FIDIC: A claim is not the start of a dispute | In Principle

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FIDIC: A claim is not the start of a dispute

Notice of a claim is not a sign of hostility towards the other party to a contract. The major changes made in the FIDIC New Contract Conditions published in December 2017 include a clear distinction between claims and dispute resolution.

The new approach to claims and dispute resolution is demonstrated by the definitions now adopted for these terms.

Under FIDIC rules, a claim is a request or assertion by one of the parties to a contract to the other party for an entitlement or relief under any clause of the conditions or otherwise in connection with, or arising out of, the contract or the execution of the works (sub-clause 1.1.5). Under the previous rules, a similar definition of a contractor’s claim was contained in sub-clause 20.1. The more precise definition of the term ‘dispute’ is completely new. According to the FIDIC definition, a dispute arises in cases in which (1) one of the parties gives notice of a claim or other matter for determination by the engineer, (2) the other party or the engineer rejects the claim in whole or in part, and (3) the party giving notice of the claim does not acquiesce (sub-clause 1.1.29).

These terms were certainly defined in this way to make a distinction between the two respective situations. Above all, the intention was to emphasise that a dispute does not arise until the parties each convey their standpoint to the other and do not reach a consensus, despite transparent communication and usually intervention on the part of the engineer. The primary aim of this change is to promote order and certain ideals. Under the new FIDIC guidelines, claims should be seen as a means of giving notice of certain circumstances to regulate relations amicably rather than as the first phase of a dispute. In the past the approach mainly taken in performance of construction contracts was the latter, causing conflicts between parties to escalate.

The new clause 20.1., which lays down the notice of claim procedure, applies to both contractor and employer claims. The balance established between the rights and obligations of the two parties to the contract creates equality in the positions of the parties. The employer and the contractor are now subject to the same requirements with regard to giving notice of claims.

Under sub-clause 3.5 in the previous version of FIDIC, the employer was required to give the contractor notice of a claim, as soon as practicable after becoming aware of the circumstances giving rise to the claim, and thus there were no clearly specified timeframes. The new contract conditions provide for a 28-day limit for giving notice of a claim, applicable to both the contractor and the employer.

The nature and the consequences of this time limit for investments realised in Poland are controversial. Viewpoints in literature and case law are also divided, while the most recent development regarding this matter is the Supreme Court judgment of 23 March 2017 (V CSK 449/16), which says that the 28-day FIDIC time limit cannot be classed as a limit after which claims are time-barred. As part of a contract, this time limit is not legally compliant and is ineffective. The Supreme Court stated that a time limit established in this way is an absolute contractual time limit, comparable to the legal time limit for complaints about sold products and diligent examination of sold products established for instance in provisions on statutory warranty under a sale agreement (the buyer is required to inform the seller of a defect within one month of the defect being discovered or forfeit its rights).

It is possible to set absolute contractual time limits, and therefore a 28-day time limit for giving notice of claims is effective under Polish law. A failure to observe this time limit does not mean however that the parties cannot enforce their rights. Expiry of this time limit only results in expiry of a contractual claim. Meanwhile, the right to pursue claims according to generally applicable rules under civil law, in particular in connection with compensatory liability and liability for unjustified enrichment, continues to be effective.

Hanna Drynkorn, Infrastructure, Transport, Public Procurement & PPP practice, Wardyński & Partners