Poland

Marta Midloch
WKB, Warsaw

Rafał Woźniak
WKB, Warsaw

1. What is your jurisdiction?

Poland

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 forms of contract are often used in Poland, in particular by public entities implementing significant infrastructure investment projects regarding a particular design and construction of linear infrastructure facilities such as: roads, motorways, railway routes, water and sewage network systems as well as buildings. FIDIC contract conditions are used by private investors less frequently. However contracts based on FIDIC conditions can be found, especially in the renewable sector, such as in the construction of wind farms, and photovoltaic farms.

For many years, the FIDIC form most frequently used in Poland was the Construction Contract for Building and Engineering Works designed by the Employer (Red Book). Currently, the most popular form is the Conditions of Contract for Plant & Design-Build for Electrical & Mech Plant & for Building & Engineering Works Designed by the Contractor (Yellow Book). The Conditions of Contract for EPC Turnkey Projects (Silver Book) and Client/Consultant Model Services Agreement (White Book) are used less frequently.

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

The FIDIC forms are available and commonly used in Polish. The translations of the Red Book (2017), Yellow Book (2017) and Gold Book (2008) were prepared under the auspices of the Polish Association of Consulting Engineers and Experts (Stowarzyszenie Inżynierów Doradców i Rzeczoznawców).

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?

In general, FIDIC conditions of contract are in line with Polish law. However, some provisions require adjustments in order to reflect the specific Polish regulations better.

The most significant changes that must be introduced to the FIDIC conditions of contract in order to ensure their effectiveness and enforceability under Polish law concern Clauses 15 and 16 which regulate withdrawal from the contract by the investor and the contractor respectively.

The FIDIC form specifies that after the occurrence of the conditions indicated, the right of the investor (from the conditions set out in Sub-Clause 15.2.1.) and the contractor (Sub-Clause 16.2.1.) to withdraw from the contract arises. Clauses 15 and 16 create a contractual right of withdrawal. Under the FIDIC provisions, a party may exercise the contractual right of withdrawal ‘immediately’ after the expiry of the period for remedying the breach in question, and such a withdrawal will be effective on the date on which the other party receives the notification of withdrawal.

Article 395 of the Polish Civil Code provides that a contractual right of withdrawal must provide for a period within which this right can be exercised. This term is understood as the final date on which the notification of withdrawal from the contract may be submitted. Because Article 395 is a ius cogens provision in this respect, failure to specify the period by which the party must exercise the contractual right of withdrawal results in the invalidity of the entire clause. For this reason, the FIDIC conditions require adjustment in this respect to the Polish statutory provisions to ensure the enforceability of the contractual right of withdrawal.

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?

FIDIC is commonly used in contracts concluded under Poland’s public procurement law. The specificity of contracts concluded under this regime is that the contract is basically unilaterally drafted by the contracting authority and is not subject to negotiation. The position of the contracting authority in public contracts is incomparably stronger than that of the contractor. This is reflected in many changes made to the FIDIC general conditions by contracting authorities.

For example, changes in Clause 20 are most often made in a way that the deadline for submitting a claim is reserved only for the contractor’s claims, and the contracting authority is not affected by the deadlines for submitting claims, apart from the statutory limitation periods.

Most often, as part of the execution of construction works, the investor acquires all copyrights (and not only the licence) to the documents (including the design) prepared by the contractor. For this reason, Sub-Clause 1.10 is most frequently amended to reflect this rule.

In contracts based on FIDIC forms, concluded under the public procurement law regime, it is also required to use specific legal solutions resulting directly from Poland’s public procurement law or its civil code. They are binding, even if not explicitly incorporated into the contract. Typically, however, the investor decides to transfer the statutory regulations directly to the particular conditions. This applies to for example, such legal solutions as: joint and several liability of contractors (consortium); jointly performing the contract (Sub-Clause 1.14); provisions on securing the proper performance of the contract (Sub-Clause 4.2); rules on concluding contracts with subcontractors, including selected elements of the wording of such subcontracts (Sub-Clause 4.4.); contractual penalties (Sub-Clause 8.8); or withdrawal from the contract (Clause 15 and 16).

6. Does your jurisdiction treat Sub-Clause 20.2.1 of the 2017 suite of FIDIC contracts as a condition precedent to Employer and Contractor claims?

There is still no consensus in Polish jurisprudence as to whether Sub-Clause 20.1.1 is compliant with ius cogens legal regulations. The latest jurisprudence, however, tends towards confirmation that the parties may stipulate in the contract the so-called ‘contractual limitation period’, after which the party’s claim will expire, and such a contractual provision does not violate the mandatory provisions on the limitation of claims. However, in every case, such a clause should be assessed in a very detailed manner also in terms of whether the reserved ‘contractual limitation period’ is not too short (judgment of the Supreme Court of 17 March 2022, case number: II CSKP 217/22 with a broader description, and the response to Question 9, below).

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

Until recently, the provisions regarding the adjudication board in disputes were a binding element of FIDIC conditions in the Polish contract practice. Nevertheless, the adjudication board’s decisions were not always respected by the parties, and the decisions were not always implemented. The parties differed in their assessment of the scope of the decision and the binding force of the dispute board’s rulings.

Currently, Polish contracting authorities are moving away from the provisions on dispute resolution by a dispute board in favour of referring contractual disputes to common courts of law.

In the Particular Conditions, which are amendments to FIDIC general contract conditions, it is stipulated, however, that in the event of a dispute between the parties arising from the contract or related to the contract, the parties may attempt to terminate it. They may do this by submitting a request for mediation or other amicable settlement of the dispute to the Arbitration Court at the General Counsel to the Republic of Poland (Prokuratoria Generalna Rzeczypospolitej Polskiej) which is an arbitration court dedicated to resolving disputes with the participation of public entities, or to a selected mediator or a person conducting another amicable settlement of the dispute. This requirement results from the applicable provisions of the public procurement law.

8. 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?

Typically, disputes arising from contracts concluded in Poland based on the FIDIC form are referred to common courts for resolution. This applies in particular to contracts concluded under the public procurement law. Sometimes arbitration clauses are found in private contracts, and the ICC remains the most frequently chosen centre. Occasionally, in some situations, disputes are submitted to the Court of Arbitration at the Polish Chamber of Commerce.

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

For many years, the most controversial issue in Poland in terms of FIDIC contract conditions has been the interpretation of Sub-Clause 20.1 (currently Sub-Clause 20.2.1) and its compliance with Polish law. The jurisprudence of Polish courts regarding this clause remains inconsistent and new decisions in this regard are still emerging. The last one is the judgment of the Supreme Court of 17 March 2022 case number: II CSKP 217/22.

In this judgment, the Court of Appeal held that the supplementation of Sub-Clause 20.1 of the form contract by introducing a limitation period as to the notification by the contractor of the circumstances that constitute grounds for the demand for additional remuneration does not lead to a violation of the principles of social coexistence, principles of equity and contract, limits on the freedom of contract or systemic rules for determining the commencement of a limitation period.

In addition, the Court of Appeal stated in its judgment that Sub-Clause 20.1 contained in the FIDIC form is not similar in effect to a reduction of the limitation period. The time limits that have been agreed by the parties have been reserved in the contract under the principle of freedom of contract, so it is not a statutory limitation period, and the clause in question cannot be regarded as intended to circumvent the law.

The court emphasised that the purpose of inclusion of Sub-Clause 20.1 in the FIDIC form and its subsequent inclusion in the contract by the parties is to ensure that the contracting authority is able to predict the amounts necessary to finance the performance of the contract.

The court stated that this clause does not directly violate the article, which provides that limitation periods may not be reduced or extended by a legal act. On the other hand, the court pointed out that Sub-Clause 20.1 must be assessed in terms of the duration of the limitation period for submitting claims and this requires an assessment on a case-by-case basis.

10. 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 Polish contract practice in the field of contracts based on the FIDIC form remains imperfect. As indicated earlier, the FIDIC form of contract is most often used for public procurement contracts in which the contracting authority has a dominant position. Taking advantage of this situation, contracting authorities make significant changes to the model FIDIC conditions to alter the contractual balance. These changes are in conflict with the FIDIC golden principles, and in particular contrary to:

GP1. ‘The duties, rights, obligations, roles and responsibilities of all the Contract Participants must be generally as implied in the General Conditions, and appropriate for the requirements of the project’ – the most frequent violation of this principle relates to the Contract Engineer, who, in the Polish FIDIC model, is a representative of the Employer and not an impartial entity.

GP3. ‘The Particular Conditions must not change the balance of risk/reward allocation provided for in the GCs’ – the most frequent violation of this principle relates to the transfer to the Contractor of an obligation to design the majority of the works under the Red Book (detailed design);

GP4. ‘All time periods specified in the Contract for Contract Participants to perform their obligations must be of reasonable duration’ – as indicated above in the response to Question 5, the most common infringement of this principle consists of the fact that deadlines for performing certain activities (eg, submitting a claim) are reserved only for the contractor, and the contracting authority may exercise its rights indefinitely; in turn, in the case of the contractual right of withdrawal (Clauses 15 and 16), the time limit for exercising this right for the contracting authority is usually much longer than the time limit for exercising this right for the contractor (see response to Question 4, above).

GP5. ‘Unless there is a conflict with the governing law of the Contract, all formal disputes must be referred to a Dispute Avoidance/Adjudication Board (or a Dispute Adjudication Board, if applicable) for a provisionally binding decision as a condition precedent to arbitration’ – as mentioned above in the responses to Questions 7 and 8, typically disputes arising from contracts concluded in Poland based on the FIDIC form are referred to common courts for resolution, without the procedure of amicable dispute resolution or the participation of an arbitration centre.

Marta Midloch is a partner at WKB Lawyers in Warsaw and can be contacted at marta.midloch@wkb.pl. Rafał Woźniak is managing associate at WKB Lawyers in Warsaw and can be contacted at rafal.wozniak@wkb.pl.

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Vietnam

Le The Hung
CNC Vietnam Law Firm, Ho Chi Minh City

Tran Pham Hoang Tung
CNC Vietnam Law Firm, Ho Chi Minh City

Nguyen Huy Nhat Duy
CNC Vietnam Law Firm, Ho Chi Minh City

1. What is your jurisdiction?

The Socialist Republic of Vietnam

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 FIDIC forms are commonly used for construction projects in Vietnam. Notable FIDIC forms of contract used include the Red Book, Yellow Book, Pink Book, Silver Book, White Book and the Subcontract.

In the public sector, officially detailed statistics with regard to the number of FIDIC forms of contract being used for public projects have not been carefully collated. It is believed that under Official Development Aid (ODA) or other multilateral funded projects or international bidding packages, the Vietnam government or its state-owned enterprises are likely to apply the 2010 Pink Book rather than using Vietnamese standard contracts that the government might introduce from time to time. On the other hand, Vietnamese standard contracts, such as those introduced under Circular 09/2016/TT-BXD by the Ministry of Construction are the favoured options available for other projects where either domestic bidding is selected and/or the majority of investment cost is funded by government. In March 2023 the Ministry of Construction issued Circular 02/2023/TT-BXD (effective from 20 April 2023), implementing a new construction contract form to replace Circular 09/2016/TT-BXD.

In the private sector FIDIC forms of contract are commonly used in housing development projects, hospitality projects, high-rise building projects and industrial projects, not only because of their clarity, clear drafting, professionalism, and balance of risk and interest, but also because of the various consultant’s familiarity with FIDIC contracts.

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

No, to date, there are no FIDIC forms of contract written exclusively in Vietnamese. However, there are Vietnamese (and English/Vietnamese) versions translated and issued by the Vietnam Engineering Consultant Association with authorisation of FIDIC.

In Vietnam, we use both the English and the Vietnamese version.

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?

In general, there are particular variances between the FIDIC General Conditions of Contract and the law of Vietnam. Therefore, when implementing the FIDIC Conditions of Contract, certain modifications are required to ensure adherence to the Law of Vietnam.

To ensure compliance and efficiency when applying to construction projects in Vietnam, the following amendments are required.

Regarding all construction projects regardless of capital source

Authority to issue Taking Over Certificate

Under the FIDIC Red Book 2017 Conditions of Contract and Yellow Book 2017, after the Contractor completes the Works in accordance with the contract, the Engineer shall issue the Taking Over Certificate to the Contractor (Sub-Clause 10.1 [Taking Over the Works and Sections]). When the Engineer performs this duty, the Engineer shall be deemed to act for the Employer (Sub-Clause 3.2 [Engineer’s Duties and Authority]) and therefore the Employer is not required to participate in the Tests on Completion or issuing of the Taking Over Certificate.

However, the law of Vietnam requires that the Employer must organise and participate in the test and acceptance of the Works directly (Art 23.1 of Decree 06/2021/ND-CP). Test results will be verified through the Minutes of acceptance on completion of the Works. Accordingly, these Minutes shall be signed by the Employer’s representative, the Supervisory consultant’s representative and the Contractor’s representative. If the Employer’s representative fails to sign, the Minutes of acceptance on completion of the Works shall be considered as having not been duly signed and therefore, the Works shall not be deemed completed and handed over to the Employer.

Regarding construction projects funded by state capital or capital of state-owned enterprises with 30 per cent or more or less than 30 per cent but over VND500bn in the total investment of the project

The time to agree Final Statement (or final contract sum under the Law of Vietnam)

The 2017 FIDIC Conditions of Contract stipulates that agreement on the Final Statement and issuance of the Final Payment Certificate will be made after the Performance Certificate has been issued (Sub-Clause 14.11 [Final Statement]), that is, after the Defect Notification Period has expired, but not after the Works have been taken over by the Employer (when the Taking Over Certificate is issued). This leads to a difference in the time to agree the final contract sum (corresponding to the Final Statement under FIDIC Conditions of Contract). More specifically, the Law of Vietnam requires that for projects funded by state capital, the final contract sum must be determined within 120 days from the date of acceptance of all the works of the contract, corresponding to the date of issuance of the Taking Over Certificate in FIDIC Conditions of Contract.

This difference can be understood based on the fact that under FIDIC Conditions of Contract, the Works shall be accepted only when the Performance Certificate has been issued (Sub-Clause 11.9 [Performance Certificate]) and the confirmation of the Final Statement must be completed afterwards, while under the Law of Vietnam, the Works are deemed to be accepted when they are taken over by the Employer.

The time to fully recover the advance payment

Regarding the time to fully recover the advance payment, Decree 37/2015/ND-CP detailing construction contracts stipulates that the advance payment shall be fully recovered when the payment value reaches 80 per cent of signed contract value.

FIDIC Conditions of Contract do not set such a time, but only provide for the rate of deduction in interim payments, as well as the Contractor’s responsibility to repay the advance payment when the Taking Over Certificate is issued or the contract is terminated (Sub-Clause 14.2 [Advance Payment]).

Valuation of Variation

Under FIDIC Conditions of Contract, when a Variation is instructed by the Engineer, the Contractor shall execute the Variation without delay (Sub-Clause 13.1 [Right to Vary]), except in certain cases where the Contractor is entitled to refuse to execute the Variation. The Variation will then be evaluated according to the specific procedure (Sub-Clause 13.3 [Variation Procedure]).

However, this is not in accordance with the Law of Vietnam. Specifically, the law stipulates that for Variation works outside the scope of the signed contract without any regulation on unit price or method of determining unit price in the contract, the parties shall agree on unit price or principles and methods of price determination for such works before execution. Accordingly, the execution of the Variation works without an agreement on the unit price (or at least the principle, the method of determining the price) is not allowed.

Claim procedure

Under the claims procedure for payment and/or EOT in the 2017 FIDIC Red Book and Yellow Book Conditions of Contract, the time limit for a claiming party to submit a claim to the Engineer is 28 days from the date such party became aware, or should have become aware, of the event or circumstance. Following a specific process, the claim shall be agreed or determined by the Engineer (Sub-Clause 12.3 [Valuation of the Works]).

The Law of Vietnam allows a longer period for a claiming party to exercise the right to claim, 56 days from the date of arising of the problem leading to the claim. In addition, the responsibility to respond to the claiming party is assigned to the party receiving the claim (not the Engineer) with a specified time limit of 28 days from the date of receipt of the claim. If the party receiving the claim does not give a response within such 28 days, the claim shall be deemed accepted (Art 44.4 of Decree 37/2015/ND-CP).

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?

When entering into a FIDIC contract in Vietnam, the parties often make the following amendments.

Employer’s financial arrangements

Normally, the Particular Conditions will be drafted by the Employer or the consultant hired by the Employer, in which case the provisions of Sub-Clause 2.4 [Employer’s Financial Arrangements] are often removed and substituted with the phrase ‘Not applicable’. This replacement is motivated by the Employer’s desire to avoid the responsibility of providing the financial proof to the Contractor. As a result of removing Sub-Clause 2.4, other provisions with reference to Sub-Clause 2.4 also become inapplicable. For example, Sub-Clause 16.1 [Suspension by Contractor] and Sub-Clause 16.2 [Termination by Contractor] are also amended to not allow the Contractor to suspend or terminate due to the Employer’s failure to provide reasonable evidence relating to Employer’s financial arrangements.

Delay damages

The 2017 FIDIC Conditions of Contract stipulate that if the Contractor fails to complete the Works within Time for Completion, the Employer is entitled to apply Sub-Clause 8.8 [Delay Damages], where the nature of Delay Damages is liquidated damages. However, due to the absence of clear interpretation of liquidated damages under the Law of Vietnam, which have caused numerous controversial opinions about whether to allow the application of liquidated damages or not, the ‘Delay Damages’ in the FIDIC Conditions of Contract are usually replaced by a ‘delay penalty’ which is a remedy permitted under the Law of Vietnam (Art 418 of the Civil Code 2015 and Art 300 of the Commercial Law 2005). More details of Delay Damages, or liquidated damages under the Law of Vietnam can be found in the response to Question 12.

Adjustments for Changes in Cost

The adjusted price is one of the forms of contract price permitted and recognised by the Law of Vietnam (Art 140.3(c) of Construction Law 2014). However, because of the challenges of reaching an agreement on how to adjust the price and the potential for getting into disputes, combined with the Employer’s inclination to mitigate the risk of market price fluctuations, a fixed price is preferred to the adjusted price, especially for construction projects funded by private capital. In such cases, the content of Sub-Clause 13.7 [Adjustments for Changes in Cost] is removed and replaced by ‘Not applicable’.

Responsibility to buy insurance for the Works

According to the Law of Vietnam, the Employer shall be responsible for purchasing insurance for the Works, except when the insurance premium has been included in the construction contract price, the Contractor shall be the insurance buyer (Art 4.1 of Decree 119/2015/ND-CP). In fact, it is more common for the Employer to buy insurance for the Works for the following reasons: (1) the Employer seeks to obtain the most favourable premium by buying insurance for the entire project, whereas the Contractor may execute only one or several packages of that project; (2) based on the Employer’s needs, the Employer wants to retain the right to negotiate insurance contracts and work with the insurers when an insured event occurs; (3) other reasons. Accordingly, it is customary to amend Sub-Clause 19.2 [Insurance to be provided by the Contractor] to specify that the Employer shall take responsibility for buying insurance for the Works.

DAAB

To date, settling disputes by DAAB has not been widely used in Vietnam, therefore, the parties often remove terms relating to DAAB in the FIDIC Conditions of Contract and replace them with ‘Not applicable’. The disputes settlement mechanism by DAAB is detailed in the response to Question 9.

Arbitration

According to the Sub-Clause 21.6 [Arbitration] of FIDIC Conditions of Contract, the dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce, which also means that the International Court of Arbitration of ICC (ICC Arbitration) is the arbitration body to settle the dispute (Art 1.2 of Rules of Arbitration of the International Chamber of Commerce). However, as the dispute settlement mechanism in ICC arbitration is considered to be complicated and expensive, the parties rarely choose ICC arbitration but submit disputes to other arbitration bodies in the region, such as the Vietnam International Arbitration Centre (VIAC) or Singapore International Arbitration Centre (SIAC). In such cases, Sub-Clause 21.6 [Arbitration] in the FIDIC Conditions of Contract will be amended to suit the arbitration body chosen by the parties.

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

The Law of Vietnam on construction activities does not stipulate any conditions when a party wants to make a claim. Article 44.3 of Decree 37/2015/ND-CP detailing construction contracts has a provision that the time limit for a claim is 56 days from the time the claiming party is aware of the problem. However, this provision is mainly for reference purposes as it does not provide any consequences if such time limits are not met.

Therefore, if the parties want to set preconditions to claims, they must have a clear agreement in the contract and the consequences if one party violates such an agreement. On the principle of freedom of agreement (Art 3.2 of the Civil Code 2015), the Court (or arbitrator) shall respect the agreement of the parties.

However, the wording of Sub-Clause 2.5 of the 1999 suite of FIDIC contracts is not clear enough, as it does not set a specific time limit for the Employer’s claims nor provide consequences if the Employer fails to comply. This is completely different from the wording of Sub-Clause 20.1, which clearly states that the time limit for the Contractor’s claims (no later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance) and that if the Contractor fails to comply, the ‘Employer shall be discharged from all liability in connection with the claim’.

For that reason, under the Law of Vietnam, Sub-Clause 2.5 of the 1999 suite of FIDIC contracts is not treated as a precondition to Employer’s claims.

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)?

Yes, because the wording of Sub-Clause 20.1 is clear enough. See more details in the response to Question 6.

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?

Yes, because the wording of Sub-Clause 20.1 is clear enough. See more details in the response to Question 6.

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?

Under the Law of Vietnam, the dispute settlement mechanism by dispute boards (DBs) has been not officially and clearly recognised, except for the provision at Art 45.2 of Decree 37/2015/ND-CP detailing construction contracts with reference to the Dispute Settlement Board. However, this provision mainly refers to a mediation agency rather than a body that has the specific nature of a DB as defined in FIDIC contracts. Therefore, whether to employ a DB as a dispute resolution mechanism or not depends on the agreement of the parties in the contract.

Currently, in Vietnam practice, there have been a few private-funded projects that have employed a DB to settle disputes, but in general, voluntarily agreeing to employ a DB as a dispute resolution mechanism by parties is not popular. This fact can be explained by the following three main obstacles: (1) there is no clear legal framework for a DB; (2) unlike the judgment/decision of the court or an arbitral award, a DB’s decision is not binding for enforcement; (3) the cost for settling disputes by DB is considered expensive.

Owing to the lack of a clear legal framework on DBs, the implementation of a DB’s decision is mainly based on the agreement and voluntary acceptance by the parties. In theory, if the parties have agreed in the Contract that the DB’s decision is final and binding on the parties, but one party intentionally fails to comply, the other party can sue in court or arbitration as a breach of contractual agreement. However, in practice in Vietnam, since no actual case has occurred, the approach that the court or the arbitration would take in such a case is still open.

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 the preferred method of dispute resolution for domestic and international construction disputes in Vietnam. The popularity of standard forms containing provisions related to arbitration leads to parties’ preference for arbitration over traditional dispute resolution mechanisms for construction disputes. Nevertheless, in small-scale construction projects or personal projects, the parties still tend to refer to the courts for dispute resolution.

In Vietnam, regarding construction arbitration, VIAC is one of the most commonly employed arbitration institutions (arbitration centre) for a case without foreign parties. In foreign-related cases, the foreign parties have the tendency to choose other foreign arbitration institutions such as the Singapore International Arbitration Centre, or the ICC Court of Arbitration.

Nonetheless, when the VIAC is chosen, the seat of arbitration will most likely be Vietnam. It is worth noting that according to the Commercial Arbitration Law 2010, the parties are free to choose the seat of arbitration, and if they do not choose one, the Tribunal will make the decision. It is therefore possible for the parties to choose other seats of arbitration even if the agreed arbitration institution comes from Vietnam.

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

Yes, Vietnamese courts have some judgments or decisions related to FIDIC contracts. We summarise two recent cases which we find interesting.

The first case is the Cassation Decision No 03/2022/KDTM-GDT, dated 23 February 2022 of the Supreme People’s Court regarding the interpretation of Sub-Clause 59.5 1987 FIDIC Red Book. In this case, the plaintiff, as a Nominated Subcontractor (NSC) appointed by the Employer, sued defendants including the Contractor and the Employer related to the Contractor’s delayed payment to the Subcontractor. The NSC relied on Sub-Clause 16.7 of the Subcontract Agreement to require the Employer to pay on behalf of the Contractor. Specifically, Sub-Clause 16.7 of the Subcontract Agreement specifies that pursuant to Sub-Clause 59.5 of the Main Contract (signed on the 1987 FIDIC Red Book form), the Subcontractor shall be entitled to receive payment directly from the Employer for payments not made by the Contractor to the Subcontractor as long as the Project Management Consultant certifies. On this basis, the NSC claimed that when the Contractor violates its payment obligation, the Employer shall be responsible for payment on behalf of the Contractor.

However, the Supreme People’s Court rejected NSC’s request. The Court argued that Sub-Clause 16.7 of the Subcontract Agreement, which referred to Sub-Clause 59.5 of the 1987 Red Book, should be construed as NSC’s right to receive payment from the Employer (provided that it is certified by the Project Management Consultant), instead of interpreting that the NSC has the right to claim payment from the Employer as the Employer is not a party to the Subcontract Agreement.

The second case is Judgment No 06/2022/KDTM – PT, dated 7 January 2022 of the Hanoi People’s Court regarding the interpretation of Sub-Clause 2.4 of the 1999 Red Book. In this case, the construction contract between the Employer and the Contractor stipulated that the Employer shall issue a bank payment guarantee to the Contractor according to the form agreed by both parties. However, when issuing the payment bank guarantee, the Employer changed some contents without the Contractor’s consent, leading to the Contractor’s disagreement and suspension of the Works. Afterwards, the Employer terminated the Contract and sued the Contractor for damages, on the grounds that the Employer had a right of termination pursuant to sub-paragraph (c) of Sub-Clause 15.2 [Termination by Employer] of the 1999 Red Book General Conditions when the Contractor suspended works without reasonable excuse.

The Court rejected this argument of the Employer and argued that the Employer’s decision to change the contents of the bank payment guarantee without the Contractor’s consent was a violation of Sub-Clause 2.4 [Employer’s Financial Arrangements] of the General Conditions. Therefore, the Contractor’s suspension of work was consistent with Sub-Clause 16.1 [Contractor’s Entitlement to Suspend Work].

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?

Performance security

Under the 2017 Conditions of Contract (Sub-Clause 4.2 [Performance Certificate]), the Contractor is required to ensure that the Performance Security shall be valid and enforceable up until the completion of the Works and the expiry of the Defect Notification Period.

However, under the Law of Vietnam, there is no official recognised definition of the concept of a ‘Performance Certificate’. As such, inconsistency and confusion are bound to appear when the parties attempt to apply simultaneously FIDIC provisions and the Law of Vietnam. Furthermore, the Law of Vietnam also provides that the Performance Security shall be valid until the issuance of the Taking Over Certificate (Art 72.3 of the Bidding Law 2013). In respect of this approach, the Contractor (and the Employer) can reduce the financial cost in maintaining the Performance Security, but at the same time put the Employer at risk of dispute with the Contractor either: (1) because the Retention Money is insufficient to remedy defects; and/or (2) because the Contractor refuses to remedy such defects.

Delay damages

Under the present legal framework of Vietnam, two monetary remedies are permitted: (1) penalty for breach of contractual obligations; and (2) compensation for all actual damages and/or loss the affecting party suffered.

The concept of Delay Damages used in the FIDIC Condition of Contract, with its nature as liquidated damages, has not been officially recognised in the Law of Vietnam and, therefore, it is still controversial as to whether the parties can agree to apply Delay Damages in the contract or not. The main reason for objecting to the application of Delay Damages is that the pre-determined damage will not be in accordance with the provisions of the Law of Vietnam, which stipulates that the damage to be compensated must be actual damages, and may include the benefit that should have been received (Art 419 of the Civil Code 2015, Art 302 of the Commercial Law 2005). Many Courts in Vietnam support this view.

One of the notable cases is the Cassation Decision No 15/2016/KDTM-GDT dated 7 September 2016 of the Supreme People’s Court regarding construction contract disputes. According to the provisions of Clause 8.7 of the General Conditions of the contract, the parties agreed that if the Contractor does not comply with the completion time, the Contractor shall pay the Employer for damages due to this default, in which the damages amount is five per cent of the contract value. However, in its argument, the Supreme Court considered such an agreement to be a penalty agreement, and therefore the penalty should be based on ‘breached contract value’, not on the entire contract value. In other words, the Supreme Court uses the penalty provision to consider the contractual parties’ agreement to liquidated damages.

One more notable case to consider is Cassation Decision No 15/2020 dated 15 September 2020 of the Supreme People’s Court. In this case, the parties agreed on a compensation of three times the amount one party received from another. In its decision, the Supreme Court found that amount according to the contract is less than the actual amount of damages incurred. The Supreme Court decided the actual amount of compensation to be given.

For such reason, in the process of negotiating and drafting of the Particular Conditions, the parties are advised to specify clearly whether the Delay Damages provision in their contract is a “penalty” or “compensation”.

Penalty

Under the Law of Vietnam which relates to construction contracts, there are three applicable types of penalty, each of which has different limitation:

According to the Civil Code 2015, the parties can freely agree on the penalty, except for when relevant applicable law states otherwise.

According to the Commercial Law 2005, the maximum penalty for the parties shall be eight per cent of the value of the breached obligations.

According to the Construction Law 2014, for contracts covering state-funded or state-related contracts, the maximum penalty for the parties shall be 12 per cent of the value of the breached obligations.

There is still a lot of controversy as to whether a construction contract in the private sector should be governed by the Civil Code 2015 or the Commercial Law 2005. On one hand, the scope of Article 1.1 of the Commercial Law 2005 governs commercial activities carried out in the territory of Vietnam. Accordingly, the parties should agree for the above maximum percentage of penalty under the Commercial Law 2005. However, under Article 138.1 of the Construction Law 2014, a construction contract is explicitly stated as ‘a civil contract’. Therefore, many legal practitioners argue that the penalty amount for the non-state-funded projects shall be governed by the Civil Code 2015, which has no maximum penalty.

In practice, the Courts of Vietnam also have different opinions and decisions on this legal issue.

Is DAB/DAAB treated as a compulsory precondition to arbitration/litigation?

Basically, if the parties agree that the dispute must be resolved by the DAB/DAAB before submitting the dispute to arbitration/court, similar to the way Clause 21 of the 2017 FIDIC Conditions of Contract provides, then the arbitration/court shall respect that agreement of the parties. In case a party intentionally skips the dispute settlement stage by the DAB/DAAB, the arbitrator/court may refuse to resolve the dispute and request the parties to follow the procedures as agreed in the contract.

However, it does not mean that the arbitrator/court will always force the parties to bring the matter to the DAB/DAAB first. In a dispute over the construction contract of an EPC works project that was settled at the Vietnam International Arbitration Centre (VIAC), the plaintiff, as a joint venture contractor, skipped the dispute settlement stage by DAB and applied directly to arbitration. The reason given by the plaintiff was that the two parties had already had a lot of discussions with each other about the dispute for a long time but with no result, and the two parties also understood that bringing the dispute to settlement by DAB would not be possible, but would only cost time and money. In its decision on jurisdiction, the tribunal supported the plaintiff’s position and declared its authority to resolve the dispute. Disagreeing with the decision of the tribunal, the defendant complained and filed an application to the Hanoi People’s Court to request annulment of the arbitral award on the grounds that the tribunal had no jurisdiction. However, the Court rejected the defendant’s request and held that the tribunal’s decision on jurisdiction was appropriate. The Court also upheld the view that it was unnecessary and not feasible to refer the dispute to the DAB, and therefore did not require the plaintiff to do so.

Through this case it can be seen that the views of the courts and arbitrators in Vietnam on whether or not to apply the DAB will be considered flexibly according to specific situations.

Le The Hung is the Managing Partner at CNC Vietnam Law Firm, Ho Chi Minh City and can be contacted at hung.le@cnccounsel.com. Tran Pham Hoang Tung is a Senior Associate at CNC Vietnam Law Firm, Ho Chi Minh City and can be contacted at tung.tran@cnccounsel.com. Nguyen Huy Nhat Duy is an Associate at CNC Vietnam Law Firm, Ho Chi Minh City and can be contacted at duy.nguyen@cnccounsel.com.