil and a and enforcement of awards based Stockholm Chamber of chartered manager, auditor on the New York Convention. Commerce. Public parties or and FIDIC adjudicator and arbitrator in employers often prefer to adopt Zambia. He can be contacted at 10. Is arbitration used as the final stage the Zambian Arbitration Act as the [email protected] for dispute resolution for construction preferred law for dispute projects in your jurisdiction? If yes, resolution of a project; this is what types of arbitration (ICC, LCIA, usually stated as a pre-condition AAA, UNCITRAL, bespoke, etc) for tendering before the contract are used for construction projects? award. Public procurement also And what seats? mandates the consultant’s contract Arbitration is often used as a final forms to use arbitration as the dispute resolution process both final tier for dispute resolution under public procurement and using the UNCITRAL rules. private contracts. The FIDIC Pink Lusaka, the capital of Zambia, is Book form, which is mandated in the implied seat of arbitration for public procurement projects, has a non-international contracts. two-tier dispute resolution process International contract seats are – dispute board and finally likely to be determined in arbitration, a standard feature in accordance with the adopted rules all FIDIC forms. of procedure. There is no The Pink Book provides for specialised arbitration for international arbitration proceedings construction contracts.

CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 5 FIDIC AROUND THE WORLD

In the authors’ experience, or safety of the building, for a where a FIDIC form of contract is period of ten years from the date used, it is often heavily amended of handover (unless the through particular conditions. was responsible for design only, in which case the architect will only 3. Do FIDIC produce their forms be liable for defects in design). of contract in the language of your Any agreement to exclude or limit jurisdiction? If not, what language the liability of the Contractor or do you use? the architect for structural failures Yes, FIDIC produces some of their or defects is void. This should be UNITED ARAB EMIRATES forms of contract in Arabic such considered by Parties when they as the 1999 FIDIC Red Book, 1999 are agreeing a Defects Notification Erin Miller Rankin and Samantha Lord FIDIC Silver Book, 1999 Yellow Period and the and Hill,1 Dubai Book and the 2008 Gold Book. limitations on liability. However, for projects in the UAE • Force majeure and exceptional 1. What is your jurisdiction? involving one or more international circumstances: Article 287 of the United Arab Emirates (UAE). participants, English is the preferred Civil Code permits the allocation language of the contract. of risk for force majeure events as 2. Are the FIDIC forms of contract the parties. However, Article 249 used for projects constructed in 4. Are any amendments required provides that where exceptional your jurisdiction? If yes, which of in order for the FIDIC Conditions events of a public nature, which the FIDIC forms are used and for of Contract to be operative in could not have been foreseen, what types of projects? your jurisdiction? If yes, what occur, as a result of which The use of FIDIC forms of contract amendments are required? performance of a contractual is common in the UAE for projects Where FIDIC form contracts are obligation becomes onerous, involving international parties. The used for private sector construction even if not impossible, such as 1987 and 1999 FIDIC Red Books, in projects, UAE law generally to threaten the party obliged to particular, are used across a range recognises the parties’ freedom perform the obligation with grave of sectors including infrastructure, to contract, subject to certain loss, the court or the tribunal has rail and energy-related construction mandatory provisions of the law. the power to reduce the onerous projects. However, the approach Accordingly, where UAE law is obligation to reasonable level if varies depending on the identity chosen as the governing law of a so requires. Accordingly, of the contracting parties and the FIDIC contract these mandatory careful consideration must be applicable law. provisions must be considered at the given to ensure compatibility For example, the Emirate of Abu outset and the contract amended if between this mandatory provision Dhabi has its own FIDIC-based so desired. To take the key examples: of UAE law and the force majeure construction contract templates • Liquidated damages: Article provision in the relevant FIDIC that are mandatory when the 390(2) of the UAE Civil Code form contract. private sector is contracting with permits a court or arbitral tribunal • Termination: Article 892 of the Civil the government of Abu Dhabi. The to adjust the amount that parties Code provides that a Muqawala Abu Dhabi government passed Law have specified in their contract contract shall terminate upon the No 21 of 2006 and the Abu Dhabi in order to reflect the actual loss completion of the work agreed, Chairman’s Decision No suffered by the claiming party. upon termination by consent or by 1 of 2007, which introduced two This means that although parties order of the court. Parties can also forms of construction contracts for are free to agree a liquidated agree to the contract being treated public construction projects, a damages clause in their contract, as automatically terminated without construction works contract based there is a risk the clause will not the need for a court order, upon on the FIDIC 1999 Red Book and a be strictly enforced. non-performance of obligations design-and-build contract based on • Exclusions and limitations of under the contract, provided that the FIDIC 1999 Yellow Book. liability for structural failure or notice is given and the right to In contrast, in the Emirate of defects: under Article 880 of terminate is clearly expressed in Dubai, Law No 6 of 1997 (as the Civil Code, a Contractor the contract. The termination amended) expressly prohibits the and architect are jointly liable provisions in a FIDIC form contract adoption of FIDIC forms of to compensate the Employer for should be reviewed to ensure they contract in certain contracts with any total or partial collapse of a are sufficiently clear to bring about the Dubai government, other than building or installation and for any automatic termination without a in exceptional circumstances. defect which threatens the stability court order.

6 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 5. Are any amendments common in in the Civil Code such that a court that a clause that seeks to extinguish your jurisdiction, albeit not required or tribunal applying UAE law should an otherwise valid claim solely due in order for the FIDIC Conditions seek to enforce the provisions of to non-compliance with notice of Contract to be operative in your the contract in so far as is legally provisions is void. jurisdiction? If yes, what (non- possible. This means that a court Beyond the notice provisions in essential) amendments are common or tribunal may consider a party’s Sub-Clause 20.1, a court or tribunal in your jurisdiction? compliance with notice provisions, applying UAE law may take a more Yes. Sub-Clause 5.1 of the FIDIC but where such provisions are not stringent approach to non- Red Book 2017 is consistent with expressly stated to be a condition compliance to the extent it considers Article 890(2) of the Civil Code precedent to a claim (as is the an Engineer’s determination to be a in providing that the Contractor case in Sub-Clause 2.5), a court pre-condition to commencement of remains responsible to the Employer or tribunal applying UAE law arbitration. The UAE courts typically for Works that it subcontracts. may be reluctant to conclude as seek to enforce pre-conditions to However, there is uncertainty as such. In practice, even where the arbitration where such conditions to whether the UAE courts would parties have expressly agreed that are clearly defined in terms of what consider nominated Subcontractors a notice provision is a condition the parties must do and, sometimes, as falling within this provision. precedent to recovery or that a in what timeframes. To avoid confusion, it should failure to notify constitutes waiver be expressly stated that they do or of a claim, 8. Does your jurisdiction treat in the Particular Conditions. In depending on the circumstances, Sub-Clause 20.1 of the 1999 suite addition, some amendments may such a provision will not necessarily of FIDIC contracts as a condition be made to take into account the operate to preclude recovery as a precedent to Contractor claims practicalities of working in the matter of UAE law. for additional time and/or money UAE. For example: (1) it would arising from Variations? be helpful to expressly state in 7. Does your jurisdiction treat There is no definitive answer as a the Particular Conditions that all Sub-Clause 20.1 of the 1999 suite matter of UAE law to whether the dates and periods of time referred of FIDIC contracts as a condition regime in Sub-Clause 20.1 applies to in the Contract (including all precedent to Contractor claims for to claims for additional time and/or references to day, month, and year) additional time and/or money (not money arising from Variations. One shall be ascertained in accordance including Variations)? view is that it does not apply to claims with the Gregorian calendar to Although Sub-Clause 20.1 of the for money for work done as part of a avoid confusion as to whether 1999 suite of FIDIC contracts Variation but does apply to claims for the Hijri calendar is applicable; expressly provides that if the additional time and/or cost arising (2) when stating normal working Contractor fails to give notice, time in consequence of a Variation. hours for a project in the Particular shall not be extended, it shall not be Irrespective of the ambit of Sub- Conditions, local labour entitled to additional payment and Clause 20.1, as discussed in should be considered. In Dubai the Employer shall be discharged question 6, it will not necessarily be for example, these restrict working from all liability in connection with treated as a condition precedent to hours during the peak heat months the claim, this provision will not the claim with the effect of of July and August and during the necessarily be treated as a condition precluding recovery as a matter of holy month of Ramadan; and (3) all precedent to the claim with the UAE law. foreign workers are required to hold effect of precluding recovery as a a valid visa to enter, reside and work matter of UAE law. 9. Are dispute boards used as in the UAE. It may, therefore, be In accordance with Article 473 of an interim dispute resolution prudent to include a clear provision the Civil Code, a right under a mechanism in your jurisdiction? identifying who will be responsible construction contract will not If yes, how are dispute board decisions for obtaining such visas or permits expire by the passage of time unless enforced in your jurisdiction? in the Contract. there has been a lapse of 15 years Dispute boards (DABs) without lawful excuse. Under are not a recognised form of dispute 6. Does your jurisdiction treat 487(1) of the Civil Code, it is not resolution in the UAE. Therefore, Sub-Clause 2.5 of the 1999 suite of permissible for parties to agree even if a Party obtained a DAB FIDIC contracts as a precondition that a claim may not be brought decision that was final and binding to Employer claims (save for after a period differing from the under the terms of the FIDIC those expressly mentioned in the period laid down by law. These contract, it would still need to go Sub-Clause)? provisions give scope to a court or through an arbitration process to The principle that the contract is tribunal to look to the substantive have the DAB decision converted the law of the parties is embodied legal basis for the claim and to rule into an arbitral award that could

CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 7 FIDIC AROUND THE WORLD

then be recognised and enforced in jurisdiction over a DIAC arbitration of disputes in accordance with the the UAE. However, the Dubai Court and the respondent had referred General Conditions of a FIDIC of Cassation in Case No 795/2018 the matter to the Dubai Court of form contract was sufficient to upheld the agreement to refer a Cassation under the supervisory constitute an agreement to refer dispute to a DAB as a condition power in Article 19(2) of the the matter to arbitration. precedent to arbitration. Federal UAE Arbitration Law 2018. The court found that the claimant 12. Is there anything else specific 10. Is arbitration used as the had prematurely commenced to your jurisdiction and relevant to final stage for dispute resolution arbitration because it had not the use of FIDIC on projects being for construction projects in your referred the dispute to the constructed in your jurisdiction that jurisdiction? If yes, what types Engineer for a decision under you would like to share? of arbitration (ICC, LCIA, AAA, Clause 67 in a timely manner. It The UAE is a unique jurisdiction UNCITRAL, bespoke, etc) are therefore annulled the tribunal’s in that it consists of ‘onshore’ UAE used for construction projects? decision on jurisdiction. laws and courts that follow civil And what seats? A similar outcome occurred in law traditions and two ‘offshore’ Yes. Institutional arbitration is Case No 757 of 2016 at the Dubai jurisdictions, the DIFC and the the most commonly used method Court of First Instance. Here, the ADGM, which each follow common for settling construction industry claimant had commenced law traditions. The previous disputes in the UAE. The most arbitration before the DIAC, which responses here focus on onshore commonly used arbitration had appointed an arbitrator, and UAE only, but it is important to institutions and seats are: the Dubai the parties signed Terms of remember that the international International Arbitration Centre Reference. It appears that the nature of many projects in the UAE (DIAC) with a Dubai seat; the DIFC- respondent raised an objection to means that the laws and practices LCIA Arbitration Centre with a DIFC jurisdiction on the basis that the of the DIFC or the ADGM may also seat; the Abu Dhabi Commercial dispute had not been referred to be relevant. This may be the case in Conciliation and Arbitration Centre the Engineer as required by the private-sector construction projects, (ADCCAC) with an Abu Dhabi seat; clause. Nonetheless, the tribunal for example, where the parties have and the International Chamber of rendered an award requiring the chosen the DIFC or ADGM law as Commerce (ICC) with a Dubai, respondent to pay AED 7.3m the governing law of the underlying Abu Dhabi, Abu Dhabi Global (about £1.5m). When the claimant contract or where either of these Market (ADGM) or London seat. sought enforcement of the award jurisdictions is chosen as the seat of For projects with foreign parties, before the Dubai Court of First the arbitration. international organisations such as Instance, the respondent counter- Where the parties have chosen the ICC may be preferred. filed an annulment application on onshore UAE law as the governing the basis that the claimant had law of their contract, Article 246 of 11. Are there any notable local failed to comply with the pre- the Civil Code requires the court decisions interpreting FIDIC condition in Clause 67. The court exercise of good faith in contracts? If so, please provide a found in favour of the respondent, contractual performance. There is short summary. stating that the parties had agreed no specific definition of what good Since parties to FIDIC form that disputes could be referred to faith entails – it is a matter of contracts typically agree to arbitrate arbitration if they had been: (1) discretion for the court or tribunal their disputes, the decisions of the referred to the Engineer for a based on the particular UAE courts arising from FIDIC decision but had not become final circumstances – but some form contracts largely concern and binding; or (2) referred to the indication can be gleaned from to issues around the admissibility Engineer for a decision and had Article 106 of the Civil Code, of claims and the validity of the become final and binding but not which considers the exercise of a arbitration agreements in the complied with by the parties. The party’s right to be unlawful where: context of applications to annul court ordered the annulment of (1) it is intended to infringe the arbitral awards. Some examples are the award because the claimant rights of another party; (2) the as follows. had produced no evidence showing outcome is contrary to the rules of In Case No 32/2019, the Dubai that the dispute was ever referred law, the law, public order or Court of Cassation handed down a to the Engineer under Clause 67. morals; (3) the desired gain is decision on 5 February 2020 As to the validity of arbitration disproportionate to the harm that confirming the strict application of agreements, the Dubai Court of will be suffered by the other party; the condition precedent in Clause Cassation in Case No 462 of 2003 or (4) where it exceeds the bounds 67 of a 1987 FIDIC form contract. held that a dispute resolution of custom or practice. Parties to The tribunal in this case had taken clause providing for the settlement construction disputes governed by

8 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 UAE law often rely on the principle Erin Miller Rankin is a global partner at of good faith in both arguments Freshfields Bruckhaus Deringer and can concerning the interpretation and be contacted at erin.millerrankin@ application of contractual provisions freshfields.com. Samantha Lord Hill is and those concerning the parties’ a senior associate at Freshfields respective behaviours on the Bruckhaus Deringer and can be project. This is important to bear in contacted at Samantha.LordHill@ mind for those project participants freshfields.com. with a common law background, where the principle of good faith typically does not assume importance to the same extent.

Note 1 The authors would like to thank Alexandra Einfeld and Engie Mohsen for their assistance in the preparation of this article. The views expressed in this article are those of the authors and not of Freshfields Bruckhaus Deringer.

CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 9 COUNTRY UPDATES

(‘functional collapse’), should The term for claiming these defects be verified within a ten-year term; The law reduces the term within • any other defects, except for which an action after the occurrence those only affecting the work’s of a defect must be brought from completion and finishing 20 years to four years for all cases, elements should these defects be including structural collapse and verified within a five-year term; functional collapse. and • defects only affecting the work’s Other amendments URUGUAY completion and finishing elements, should these defects The law includes some other Amendments to the be verified within a two year term. important amendments, namely: construction defects The ten-year term was preserved • it differentiates between constructors and entrepreneurs, liability scheme for the most serious faults because in these cases the safety is at stake. which opens the discussion to Federico Carbajales, Montevideo The other defects with shorter the possibility of including real terms are minor and the limit of developers in the list of Law 19.726 came into force to two or five years was deemed to liable parties; amend the ten-year liability scheme be reasonable for these faults to • it includes within the causes for construction defects. It is be verified. of defects those caused by applicable to all construction deals inappropriate work management or calculation errors; agreed from January last year and Does the law allow any updates the liability scheme for • it expressly sets out that terms agreement with different within which defects may construction agents that existed terms? under the Uruguayan Civil Code occur will be counted from the acceptance of the work; and and Law 1816 of 1885. In the case of defects under point • it expressly repeals sections 35 and One of the amendments brought (1), the answer is no. This provision 36 of Law 1816, which expanded in different time limits for is public policy and, therefore, the the effects of ten-year liability guarantees based on the type of parties may not deviate at all from this enshrined under the Civil Code defect, changing the blanket ten- law by means of any private agreement. for any defects noted in the work. year period to terms of ten, five or Doubt arises in the case of defects two years. The window of 20 years under points (2) and (3) since the to bring an action after the relevant governing paragraph in occurrence of a defect was reduced the law fails to make any reference to four years. to public policy and therefore Federico Carbajales is an Associate at The law also reaffirmed the leaves a margin for interpretation. Guyer & Regules in Montevideo, Uruguay. He can be contacted at liability of construction agents when [email protected]. collapse, because they may only waive liability in the event Liability and waivers of a non-attributable external cause. The law reaffirms the objective nature of liability for all defects, and Key amendment professionals may only waive liability in the event that there is a non- The most significant amendment attributable external cause, such as is the change to guarantee terms force majeure, an act or omission of based on the type of defect and its a third party or an act or omission seriousness. , , of the principal. Conducting due constructors and/or entrepreneurs diligence is therefore not enough will be held liable for: to waive liability. • defects that, in whole or in part, Moreover, in the case of defects affect the stability or solidity of the under (1), architects, engineers, (‘structural collapse’) constructors and/or entrepreneurs or make the property unsuitable will be held liable in the event of for the agreed use – expressly structural collapse or functional or impliedly – or otherwise for collapse even if the materials were such use as ordinarily intended supplied by the principal.

10 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 was a matter of national interest. Covid-19 Article 2 stated that within ten years renewable energy sources In March this year, Decree 260/2020 should account for 8 per cent of declared Covid-19 a pandemic all electricity consumed nationally. situation in accordance with the After that target was missed, the law World Health Organization. This was modified by Law 27,191 of 2015, situation had showed no sign of which extended the deadline to 31 abating by October. December 2017. Consequently, Decree 297/2020 Various governments have sought stated that people had to be isolated to increase the use of electricity and were not allowed to circulate. Some activities were declared ARGENTINA generated from renewable sources. There is a valid argument for this essential and could continue. These activities were mainly related to Renewable Energy aim: the Argentine energy matrix is highly dependent on fossil fuels. food production, public work and Projects The following chart shows the public administration. In April, Administrative Decision Santiago J Barbaran, Buenos Aires energy matrix last year: 468/2020 stated that people involved in private energy works Argentina faces a difficult situation. could also circulate, therefore Last year a new government took allowing renewable projects to office with two major challenges: continue. The government showed to reinvigorate the economy and support for this public policy. negotiate the near default of debt. However, the response was far Some progress has been made. from simple as there were countless Argentina recently finished situations that could not be solved negotiations with its private because of the pandemic, such as creditors, having secured an machinery importation, provincial agreement with both international regulations and workers being and local creditors. The government infected with Covid-19. Thus, agrees with the concept of debt numerous projects were developed sustainability and this is critical to slower than expected. finding a solution to the solvency The RenovAR programme issue. Next year it will negotiate with stipulated different dates and the International Monetary Fund to conditions for the awardees of the reschedule its debts. projects. If the awardees did not However, the country has been achieve the stages of financial closure, in almost six months of quarantine construction start date, equipment because of the coronavirus arrival date and commercial pandemic. The Economic habilitation date, they would be fined. Commission for Latin America and As a consequence of the the Caribbean has estimated that Wholesale Electricity Market Clearing pandemic, the government decided the economy will shrink by about Company (CAMMESA) Report 20193 to extend the deadline to sign the 1 10.5 per cent this year, double the contracts and, consequently, the figure for 2018/19 when it shrunk The matrix is 2017 was as follows: commercial habilitation date 2 by about five per cent. nuclear one per cent; hydraulic 32 (Resolution 227/2020 of the The history of the country shows per cent; renewable energy five per Secretary of Energy) until 30 that every crisis generates more cent; and fossil fuels 62 per cent. November this year. This is very poverty and that economic growth Argentina started this year covering significant as companies have is essential not only to comply with eight per cent of the electricity lost time because of the creditors but also to create a path demand with renewable energy.4 quarantine situation and the to the future. The government implemented government has showed support the RenovAR programme to by extending the dates. Energy matrix 2015-2019 increase the percentage of Law 27,191 stated that by 2025 renewable energy in the matrix. At renewable energy sources must Law 26,190 of 2006 declared that present wind power provides 2,197 contribute 20 per cent of national the generation of electric energy megawatts, solar 459MW, bioenergy electricity consumption, implying a from renewable energy sources 171MW and hydraulic 496 MW.5 present shortfall of 12 per cent.

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At present Argentina also faces ensuring building practitioners have restrictions on high energy transport. increased duties to landowners, In accordance with market sources, provide the certifications required for the next and fourth round of the to allow principal certifiers to issue RenovAR programme, it was occupation certificates and have the suggested that the bidders should necessary insurance to cover their include in their offers a proposal liability if they breached their duties. to extend transmission lines, The RAB Act is designed to previously defined by the state. increase the governance framework With the change of government to minimise defective residential this project was suspended. apartments and inadequate Argentina has succeeded in certification process in residential generating eight per cent of its apartments by: energy from renewable sources. AUSTRALIA • giving the Secretary of the Now it faces the significant Department of Customer Services challenge of attaining 20 per cent. Comprehensive reform the power (which will be delegated The main obstacle to achieving this package to target to the building commissioner) proportion is reaching a political defective building work to issue stop work orders and consensus to underpin this public building work rectification policy, in the general context of Andrew Chew, Sydney orders, and prohibit the issuing economic difficulties. Christine Covington, Sydney of occupation certificates; and Louise Camenzuli, Sydney • increasing the regulatory and enforcement powers of Conclusion government to investigate and The parliament of New South prosecute building practitioners At different times, Argentina has Wales recently passed two pieces of who have engaged in defective shown resilience to recover from legislation to address issues that have work. major crises, in 1989 and 2001. This arisen over a long period of time about year, the pandemic has caused the deficiencies in the quality of building country’s debt to increase significantly and construction work across the Design and Building so the solution is more complex. state. The introduction of the Design Practitioners Act The public policy of diversifying and Building Practitioners Act 2020 the energy matrix to include (the ‘DBP Act’) and the Residential The DBP Act was introduced as a Bill renewable sources has taken almost Apartment Buildings (Compliance to the NSW parliament late last year 20 years. A process has been and Enforcement Powers) Act 2020 and, after more than 70 amendments initiated that, hopefully, will prove (the ‘RAB Act’) follows the Shergold- by the government, opposition and beneficial to Argentina generally. Weir report into the building and crossbench, passed by parliament The debate is not only about construction industry in 20181 and on 11 June this year. Amendments growth but sustainable growth. the appointment of the first NSW included the mandatory registration Building Commissioner in August of engineers. Notes 1 Economic Commission for Latin America last year. and the Caribbean www.cepal.org/es/ The DBP Act introduces a number Duty of care publicaciones/45782-enfrentar-efectos-cada- of additional requirements on vez-mayores-covid-19-reactivacion-igualdad- building practitioners, including The most significant change made nuevas accessed 13 September 2020. that building practitioners: by the DBP Act is the imposition of a 2 National Institute of Statistics and Census www.indec.gob.ar accessed • owe a statutory ‘duty of care’ to statutory duty of care on any person 13 September 2020. landowners and subsequent land who carries out construction work. 3 CAMMESA https://portalweb.cammesa. owners; Construction work is defined to com/Pages/PgInformeAnual.aspx, • are properly qualified and include: (1) building work; (2) the accessed 13 September 2020. recognised by professional bodies, preparation of regulated designs 4 Ibid. 5 https://despachorenovables. adequately insured and registered and other designs for building cammesa.com/renovables accessed with the NSW government; and work; (3) the manufacture or 13 September 2020. • issue compliance declarations that supply of a building product used confirm their work complies with for building work; and (4) Santiago Barbaran is a senior associate the of Australia supervising, coordinating, project at Estudio Beccar Varela in Buenos Aires. (BCA). managing or otherwise having He can be contacted at SBarbaran@ These changes are designed to substantive control over the beccarvarela.com. prevent defective building work by carrying out of any of this work.

12 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 to do building work or, if more Practitioners involved in • when an application for an than one person is doing the building design, building work, occupation certificate is made, building work, the principal the manufacturing or supply of notice must be given to registered contractor for that work. products used for building work building practitioners who The broad nature of this and supervisory roles will be have completed the work of definition means the vast required to exercise reasonable the intention to apply for an majority of people engaged in care to avoid economic loss that occupation certificate. building work will be required to would be caused by defects register. Under the registration relating to, or arising from, regime, building practitioners Enhanced enforcement construction work. will be required to register with If a practitioner breaches this In addition to the duty of care owed the Department of Customer duty of care, a property owner will by the practitioners, the DBP Act also Service and must be ‘adequately be entitled to damages (regardless provides for enforcement through: insured’ before undertaking of whether there is a contractual • disciplinary action against building work. arrangement to carry out that practitioners and companies construction work). involved in misconduct, including Compliance declarations the imposition of fines between AU$550 and AU$330,0000, and Application The DBP Act introduces the following imprisonment terms of up to concepts to implement the registration The duty of care cannot be delegated two years for making a false and compliance framework: or contracted out, and it does not compliance declaration or • ‘building elements’ – which limit damages or other compensation improper influence in relation includes fire safety systems, that may be available where a breach to the issue of a compliance waterproofing, load-bearing of another duty occurs. declaration; components, parts of a The duty of care will apply • issuing of stop work orders, either building enclosure and any retrospectively to existing unconditionally or subject to other mechanical, plumbing or buildings and contracts, if the conditions; and electrical services for a building economic loss has become • executive liability for to achieve compliance with the apparent within the past ten years contraventions of the DBP Act, Building Code of Australia (BCA); or after the DBP Act commenced. if they knowingly authorised or • ‘building work’ – defined broadly, The duty of care also extends to permitted the contravention. it includes the construction, subsequent owners. The DBP Act also makes numerous alteration, repair or renovation of references to a regulatory scheme a building or part of a building of that is yet to come into effect. Regulatory framework a class or type prescribed by the The proposed regulations are regulations; and anticipated to further detail: The framework means that a • ‘regulated designs’ – which includes • the insurance requirements; principal certifier can only issue designs prepared for a building • minimum qualification an occupation certificate after it element for building work. and continuing professional has determined and obtained all These new concepts facilitate a number development requirements for compliance declarations for the of additional regulatory requirements, practitioners; building work. The compliance including requirements that: • particulars required in regulated declarations can be only issued by • design and building practitioners designs and compliance registered practitioners at various must make ‘compliance declarations and the form and levels of the building cycle. declarations’ to the Department manner in which these documents that building work or building may be recorded and provided to Registration of practitioners elements that they have the Department; undertaken comply with the DBP • additional offences as necessary The DBP Act requires the Act and other required standards to support the operation of the registration and of design (including the BCA); DBP Act; and and principal design practitioners, • any variations by a building • the record keeping requirements building practitioners, professional practitioner from a regulated design for the Department and the engineers and specialist practitioners. for building elements or building Secretary in respect of documents The DBP Act broadly defines works must be documented and collected under the Act. building practitioners to include new compliance declarations are anyone who is engaged, under a sought from designers for the contract or other arrangement, varied design; and

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Residential Apartment • the use of a building product that Increased regulatory and Buildings Act is prohibited under the Building enforcement powers Products (Safety) Act 2017; and To ensure the integrity of the residential The Act is designed to: • any other defects prescribed • ensure developers are prevented apartment building industry, the as a serious defect under the RAB Act grants the government a from carrying out building work regulations. that may result in serious defects number of additional regulatory and or cause significant harm or loss enforcement powers including: to the public or present or future Application • requiring developers notify the occupiers of the building; and Secretary of the Department at • require developers to notify the The RAB Act applies to ‘developers’, least six months, but not more Secretary of the Department which is broadly defined by the Act than 12 months, before an of Customer Service six to 12 to include: application for an occupation months before applying for an • a person who contracted or certificate is intended to be made occupation certificate, to enable arranged for, or facilitated or in relation to building works; the government to undertake otherwise caused, the residential • allowing authorised officers to quality assurance checks. apartment building work to be undertake inspections of notified To achieve these objectives, the RAB carried out; building work; Act enables the Secretary to: • if the residential building work • establishing penalties for the • issue a stop work order if building is the construction of a building contravention of the requirements work is being carried out, or or part of a building, the owner of the RAB Act, which range is likely to be carried out, in of the land on which the work is from infringements of $550 to a manner that could result in carried out; $330,000; a significant harm or loss to • the principal contractor for the • providing for the recovery of the public or present or future work under the Environmental costs associated with compliance occupiers of the building; Planning and Assessment Act by a developer where there is • issue prohibition orders stopping the 1979 (NSW) (EPA Act); or more than one developer for the issuing of an occupation certificate • in relation to work for a strata building work; and where notification requirements scheme, the developer of the • executive liability for have not been met, there is a serious strata scheme under the Strata contraventions of the RAB Act defect or payment of a full strata Schemes Management Act 2015. if they knowingly authorised or bond has not been made; The RAB Act came into force on permitted the contravention. • issue a building work rectification 1 September this year and applies to: It is intended that the Secretary’s powers order to require developers to • ‘Class 2 buildings’ within the under the RAB Act will be delegated repair defective building works; or meaning of the BCA, which to the Building Commissioner. • prohibit the issuing of an is limited to residential, occupation certificate in relation multiresidential and mixed-use 2 Implications to building works in certain buildings; and circumstances, including where • all buildings either under Overall, it is hoped that both the a ‘serious defect’ exists. construction or completed within DBP and RAB Acts will have the Under the RAB Act, a new defect the previous ten years, ensuring desired effect of reinstating investor category of ‘serious defect’ has been protections to owners of existing and community confidence in the established, which includes: defective buildings. construction industry, particularly • non-compliant building Class 2 building work, without excessive elements that are attributable to Appeals time delays and cost as a consequence. a failure to comply with the BCA, Developers and builders in NSW relevant Australian standard or Developers can appeal stop will need to have regard to these approved plans; work orders to the Land and regulatory and governance • a defective building element Environment Court. However, requirements in projects going or building product that is this appeal must be lodged within forward. There will be challenges attributable to defective design, 30 days of the notice of the order for the design and building defective or faulty workmanship being given and, unless otherwise practitioners in particular, including or defective materials and is likely determined by the Court, will not ensuring they are adequately to cause an inability to inhabit or operate to stay the stop work order. insured in a challenging professional use the building, the destruction insurance market. of the building or any part of it, or Where developers have previously a threat of collapse of the building enjoyed a level of flexibility in or any part of it; relation to materials used or final

14 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 designs, the new legislation will European directives on public mean more rigour in the certification tenders by boosting public process and this will need to be investments and providing a legal factored into the whole planning framework for the process to and delivery project timeframe. increase competition in the market. For existing and new projects, Due to the high value of the additional modifications to investments and interests involved, development consents may be public tenders require a balance required. Developers should between fast processes for awarding consider the extent to which they are contracts that also respects the giving themselves sufficient flexibility ITALY fundamental principles of where needed in documentation and competition in the free market. that will form part of consents and The economic crisis has required which will not fundamentally affect Simplifying Italian public tenders: will it the government to tilt the scales the design outcome. towards the speed with which work this time? It is difficult, at this stage, to contracts are awarded in order to foresee all of the potential relaunch the national economy. In implications of the RAB Act, but it Alessandro Paccione, Giada Russo, Marco Giustiniani and Giovanni this context, the most impactful does appear that there is a risk to Gigliotti, Rome changes brought by the developers of time and cost delays if Simplifications Decree are vexatious claims are made regarding On 16 July this year, the Italian empowering the contracting defective building works. Because of government enacted the so-called authorities to: this, contingencies should be Simplifications Decree (Decree No • directly award public contracts up factored into development program 76/2020). to the value of €150,000; timeframes, particularly for As the name reveals, the Decree • avoid prior publication of any call contentious projects. is an attempt to simplify the legal for tenders and use negotiated system and, in particular, its procedures for contracts with a administrative procedures and value of €150,000 to €5m (in case of works) or 200,000 (in case of Notes bureaucratic structures. Also, in € 1 Peter Shergold and Bronwyn Weir, light of the coronavirus pandemic services and supplies, both the Building Confidence (February 2018) and its impact on the economy, ‘EU thresholds’); and www.industry.gov.au/sites/default/files/ the government boosted its • partially derogate some of the July%202018/document/pdf/building_ strategy of facilitating economic provisions within the Public ministers_forum_expert_assessment_-_ Contracts Code in the case of building_confidence.pdf accessed 22 recovery through a massive September 2020. simplification of administrative ‘anti-crisis’ contracts. 2 Exclusions for smaller class two projects procedures and offices. More These powers will cease on 31 July that are low risk are expected to be specifically, the Decree aims to next year. included in the supporting regulations. provide citizens who are entitled to receive benefits from a public administration (eg, public Public contracts up to Andrew Chew is a partner at Corrs contracts or building permits) €150,000 Chambers Westgarth and can be with a faster and more efficient contacted at [email protected]. The contracting authorities may au. Christine Covington is a partner at way to obtain them. award any contract, the value of which the firm and can be contacted at The scope of the Decree is wide, is not higher than €150,000, without [email protected]. ranging from building to any competitive process or any prior Louise Camenzuli is also a partner at , including the consultation of private companies the firm and can be contacted at louise. green economy and, importantly for operating in the market. In essence [email protected]. the public economy, public tenders. the contracting authorities are entitled to choose private contractors 1 Regulation on public tenders at their discretion. The lack of competitiveness is Legislative Decree No 50/2016 (the intended to increase the speed ‘Public Contracts Code’) provides with which the executor of a for the regulation of public tenders public contract is selected, even if in Italy. simplifying the procedural steps to The Public Contracts Code award a contract may result in executes and implements the works or services of a lower quality.

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The power to use negotiated Anti-crisis contracts Conclusion procedures The provision of the Decree that According to its stated aim of boosting For contracts over €150,000 but allows the contracting authorities the economy, the Simplification lower than the EU thresholds, the to partially derogate the Public Decree makes it easier for a company contracting authorities may consult Contracts Code for anti-crisis in Italy to be awarded a public contract a number of operators (depending contracts is potentially very invasive. through faster and more efficient on the subject and the value of The speed at which anti-crisis procedures. Only its application will the contract) and then use the contracts are awarded must be reveal if it has the desired economic negotiated procedures without a increased to face the consequences effect without compromising the prior call for tenders. of the pandemic. These contracts quality–price ratio in public works, The negotiated procedures are are, for example, contracts for services and supplies. extremely fast, allowing the building (or restructuring) contracting authorities to obtain schools, universities, hospitals and Notes works, services and supplies on public safety infrastructures in 1 This power was previously limited to conditions set out after negotiations order to make them compliant contracts with a value of up to €40,000. conclude with a small number of with the Covid-19 safety selected private companies. Again, measures. For these contracts, Alessandro Paccione is a at Pavia it is worth highlighting that the the public authorities may: e Ansaldo Studio Legale in Rome and can Simplification Decree permits (1) use negotiated procedures be contacted at alessandro.paccione@ contracting authorities to extend without prior call for tenders pavia-ansaldo.it. Giada Russo is also a the range of procurements in (even if the amount is higher lawyer at the firm and can be contacted at which they may directly invite than the EU thresholds); and (2) [email protected]. Marco private operators to submit offers, more generally, derogate from Giustiniani is a partner at the firm and without the filter of a call for any binding provision, except for can be contacted at marco.giustiniani@ tenders and with minimal criminal provisions and the pavia-ansaldo.it. Giovanni Gigliotti is also a partner and can be contacted at competition, with a view to more general principles set out in the [email protected]. efficient public procurements. EU directives for public tenders.

16 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020

FEATURE ARTICLE

Credit: Fit Ztudio/Shutterstock

Joshua Paffey Investor-state disputes arising Corrs Chambers Westgarth, Brisbane joshua.paffey@corrs. from the pandemic com.au Lee Carroll Balancing public health and corporate wealth Corrs Chambers Westgarth, Melbourne lee.carroll@corrs. com.au In response to the Covid-19 pandemic, governments globally are engaging in a difficult balancing act of protecting public health, mitigating economic damage and avoiding interference of private rights. Even in a pandemic, however, states are likely to be challenged for implementing measures that interfere with an investor’s private rights. Yet do investors have legitimate claims? How would a state defend such claims?

s governments navigate their way out recovery. For foreign investors and high-value Aof the shutdowns necessitated by the contracts there are certain risks for which coronavirus pandemic, foreign investment recourse to investor-state arbitration is the in construction and infrastructure projects forum in which those injured foreign investors will play a crucial role in the global financial may recover losses. This article considers

18 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 whether investors have a legitimate basis to • a breach of an investor’s right to fair and claim an indemnity under an international equitable treatment (FET); investment agreement for their loss arising • a breach of investor’s right to full protection from government-mandated Covid-19 and security (FPS); measures. It also discusses the potential • a breach of the national treatment standard; defences under international investment or agreements and customary international • indirect expropriation by the state. law available to a state that is implementing Australia, for example, is a party to 15 measures to prevent the spread of the virus. different bilateral investment treaties and 12 free trade agreements.1 To make a claim under an international investment agreement Covid-19 measures an investor relies on the investor-state dispute Governments globally have taken different settlement provisions in the agreement. approaches to prevent the spread of the virus. At the most extreme, governments in countries Fair and equitable treatment such as Italy and India have suspended manufacturing, construction and mining. The Generally, international investment agreements Spanish and Irish governments nationalised require the state to ensure an investor receives private hospitals and healthcare. A number fair and equitable treatment. For example, of countries, including China and Australia, Chapter 8, Article 6(1) of the - have imposed internal travel restrictions or Australia FTA (SAFTA) states: ‘Each Party shall closed borders to limit the movement of people accord to covered investments treatment in between regions within those countries. At the accordance with the customary international other end of the scale, the Swedish Government law minimum standard of treatment of aliens, has taken a recommendations-over-restrictions including fair and equitable treatment and full approach. Bars, restaurants and businesses all protection and security’.2 The United States- remain open, with the government putting the Australia FTA contains the same protections onus on the elderly to remain inside. at Article 11.5(1). The requirement for a state to afford an A tribunal may consider whether a state’s Covid-19 investor fair and equitable treatment has both procedural and substantive elements. measures restricting an investor’s private rights From a procedural perspective, the FET are proportionate to the anticipated benefit of protection requires the state afford the investor procedural fairness and due process preventing the spread of the virus. in the exercise of its powers. One of the key drivers of this protection is transparency. For Potential claims by investors example, a state that made public statements Government-mandated restrictions may guaranteeing certain businesses would not be challenged by investors if the measures be shut down during Covid-19 and breach the protections owed by the state to the subsequently mandated that those businesses investor under an international investment be shut down may be in breach of its agreement. An international investment requirement to afford investors FET. agreement is an agreement between two Substantively, a tribunal may consider or more states that contains rights and whether a state’s Covid-19 measures protections to promote private investment restricting an investor’s private rights are between the states. The most common types proportionate to the anticipated benefit of of international investment agreements preventing the spread of the virus. are bilateral investment treaties (BITs), multilateral treaties or free trade agreements Full protection and security (FTAs) (with investor protections). Although every international investment agreement In international investment agreements the is different there are a number of investor FET protection is generally accompanied by protections that are common across the a State’s obligation to provide full protection agreements. It is possible that an investor and security to an investor and its investments. could make a claim under an international A critical question is whether the FPS investment agreement arising from the protection applies only to physical security or government measures on the following bases: extends to legal and commercial protection.

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This question has divided international Indonesia-Australia Comprehensive Economic and remains unsettled. On the one Partnership Agreement (IA-CEPA), Article hand, physical protection extends to the 14.11 states that: state being obliged to defend the investment ‘A Party shall not expropriate or nationalise a from physical violence or force. If a tribunal covered investment either directly or through interprets the FPS protection narrowly in this measures equivalent to expropriation or way it is unlikely that government mandated nationalisation (expropriation), except: Covid-19 measures would result in physical 1. for a public purpose; violence or force. On the other hand, if a 2. in a non-discriminatory manner; tribunal was to interpret the FPS protection more broadly, a state’s failure to implement 3. on payment of prompt, adequate and appropriate and timely Covid-19 prevention effective compensation; and measures may give rise to a claim that the 4. in accordance with due process of law.’ state breached its obligation to provide full An International Centre for Settlement of commercial protection and security to the Investment Disputes (ICSID) tribunal held investor and its investment. that a series of state measures over a period of time that has the same effect may also constitute indirect expropriation.4 In Spain National treatment standard the government has issued a royal decree that The national treatment standard exists has the effect of allowing the government to to ensure that foreign investors and their assume control of private hospitals and clinics investments will be treated no less favourably in an attempt to ‘nationalise’ the Spanish than domestic investors and their investments. health system and its response to Covid-19.5 For example, Article 3(c) of the BIT between Such government measures may provide Australia and China states: ‘A Contracting a basis for an investor to allege indirect Party shall at all times […] treat investments expropriation by the government. and activities associated with investments in its own territory […] on a basis no less A tribunal may find that a state has favourable than that accorded to investments and activities associated with investments of breached the national treatment standard if nationals of any third country.’3 the government implements measures that A tribunal may find that a state has breached the national treatment standard if discriminate against foreign investors. the government implements measures that discriminate against foreign investors. Defences under international Government mandated Covid-19 protection investment agreements measures have the potential, at least arguably If it can be established that government- so, to discriminate against foreign investors. mandated Covid-19 measures are incompatible For example, a number of governments with a state’s obligation under a relevant globally have implemented Covid-19 international investment agreement, the measures that mandate the closure of question will then turn to whether the state airports and prohibit flights in or out of the has a valid defence to a claim. A state may have country. These measures adversely affect a defence under the relevant international both domestically owned and internationally investment agreement or at customary owned airlines. If, however, a state . government subsequently implemented Where an exception exists under an bailout measures that only applied to international investment agreement and the domestically owned airlines, the state may exception applies, the international face a claim that it has breached the national investment agreement obligations will not treatment standard. apply to the Covid-19 measure. The General Agreement on Tariffs and Trade (GATT) and Indirect expropriation the General Agreement on Trade in Services (GATS) include general exceptions that the Indirect expropriation by a state occurs when a agreements will not prevent a party from state implements measures that have the effect adopting or enforcing measures to protect of controlling or interfering with the use, value human life or health, provided that the or benefit of an investment. For example, in the measures are not arbitrary or discriminatory.6

20 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 Only few bilateral investment treaties include law defences.15 The three defences relevant general exceptions of a similar nature. For to defending Covid-19 measures include example, some BITs include exceptions for non- force majeure, distress and necessity. The discriminatory measures ‘necessary for the plea of necessity featured heavily in the maintenance of public order’7 or permit actions investment treaty-based cases arising from taken in ‘circumstances of extreme emergency’8 the Argentine financial crisis, whereas force or ‘for the protection of its own essential majeure and distress have not featured security interests’.9 Exceptions are increasingly prominently in investment treaty cases. present in more modern international The defence of necessity requires a state to investment agreements, for example: fulfil four requirements: a grave and imminent • the SAFTA that entered into force peril; that threatens an essential interest; the on 28 July 2003 provides that non- state’s act must not seriously impair another discriminatory measures are permitted essential interest; and the state’s act was the where ‘necessary to protect public morals ‘only way’ to safeguard the interest from that or to maintain public order’, ‘necessary peril. The plea of necessity will be excluded if to protect human […] life or health’ or the obligation in question excludes reliance ‘necessary to secure compliance with laws on necessity and the state contributed to the or regulations which are not inconsistent situation of necessity.16 The issue of with the provisions of this Chapter contribution was live in the claims arising including those relating to […] safety’;10 from the Argentine financial crisis. For • the China-Australia FTA that entered into example, one tribunal dismissed Argentina’s force in December 2015 provides that non- attempt to rely on necessity, finding it discriminatory measures for ‘legitimate contributed to the situation of necessity with public welfare objectives of public health, ‘well-intended but ill-conceived policies’.17 safety, the environment, public morals or Another tribunal found the plea of necessity public order shall not be the subject of a required some degree of fault and accepted claim’ by an investor;11 Argentina’s reliance on the plea.18 Satisfying • the IA-CEPA provides that non- the requirements of necessity is a high bar and discriminatory measures are permitted the level of contribution by the government where ‘necessary to protect public morals to the Covid-19 pandemic will become a or to main public order’ and to ‘protect critical factor. human […] health’;12 The defence of force majeure is strict. It • the Australia-Hong Kong FTA that entered requires the fulfilment of five conditions: into force on 18 January 2020 incorporates unforeseen event or an irresistible force; the the general exceptions found in the GATT event or force must be beyond the state’s and GATS.13 control; the event must make it ‘materially’ While there is a strong argument that Covid-19 impossible to perform an obligation; and the measures would be classified as a measure to state must not have assumed the risk of the protect ‘public health’ and ‘safety’, it must situation occurring.19 be remembered that for the exceptions to The defence of distress requires the state apply, the measures taken must be ‘non- to show: threat to life; a special relationship discriminatory’ in nature. States may also seek between the author of the act and the persons to rely on the doctrine of the state’s in question; that there was no other power which provides that state regulations reasonable way to deal with the threat; that it within the bounds of accepted police power or did not contribute to the situation; and that regulatory power of states are not compensable the measures were proportionate.20 expropriations where such measures are for the As aforementioned, the defences of force bona fide purpose of protecting public welfare. majeure and distress have not received much The same caveat applies, however, to the power attention in investment treaty cases and it being exercised in a non-discriminatory and remains to be seen whether this will change in proportionate manner.14 any claims arising from the Covid-19 pandemic.

Notes Defences under customary 1 Australia is party to bilateral investment treaties with international law Argentina, China, Czech Republic, Egypt, Hungary, Laos, Lithuania, Pakistan, Papua New Guinea, the States may also defend against treaty claims Philippines, Poland, Romania, Sri Lanka, Turkey on the basis of customary international and Uruguay. Australia has entered into free

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trade agreements with Chile, China, Hong Kong, 9 Australia-India BIT (New Delhi, 26 February Indonesia, Japan, Korea, Malaysia, Peru, New Zealand, 1999, entry into force 4 May 2000, terminated 23 Singapore, Thailand and the United States. See March 2017) and summary table www.oecd.org/ Department of Foreign Affairs and Trade, ‘Australia’s daf/inv/investment-policy/40243411.pdf accessed bilateral investment treaties’ www.dfat.gov.au/trade/ 22 September 2020. investment/Pages/-bilateral-investment- 10 Ch 8, Art 19, see www.dfat.gov.au/trade/agreements/ treaties accessed 22 September 2020. in-force/safta/official-documents/Pages/default 2 See Department of Foreign Affairs and Trade, ‘Official accessed 22 September 2020. documents’ www.dfat.gov.au/trade/agreements/ 11 See Art 9.11(4) and 9.8 www.dfat.gov.au/trade/ in-force/safta/official-documents/Pages/default agreements/in-force/chafta/Pages/australia-china-fta accessed 22 September 2020. accessed 22 September 2020. 3 Agreement between the Government of Australia and 12 See ch 17, Art 17.2(3) and 17.2(4) www.dfat.gov.au/ the Government of the People’s Republic of China trade/agreements/not-yet-in-force/iacepa/iacepa- on the Reciprocal Encouragement and Protection text/Pages/default accessed 22 September 2020. of Investments www.austlii.edu.au/au/other/dfat/ 13 See ch 19 www.dfat.gov.au/trade/agreements/in- treaties/1988/14.html accessed 22 September 2020. force/a-hkfta/a-hkfta-text/Pages/default accessed 4 Generation Ukraine Inc v Ukraine (2003) ICSID Case 22 September 2020. No ARB/00/9 [20.22] www.italaw.com/sites/ 14 Philip Morris Brands Sàrl, Philip Morris Products SA and default/files/case-documents/ita0358.pdf accessed Abal Hermanos SA v Oriental Republic of Uruguay, ICSID 22 September 2020. Case No ARB/10/7 5 Royal Decree 463/2020 (14 March 2020) www. 15 See the International Law Commission’s Articles on redaccionmedica.com/contenido/images/ State Responsibility (2001) ch V. BOE-A-2020-3692.pdf accessed 22 September 2020. 16 Ibid, Art 25. 6 Article XX of the General Agreement on Tariffs and 17 Impregilo v Argentina (ICSID Case No ARB/07/17), at Trade and Article XIV of the General Agreement on 356 and 359. Trade in Service. 18 Urbaser v Argentina (CISID Case No ARB/07/26) 7 This wording does not appear in BITs entered into by at 711. Australia (see n 2 above). See, eg, Japan-China BIT 19 Ibid, Art 23. (Beijing, 27 August 1988) and Latvia-United States BIT 20 Ibid, Art 24. (Washington, 13 January 1995) and summary table www.oecd.org/daf/inv/investment-policy/40243411. pdf accessed 22 September 2020. Joshua Paffey is a partner and Head of Arbitration 8 Appears in BITs entered into by India, see eg Hungary- at Corrs Chambers Westgarth and can be contacted India BIT (New Delhi, 3 November 2003); United at [email protected]. Lee Carroll is a Kingdom-India BIT (London, 14 March 1994) and special at Corrs Chambers Westgarth and summary table www.oecd.org/daf/inv/investment- can be contacted at [email protected]. policy/40243411.pdf accessed 22 September 2020.

22 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 Credit: Jacek Wojnarowski/Shutterstock

JB Kim London Differing site conditions: contrasting the English and US legal systems

Introduction required under the law in some public Traditionally, a contractor took responsibility works contracts, contrary to the United for any additional cost and time when that Kingdom default position where the risk of contractor encountered actual site conditions adverse site conditions still rests largely with that were more adverse than expected during the contractor. the tender stage. An experienced contractor In general, most differing site condition would be expected to calculate and include clauses, which allocate the site-related allowances within a bidding price. The risks, differentiate between two main fundamental drawback of this approach is types of differing site conditions: Type 1, that, during the tender stage, a cost estimator concerned with the material difference cannot accurately estimate a true unknown, between the information in the contract which may lead to enormous amounts of documents, or the employer furnished contingencies and to a costly project. information during the tender stage, and This is a critical issue in major projects, the actual site condition; and Type 2, such as large-scale civil and plant projects. concerned with the unusual or unknown Therefore, some standard forms of contract physical conditions different from those have a differing site condition clause1 to reasonably anticipated for a similar project. minimise contingency costs in pursuit of Risk allocation on Type 1 and 2 varies in financial effectiveness. In the United States, the standard forms of contract most often the use of contractual provisions allocating used in building and construction, such the site-related risks is very common, even as the contracts under the Joint Contracts

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Tribunal (JCT);2 FIDIC;3 New Engineering an experienced contractor will include Contract (NEC);4 and standard forms5 in contingencies in its bid price to protect the US such as the Federal Acquisition themselves against unforeseen conditions.8 Regulations (FAR), ConsensusDOCS, the The basic drawback to this approach is that American Institute of Architects (AIA) and a contractor cannot accurately estimate the Engineers Joint Contract Documents an unknown.9 Major construction projects Committee (EJCDC). usually involve such massive earthworks Although many contracts provide a (excavation and backfilling), foundation differing site condition clause, not all works, tunnelling works, boring works, construction contracts provide one, dewatering works and the like that the and the risks as to site conditions are contingencies related to site conditions mostly allocated to the contractor. In this are the critical factor in determining the instance, the law may provide grounds for project costs. the contractor to claim for the additional Experience shows that up-to-date cost and time caused by differing site quantitative risk analysis techniques, conditions if the contractor suffered from such as the Monte Carlo simulation, serious financial loss as a result of the frequently fail to provide the appropriate employer’s misrepresentation, a breach of contingency costs in major projects.10 an implied term or a breach of the duty Although contingency costs are included, to disclose. The application of these legal the contingency may end up being principles to differing site conditions are underestimated or grossly overestimated. not the same in the UK and US. In instances where overestimation is an This article will explore the various issue, bid prices end up becoming too approaches related to differing site high, and thus the employer bears the conditions under the standard forms costs of unnecessary financial expenses if of contract and the legal positions as to adverse conditions are not encountered. differing site conditions in the UK and US. This places a redundant financial burden upon employers. Definitions A ‘differing site condition’ (which can also Even with contingencies, the estimate for the be referred to as a changed condition, an differing site conditions may prove wholly adverse physical condition, an unforeseeable physical condition, a concealed condition inadequate to cover the contractor’s actual costs. or a latent physical condition) is a physical condition encountered during the A differing site condition clause may performance of a contract of work that be beneficial for the employer as it allows was not visible and not known to exist at contractors to lower contingencies and the time of bidding, and that materially the project to be delivered at lower differs from the condition envisaged at the cost to employer. From the contractor’s 6 time of pricing the contract. This could perspective, the contractor can better include: soil with inadequate bearing mitigate the unknown risks with the capacity; unsuitable filling materials; knowledge that costs for unforeseen risks unanticipated groundwater conditions can be recovered. Even with contingencies, (static or permeable); quicksand; muck; the estimate for the differing site rock formations (that are either excessive conditions may prove wholly inadequate or insufficient); and artificial (manmade) to cover the contractor’s actual costs. Even 7 subsurface obstructions. A ‘differing site if the contractor can rely on common condition clause’ is the parties’ agreement law and to recover increased of who should bear the risk arising from a costs under certain circumstances, the differing site condition. costs related to dispute and recovery can be high. (These legal remedies will be The necessity of differing site discussed later.) In light of this, many condition clauses standard or bespoke contracts provide the differing site condition clause to resolve Under a traditional contract risk- the fundamental drawback for estimating allocation mechanism, it is expected that site-related contingencies.

24 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 The default position for differing […] Bidders need not weigh the cost and site conditions in the UK and US ease of making their own borings against the risk of encountering an adverse Hess and Bailey11 contrasted the position as subsurface condition, and they need not to site conditions in the US and English law consider how large a contingency should and concluded that the English and American be added to the bid to cover the risk. legal systems have taken very different paths There will be no windfall and disaster. The concerning the allocation of risk for differing Government benefits from more accurate site conditions. bidding, without inflation for risks which may not eventuate [emphasis added].’ The UK It is clear that the US and English approach to a differing site condition is not the same. Hudson12 summarises the English position in Table 1 shows the contradictory approaches relation to the adverse site conditions: in two jurisdictions. ‘A great weight of authority exists showing that an Employer, in the absence of an Table 1: Default risk allocation for differing site conditions actionable misrepresentation or deliverable in the UK and US concealment, or of some express warranty, owes no implied duty to a Contractor, UK US whether of disclosure or otherwise, in either Allocation of The Contractor The standard contract or in regard to the pre-existing risk takes responsibility forms of contract arising from adverse in the US make state of the site.’ site conditions with contractual some exceptions. provisions regarding In the UK, as a basic principle, it is clear that adverse site the risk of adverse site conditions rests with the conditions. contractor.13 When parties have reached no Risk Contractor Usually Employer; allocation to or Employer and express agreement on the risk of adverse site Contractor conditions being encountered, the English law is clear that, for a fixed-price contract, it Necessity for Must be necessary Unnecessary or is the contractor who bears the risk of being Contingencies minimal delayed, disrupted or incurring additional costs because works are more difficult or 14 expensive to perform than anticipated. As Type 1 and Type 2 a matter of practice in the UK, it is observed that the JCT suites (the most frequently used In the US, the FAR, ConsensusDOCS, AIA standard forms of the construction contracts and EJCDC contract provisions identify two in the UK) do not entitle the contractor to distinct types of unanticipated conditions time or monetary relief if adverse conditions that may be compensable.19 These are are encountered.15 usually designated as Type 1 and Type 2 changed conditions. Type 1 refers to the changed conditions that ‘differ materially from those The US indicated in the contract’20 or ‘differ materially The American position is different to that from that shown or indicated in the Contract 21 of the UK. The US seems to adopt a risk Documents’. Type 2 refers to unusual or retention strategy from the perspective of unknown physical conditions at the site that differ the employer.16 This strategy accepts the materially from those ordinarily encountered and gain and pain from a risk when an incident recognised as inherent in work of the character 22 occurs and sets up a budget to prepare for provided for in the contract. The approach in the risk. Differing site condition clauses the US to the Type 1 and Type 2 distinction can have become a common feature in virtually also be found in the international standard forms 23 all construction contracts in the US.17 The such as the 1999 version of the FIDIC contract. rationale for the use of the differing site condition clause was elucidated by the US Risk allocation in the standard form Court of Appeal in Foster Construction v of contract United States:18 ‘The purpose of the changed conditions Each standard form of contract has a clause is thus to take at least some of the characteristic contractual risk-allocation gamble on subsurface conditions out of bidding mechanism regarding differing site conditions.

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In the US, most of the standard forms of FIDIC Silver 1999 contracts contain differing site conditions, the effect of which is to put the risk of unexpected The FIDIC Silver Book 1999 maintains that or unforeseen site conditions on the shoulders a contractor takes responsibility and risk in of the employer by allowing the contractor situations where the contractor is required to a contractual entitlement to extension of obtain or verify site information for themselves and not to rely on information furnished by time or price increase. I explain later the 29 contractual risk-allocation mechanism for the Employer. Thus, there is no warranty some standard forms of contract and analyse regarding the accuracy or completeness of any the deciding factor for allocation. As discussed such provided information. The contractor is previously, most US contracts provide a further considered to be responsible for taking differing conditions clause and the effect of into consideration unforeseen conditions, which that is to pre-allocate the risk between employer is the equivalent of Type 2, that may pose a risk to and contractor, but mostly on the employer. a project, which is contrary to the position in the Red and Yellow.30 The contractual mechanism in the Silver Book seems to have a connection with JCT SBC/Q 201624 the frequent usage the form. The Silver Book is frequently used with project financing, which The major standard form in the UK, the requires the certainty of the project costs from JCT form of contract, does not entitle the inception and hedging the financial uncertainty.31 contractor to time or monetary recovery if adverse conditions are encountered,25 which is in accordance with the English common NEC4 law position where, in the absence of express contract provisions, the risks for physical Clauses 60.1(12), 60.2 and 60.3 cater for provisions conditions principally lie with the contractor.26 as they pertain to adverse site conditions. Unlike other standard forms (such as FIDIC, and the standard contracts in the US), NEC4 does not JCT MP 2016 make Type 1 and 2 distinctions. It provides the contractual grounds for compensation for time The JCT Major Project Construction Contract and money for both conditions. NEC4 seems to (MP) is the only JCT contract that includes an adopt a risk retention approach as seen in the 27 express clause dealing with ground conditions. standard forms in the US, by which a contractor This form is designed for large-scale construction is not obliged to include potentially significant projects where major works are involved. It contingencies within its tender, and the employer seems the employer adopts the risk retention pays for the costs based on the difference strategy. The employer takes responsibility for: between the actual conditions and the envisaged ‘… a change to the extent that the ground conditions by an experienced contractor.32 conditions or man-made obstructions in the ground could not reasonably have been foreseen by an experienced and competent Comparison contractor on the Base Date, having regard to any information concerning the Site that Table 2 provides a summary of the distinctive the Contractor had or ought reasonably to risk allocations in standards forms of contract. have obtained’.28 On analysis, the decisive factors with regard to allocation seem to be connected with: • the scale of the project and whether FIDIC Red/Yellow 1999 it is small-scale works or large-scale infrastructure projects;33 Clause 4.10 and 4.11 of FIDIC Red/Yellow • private contract or public works contract;34 1999 are concerned with Type 1 provisions • financial purpose for seeking either and do not provide a contractual entitlement certainty or efficiency; 35 and to Type 1 conditions. Clause 4.12 makes • the common law position in the legal provision for Type 2 and provides the jurisdiction.36 contractual grounds for the contractor’s entitlement for additional time and money for Type 2. Roadblocks to recovery Despite the existence of the differing site condition clause, it is not always a guarantee

26 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 JCT SBC/Q JCT MP 2016 FIDIC Red/ FIDIC Silver NEC4 ECC EJCDC C-700 2016 Yellow 1999 1999 (2007 ed)

Major use of the The UK The UK International International Public sector Public works in forms building works large-scale civil works, process plant contracts in the US construction electrical and procured the UK projects mechanical by project plant financing

Responsibility on Contractor Contractor and Shared Contractor Contractor and Contractor and Employer Employer Employer Type 1 Silent Compensable Practically non- Practically non- Compensable Compensable37 Compensable Compensable Type 2 Silent Compensable Compensable Non- Compensable Compensable38 Compensable

Table 2: Various site related risk allocations in the standard forms of contract

that the contractor will get a price adjustment The US position for experienced or time extension. contractor appear to be somewhat different. The objective standard applies to a Type 2 differing site conditions – the question is Standard of ‘experienced contractor’ on what a reasonable bidder at that time of Even with a differing site condition clause, the preparing its bid would have expected to 42 contractor should be aware that the court’s encounter. approach to interpretation of differing site The contractor should also recognise condition clause is affected by the standard the associated obligations in relation to of the experienced contractor. In the case the differing site conditions. The primary of Obrascon v Gibraltar,39 the English court in contractor’s obligations may be a site examining the FIDIC Yellow Book clause 4.12 investigation obligation and verification regarding Type 2 held that the experienced obligation of the information provided by contractor should have considered the worst- the employer. Exculpatory or disclaimer case scenario when he evaluated the ground clauses may make the provision that condition. The in the case ruled that contractors agree and acknowledge that ‘the [experienced] contractor needed to it has not relied upon any information make provision for a possible worst case furnished by the employer, nor does it make scenario. The contractor should have made a claim on the ground of the inadequacy allowance for a proper investigation and and inaccuracy of any information provided removal of all contaminated material.’40 by the employer. Furthermore, it is clearly understood that the employer does not The question is on what a reasonable bidder make any promise or representation as to the accuracy of that information.43 at that time of preparing its bid would have expected to encounter. Inspection or site investigation obligations In the US, the term ‘site investigation’ is In the UK, the standard for what an generally interpreted to mean, essentially, experienced contractor should have known ‘sight investigation’ and does not extend was held to be very high, as was shown in to the making of independent subsurface the decision in Van Oord v Allseas,41 which investigations.44 However, the contractor is is consistent with the decision in Obrascon. deemed to have a reasonably sound knowledge These cases in the UK illustrate that it is not of the site as well as access to all information easy to succeed with an ‘unforeseen physical that could be gained by a ‘reasonable’ site conditions’ claim and with the condition of inspection under the circumstances.45 To experienced contractor clause. determine whether the contractor conducted

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a reasonable site investigation, what a In the UK, provisions of this nature, which reasonable and experienced contractor would are often referred to as ‘non-reliance’ have discovered in light of the time and access clauses or disclaimers, will generally be allowed for a site investigation should be given contractual effect so as to preclude considered.46 This standard of an experienced a contractor from claiming based on any contractor does not expect that the contractor pre-contractual misrepresentation by the should discover what a trained engineer or employer or its agent.50 However, this is geologist would discover in the performance subject to: (1) the Misrepresentation Act of a site investigation, only what a reasonable 1967; (2) the Unfair Contract Terms Act contractor would discover in the US.47 1977; and (3) the contractor’s ability to These limitations of the contractor’s investigate a site or check the accuracy of responsibility are also found in NEC4 information pertaining to that site.51 It is clause 60.2 as follows: worth noting that exclusion clauses will ‘In judging the physical conditions for the not relieve the employer from the results purpose of assessing a compensation event, of their unless liability for the contractor is assumed to have taken into negligence is expressly excluded.52 In the account: The Site Information; Publicly US, many decisions by the courts have held available information referred to in the that these clauses do not have sweeping Site Information; Information obtainable effects.53 The courts, in general, will not from a visual inspection of the Site; and allow such clauses to override the relief Other information which an experienced provided to the contractor by the differing contractor could reasonably be expected to site conditions clause.54 have or to obtain.’ The standard for an experienced contractor Standard of Inspection/cite Disclaimer Clause ‘experienced investigation for measuring the additional compensation is contractor’ obligations by the also found in clause 14.1 of JCT MP 2016.48 The contractor standard is what ‘an experienced contractor Issue facing the The standard for The contractor has The employer provides could reasonably be expected to obtain or contractor experienced contractor limited time and access incorrect information is high, and the for site investigations but does not want to have been foreseen’, but as discussed, the contractor may need during the tender take responsibility for standard for what an experienced contractor to make provision for process. the information. a possible worst-case should have known is very high in the UK. scenario in the UK. Potential The objective standard A site investigation A disclaimer clause arguments by test applies to the obligation may be may not be valid under Disclaimer clauses the contractor Type 2 differing site limited to a ‘sight’ certain circumstances conditions in the US. investigation, or if deceit, , 49 investigation works or negligence is Exculpatory clauses offering the proviso carried out by an committed by an that a contractor agrees that it has not relied experienced contractor employer. In the US, (not a geological a disclaimer clause upon any employer furnished information specialist) considering may be interpreted may also be a hindrance to recovering costs the time and access narrowly. allowed for a site from differing site conditions. For example, investigation in the US. clause 4.10 of FIDIC states: ‘The Employer shall have made available Table 3: Limitation to recovery to the Contractor for his information, prior to the Base Date, all relevant data in Legal grounds in the absence of a the Employer’s possession on subsurface contract provision and hydrological conditions at the Site, including environmental aspects. The In the event that a differing site conditions Employer shall similarly make available to clause is absent in a contract, the contractor the Contractor all such data which come may rely on legal principles to recover into the Employer’s possession after the time and money under certain situations Base Date. The Contractor shall be responsible or circumstances. Those are where there for verifying and interpreting all such data. The is an occurrence of the employer’s: (1) Employer shall have no responsibility for the misrepresentation; (2) a breach of duty as it accuracy, sufficiency or completeness of such data, pertains to disclosure of available information; except as stated in Sub-Clause 5.1 [General or (3) a breach of warranty. Design Responsibilities] [emphasis added].’

28 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 Misrepresentation Misrepresentation in the US The position in the US differs from that of Pre-contractual representations in general the UK.64 Three Supreme Court cases have It is inevitable that, before entering into established the principle of misrepresentation a construction contract, the parties to a in relation to site information furnished by contract will make representations of fact the government.65 and/or law, which will influence the other First, in Hollerbach v US,66 Hollerbach was party’s behaviour.55 If a pre-contractual contracted to rebuild a dam on the Green representation turns out to be incorrect, River in Kentucky. As Hollerbach conducted the question is whether the representee has the work, it encountered an old dam that a remedy against the representor for loss or had used timber and stone as (unsuitable) damages suffered as a consequence of reliance backfill materials. However, the contract on the misrepresentation.56 documents indicated the old dam had used broken stone, sediment and sawdust as Misrepresentation in the UK backfill. The Court noted that the contract An employer may be liable for fraudulent obliged the contractor to investigate the misrepresentation pursuant to Pearson and site and ‘to make [its] own estimates of Son v Dublin Corporation.57 Under the law the facilities and difficulties attending of obligation, employers were not liable the execution of the proposed contract’. for negligent misrepresentation until the However, these broad requirements did landmark case of Hedley Byrne v Heller.58 not override the employer’s specific The present position is that negligent representation regarding the material used misrepresentation may give rise to claim for as backfill for the old dam. The Supreme liability either under the Hedley Byrne rule or Court said that: the Misrepresentation Act 1967. However, ‘We think this positive statement of the in general and in most construction and specifications must be taken as true and engineering contracts, where an employer binding upon the government, and that, provides inaccurate or partial information upon it, rather than upon the claimants, to a contractor carelessly before a contract is must fall the loss resulting from such entered into, a duty of care will not usually be mistaken representations. We think it would imposed by law.59 be going quite too far to interpret the general language of the other paragraphs as requiring independent investigation of Negligent misrepresentation may give rise to facts which the specifications furnished by the government as a basis of the contract left claim for liability in no doubt. If the government wished to leave the matter open to the independent investigation of the claimants, it might easily Exceptions to this do exist. In Howard have omitted the specification as to the Marine and Dredging v Ogden,60 where character of the filling back of the dam. In Howard (the employers of a barge) its positive assertion of the nature of this provided an inaccurate capacity of the much of the work, it made a representation barge to Ogden (the contractor) who had upon which the claimants had a right to rely hired the barge for construction works, without an investigation to prove its falsity.’ Howard was held liable for negligent Second, in Christie v US,67 there was a misleading misrepresentation under section 2(1) representation in the specifications as to the of the Misrepresentation Act 1967.61 In material to be excavated, which actually misled Turriff v Welsh National Water Authority,62 the bidder who obtained the contract, and the the employer carelessly and erroneously government admitted that the contractor did represented to the contractor that a not have time to make borings to verify the particular specification was ‘buildable’, representations. The Supreme Court held that and the contractor was not expected to the contractor was entitled to an allowance for check whether it was in fact ‘buildable’, the actual amount expended over what would therefore, the employer was held to owe a have been the cost if the boring sheets had duty of care to the contractor, whose duty it been accurate, notwithstanding there was no had breached.63 fraudulent purpose.

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Last, in Atlantic Dredging v US,68 where public employer or government authority has the government declined to guarantee been held liable under a duty of disclosure. the accuracy of the information but It is worth noting that clause 4.10 of FIDIC expressed its belief that the government provides for an employer’s duty to disclose.76 furnished information was trustworthy, the Court elucidated the implied warranty UK and Commonwealth position for the accuracy of representation by the The doctrine of the duty to disclose in the government and held that the contractor US would not seem to accord with ordinary was to be relieved if he was misled by contractual principles in England or the erroneous statements.69 Commonwealth.77 In general, the employer The employer’s tactical method to secure or the project owner does not have a duty, financial certainty by allocating site-related implied or otherwise, to disclose any pre- risk to the contractor and reducing the time existing site condition. However, there have allowed for tendering by providing various been exceptional authorities that support site information, usually a lengthy and costly the duty to disclose. In the Australian case period, thus inducing the contractor to use of Dillingham Construction v Downs,78 it was the employer furnished information, is not recognised that the employer could owe unusual.70 In these circumstances, the US the contractor a duty of care and this would courts seem to take into account various include disclosure of relevant information, factors, such as the time and access allowed for though the decision went against the a site investigation, the employer’s conduct, contractor due to there being no reliance on the knowledge of the employer and contractor, the information provided by the employer.79 and the employer’s objective intention for In the Canadian case of Opron Construction providing the site information, instead of v Alberta,80 the court took into account lack omitting the specifications and information. of time, the opportunities available for the tenderer to acquire the information, whether the information was indispensable Duty to disclose and the degree of technicality of the data. There has been no legal authority in the UK Position in the US on this matter.81 The second ground of recovery from the contractor, which is closely related to misrepresentation or good faith, is the failure Implied warranty by law of the employer to disclose all available information.71 In a number of cases, it has The UK been held that the employer may have a duty The employer gives no implied warranty to disclose vital information in their possession of the nature or suitability of the site or where the contractor is unlikely to obtain it.72 subsoil, or as to the practicality of the design In Morrison-Knudsen v State of Alaska,73 the in general in the UK.82 In Thorn v London Supreme Court of Alaska said that: Corporation,83 where the contractor agreed to ‘It is well settled in this court that where the build a new bridge over the Thames using Government possesses special knowledge, caissons according to the engineer’s design, not shared by the contractor, which is vital it was held that there should be no implied to the performance of the contract, the warranty for information provided by the Government has an affirmative duty to employer or engineer and thus the engineer disclose such knowledge. It cannot remain and employer could not be sued when the silent with impunity.’ work proved much more expensive than In a subsequent case, D Federico v Bedford the contractor anticipated. Lord Chancellor Redevelopment Authority,74 it was stated that and Lord Cairns observed the mere fact that when the governent agency was in possession because an employer provided tendering of information that may be relevant to the information, it did not mean that its accuracy work to be undertaken by the contractor, there was a duty to disclose the information to It may exceptionally be possible for a warranty the contractor fully. Interestingly, in Pinkerton & Laws Co v Roadway Express,75 the courts of accuracy to be implied. recognised the duty of disclosure by a private employer, which is unlike most cases where a

30 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 was guaranteed; it may exceptionally be Conclusion possible for a warranty of accuracy to be implied.84 In Bacal Construction v Northampton In the absence of a differing site condition Development Corporation,85 where the contractor clause, contractors must incorporate was directed to design foundations on the contingency costs into their bids, which is basis of ground information supplied by the an extremely difficult undertaking. It may employer, it was held there was an implied result in huge amounts of contingency costs warranty that the ground would accord with in large-scale projects, particularly where the information provided.86 the site conditions are a critical factor in determining the project costs. This may place an unnecessary financial burden upon the The US employer. Without a differing site condition There generally is an implied warranty by clause, the contractor bears the burden of law for employer’s plans and specifications underestimating the effects of differing site including site information in the US. The conditions and may have to go through the position is articulated by Brandeis J in the complex process of making claims on the basis landmark case by the Supreme Court of United 87 of legal principles such as misrepresentation, States v Spearin as follows: breach of duty to disclose and implied ‘… if the contractor is bound to build warranty. Therefore, a differing site condition according to plans and specifications clause is beneficial for both contractors and prepared by the employer, the contractor employers to minimise bid contingency costs, will not be responsible for the consequences disputes and accompanying legal costs. of defects in the plans and specification. The English and American legal systems This responsibility of the employer is not have taken very different paths concerning overcome by the usual clauses requiring the allocation of risk for differing site builders to visit the site, to check the conditions. The English position is that the plans, and to inform themselves of the risk of adverse site conditions rests with the requirements of the work.’ contractor. The US law has encouraged the Table 4 makes a summary of the use of a differing site condition clause to contradictory approach as to a differing allocate the site-related risks. site condition in the US and UK. It is worth Several standard forms of contract provide noting that the leading cases regarding the different mechanisms to deal with differing employer’s furnished information, duty site conditions. The differences in the to disclose are developed by the public proposed mechanisms depend on factors works contracts whereas the English law has such as: been developed under private contracts. • the scale of the project; Also, the implications of a good faith • whether the contract is private contract or obligation during the tender stage,88 which public works contract; is closely related to the duty to disclose, • financial purpose for seeking either may be a decisive factor in determining the certainty or efficiency; and employer’s liability. • the common law position in the legal jurisdiction. UK US Despite the existence of a differing site condition clause, the contractor may have Misrepresentation Unlikely with some Likely obligations to investigate the site conditions exceptions or verify the site information furnished by Duty to disclose No Likely the employer. The employer may provide a Implied Warranty Unlikely with some Likely disclaimer provision that contractors cannot exceptions rely on the employer furnished information. In Good faith Not implied Implied the UK, the standard for what an experienced contractor should have known by their own Table 4: Basis for a claim in the absence of an adverse site investigation without relying on the employer- condition clause furnished information appears to be very high. In the absence of a differing site condition clause, the law may prohibit an employer’s attempt to transfer all the site condition- associated risks to a contractor, depending on the circumstances. These may include when:

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• the employer fraudulently or negligently 13 W Hughes, R Champion and J Murdoch (5th ed) makes representations about the site Construction Contracts: Law and Management (London: Routledge, 2015) p 194. information; 14 Hess. • the employer breaches the duty to disclose; 15 Ibid; JCT 2016 are silent on a differing site condition and except JCT Major Project Construction Contract 2016. • the employer provides an implied warranty 16 Risk management techniques fall into one or and breaches it. more of these four main categories: (1) avoidance; (2) reduction; (3) sharing; and (4) retention. The positions in the US and UK are dissimilar 17 See Federal Acquisition Regulations (FAR), with regard to these legal grounds. The US ConsensusDOCS, the American Institute of courts seem to consider various factors such Architects (AIA) and the Engineers Joint Contract as the time and access allowed for a site Documents Committee (EJCDC); see also Kelleher, investigation, and the employer’s conduct, p 250. 18 435 F.2d 873 ,887 (Ct.Cl.1970). their knowledge and purpose of providing 19 Kelleher, pp 249–250; FAR, ConsensusDOCS, AIA the site information instead of omitting the and EJCDC. information. With some exceptions, English 20 FAR (1984 ed) cl 52.236-2. law does not provide remedies when the 21 EJCDC (2007 ed) C-700. contractor’s relies on the 22 Kelleher, p 257. 23 See FIDIC Red/Yellow 1999 cl 4.10 and 4.12. employer’s negligent misrepresentation, 24 Standard Building breach of duty to disclose and implied warranty. Contract with Quantities 2016 25 JCT 2016 are silent on a differing site condition except JCT Major Project Construction Contract 2016 Notes 26 See chapter 4.1. 1 A ‘differing site condition clause’ is the party’s 27 See JCT Major Project Construction Contract 2016 agreement on who should bear the risk arising cl 14.1: from a differing site condition. A ‘differing site ‘If the Contractor encounters ground conditions condition’ (which can also be referred to as a or man-made obstructions in the ground that changed condition, an adverse physical condition, necessitate an amendment to the Requirements an unforeseeable physical condition, a concealed and/or Proposals he shall notify the Employer condition, and a latent physical condition) is a of the amendments he proposes […] shall be physical condition encountered during performing treated as giving rise to a Change to the extent a contract work that was not visible and not known that the ground conditions or man-made to exist at the time of bidding, and that materially obstructions in the ground could not reasonably differs from the condition to be envisaged at the have been foreseen by an experienced and time of pricing the contract. competent contractor on the Base Date, having 2 The author will explore the conditions in the regard to any information concerning the Site Joint Contracts Tribunal (JCT) Standard Building that the Contractor had or ought reasonably to Contract with Quantities (SBC/Q) 2016, and the JCT have obtained.’ Major Project Construction Contract (MP) 2016. 28 Ibid. 3 The author will explore FIDIC 1999. 29 See FIDIC Red, Yellow, Silver 1999, cl 4.10 and 4.11. 4 The author will explore the New Engineering 30 Dennys, p 469. contract (NEC)4 Engineering and Construction 31 S H Kim, International Construction Contracts: Law and Contract (ECC). Practice (Seoul: Park Young-sa, 2015) chs 4.2 and 4.3. 5 The Federal Acquisition Regulations (FAR), 32 See NEC4 Engineering and Construction Contract ConsensusDOCS, the American Institute of cl 63.1. Architects (AIA) and the Engineers Joint Contract 33 See JTC SBC/Q 2016 and JTC Major Project Documents Committee (EJCDC) will be examined by Construction Contract 2016 in Table 2. the author. 34 Ibid. 6 Thomas J Kelleher and G Scott Walters, (4th ed) 35 See JTC Major Project Construction Contract 2016 Common Sense Construction Law (New Jersey: John and FIDIC Silver 1999 in Table 2. Wiley & Sons, 2009) p 249. 36 See JTC SBC/Q 2106 and EJCDC C-700 (2007 ed) 7 Ibid, p 250. in Table 2. 8 Ibid, p 249–250. 37 See GC-4.03 (Differing Subsurface or Physical 9 Ibid. Conditions) sub-cl A(2) and (3). 10 See Association for the Advancement of Cost 38 Ibid, sub-cl A (4). Engineering International (AACEI), Recommended 39 [2015] EWCA Civ 712. Practice 57R-09, Integrated Cost and Risk Analysis 40 Obrascon v Gibraltar [2015] EWCA Civ 712, para 94. using Monte Carlo Simulation of a CPM model, 41 [2015] EWHC 3074 (TCC). AACEI, Morgantown, WV, (latest revision). 42 M Beutler and E Gentilcore (2nd ed) Model 11 S Hess and J Bailey, Delay Damages and Site Conditions: Instructions: Construction Litigation (Chicago: ABA, Contrasts in US and English Law (Society of 2015) p 122. Construction Law paper 181, 2015). 43 See FIDIC 1998 Silver cl 4.10. 12 Nicholas Dennys, Robert Clay, Alfred A Hudson and 44 Kelleher, p 267. Atkin Chambers (13th ed) Hudson’s Building and 45 Ibid. Engineering Contracts (London: Sweet & Maxwell, 46 Christie v US 237 US 234 (1915); Opron Construction v 2015) p 480. Alberta (1994) 151 AR 241 (QB).

32 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 47 Beutler, p 124. 73 519 P 2d 834 (1974). 48 See n 27 above. 74 (1983) 9 Mass App Ct 141. 49 They are sometimes referred to as information- 75 650 F Supp 1138 (ND Ga 1986). only clauses; disclaimer clauses; no reliance 76 ‘The Employer shall have made available to the clauses; exculpatory clauses; exemption clauses; or Contractor for his information, prior to the Base limitation clauses Date, all relevant data in the Employer’s possession 50 J Bailey (2nd ed) Construction law (London: Informa on sub-surface and hydrological conditions at Law, 2016) pp 329–330. the Site, including environmental aspects. The 51 Bailey, pp 329–330. Employer shall similarly make available to the 52 R Knowles, 200 Contractual problems and their solutions Contractor all such data which come into the (London: Wiley-Blackwell, 2012) p 37. Employer’s possession after the Base Date.’ 53 Kelleher, p 268. 77 Dennys, p 480. 54 Ibid. 78 [1972] 2 NSWR49. 55 Bailey, pp 319–320. 79 Knowles, p 45. 56 Ibid. 80 (1994) 151 AR 241 (QB). 57 [1907] AC 351. 81 Knowles, p 46. 58 [1964] AC 465. 82 Hess. 59 Bailey, p 321. 83 (1876) 1 App Cas 120. 60 [1978] QB 574. 84 Uff, p 191; R Wilmot-Smith (3rd ed) Wilmot-Smith on 61 Knowles, pp 35, 45. Construction Contracts (London: OUP, 2014) p 194. 62 [1979 EWHC]. 85 (1975) 8 BLR 88. 63 Bailey, p 321. 86 Uff, p 292. 64 Ibid, p 331. 87 248 US 132 at 136 (1918). 65 Kim, p 175. 88 See Yam Seng v ITC [2013] EWHC 111(QB) paras 66 233 US 165 (1914). 123–130; Leggatt J compares and contrasts the good 67 237 US 234 (1915). faith obligations in the UK and other jurisdictions, 68 253 US 1 (1920). para 123–130. 69 Robert F Cushman, John D Carter, Paul J Gorman and Douglas F Coppi (3rd ed) Proving and Pricing Construction Claims (New York: Aspens Publishers, 2000). 70 Kim, pp 176–179. 71 Kelleher, p 272. JB Kim is a managing consultant at Blackrock Expert 72 J Uff (12th ed) Construction Law: Law and Practice Services in London and can be contacted at jbkim@ Relating to the Construction Industry (London: Sweet & blackrockx.com. Maxwell, 2017) p 292.

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Credit: Nikola Barbutov/Shutterstock

JB Kim Concurrent delay: unliquidated London damages by employer and disruption claim by contractor

Introduction However, a full EOT has been criticised on numerous grounds. One criticism is that Concurrent delay, a controversial issue among employers lose the right to impose liquidated construction and practitioners, centres damages but are still expected to compensate around: (1) a contractor’s entitlement for an for a contractor’s prolongation claim if a full extension of time (EOT); (2) an employer’s EOT is granted (the ‘obverse problem’)3. To right to impose liquidated damages; (3) overcome such disadvantages, employers may a contractor’s entitlement for losses and claim unliquidated damages when contractors expenses associated with an EOT (referred breach contracts. Also, a separate entitlement to as a prolongation claim); and (4) general or causation in the form of a ‘but-for test’ can principles as to ‘causation in fact’.1 be applied when assessing prolongation The English position with regards to EOTs in claims.4 Therefore, the English position as to concurrency cases is well illustrated in the losses and expenses in concurrency cases Society of Construction Law Delay and means contractors are required to satisfy a but- Disruption Protocol (the ‘SCL Protocol’) in for test or burden of test,5 a position that core principle 102 (referred to as a full EOT). SCL Protocol core principle 14 fully supports.6

34 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 This essay will explore why the English position is the right approach for recouping were likely to delay project completion by time and money in cases involving concurrency; one week. It was held that if there were two it will then explore how contractors can concurrent causes of delay, one of which was make disruption claims to obtain monetary a relevant event and the other not, then the compensation, tackling causal requirements contractor would be entitled to an EOT for the in the form of a but-for test. period of delay caused by the relevant event notwithstanding the concurrent effect of the other event. The decision was based on strict Consideration of but-for test in application and construction of a contract relation to EOT provision that contract administrators shall make ‘fair and reasonable’ assessment of To establish ‘causation in fact’, it is a ‘relevant events’ in the contract, a decision requirement in contract law that a but-for consistent with one made in Balfour Beatty v test be satisfied. It usually operates on an Chestermount.14 In Balfour Beatty it was held that all-or-nothing basis and is measured using an EOT should be assessed on a ‘net’ rather standards examining a balance of than ‘gross’ basis; therefore, no EOT should probabilities (ie, those in excess of 50 per be refused on the grounds that a delay would cent7). The but-for test encounters well-known have occurred by reason of labour shortage.15 difficulties when issues of concurrency arise.8 Keating comments that the rationale for such Moran QC examined causation as a general an approach is that where the parties have principle in tort law and contract law paying expressly provided in their contract for an specific attention to construction contracts.9 EOT caused by certain events, the parties He was especially concerned with concurrency must have contemplated that there could be and applications of causation and keen to concurrent delay but nevertheless by their determine whether ‘dominant cause tests’ express words the contractor is entitled to an and ‘approximately equal causative potency EOT for an effective cause of delay.16 tests’ were a valid means of measuring these The Royal Brompton Hospital NHS Trust v situations. He determined they were not. Hammond (No 7)17 discussed the meaning of Consequently, he suggested the ‘effective concurrent delay and made a distinction cause test’, recently approved during Walter between true concurrency and sequential Lilly v Mackay.10 This test defines an effective delays.18 True concurrency (the narrow cause as being one that causes critical delay to approach) requires both the timing of events a project’s completion. An effective concurrent and their delaying effect to coincide. cause can be established by a ‘reverse but-for Therefore, true concurrency was separated test’, and ‘is (in fact) routinely applied by from sequential delays that could have the courts in different areas of the law and would same effect on completion, and it was held not be beyond contract administrators’.11 that sequential delays cannot be defined as concurrent delay.19 However, Keating and The English position as to losses and expenses in the SCL Protocol20 state that true concurrency rarely occurs, and probably only qualifies as concurrency cases means contractors are required such if each event is critical to completion of a project.21 The current consensus regarding to satisfy a but-for test or burden of proof test. ‘concurrent delay’ is that it represents a period of project overrun caused by two or Development of English law position more effective causes of delay of 22 on EOT entitlement approximately equal causative potency. It is worth noting that the first edition of the SCL 23 Extension of time clause and meaning of Protocol also distinguished true concurrency concurrency from sequential delay, but in all cases, ‘the contractor’s concurrent delay Henry Boot v Malmaison,12 a leading case in should not reduce any EOT due’.24 England and Wales, saw a situation where De Beers UK v Atos Origin IT Services UK25 no work was possible on a specific site for followed the decision made in the Malmaison a week because of exceptionally ‘inclement case, holding that the contractor ‘is entitled weather’ (a relevant event under JCT).13 to have the time within which to complete However, another issue had been manpower which the contract allows or which the shortage (not a relevant event). Both issues employer’s conduct has made reasonably

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necessary’ irrespective of the contractor’s The recent practice in construction contract risk events. The decision is consistent with conditions seeks to bar entitlement to the principle that ‘float is owned by the an EOT for any period of contractor- 26 project’ as it relates to time. responsible delay occurring during a period In contrast, in Scotland, City Inn v Shepherd of delay for which the employer would 27 Construction adopted apportionment where otherwise be responsible.36 The question for there was delay caused by two concurrent the court was whether such a clause offends causes, one of which was a relevant event the prevention principle. The English Court 28 under JCT. Hamblen J, in Adyard Abu Dhabi of Appeal in North Midland Building Ltd 29 v SD Marine Services, reviewed the decision v Cyden Homes37 decided that barring an of City Inn but did not follow the decision extension of time in concurrent cases does based on the dissenting of Lord not offend against the prevention principle. Carloway in City Inn, which supported ‘fair Coulson LJ viewed the prevention principle and reasonable’ assessment of ‘relevant as implied terms rather than an overriding events’ in the contract. In a more recent rule of public or legal policy; thus, the 30 case, Walter Lilly v Mackay, Akenhead J held express terms (the parties’ agreement) can that a contractor was entitled to a full EOT in override the implied terms. respect of the delay, where a period of delay has two effective causes. Keating concludes the current position of Approaches in other jurisdictions: English law, stating: apportionment and its rationale ‘It is now generally accepted that under the Cocklin,38 analysing approaches in other Standard Form of Building Contract and common law jurisdictions, has suggested similar contracts a contractor is entitled that other jurisdictions such as Australia,39 to an extension of time where delay is , Hong Kong, Scotland and the caused by matters falling within the clause US implement apportionment or critical notwithstanding the matter relied upon by path method (CPM) techniques in cases of the contractor is not the dominant cause of delay, provided only that it is an effective cause of delay.’31 The recent practice in construction contract conditions seeks to bar entitlement to an EOT Prevention principle for any period of contractor-responsible delay Several commentators have suggested that the occurring during a period of delay for which right approach to concurrent delay needs to refer to the prevention principle.32 It has long the employer would otherwise be responsible. been accepted that the prevention principle applies to every contract.33 The prevention concurrent delay. In a Hong Kong case, W principle in construction contracts was Hing Construction Co Ltd v Boost Investment summarised by Lord Denning MR in Trollope & Ltd, 40 the apportionment for an EOT Colls v North West Metropolitan Regional Hospital was allowed, and the apportionment has Board,34 holding that the employer cannot now been regarded as a general principle impose liquidated damages or any penalties in Hong Kong. Furthermore, Canadian when the contractor has prevented the courts do not recognise an all-or-nothing performance of other contracting parties. The approach since it is regarded as leading to prevention principle applies to concurrent disproportionate results.41 The justification delay as Salmon LJ in Peak Construction of apportionment in Canada has two bases: (Liverpool) Ltd v McKinney Foundations Ltd35 (1) the courts must ‘do the best they can’; has observed: and (2) stretching contributory negligence ‘If the failure to complete on time is due legislation, which entitles the court to to the fault of both the employer and the apportion liability between a claimant and contractor, in my view the clause (giving the defendant in tort case. These approaches employer liquidated damages) does not bite. have given the Canadian courts the ability to I cannot see how, in the ordinary course, the allocate responsibility to cases of concurrent employer can insist on compliance with a delay based on ‘guesswork’. Cocklin states condition if it is partly his own fault that he that it may lead to an equitable solution cannot be fulfilled.’ in a complex concurrent delay case,

36 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 but it lacks certainty of outcome. The US number of commentators. Wilmot-Smith refers had adopted similar approaches to the to a series of case law to warn against UK but shifted to apportionment or CPM overemphasis of delay analyses that rely on techniques due to development of delay computer programme to identify critical paths analysis methodologies with the view that and eventually analyse concurrent delay.49 CPM could accurately segregate the impact Marshall analysed different delay analysis of concurrent delays. methodologies and concluded that even in a Mastrandrea has also suggested simple project, results of prospective and apportionment based on the view that retrospective delay analyses are unlikely to ‘due weight to the degree of culpability produce the same results.50 Farrow was more and the significance of the delaying critical about use of delay analysis to make a factors of each of the relevant causes’ will determination of concurrent delays.51 ‘ It is not provide a more satisfactory outcome than difficult to manipulate a methodology to arrive an all-or-nothing approach.42 at the required answer. There are many related issues that influence the analysis […] Hence, an analyst’s view of a given set of facts will result Flaws of apportionment in a different conclusion from another analyst. The methodologies do not tell you what the The prevention principle and arguable results mean in terms of contractual liability penalty regime […] delay analysis […] is not as precise a Apportionment in the City Inn case and science as some suggest [emphasis added].’ other similar cases appears to be contrary to Although Mastrandrea has supported the well-established prevention principle.43 apportionment, he has also acknowledged Apportionment may lead to an irrational result the limitations of critical path analysis and has where an employer’s delay may be used as a pointed out that ‘segregation of delays (has) 52 basis for liquidated damages. Having said that, not always (been) possible.’ Even in the US, Hudson asserts that the imposition of liquidated if the effects of concurrent delay cannot be damages due to failure to grant an EOT due accurately segregated, the court will be likely 53 to a concurrency situation would constitute a to revert to a non-apportionment type review. penalty.44 Liquidated damages shall be imposed only for delays to completion of a project caused Contractual of programmes by a contractor. However, in situations of true concurrency, it is argued a contractor cannot be Moreover, the use of programmes to held liable for delays to completion of a contract, apportion delays has been questioned due to which is why imposing liquidated damages in its contractual status.54 Unless the programme such contexts is considered a penalty. Blackburn is incorporated into contract documents, J in Roberts v Bury Commissioners45 said: ‘… no there is no implied obligation to perform a person can take advantage of the non-fulfilment set of activities in any particular sequence.55 of a condition the performance of which has In GLC v Cleveland Bridge,56 it was held that been hindered by himself.’46 the contractor could carry out the work at any pace, whether or not it complies with the contractor’s programme. Burr criticised Uncertainty and non-reliance of delay apportionment based on programmes analysis averring that the most standard contracts Justice Ramsey argued that the adoption of a may effectively give the contractor the right general apportionment approach based upon to incur its own delay during the construction the respective culpability and/or causative period until the completion date unless the potency of the concurrent causes would programme is incorporated into the contract introduce a new element of uncertainty and or the contractor does not breach its duty to could prove unworkable in practice.47 It may proceed ‘regularly and diligently’ with the 57 lead to an unnecessary dispute about the works, or the contractor suspended works. delay analysis methodologies as seen in the 48 Walter Lilly case. The obverse problem and maxim Apportionment heavily relies on expert ‘the loss lies where it falls’ reports and delay analyses, but the danger of usage of delay analyses to apportion delays has One of the criticisms of a full EOT, which is been met with considerable concern by a used to support the case for apportionment,

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is that unless losses are to be apportioned, out Stephenson LJ in Rapid Building v Ealing of the two associated claims (ie, the employer’s Family Housing 67 said that: ‘where the claim liquidated damages claim and the contractor’s for liquidated damages has been lost or has prolongation claim) one must succeed and gone […] the defendants are not precluded the other must fail. This situation is referred from pursuing their counterclaim for 58 to as the obverse problem. unliquidated damages’. Furthermore, in situations of true concurrency, contractual responsibility for a delay to completion can be considered Alternative disruption analysis by logically indeterminate because neither contractor to satisfy but-for test delay was actually necessary to cause In the US, in many cases, contractors submit completion delay. It can, therefore, be disruption analysis focusing on increased or argued that, in such a scenario, the employer additional resources as an alternative to global will not be able to determine its entitlement delay claims.68 Nielsen states: ‘An emerging to liquidated damages. Similarly, the analysis and proof technique for delay and contractor will be unable to prove its disruption dispute impacts is productivity corresponding entitlement to a prolongation analysis (disruption analysis).’69 Resource claim. As Hudson59 puts it: ‘there is a allocated programmes and cost control substantial body of opinion which states that, systems are known to be able to effectively in circumstances where there are concurrent manage projects, and their importance is causes of delay, the Contractor is entitled to recognised in the Chartered Institute of Building an extension of time but does not receive loss (CIOB) Guide in the UK.70 Global delay claims and expense.’ seem to be regarded as lacking a causal nexus Marrin QC describes this notion as the between an employer’s delay and associated ‘Malmaison approach’,60 and it is sometimes losses, consequently failing but-for tests. In referred to as ‘time but no money’.61 However, a recent case, Costain v Haswell,71 the judge this expression is somewhat misleading. A rejected a global delay claim since he was contractor can get monetary compensation if he satisfies a but-for test.62 Willmot-Smith63 supports a but-for test to acquire losses and The solution may be unliquidated damage expenses quoting the maxim ‘the loss lies claims made by the employer, or particularised where it falls’. Having said that, Keating states the need for a different test of causation for disruption claims made by the contractor. entitlement to time and any associated losses Disruption analysis needs to be studied further, and expenses.64 The current consensus is that an ‘effective cause test’ is best suited to not only to ensure equitable compensation but situations requiring an EOT, and a but-for test or burden of proof approach to cover losses also for better project management. and expenses.65 unable to ascertain losses due to a breach Overcoming but-for test in English law when the contractor submitted a site-wide project delay cost to cover a situation in which Unliquidated damages by employer only two out of ten buildings were delayed by the architect.72 There is an opportunity for an employer The claimant could have submitted either a to recover losses, based on the general global delay claim or particularised disruption principle that damages may be awarded claim to cover losses and expenses based on for a contractor’s that particular resource increases linking an is not reliant on liquidated damages, and employer’s risk event to losses suffered due to concurrently these liquidated damages a need for increased or additional resources73. cannot satisfy a but-for test. Salmon LJ in In the UK, a disruption approach was tested Peak Construction (Liverpool) Ltd v McKinney in cases involving concurrency in the Walter 66 Foundations Ltd observed: ‘… the employer, Lilly 74 case. The court may have adopted a in the circumstances postulated, is left to his more relaxed approach assessing loss and ordinary remedy’; that is to say, to recover expense on ‘balance of probabilities’ if the such damages as he can prove flow from the liability and its link to a disruption75 were contractor’s breach. established and substantial losses (increased

38 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 resources) occurred due to the disruption 7 Furst, para 9-090. 8 Franco Mastrandrea, (2014) ‘Concurrent delay compared to global delay claims. This in construction – principles and challenges’ The contrasts with the decision made during the International Construction Law Review, 31(1), 83–107. Costain76 case.77 While in Costain78 the court 9 Vincent Moran QC, ‘Causation in Construction rejected the preliminary costs as delay Law: The Demise of the “Dominant Cause” Test?’ damages in the context of a global claim, in (SCL paper 190, 2014). 79 10 [2012] EWHC 1773 (TCC). the Walter Lilly case, Akenhead J approved 11 See n 9 above. the contractor’s particularised disruption 12 [1999] Con LR 32. claim for the delay damages. Keating 13 JCT Standard Form of Building Contract, 1980 ed commentated: (with Quantities). ‘Akenhead J did not consider the […] 14 (1993) 62 BLR 1. 15 Nicholas Dennys, Robert Clay, Alfred A Hudson and preliminary costs to be a global […] claim Atkin Chambers (13th ed) Hudson’s Building and if there was evidence to demonstrate that Engineering Contracts (London: Sweet & Maxwell, the contractor did apply a greater level 2015) 6-059. of resources than originally planned for, 16 Furst, para 8-026. and that the linkage between the relevant 17 [2001] 76 Con LR 148. 18 K Pickavance (3rd ed) Delay and Disruption in event and the need to provide that greater Construction Contracts (London LLP, 2005) 620; 80 resource is established.’ Dennys, para 6-060; Society of Construction Law Delay and Disruption Protocol (1st ed, 2002). 19 Ibid Conclusion 20 SCL Protocol (2nd ed) cl 10.3. 21 Furst, para 8-025. The rationale behind the UK position 22 See n 9 above. in relation to concurrent delays can be: 23 SCL Protocol (1st ed). 24 Ibid, cl 1.4.6. (1) contractual construction of an EOT 25 [2010] EWHC 3276 (TCC). clause; (2) adherence to the prevention 26 Ascon Contracting v Alfred McAlpine Construction Isle of principle; (3) the ‘burden of proof on Man (1999) 66 Con LR 119; Furst, para 8-062. the claimant’ consideration; and (4) the 27 [2010] BLR 473. penalty regime. Apportionment may be 28 See n 13 above. 29 [2011] EWHC 848. argued to be more equitable than a full 30 See n 10 above. EOT. However, apportionment will bring 31 Furst, 1st supplement para 8-026. further uncertainty to the construction 32 See n 1 above. industry, leading to unnecessary disputes 33 Marrin; Dennys, 3-127; as per Vaughan Williams LJ such as delay analysis methodologies. On in Barque Quilpé Ltd v Brown [1904] 2 KB 264 at 274. 34 [1973] 1 WLR 601 (HL). the other hand, the ‘obverse problem’ 35 (1970) 1 B.L.R. 111. may be overcome by employing different 36 See North Midland Building Ltd v Cyden Homes [2018] approaches replacing the liquidated EWCA Civ 1744. damages and global prolongation claims in 37 [2018] EWCA Civ 1744. order to keep up with legal requirements 38 M Cocklin, ‘International Approaches to the Legal Analysis of Concurrent Delay: Is There a Solution as to causation in fact. The solution may for English Law?’ (SCL paper 182, April 2013). be unliquidated damage claims made by 39 (Bailey examined standard forms of contract AS the employer, or particularised disruption 4000-1997 form) J Bailey (2nd ed) Construction Law claims made by the contractor. Disruption (London: Informa Law, 2016). analysis needs to be studied further, not only 40 [2009] BLR 338. 41 Cocklin, pp 11–13. to ensure equitable compensation but also 42 Mastrandrea, pp 84. for better project management. 43 Marrin, pp 4–7. 44 Dennys, para. 6-602. Notes 45 (1870) LR 5 CP 310. 1 John Marrin QC, ‘Concurrent Delay Revisited’ 46 Dennys, para 3-127. (Society of Construction Law paper 179, February 47 Furst, para 9-098. 2013). 48 See n 10 above. 2 Society of Construction Law Delay and Disruption 49 R Wilmot-Smith (3rd ed) Wilmot-Smith on Protocol (2nd ed, 2017). Construction Contracts (London: OUP, 2014), pp 3 See n 1 above. 372–375. 4 Stephen Furst, Vivian Ramsey and Donald Keating 50 John Marshall, ‘Delay Analysis: Backwards or (10th ed) Keating on Construction Contracts (London: Forwards: Does it Make a difference?’ (SCL paper Sweet & Maxwell, 2017) para 8-029; SCL Protocol, 196, 2016). core principle 12. 51 Tony Farrow, ‘Delay Analysis – Methodology and 5 Ibid, Furst, para 9-093. Mythology’ (SCL paper 098, 2001). 6 See n 2 above. 52 Mastrandrea.

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53 Thomas J Kelleher and G Scott Walters (4th ed) 69 Ibid. Common Sense Construction Law (New Jersey: John 70 CIOB, Guide to Good Practice in the Management Wiley & Sons, 2009) pp 289–290. of Time in Complex Projects (Chichester: Wiley 54 Pickavance. Blackwell, 2010). 55 J Uff (12th ed) Construction Law: Law and Practice 71 [2009] EWHC 3140 (TCC). Relating to the Construction Industry (London: Sweet & 72 R Champion ‘Prolongation Costs: Where Now After Maxwell, 2017). Costain v Haswell?’ (SCL paper 170, 2011); Dennys, 56 (1986) 34 BLR 50. para 6-076. 57 Pickavance. 73 Bailey, para 11-182. 58 Marrin. 74 [2012] EWHC 1773 (TCC). 59 Dennys, para. 6-058. 75 Furst, para 8-075. 60 Ibid. 76 [2009] EWHC 3140 (TCC). 61 Cocklin. 77 Furst, para 8-077; see n 10 above; see also SKK (S) Pte 62 Furst, paras 8-029 9-092,9-093. Ltd v MCST [2011] SGHC 215. 63 Wilmot-Smith, para 14.37. 78 [2009] EWHC 3140 (TCC). 64 Furst, para 8-029. 79 [2012] EWHC 1773 (TCC). 65 Marrin; Moran; Furst chs 8, 9; SCL Protocol (2nd 80 Furst, para 8-077. Edition) core principle 10 and 14. 66 (1970) 1 BLR 111. 67 (1984) 29 BLR 5, 16 and 19. JB Kim is a managing consultant at Blackrock Expert 68 Nielsen, Kris R, and Galloway, Patricia D, Proof Services in London, UK, and can be contacted at Development for Construction Litigation American Journal of Advocacy 433. [email protected].

40 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 Credit: SOMKID THONGDEE/Shutterstock

Nicholas Cousino Concurrent expert evidence in Ankura Consulting, London nicholas.cousino@ a post-pandemic world ankura.com

Kemi Wood Introduction there has been little to no guidance regarding how expert witness conferencing (or ‘hot- Herbert Smith A necessary consequence of the Covid-19 tubbing’) should take place virtually. Freehills, London pandemic is the greater use of virtual hearings As societies across the world emerge from [email protected] for international construction . their respective lockdowns, it is apparent that Virtual hearings may well continue to feature many individuals have grown accustomed to prominently even in a post-pandemic world. their new home-working environments. Although there has been a proliferation of Alongside the normalisation of seeing protocols on the conduct of virtual hearings, friends and family, colleagues and clients

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through the lens of a laptop or tablet, we • practical issues (eg, that participants should have seen an acceleration in the use of virtual be on mute with video off, except the technology in international construction tribunal, leading counsel and the witness, arbitrations. Notably, there has been a and that only one person should speak at a significant rise in virtual hearings. Although time, with others to signal an interruption). virtual hearings are being used in response The anecdotal evidence suggests that tribunals, to the challenges of convening face-to-face counsel and parties have grown accustomed to hearings, they will likely become a normal a socially distanced world. Both domestic and feature of the post-pandemic world. international arbitration hearings, including The authors provide their insights into the international construction arbitrations, are increased use of virtual hearings, discuss the increasingly being conducted virtually in lieu of challenges that virtual hearings present for postponement for an unknown length of time. hot-tubbing and discuss measures to ensure that expert witness conferencing continues Virtual hearings – the new normal? to be a viable option if, or possibly when, virtual hearings become the new normal. During the pandemic, virtual arbitration hearings using industry-standard web conferencing platforms have largely been From venue to virtual successful. However, virtual hearings are The use of virtual technology has long been not a panacea. While offering a viable commonplace in international arbitration. medium to proceed with arbitral hearings This may partly explain why the leading arbitral during the pandemic, numerous practical institutions did not issue their joint statement challenges require consideration in each on arbitration and Covid-19 until 16 April this case. Additional effort should be made year.1 Although the issuance of a joint statement to implement safeguards to prevent or was relatively slow, arbitral institutions and minimise the impact of these challenges. The organisations had been individually publishing proliferation and use of protocols to guide the guidance statements since as early as March. For virtual hearing process confirms the need for example, the Korean Commercial Arbitration thoughtful planning and organisation. Board published the Seoul Protocol on Video Conferencing in International Arbitration on Although virtual hearings are being used in 18 March 2020;2 the International Chamber of Commerce published its ‘Guidance Note response to the challenges of convening face-to- on Possible Measures Aimed at Mitigating the face hearings, they will likely become a normal Effects of the COVID-19 Pandemic’ (the ‘ICC Guidance Note’) on 9 April 2020;3 and the feature of the post-pandemic world. Africa Arbitration Academy issued its Protocol on Virtual Hearings in Africa in April 2020.4 Nonetheless, there has been demonstrable In addition, parties and counsel have success in the use of virtual hearings. The prepared their own bespoke protocols, for chairman of the tribunal in a recent virtual individual cases, to govern virtual hearings. arbitral hearing commented: The protocols, in their various forms, all ‘I think it has been remarkable how few hitches serve an important and necessary purpose, there have been. I mean there have been one and cover matters such as: or two hitches […] which have been overcome • the required hardware (screens, cameras, pretty speedily, and I think this is a great tribute microphones, etc); to all concerned in organising this virtual • the mechanics of the technology (eg, how to hearing and I am sure there are going to be 5 join the virtual hearing and how to contact many, many more virtual hearings.’ the virtual hearing organisers); There is comparable feedback from expert • how documents are to be managed and witnesses participating in virtual hearings. shared on screen, and by whom; One expert witness commented that their • witness examination procedure (eg, how experience of a virtual hearing was ‘very to ensure that no one is in the room with a stressful during cross examination’, akin to witness, that clean copies of documents are being in a physical hearing room.6 made available, that there are no external If the virtual hearing is well organised, it is prompts and that any limits to the length an effective approach to increasing efficiency of responses are adhered to); and and ready access to justice in international

42 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 arbitrations. This is relevant not only in a of the expert’s evidence to best advance lockdown situation, but also in construction their client’s case, without necessarily arbitrations concerning international focusing on the specific issues of projects where participants often reside in disagreement between experts or issues in multiple countries. which the tribunal wishes to explore. The The increased use of virtual hearings is examination of each individual expert can likely to continue. The use of virtual take several hours, or even days. technology in international arbitration is not Multiplying this process across all expert novel. Even before the outbreak of Covid-19, evidence explains why a significant it was not uncommon to have a section of the amount of time is required for an hearing conducted virtually, particularly in arbitration hearing. emergency arbitrations or where a witness Hot-tubbing is a departure from the was unable to attend a hearing in person. traditional sequential examination of expert There is a long-held perception that it is evidence. The process of hot-tubbing was slower and more costly for parties to obtain originally developed in the Australian an award in international construction Competition Tribunal and has been arbitration than should rightly be the case. endorsed by multiple jurisdictions through In recent years, there has been a sharpened court rules and practice guidelines. Early focus on how international construction provisions for adducing concurrent expert arbitrations can be more efficient. Virtual evidence were added to the IBA Rules on the hearings appear to be a further means of Taking of Evidence in International driving improvements. For example, virtual Commercial Arbitration in 1999,7 and it was hearings eliminate the costs and adopted, as a pilot, in the English Technology inconveniences of international travel and and Construction Court guidelines in 2010.8 accommodation and allow participants The process of hot-tubbing provides that greater flexibility for hearing dates. experts in the same disciplines are affirmed together and often sit in the witness box at the Do virtual hearings mean pulling the same time. This permits the tribunal to engage plug on the hot tub? with the experts in a question-and-answer format or in a more open discussion. Typically, Although the sharp rise in the use of virtual the process takes place after both experts have hearings is a consequence of restrictions been cross-examined and after the significant on international travel, local lockdowns issues of disagreement have been identified, and social distancing policies, several other through factual evidence and the submissions innovative procedural approaches applicable of counsel. The tribunal probes the evidence to international construction arbitration and allows a simultaneous comparison of the have been proposed over the past few years, experts’ respective evidence. including some involving the provision of There are some tangible advantages to hot- expert evidence. tubbing when increasing efficiency in A defining feature of most international international construction arbitrations is construction arbitrations is their factual and high on the agenda. Professor Doug Jones technical complexity. Consequently, tribunals AO astutely identified that: rely heavily on expert evidence to understand ‘The efficiency derives from the fact that the technical engineering, programming and witnesses ‘in conference’ can effectively economic issues involved. Although the confront each other’s evidence on the outcome of a case will not be determined spot. Traditional methods of each side solely by expert evidence, it is a vital part of calling their witnesses in a linear fashion international construction arbitrations. can lead to a cognitive disconnect in the In traditionally adduced expert arbitrators’ and counsel’s understanding of evidence, the expert witness of the the issues. This disconnect is exacerbated in claimant affirms evidence in chief by situations where there are large numbers reference to served reports. The witness is of witnesses and it could be days before then cross examined by the opposing the contradictory evidence of an expert counsel, followed by any necessary re- witness’ counterpart is heard. Further, it is examination. The expert witness of the possible that due to the technical nature of respondent then follows in a similar the evidence, opposing counsel will not be fashion. Often, counsel will examine areas able to develop fully informed questions

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until they have been advised by their own devised on the subject of virtual hearings, expert. Therefore, allowing experts to they are almost all entirely silent on how analyse and question directly the evidence concurrent expert evidence can, and should, of other experts ensures greater celerity of be heard in a virtual hearing, instead assuming the hearing.’9 a sequential approach to the presenting of However, hot-tubbing of expert witnesses is not expert witness evidence. used as widely in international construction arbitrations as some might expect. Although Making a splash: can guidelines be 63 per cent of respondents to the Queen adapted in the context of virtual Mary 2012 International Arbitration Survey hearings? suggested that expert witness conferencing should take place more often,10 the use of hot- The absence of any guidance on hot-tubbing tubbing in construction arbitrations often only in virtual hearing protocols suggests a comes at the behest of the arbitral tribunal, reluctance about its use in these circumstances. rather than the parties or their counsel. Indeed, the recently published Chartered This may reflect the perceivedInstitute of Arbitrators’ Guidelines for Witness disadvantages of hot-tubbing, such as a sense Conferencing in International Arbitration of loss of control, and so increased risk. In (the ‘CIArb Guidelines’) notes that: many cases, examination of the experts is led ‘There may be circumstances when a witness by the tribunal, such that ‘, who is unable to attend at the hearing venue although given the opportunity to speak, for a conference but may be able to give seemed very much to take a back seat’.11 evidence by video. The dynamics and ease of Some practitioners have criticised hot- communication of witnesses giving evidence tubbing for letting ‘very poor experts off the side by side are likely to be adversely altered hook from a searching cross-examination’.12 when they are physically dislocated. A In addition, some experts have a more witness conference in such circumstances dominant personality than others, which may be undesirable save where the tribunal may become problematic if one expert ends considers that time or other constraints or up leading the hot tub, such that the other considerations prevail over the limitations expert fails to be effective in presenting their of evidence being given by video.’14 opinions. There are also concerns that ‘peer There are several legitimate concerns about pressure’ may lead an expert to make obtaining concurrent expert evidence in concessions more easily than would otherwise virtual hearings. After a recent virtual hearing, be the case. leading counsel confirmed to the authors Although the use of hot-tubbing would be that they preferred physically sitting in the expected to reduce a hearing’s duration, and same room as the tribunal members because therefore its cost, it has been said that both they were able to speak to the members counsel and experts require more directly, which gave a better sense of their preparation time. Nicola Cohen, of the reactions and allowed rapport building. Academy of Experts, noted: Furthermore, the extent to which an expert ‘… it is unlikely that the preparation time witness’s credibility may be impeded by video [for counsel] pre-hearing will be reduced. links is another oft-cited concern due to the In fact, it may be that counsel will need to reduced ability to assess the disposition of the do additional preparation, not least of all expert. In addition, the lack of proximity in because, while the experts are in the hot- a virtual hot tub may exacerbate differences tub, counsel will not be able to call upon of language between participants, leading to their own expert’s assistance, should the a loss of nuance. 13 need arise.’ Before the CIArb Guidelines, procedural The existence of such barriers to the use of guidance for parties and representatives on hot-tubbing in international construction exactly how hot-tubbing should be arbitration puts into question what impact implemented was limited, an issue long the move towards virtual hearings will have recognised as a lacuna in the arbitration on its future use. One hypothesis is that an landscape. increase in virtual hearings would correlate The CIArb Guidelines, published in April with a decline in the use of hot-tubbing, with last year, are broadly divided into three parts: tribunals being reluctant to suggest their use. • a Checklist, which sets out a non-exhaustive Although many protocols have now been list of matters for the parties and tribunal to

44 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 consider when determining whether witness experts will not, for example, easily be conferencing should be used; able to intervene with a response to points • Standard Directions, which provide a made by the other expert. general framework for witness conferencing The CIArb Guidelines provide that where that can be included in an initial procedural video conferencing is used, the tribunal order, providing a set of applicable should issue necessary directions on: principles if the tribunal subsequently • advance testing of video conferencing orders some of the witness evidence to be facilities; taken concurrently; and • the presence of a legal representative of • Specific Directions, which provide three the disputing parties at the venue of the possible procedural frameworks for witness relevant witness; conferencing depending on whether it is • the presence of an interpreter, if required; led by the tribunal, the witnesses or counsel and for the parties. • access to all the documents relevant to such While the CIArb Guidelines appear reluctant to a witness’s examination. endorse the use of hot-tubbing when hearings The guidance is limited and not wholly fit for take place virtually, it is these same guidelines present purposes (eg, the physical presence that may provide a springboard for parties, of a legal representative may be impossible counsel and tribunals to consider what measures following social distancing measures, travel to take to ensure the efficiency and effectiveness restrictions and each firm’s guidelines). of witness conferencing in a virtual hearing. However, it provides a baseline protocol that The authors are aware of virtual arbitral participants can develop in the arbitration to hearings involving expert witness conferences suit the needs of a specific virtual hearing. The taking place in the wake of the Covid-19 inherent flexibility to do so is built into the pandemic. In these cases, the tribunal led a CIArb Guidelines, which are not intended to be question-and-answer session where each expert overly prescriptive but instead aim to ‘recognise responded to their specific questions, and with the diversity of approaches that can be adopted the opportunity to reply to the other expert’s without seeking to restrict the ability and views. Counsel were then permitted to raise any imagination of tribunals and parties to shape a 15 further points following the tribunal’s joint conference most suited to any given dispute’. examination. It would therefore be beneficial for existing virtual hearing protocols to include Looking ahead: the future of terms for hot-tubbing. concurrent evidence Although many protocols have now been devised It is timely for virtual hearing protocols to specifically address terms for virtual expert on the subject of virtual hearings, they are almost witness conferencing. These protocols may all entirely silent on how concurrent expert evidence build on the foundation established by the CIArb Guidelines. As well as agreeing can, and should, be heard in a virtual hearing on the usual provisions of a witness conferencing protocol, parties, counsel and However, the CIArb Guidelines were the tribunal should include provisions that compiled in a pre-pandemic world. The address the specific challenges of a virtual CIArb itself has openly acknowledged that hot tub, such as: there would be circumstances in which the • agreeing the location from which each constraints of giving evidence concurrently expert witness is to give their evidence; through virtual means would be outweighed • determining whether the oaths or by the benefits of hot-tubbing. Indeed, one affirmations given by the expert witnesses consequence of the digitalisation of need to be expanded, for example, to international construction arbitrations in include the confirmations that: response to the pandemic might be a faster – there are no other persons in the room uptake of the CIArb Guidelines. Tribunals, with the expert; parties and counsel will be reliant on – the experts are not in communication having much clearer procedural directions with anyone outside the virtual if hot-tubbing is to be used in virtual hearing; and hearings. The logistics and procedures for – the experts are only using clean copies hot-tubbing must be more clearly defined: of any statements or reports;

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• requiring that experts provide their own Notes holy book or scripture, if they wish to give 1 International Chamber of Commerce, ‘Arbitral institutions COVID-19 joint statement’ (16 April an oath rather than an affirmation; 2020) https://iccwbo.org/publication/arbitral- • designating a neutral individual to run the institutions-joint-statement-in-the-wake-of-the-covid- witness conference, including by: 19-outbreak accessed 1 September 2020. – taking an initial ‘roll call’ of the expert 2 Seoul Protocol on Video Conferencing in witnesses; International Arbitration (18 March 2020) http:// www.kcabinternational.or.kr/user/Board/comm_ – identifying which expert is being notice_view.do?bbs_no=548&bd_no=169¤t_ called on to speak next (whether for menu_code=menu0025&top_menu_code=menu0024 oaths and affirmations, to give oral accessed 1 September 2020. presentations or examination by the 3 International Chamber of Commerce, ‘ICC Guidance tribunal or counsel); and Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic’ (9 April 2020) – managing any interventions from the https://iccwbo.org/publication/icc-guidance-note-on- tribunal; possible-measures-aimed-at-mitigating-the-effects-of- • specifying the use of an electronic document the-covid-19-pandemic accessed 1 September 2020. repository for the participants’ exclusive use 4 Africa Arbitration Academy, Protocol on Virtual Hearings during the witness conference; in Africa (April 2020), www.africaarbitrationacademy. org/wp-content/uploads/2020/04/Africa-Arbitration- • specifying the use of separate display Academy-Protocol-on-Virtual-Hearings-in-Africa-2020. screens or windows for viewing documents pdf accessed 1 September 2020 . during the conference; 5 Interview with a senior managing director, Ankura • setting out an agreed running order for Consulting (London, 30 June 2020). witnesses’ examination by the tribunal or 6 Ibid. 7 International Bar Association Rules on the Taking counsel; of Evidence in International Commercial Arbitration • making it clear that the tribunal or counsel (adopted by a resolution of the IBA Council June may intervene during expert witness 1999), Article 8(2). presentations, counsel’s examination of the 8 Technology & Construction Court issued a revised witnesses or witness discussions; and guide on Friday 1 October 2010. 9 Doug Jones, ‘Improving Arbitral Procedure: • setting out how any tribunal or counsel Perspectives from the Coalface’ ch 11 in Bernd interventions or interruptions should be Ehle and Domitille Baizeau (eds), Stories from the signalled. Hearing Room: Experience from Arbitral Practice (Essays This is not intended to be an exhaustive list. in Honour of Michael E. Schneider), pp 97–98. Participants in a virtual hearing featuring 10 Queen Mary, University of London and White and Case, 2012 International Arbitration Survey: Current witness conferencing are likely to face other and Preferred Practices in the Arbitral Process, p 28. issues that can be proactively managed 11 Civil Justice Council, ‘Concurrent Expert Evidence through their virtual hearing protocols. and Hot-Tubbing’, English Litigation since the ‘Jackson If, as the authors anticipate, there is a Reforms’ (2016) p 19. continued uptake in the use of virtual hearings, 12 Ibid. 13 Ibid. tribunals, parties, counsel and experts will 14 ‘CIArb Guidelines for Witness Conferencing in need to be equipped for the resulting International Arbitration 2019’, Checklist Item (10). challenges, including those related to expert 15 Ibid, preamble, para 1. witness conferencing. A move to virtual hearings cannot signal the end of expert Nicholas Cousino is a senior director at Ankura witness conferencing, despite its inherent Consulting in London and can be contacted at disadvantages, because hot-tubbing continues [email protected]. Kemi Wood is a to play a significant role in international senior associate at Herbert Smith Freehills in London construction arbitrations and is viewed and can be contacted at [email protected]. positively by many experts and tribunals.

46 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 Modern buildings near construction site in Santiago de Chile. Credit: kastianz/Shutterstock

Alex Wagemann Public works and dispute Farfán Wagemann Lawyers & Engineers, boards: a pending debate in Santiago awagemann@ wycia.com South America Claudio Inostroza Introduction Guajardo is limited only to dispute resolution, losing Wagemann Lawyers As is well known, dispute boards were created their original purpose. & Engineers, by the construction industry and have been Even though the use of dispute boards is Santiago defined by the International Chamber of recommended and has important benefits Commerce (ICC) as ‘a standing body typically during the execution of a project, South cinostroza@ set up upon the signature or commencement American countries have been reluctant to wycia.com of performance of a mid- or long-term introduce them into the legal framework, contract, to help the parties avoid or overcome especially in public works contracts. One of any disagreements or disputes that arise several reasons for this is that South American during the implementation of the contract’.1 countries have civil law systems, in contrast to The main purpose of dispute boards is to the common law system that originated in operate during the execution of construction Anglo-Saxon countries. Under a civil law projects and allow the parties to resolve their system, the principle of freedom of contract differences contemporaneously and in a is limited by the governing law, which relies timely manner. However, it is important to on public institutions to resolve the conflicts note that in many cases, the use of these bodies between the parties and to defend the

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weakest party. Conversely, under a common Challenges for the implementation of law system, in light of the lack of dispute boards in public works contracts and the simplicity of , the need in South America for legal certainty in contracts has resulted in the creation and development of standard It is possible to identify at least challenges forms, which usually provide for the use of to the implementation of dispute boards in dispute boards, mostly mandatorily. public works contracts: (1), the necessity of Some South American countries, however, having a legal regulation in South American have been implementing dispute boards for countries; and (2) the need for substantive at least two reasons: (1) the progressive change in the professional culture. introduction of common law features to civil In relation to the first, as aforementioned, law countries; and (2) the use of FIDIC South American countries follow the civil law standard form contracts, which provide for system, where the principle of freedom of the use of dispute boards, is mandatory in contract is limited by the governing law, projects financed by the Inter-American relying on public institutions to resolve the Development Bank (IDB). conflicts between the parties. This is In this article we will briefly analyse briefly: especially true for public works contracts, (1) the legal regulation of dispute boards in which are ruled by regulations public works contracts, including the main that require an express legal provision causes that have prevented their general allowing disputes boards for their use. This application in South American countries; and brings, as an additional effect, a clear (2) the advantages and importance of having reluctance from the authorities to accept any dispute boards for public works in this region. decision of dispute boards as mandatory, as they are considered to be as an institution with reduced effectiveness. The use of dispute boards in public Even when a legal regulation providing for works in South America dispute boards is included in the normative framework, cultural change is also essential, Legal regulation of dispute boards in affecting not only the introduction of dispute public works contracts boards, but also the dissemination of any kind of alternative dispute resolution (ADR). After studying the legal framework of the As an expression of this cultural behaviour, it six South American countries with higher is possible to identify at least the following 2 gross domestic product (GDP), it is possible situations that affect the implementation of to conclude that the regulation of dispute dispute boards in South America: boards in public works contracts is minimal if • First, South American countries have a not almost inexistent. Indeed, only Peru has very close relationship with litigation, a normative framework on this matter. Some not other institutions orientated towards countries have regulations for specific regions conflict avoidance. Almost all countries in only or are working on the incorporation of the region believe that practically the only dispute boards into their legal framework. Yet way to resolve a conflict that arises during in most cases there are no legal regulations. the execution of a contract is through the The following table describes the regulations judicial system, either through the courts or in Argentina, Brazil, Chile, Colombia, Ecuador arbitration. Therefore, even when the parties and Peru: could agree to go before a dispute board during the project execution, this method

Dispute board Standing or ad hoc Number of Professional skills Subject matters in public works members contracts Argentina3 No - - - - Brazil4 Yes Standing 1–3 Not restricted but Patrimonial rights preferably one lawyer and two engineers Colombia5 No - - - - Chile6 No - - - - Ecuador7 No - - - - Peru8 Yes Standing 1–3 Restricted by Restricted (eg, profession excludes extra works)

48 CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 is not widely used or is used only partially, the governments to provide these public and the parties wait, sometimes as agreed, services. This infrastructure is developed until the end of the project to resolve their normally via the execution of public works, differences judicially (usually through the which requires efficiency by public entities in courts), under the public system. the administration of the public budget and • Second, in South America, public entities timely execution of projects. Dispute boards prefer to have full control during the can help to achieve this objective, because execution of works, rejecting the possible they avoid, in most cases, time-consuming intervention of third parties such as a and ineffective litigation, keeping the project dispute board. Public entities also face the under way. difficulty of having to explain and justify Indeed, dispute boards play an important any public-money expenditure that could role in the efficiency of construction involve payment to a dispute board. because: (1) their existence pushes the • Third, and closely related to the previous parties to resolve any differences in a timely point, in most South American countries there manner while the work continues; and is a public controllership, which is usually an (2) they reduce the probability of incurring obstacle to enforcing dispute board decisions, court or arbitration costs. These reasons due to the possibility of administrative alone should be enough to introduce these sanctions by the public controller. bodies into the normative framework of • Finally, there is a trend in South American countries. that non-lawyers are seen as incapable During the pandemic, when it is important of analysing contractual controversies. that parties can reshape the contractual Apparently, this arises from confusion terms of works in execution, dispute boards between the technical expert used by can support them to create an environment the judge or arbitrator and the dispute of mutual reliance, facilitating agreement board member. That is not a problem in without stopping projects. It is important to the common law environment, where the bear in mind that a country’s public sector focus when appointing a member of a is responsible for taking effective measures dispute board is the candidate’s skill for to aid economic recovery, and one pillar of the particular case rather than their specific any recovery is keeping infrastructure studies, and where the institution of the projects in operation. adjudicators, managed mainly by non- For the introduction of dispute boards to lawyers, has been operating successfully for be effective, it is evident that South American several years precisely with the objective to countries need a cultural change, particularly avoid submitting disputes to the courts. moving from unbalanced contracts and adversarial management to models with more collaboration, focusing on the early Advantages and importance of having avoidance of conflicts instead of resolution dispute boards in public works through litigation processes, relying on the In recent decades, the construction sector professional skills of the non-lawyers and has become highly complex, requiring more using dispute boards to support the parties expertise and contractual frameworks that during the whole project, and not only for respond to the differences that may arise dispute resolution. between the parties during the execution Finally, given the times in which we are of the project, differences that involve legal living, when collaboration is the only way to and technical issues. Dispute boards were face the global crisis, perhaps the South created by the industry to respond to these American public sector will be finally pushed very challenges, and have been used with to consider implementing these panels and proven success in many countries. For that starting legislative processes to introduce reason, it is difficult to comprehend their them into their respective legal frameworks. lack of use in public construction, at least in conceptual terms. The public administration is the main Notes party responsible for providing public 1 Dispute Board Rules (2015), International Chamber of Commerce, p 2. services to all people in a country. To fulfil 2 World Bank ‘GDP (current US$) – Latin America this obligation properly, countries need to & Caribbean’ https://data.worldbank.org/ have an adequate infrastructure that allows indicator/NY.GDP.MKTP.CD?locations=ZJ accessed

CONSTRUCTION LAW INTERNATIONAL Volume 15 Issue 4 December 2020 49 FEATURE ARTICLE

22 September 2020. Note that due to the lack dispute boards implemented in contracts in specific of statistical information in the past five years sectors next year. Venezuela was not included in the analysis. 7 Ecuador does not have a regulation related to 3 Argentina does not have regulations related to dispute boards in public works. dispute boards or alternative dispute resolution 8 Peru has a particular regulation for dispute (ADR) in public works. boards (Junta de Resolución de Disputas or JRD) 4 The only existing legal framework in force is the in public works. This regulation is contained in Law No 16.783 (2018), enacted by the Municipality three normative frameworks: the Law of Public of São Paulo, which regulates in detail the creation, Procurement No 30.225 (Ley de Contrataciones applicability and procedures of dispute boards, del Estado), enacted in 2015, which was last known as committees for the prevention and updated through Supreme Decree No 082-2019; the resolution of disputes (Comitês de Prevenção e Solução Regulation of the Law 30.225, contained in Supreme de Disputas) intended for long-term contracts where Decree No 350-2015-EF (Reglamento de la Ley de the City of São Paulo is a party. Contrataciones del Estado), and the recent Directive 5 Colombia does not have any regulations related to of Dispute Boards No 012-2019 (Directiva No 012- dispute boards in public works. 2019-OSCE/CD – Junta de Resolución the Disputas). 6 Since 2018 a committee consisting of the authorities of the Ministry of Public Works and representatives of the Chilean Chamber of Construction and Dispute Resolution Board Foundation, including Alex Wagemann Farfán is a partner at Wagemann legal and technical experts, has been working on Lawyers & Engineers in Santiago. He can be contacted a pilot plan of six contracts with different types at [email protected]. Claudio Inostroza of disputes boards and, in parallel, drafting a Guajardo is an associate at the firm. He can be regulatory framework. The expectation is that contacted at [email protected]. results of the pilot will be gathered this year, and

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