Construction Law International homepage  »  December 2020

 

Zambia

Bwalya Lumbwe, Lusaka

 

1. What is your jurisdiction?

Zambia

 

2. Are the FIDIC forms of contract used for projects constructed in your jurisdiction? If yes, which of the FIDIC forms are used, and for what types of projects?

FIDIC contract forms are used in Zambia, primarily for public procurement projects involving building and infrastructure works. Parties in private contracts or projects may choose the terms of their contract, including whether to adopt FIDIC forms. Zambia’s Public Procurement Act No 19 of 2008 mandates the use of the 2010 version of the Pink Book in employer/contractor public procurement contracts for building and engineering works requiring open international bidding, while the White Book is used in private client/consultant services agreements. Although Zambian law does not compel the use of FIDIC model services forms, the Public Procurement Act requires parties to adopt forms that conform to World Bank standard service agreements.

The 1999 Red Book was applied in some private sector projects, such as the Lumwana copper mine and Chambeshi mine projects, and also in donor-funded public works, including the Lusaka water supply, sanitation and drainage project. This project involved at least six separate contract packages and was funded by foreign donors. The Silver Book was used in two internationally funded projects for the development of the Kenneth Kaunda airport in Lusaka and Harry Mwanga Nkumbula International Airport in Ndola. The short form of contract was utilised in at least one contract for a rehabilitation project at the University of Zambia.

 

3. Do FIDIC produce their forms of contract in the language of your jurisdiction? If no, what language do you use?

The English versions of FIDIC forms are commonly available and used in Zambia, as English is the official business language.

 

4. Are any amendments required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what amendments are required?

Certain terms are implied by the public procurement legislation and cannot be excluded by parties in public contracts. These statutorily implied terms include the requirement for the Attorney-General’s approval before contract amendment; maximum variation limits; the pre-authorisation of the contract awarding authority for contract termination; and other terms that have an impact on project supervision and execution. It is pertinent to note that although some mandatory legislative terms for public procurement may (inadvertently) be omitted from certain FIDIC adopted contract forms, such statutorily omitted terms shall be implied and binding on contract parties by the operation of law. In this regard, it is advisable for parties in public project contracts to include or acknowledge the application of mandatory statutory terms in their contract.

 

5. Are any amendments common in your jurisdiction, albeit not required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what (non-essential) amendments are common in your jurisdiction?

There are no common amendments in Zambia, except as stated in response to the previous question regarding implied or mandatory terms for public procurement contracts. The principle of freedom to contract entitles parties in private contracts to modify contract forms and terms to suit their objective, provided that such modifications do not violate Zambian law.

 

6. Does your jurisdiction treat Sub-Clause 2.5 of the 1999 suite of FIDIC contracts as a precondition to Employer claims (save for those expressly mentioned in the sub-clause)?

Employer claims are generally evaluated and processed according to terms agreed by the parties in both public and private contracts. Sub-Clause 2.5 of the 1999 suite of FIDIC contracts is applied without any change to its provisions in public contracts, except as may be pre-approved by the Attorney-General on a case-by-case basis. However, employer claims in private contracts may be modified to comply with terms pre-agreed by the parties.

 

7. Does your jurisdiction treat Sub-Clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money (not including Variations)?

There is no legal obligation not to treat Sub-Clause 20.1 in the both the Red or Pink Book as condition precedent to Contractor claims involving time and/or money in public contracts. In other words, the Sub-Clause is applied as is unless it is modified with the Attorney-General’s approval. Parties in private contracts may modify the terms as they may deem necessary.

 

8. Does your jurisdiction treat Sub-Clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money arising from Variations?

See the response to question 7.

9. Are dispute boards used as an interim dispute resolution mechanism in your jurisdiction? If yes, how are dispute board decisions enforced in your jurisdiction?

Dispute boards are used under the FIDIC Pink, Red and Silver Books. Generally, disputes are resolved according to contract terms. Zambian courts respect the sanctity of parties’ contract and will refuse to litigate where there is a valid arbitration or dispute resolution clause in the contract; in such instance, the court will require parties to adopt the contractual dispute resolution procedure.

There is no known legal precedent to enforcement proceedings; hence, it is not known how Zambian courts will react. Zambia is a common law country and English law and decisions of common law jurisdictions are likely to have persuasive effects on Zambian courts. Therefore, it is likely that Zambian courts will adopt the decision in Peterborough City Council v Enterprise Managed Services Limited [2014] EWHC 3193 (TCC), a case that supports the use of dispute boards. For disputes resolved by arbitration, the Arbitration Act No 19 of 2000 outlines the process for recognition and enforcement of awards based on the New York Convention.

 

10. Is arbitration used as the final stage for dispute resolution for construction projects in your jurisdiction? If yes, what types of arbitration (ICC, LCIA, AAA, UNCITRAL, bespoke, etc) are used for construction projects? And what seats?

Arbitration is often used as a final dispute resolution process both under public procurement and private contracts. The FIDIC Pink Book form, which is mandated in public procurement projects, has a two-tier dispute resolution process – dispute board and finally arbitration, a standard feature in all FIDIC forms.

The Pink Book provides for international arbitration proceedings to be administered: (1) by an arbitral institution designated in the contract and conducted under the arbitration rules of such institution; or (2) if so specified in the contract, in accordance with the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL); or (3) where neither an arbitration institution nor the UNCITRAL arbitration rules are specified in the contract, then in compliance with proceedings administered by the International Chamber of Commerce (ICC) and conducted under the ICC Rules of Arbitration.

The mandated public procurement form of contract for small works construction also provides for arbitration as the final tier. Local procedural rules will usually apply in smaller contracts or projects; the only available local rules are those of the Zambia Branch of the Chartered Institute of Arbitrators. Where the contract is awarded to an international contractor or has international dimensions, disputes arising therefrom are often resolved in accordance with the UNCITRAL Rules, or ICC Rules or the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce. Public parties or employers often prefer to adopt the Zambian Arbitration Act as the preferred law for dispute resolution of a project; this is usually stated as a pre-condition for tendering before the contract award. Public procurement also mandates the consultant’s contract forms to use arbitration as the final tier for dispute resolution using the UNCITRAL rules.

Lusaka, the capital of Zambia, is the implied seat of arbitration for non-international contracts. International contract seats are likely to be determined in accordance with the adopted rules of procedure. There is no specialised arbitration tribunal for construction contracts.

11. Are there any notable local court decisions interpreting FIDIC contracts? If so, please provide a short summary.

There is no known domestic judicial decision interpreting FIDIC contracts in Zambia.

 

12. Is there anything else specific to your jurisdiction and relevant to the use of FIDIC on projects being constructed in your jurisdiction that you would like to share?

The Public Procurement Act ascribes criminal liability for violation of some of its provisions. For instance, contractors and administrators involved with public projects may be held criminally liable for failing to comply with the procurement legislation, terms of contract and other instruments. In addition, parties to a public project may be criminally liable for failing to constitute a dispute board. A contract administrator may also be criminally liable for failing to advise a client on the dispute board provisions in the procurement legislation. The penalties for these criminal liabilities range from a fine to imprisonment or both.

 

Bwalya Lumbwe is a civil engineer and a chartered constructions manager, auditor and FIDIC adjudicator and arbitrator in Zambia. He can be contacted at arbitratorzambia@gmail.com

 

 

United Arab Emirates

Erin Miller Rankin and Samantha Lord Hill,¹ Dubai

 

1. What is your jurisdiction?

United Arab Emirates (UAE).

 

2. Are the FIDIC forms of contract used for projects constructed in your jurisdiction? If yes, which of the FIDIC forms are used and for what types of projects?

The use of FIDIC forms of contract is common in the UAE for projects involving international parties. The 1987 and 1999 FIDIC Red Books, in particular, are used across a range of sectors including infrastructure, rail and energy-related construction projects. However, the approach varies depending on the identity of the contracting parties and the applicable law.

For example, the Emirate of Abu Dhabi has its own FIDIC-based construction contract templates that are mandatory when the private sector is contracting with the government of Abu Dhabi. The Abu Dhabi government passed Law No 21 of 2006 and the Abu Dhabi Executive Chairman’s Decision No 1 of 2007, which introduced two forms of construction contracts for public construction projects, a construction works contract based on the FIDIC 1999 Red Book and a design-and-build contract based on the FIDIC 1999 Yellow Book.

In contrast, in the Emirate of Dubai, Law No 6 of 1997 (as amended) expressly prohibits the adoption of FIDIC forms of contract in certain contracts with the Dubai government, other than in exceptional circumstances.

In the authors’ experience, where a FIDIC form of contract is used, it is often heavily amended through particular conditions.

 

3. Do FIDIC produce their forms of contract in the language of your jurisdiction? If not, what language do you use?

Yes, FIDIC produces some of their forms of contract in Arabic such as the 1999 FIDIC Red Book, 1999 FIDIC Silver Book, 1999 Yellow Book and the 2008 Gold Book. However, for projects in the UAE involving one or more international participants, English is the preferred language of the contract.

 

4. Are any amendments required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what amendments are required?

Where FIDIC form contracts are used for private sector construction projects, UAE law generally recognises the parties’ freedom to contract, subject to certain mandatory provisions of the law. Accordingly, where UAE law is chosen as the governing law of a FIDIC contract these mandatory provisions must be considered at the outset and the contract amended if so desired. To take the key examples:

• Liquidated damages: Article 390(2) of the UAE Civil Code permits a court or arbitral tribunal to adjust the amount that parties have specified in their contract in order to reflect the actual loss suffered by the claiming party. This means that although parties are free to agree a liquidated damages clause in their contract, there is a risk the clause will not be strictly enforced.

• Exclusions and limitations of liability for structural failure or defects: under Article 880 of the Civil Code, a Contractor and architect are jointly liable to compensate the Employer for any total or partial collapse of a building or installation and for any defect which threatens the stability or safety of the building, for a period of ten years from the date of handover (unless the architect was responsible for design only, in which case the architect will only be liable for defects in design). Any agreement to exclude or limit the liability of the Contractor or the architect for structural failures or defects is void. This should be considered by Parties when they are agreeing a Defects Notification Period and the indemnities and limitations on liability.

• Force majeure and exceptional circumstances: Article 287 of the Civil Code permits the allocation of risk for force majeure events as the parties. However, Article 249 provides that where exceptional events of a public nature, which could not have been foreseen, occur, as a result of which performance of a contractual obligation becomes onerous, even if not impossible, such as to threaten the party obliged to perform the obligation with grave loss, the court or the tribunal has the power to reduce the onerous obligation to reasonable level if justice so requires. Accordingly, careful consideration must be given to ensure compatibility between this mandatory provision of UAE law and the force majeure provision in the relevant FIDIC form contract.

• Termination: Article 892 of the Civil Code provides that a Muqawala contract shall terminate upon the completion of the work agreed, upon termination by consent or by order of the court. Parties can also agree to the contract being treated as automatically terminated without the need for a court order, upon non-performance of obligations under the contract, provided that notice is given and the right to terminate is clearly expressed in the contract. The termination provisions in a FIDIC form contract should be reviewed to ensure they are sufficiently clear to bring about automatic termination without a court order.

 

5. Are any amendments common in your jurisdiction, albeit not required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what (non-essential) amendments are common in your jurisdiction?

Yes. Sub-Clause 5.1 of the FIDIC Red Book 2017 is consistent with Article 890(2) of the Civil Code in providing that the Contractor remains responsible to the Employer for Works that it subcontracts. However, there is uncertainty as to whether the UAE courts would consider nominated Subcontractors as falling within this provision. To avoid confusion, it should be expressly stated that they do in the Particular Conditions. In addition, some amendments may be made to take into account the practicalities of working in the UAE. For example: (1) it would be helpful to expressly state in the Particular Conditions that all dates and periods of time referred to in the Contract (including all references to day, month, and year) shall be ascertained in accordance with the Gregorian calendar to avoid confusion as to whether the Hijri calendar is applicable; (2) when stating normal working hours for a project in the Particular Conditions, local labour laws should be considered. In Dubai for example, these restrict working hours during the peak heat months of July and August and during the holy month of Ramadan; and (3) all foreign workers are required to hold a valid visa to enter, reside and work in the UAE. It may, therefore, be prudent to include a clear provision identifying who will be responsible for obtaining such visas or permits in the Contract.

 

6. Does your jurisdiction treat Sub-Clause 2.5 of the 1999 suite of FIDIC contracts as a precondition to Employer claims (save for those expressly mentioned in the Sub-Clause)?

The principle that the contract is the law of the parties is embodied in the Civil Code such that a court or tribunal applying UAE law should seek to enforce the provisions of the contract in so far as is legally possible. This means that a court or tribunal may consider a party’s compliance with notice provisions, but where such provisions are not expressly stated to be a condition precedent to a claim (as is the case in Sub-Clause 2.5), a court or tribunal applying UAE law may be reluctant to conclude as such. In practice, even where the parties have expressly agreed that a notice provision is a condition precedent to recovery or that a failure to notify constitutes waiver or extinguishment of a claim, depending on the circumstances, such a provision will not necessarily operate to preclude recovery as a matter of UAE law.

 

7. Does your jurisdiction treat Sub-Clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money (not including Variations)?

Although Sub-Clause 20.1 of the 1999 suite of FIDIC contracts expressly provides that if the Contractor fails to give notice, time shall not be extended, it shall not be entitled to additional payment and the Employer shall be discharged from all liability in connection with the claim, this provision will not necessarily be treated as a condition precedent to the claim with the effect of precluding recovery as a matter of UAE law.

In accordance with Article 473 of the Civil Code, a right under a construction contract will not expire by the passage of time unless there has been a lapse of 15 years without lawful excuse. Under 487(1) of the Civil Code, it is not permissible for parties to agree that a claim may not be brought after a period differing from the period laid down by law. These provisions give scope to a court or tribunal to look to the substantive legal basis for the claim and to rule that a clause that seeks to extinguish an otherwise valid claim solely due to non-compliance with notice provisions is void.

Beyond the notice provisions in Sub-Clause 20.1, a court or tribunal applying UAE law may take a more stringent approach to non-compliance to the extent it considers an Engineer’s determination to be a pre-condition to commencement of arbitration. The UAE courts typically seek to enforce pre-conditions to arbitration where such conditions are clearly defined in terms of what the parties must do and, sometimes, in what timeframes.

 

8. Does your jurisdiction treat Sub-Clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money arising from Variations?

There is no definitive answer as a matter of UAE law to whether the regime in Sub-Clause 20.1 applies to claims for additional time and/or money arising from Variations. One view is that it does not apply to claims for money for work done as part of a Variation but does apply to claims for additional time and/or cost arising in consequence of a Variation.

Irrespective of the ambit of Sub-Clause 20.1, as discussed in question 6, it will not necessarily be treated as a condition precedent to the claim with the effect of precluding recovery as a matter of UAE law.

 

9. Are dispute boards used as an interim dispute resolution mechanism in your jurisdiction?
If yes, how are dispute board decisions enforced in your jurisdiction?

Dispute adjudication boards (DABs) are not a recognised form of dispute resolution in the UAE. Therefore, even if a Party obtained a DAB decision that was final and binding under the terms of the FIDIC contract, it would still need to go through an arbitration process to have the DAB decision converted into an arbitral award that could then be recognised and enforced in the UAE. However, the Dubai Court of Cassation in Case No 795/2018 upheld the agreement to refer a dispute to a DAB as a condition precedent to arbitration.

 

10. Is arbitration used as the final stage for dispute resolution for construction projects in your jurisdiction? If yes, what types of arbitration (ICC, LCIA, AAA, UNCITRAL, bespoke, etc) are used for construction projects? And what seats?

Yes. Institutional arbitration is the most commonly used method for settling construction industry disputes in the UAE. The most commonly used arbitration institutions and seats are: the Dubai International Arbitration Centre (DIAC) with a Dubai seat; the DIFC-LCIA Arbitration Centre with a DIFC seat; the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) with an Abu Dhabi seat; and the International Chamber of Commerce (ICC) with a Dubai, Abu Dhabi, Abu Dhabi Global Market (ADGM) or London seat. For projects with foreign parties, international organisations such as the ICC may be preferred.

 

11. Are there any notable local court decisions interpreting FIDIC contracts? If so, please provide a short summary.

Since parties to FIDIC form contracts typically agree to arbitrate their disputes, the decisions of the UAE courts arising from FIDIC form contracts largely concern issues around the admissibility of claims and the validity of the arbitration agreements in the context of applications to annul arbitral awards. Some examples are as follows.

In Case No 32/2019, the Dubai Court of Cassation handed down a decision on 5 February 2020 confirming the strict application of the condition precedent in Clause 67 of a 1987 FIDIC form contract. The tribunal in this case had taken jurisdiction over a DIAC arbitration and the respondent had referred the matter to the Dubai Court of Cassation under the supervisory power in Article 19(2) of the Federal UAE Arbitration Law 2018. The court found that the claimant had prematurely commenced arbitration because it had not referred the dispute to the Engineer for a decision under Clause 67 in a timely manner. It therefore annulled the tribunal’s decision on jurisdiction.

A similar outcome occurred in Case No 757 of 2016 at the Dubai Court of First Instance. Here, the claimant had commenced arbitration before the DIAC, which had appointed an arbitrator, and the parties signed Terms of Reference. It appears that the respondent raised an objection to jurisdiction on the basis that the dispute had not been referred to the Engineer as required by the clause. Nonetheless, the tribunal rendered an award requiring the respondent to pay AED 7.3m (about £1.5m). When the claimant sought enforcement of the award before the Dubai Court of First Instance, the respondent counter-filed an annulment application on the basis that the claimant had failed to comply with the pre-condition in Clause 67. The court found in favour of the respondent, stating that the parties had agreed that disputes could be referred to arbitration if they had been: (1) referred to the Engineer for a decision but had not become final and binding; or (2) referred to the Engineer for a decision and had become final and binding but not complied with by the parties. The court ordered the annulment of the award because the claimant had produced no evidence showing that the dispute was ever referred to the Engineer under Clause 67.

As to the validity of arbitration agreements, the Dubai Court of Cassation in Case No 462 of 2003 held that a dispute resolution clause providing for the settlement of disputes in accordance with the General Conditions of a FIDIC form contract was sufficient to constitute an agreement to refer the matter to arbitration.

 

12. Is there anything else specific to your jurisdiction and relevant to the use of FIDIC on projects being constructed in your jurisdiction that you would like to share?

The UAE is a unique jurisdiction in that it consists of ‘onshore’ UAE laws and courts that follow civil law traditions and two ‘offshore’ jurisdictions, the DIFC and the ADGM, which each follow common law traditions. The previous responses here focus on onshore UAE only, but it is important to remember that the international nature of many projects in the UAE means that the laws and practices of the DIFC or the ADGM may also be relevant. This may be the case in private-sector construction projects, for example, where the parties have chosen the DIFC or ADGM law as the governing law of the underlying contract or where either of these jurisdictions is chosen as the seat of the arbitration.

Where the parties have chosen onshore UAE law as the governing law of their contract, Article 246 of the Civil Code requires the exercise of good faith in contractual performance. There is no specific definition of what good faith entails – it is a matter of discretion for the court or tribunal based on the particular circumstances – but some indication can be gleaned from to Article 106 of the Civil Code, which considers the exercise of a party’s right to be unlawful where: (1) it is intended to infringe the rights of another party; (2) the outcome is contrary to the rules of Sharia law, the law, public order or morals; (3) the desired gain is disproportionate to the harm that will be suffered by the other party; or (4) where it exceeds the bounds of custom or practice. Parties to construction disputes governed by UAE law often rely on the principle of good faith in both arguments concerning the interpretation and application of contractual provisions and those concerning the parties’ respective behaviours on the project. This is important to bear in mind for those project participants 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.

 

Erin Miller Rankin is a global partner at Freshfields Bruckhaus Deringer and can be contacted at erin.millerrankin@freshfields.com. Samantha Lord Hill is a senior associate at Freshfields Bruckhaus Deringer and can be contacted at Samantha.LordHill@freshfields.com.