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41 ICC International Court of Arbitration Bulletin – Vol. 19/No. 2 – 2008
International Construction Contract

Disputes: Second Commentary on ICC
Awards Dealing Primarily with FIDIC
Contracts
By Christopher R. Seppälä*
I. Introduction
This article is a brief commentary on extracts from nine ICC awards dealing with
disputes that have arisen in relation primarily to the Second (1969), Third (1977) and
Fourth (1987) Editions of the FIDIC1 Conditions of Contract for Works of Civil
Engineering Construction (the ‘FIDIC Conditions’ or ‘Red Book’), published in this issue
of the Bulletin.2
The FIDIC Conditions are the best known and probably most widely used international
standard form of construction contract conditions. The First Edition of this form,
published in 1957, was based on an English domestic standard form: the then current
edition of the English Institution of Civil Engineers (‘ICE’) Conditions. Even today, the
official and authentic text of this form of contract is the version written in the English
language. However, in subsequent editions, the FIDIC Conditions have become
progressively more ‘international’ in style and content and today are widely used in civil
law as well as common law jurisdictions.
Due to the long time lag (10 to 20 years or more) from the time when a new edition of
the FIDIC Conditions is introduced until the time it gains acceptance, comes into
general use and is, then, the subject of disputes that go to arbitration, there are still no
extracts of awards dealing with the latest suite of FIDIC construction contracts for major
works which were published in 1999, namely, the ‘Red’ (for civil engineering
construction), ‘Yellow’ (for plant and design-build works) and ‘Silver’ (for EPC/turnkey
construction works) Books (the ‘1999 FIDIC Books’).
At the same time, the precedential value of awards dealing with older editions of the
FIDIC Conditions, such as the Second (1969), Third (1977) and Fourth (1987) Editions,
should not be underestimated. First, because they continue to be in use in certain parts
of the world and, consequently, are likely to be the subject of arbitrations for years to
* Member of the New York and Paris Bars; partner, White & of Consulting Engineers, which has its Secretariat in Geneva,
Case LLP, resident in Paris; Legal Adviser to the FIDIC Switzerland, see FIDIC’s website: <www.fidic.org>.
Contracts Committee; Alternate Member of the ICC 2
International Court of Arbitration. The views expressed herein The author gratefully acknowledges the assistance of
are the author’s own and do not necessarily reflect those of Luka Kristovic Blazevic and Claire Inder, associates at White
any firm or organization with which he is affiliated. & Case LLP, Paris, in the preparation of this article.
1
‘FIDIC’ refers to the Fédération Internationale des
IngénieursConseils or (in English) the International Federation
come. Second, because, while the pre-arbitral procedure for the resolution of disputes
by the Engineer under Clause 67 of those editions was replaced in 1999 by the
requirement that disputes be submitted to a Dispute Adjudication Board (‘DAB’), the
disputes clause in the 1999 FIDIC Books (Clause 20) is similar to that in the older
editions (Clause 67) and thus awards relating to the resolution of disputes by the
Engineer may well remain relevant to the procedure for the resolution of disputes by the
DAB. A good example of this is the important interim award in Case No. 10619 in 2001
discussed below. In that case, the arbitrators’ decision in their award to enforce a
‘binding’—but not ‘final’—decision of the Engineer under Clause 67 of the FIDIC
Conditions, Fourth Edition (1987), is directly applicable to the enforcement of a
‘binding’—but not ‘final’—decision of a DAB under Clause 20 of the 1999 FIDIC Books.
Thus, awards dealing with the earlier editions of the FIDIC Conditions may continue to
be instructive in relation to the 1999 FIDIC Books.
A first series of extracts from ICC awards dealing with construction contracts referring to
the FIDIC Conditions was published in Volume 2, No. 1, of this Bulletin in 1991 and a
second series was published in Volume 9, Nos 1 and 2, of this Bulletin in 1998,
accompanied by a commentary by the present author in Volume 9, No. 2. ICC awards
dealing with the FIDIC Conditions have also been published elsewhere.3 However, until
the current series of awards interpreting the FIDIC contracts was published, this author
had found only about 40 published arbitral awards interpreting them, which is a matter
for regret.4
The awards relating to the FIDIC Conditions in this commentary will be discussed, first,
by reference to the Second Edition and, then, by reference to the Third and Fourth
Editions. This discussion will be followed by a brief comment on an award in relation to
the FIDIC Client/Consultant Model Services Agreement (‘White Book’), Second Edition
(1991). Finally, two awards dealing with the important issue of the allocation of costs
between parties in an international construction arbitration will be examined.
II. FIDIC Civil Engineering Conditions of Contract

(Red Book)
A. Second Edition (1969)—Partial Award in ICC Case No. 9202 (Award

in French)
Relevant FIDIC Clauses: 1, 60, 67 and 69.
This majority partial award was issued in December 1998 and the place of arbitration was
Paris, France.
The Respondent/Employer, an African State entity, had entered into a construction

contract in 1989 with an Italian Contractor, the Claimant, for certain works relating to a
3 4
For other ICC awards dealing with the FIDIC Conditions, see, See C.R. Seppälä, ‘The Development Of A Case Law In
among other sources: (i) Collection of ICC Arbitral Awards, Construction Disputes Relating To FIDIC Contracts’ in
1974–85 (Vol. I), 1986–90 (Vol. II) and 1991–95 (Vol. III) E. Gaillard & Y. Banifatemi, eds., Precedent in International
prepared by different editors and published by ICC Arbitration (Huntington, NY: Juris Publishing, 2008).
Publishing, Kluwer Law and Taxation/Kluwer Law A somewhat revised version of this article was subsequently
International; (ii) The International Construction Law Review, published in C.R. Seppälä, ‘The Development of a Case Law
Vols 1 to 3 (1983–86) and Vol. 6 (1989), published by Lloyds in Construction Disputes Relating to FIDIC Contracts’ (2009)
of London Press; and (iii) the Yearbook Commercial 26 The International Construction Law Review 105.
Arbitration, published by Kluwer Law and Taxation/Kluwer
Law International.
port project (the contract followed on from an earlier construction contract between the
same parties relating to construction works for the same port). In 1990, the Claimant/
Contractor terminated the contract for alleged failure by the Respondent/Employer to
open the letters of credit required by the contract. Subsequently, the Claimant/
Contractor referred the parties’ dispute over the letters of credit to arbitration for the
purpose of recovering its damages as a result of the contract’s termination. A partial
award was rendered by a majority of the arbitral tribunal dealing, among other things,
with three defenses or counterclaims raised by the Respondent/Employer, as follows:
(1) the Request for Arbitration was inadmissible under Clause 67;
(2) the construction contract, which was classified as an ‘administrative contract’ under
local law, was invalid as it was not in the Arabic language as required by such law; and
(3) alternatively, the Claimant/Contractor’s purported termination of the contract was
invalid.
The tribunal’s consideration of these issues is discussed below.
Issue 1: Is the Claimant/Contractor’s Request for Arbitration admissible under

Clause 67?
Relevant FIDIC Clauses: 1 and 67.
The Respondent/Employer raised two objections to the admissibility of the Claimant/

Contractor’s Request for Arbitration:
(1) the Claimant/Contractor had not validly requested a decision from the Engineer
under Clause 67 as the Claimant/Contractor had requested a decision from the Director
General of projects and research who was allegedly not the Engineer; and
(2) the Request was submitted out of time under Clause 67, which provided that the
Engineer had to make a decision within 90 days and if the Engineer failed to do so or if
either party was dissatisfied with the decision, then either party may, within 90 days after
receiving the decision or within 90 days after the expiration of the first period of 90 days
(as the case may be), require that the matter be referred to arbitration.
The Claimant/Contractor argued that the Director General of projects and research was
the Engineer but that he had not given a decision under Clause 67.5
As regards the first objection raised by the Respondent/Employer, the tribunal referred
to the manner in which the Engineer is described in Parts I and II of the Conditions:
[The Engineer] is identified in the contract, General Conditions, Clause 1, Definitions and
interpretations [sic], where paragraph (1)(c) reads as follows:
‘1(1)(c). “Engineer” means the Engineer designated as such in Part II or other the
Engineer appointed from time to time by the Employer and notified in writing to the
Contractor to act as Engineer for the purposes of the contract in place of the Engineer
so designated.’
5
‘Extracts from ICC Arbitral Awards in International Review 315 (regarding the FIDIC Red Book, Third Edition)
Construction Disputes’ published in this issue of the Bulletin and C.R. Seppälä, ‘The Principal Changes in The Procedure
(referred to hereinafter as ‘Extracts’), page 77, paragraph 2. for the Settlement of Disputes (Clause 67)’ (1989) 6 The
The original language of the award is French. See C.R. International Construction Law Review 177 (regarding the
Seppälä, ‘The Pre-Arbitral Procedure for the Settlement of FIDIC Red Book, Fourth Edition).
Disputes in the FIDIC (Civil Engineering) Conditions of
Contracts’ (1986) 3 The International Construction Law
The above clause thus refers to Clause 1(1)(c) of Part II containing the Particular
Conditions:
‘1(1)(c). The “Engineer” is the Director General of the projects and research
department of the [Employer] who hereby nominates [name of the Engineer redacted
for publication purposes] who have been appointed consulting Engineers to the
[Employer]to act as Engineer for and on his behalf in all matters relating to the contract
except that the Engineer will act conjointly with his delegates in all matters relating to
the contract price, and the Engineer (Director General) may delegate his authority in
certain matters relating to the contract price to the project Engineer at the site.’
(Emphasis added)6
On this basis, the tribunal concluded that the Engineer was the Director General of
projects and research.7
The tribunal also noted that the Claimant/Contractor had written to the Director General
‘in accordance with article 67 of the contract’ (that is, as though the Director General
were the Engineer) without the Respondent/Employer raising any objections thereto.8
As regards the second objection raised by the Employer, the tribunal found that the
Contractor had requested a decision on 7 September 1990, relating to the damages it
had suffered as a result of its earlier termination of the contract (in July 1990), but the
Engineer had not rendered a decision. The tribunal stated, as follows:
The Arbitral Tribunal will therefore refer more directly to the contents of the Director
General’s letter of 10 October 1990 and enquire whether it contains a ‘decision’ of the kind
required at the stage prior to filing a request. It includes the following:
‘. . . your above-referenced letter relating to indemnification (on account) of contract

termination reached us when the two parties were already in the process of negotiating
an indemnity due on account of the work being suspended, and it therefore has no
justification’ (. . . emphasis added).
This letter continues as follows:
‘We therefore hold that your letter regarding an indemnification (on account) of
contract termination should now be considered as suspended for the above reasons’ . . .
The Tribunal finds that there was no ‘decision’ by the Engineer. Consequently, as from
7 September 1990, on which date [A] made its request, the Engineer had 90 days to make a
decision, i.e. up to 7 December 1990 or, failing a decision, 90 additional days, i.e. up to
7 March 1991, after which no application could be made to the ICC. In this particular case,
[Claimant] filed its request with the ICC on 25 February 1991 and the ICC registered the
request on 4 March 1991.9
Thus, the tribunal found that, where the Engineer had failed to make a decision, to
respect the time limit in Clause 67, a Request for Arbitration had to be filed with the ICC
within a second period of 90 days after the request for a decision and that the Claimant/
Contractor had satisfied this requirement.
Comments:
While the tribunal was clearly correct in finding that—where the Engineer had not made
a decision—the Claimant/Contractor had to ‘require that the matter or matters in
6 8
Extracts, page 78, paragraph 5. Extracts, page 78, paragraph 9.
7 9
Extracts, page 78, paragraph 6. Extracts, page 79, paragraphs 12–13.
dispute be referred to arbitration’ within such second period of 90 days, arbitral

tribunals have, in fact, been divided over the question of whether this required the filing
of a Request for Arbitration with the ICC or merely a notice of some kind to the other
party and perhaps the Engineer.10
Issue 2: Is the contract, which is written in English, ‘absolutely void’ because it

violates a governmental decree relating to administrative contracts prohibiting the
drafting of such contracts in a foreign language?
No relevant FIDIC Clause.
The Respondent/Employer argued that the construction contract was an ‘administrative

contract’11 and that, under the law of the State concerned, which was a civil law country,
administrative contracts are void if in a foreign (that is, non-Arabic) language.
The Respondent/Employer claimed that only the five-page Contract Agreement was
written in Arabic as well as English, and the other documents were all in English.
The Claimant/Contractor argued that in addition to the Contract Agreement having been
signed in Arabic as well as in English, the Conditions of Contract (both General and
Particular) had initially been drafted and signed in English but they were also
subsequently translated into Arabic and signed as such. In addition, the Claimant/
Contractor argued that:
The only contractual documents that exist solely in an English version are documents
which, by their nature (technical, mathematical, economic), would be untranslatable:
‘drawings’, technical ‘specifications’, ‘priced bills of quantities’, which merely list unit
prices relating to each head of costs multiplied by the quantities provided for each activity
or part of the construction . . .12
The tribunal noted that according to a governmental decree of the State concerned
relating to administrative contracts (‘Decree [A]’):
In cases of contracting with foreign companies and establishments, the contract may be
written by [sic] another foreign language beside [sic] the arabic-language, provided that in
such case the arabic text shall be the original copy and the one to be relied on for
interpretation and the references at contestation.13
The tribunal also noted that:

the ‘contract agreement’, the principal contract document, was signed as a bilingual
English and Arabic text. This should be sufficient to dismiss the defendant’s claim that it is
void on the basis of the language used. For the remainder consists simply of technical
appendices. Moreover, the General Conditions and the Particular Conditions were not
translated ‘too late’, but prior to 14 March 1989, on which date the contract was recorded
in the Register of [State X].14
10 12
See C.R. Seppälä, ‘International Construction Contract Extracts, pages 79-80, paragraph 15.
Disputes: Commentary on ICC Awards Dealing with the FIDIC 13
International Conditions of Contract’ (1998) 9 ICC Extracts, page 80, paragraph 16.
International Court of Arbitration Bulletin 32 at 35–36. See also
14
C.R. Seppälä, supra note 5 (regarding the FIDIC Red Book,
Third Edition, and the FIDIC Red Book, Fourth Edition, Extracts, page 80, paragraph 17.
respectively).
11
In civil law countries, such as the State concerned here, an
administrative contract would include a contract for the
execution of public works that is concluded by a government
department, as is explained later in this same award (see
below).
The tribunal then stated that the Respondent/Employer had issued the invitation for
tenders, including the form of contract (together with the general and the special
conditions), in the English language, and the Respondent/Employer should have been
aware of any legal restrictions in its own country.15
The tribunal noted that it had been the practice in the relevant State to interpret Decree
[A] as not preventing the administration from using, with foreign companies, contractual
documents which were essentially, if not entirely, in a foreign language during the
‘formation’ phase of the contract. It was only when the contract was finally concluded
that documents in Arabic were prepared, usually only the ‘contract agreement’, which
had to be registered in the General Registry of the State concerned, while leaving all
other contractual documents and annexes in their original foreign language.16
The tribunal stated that the prohibition on the use of another language than Arabic in
official documents did not appear to be mandatory (‘d’ordre public’), in as much as the
State itself issued international invitations for tenders in a foreign language and thus did
not comply with this prohibition itself.17
The tribunal therefore concluded that the contract was not void.
Comments:
In civil law countries, such as France for example, administrative contracts (roughly
speaking, contracts for public procurement18) are typically subject to administrative law,
which is a distinct body of law from that applicable to private contracts, that is, contracts
between private parties. This is illustrated by Issue 2 above and Issue 3 below.
This is important to note as construction contracts incorporating FIDIC conditions are

often concluded with public bodies, and when the public body is that of a civil law
country, the contract may be an administrative contract, with important legal
consequences.
Issue 3: Under the law of the civil law country concerned, could the Contractor/
Claimant rely on a clause in the construction contract giving it, apparently, the right
unilaterally to terminate the contract?
Relevant FIDIC Clauses: 60, 67 and 69.
The tribunal noted that the Claimant/Contractor was given a right, by Clause 60(12), to
terminate the contract should the Respondent/Employer delay in opening certain letters
of credit beyond a certain date.19 However, the tribunal also noted that Clause 69
(‘Default of the Employer’) of the FIDIC Conditions, which entitles the Contractor to
terminate the contract where the Employer was in default in certain respects, had been
deleted from the contract.20
The tribunal found that the contract in this case was an administrative contract as it
related to public works and was concluded by a government department.21
15 19
Extracts, page 80, paragraphs 18 and 20. Extracts, pages 81-82, paragraph 24.
16 20
17 21
18
See supra note 11.
The tribunal then continued as follows:

As an administrative contract, the 1989 contract does not, or should not, give the foreign
contracting company the right to terminate it, for it is made in the general interest of an
entire population. . . .
Nearer to our case is the idea, fully accepted in administrative law, that a public authority’s
failure to honour its obligations, as alleged by [A] against [Respondent], does not exempt
the private contracting party from performing its obligations, for the private party cannot
normally invoke the exceptio non adimpleti contractus principle.
However, the doctrine allows for an exception to this rule: ‘exceptio non adimpleti
contractus is not applicable to public works contracts [...] except when the possibility of
asserting this exception has been expressly provided in the contract’ (Jurisclasseur
Construction, Les Editions techniques du Jurisclasseur—1993). French administrative case
law, which has inspired the law of [State X], has confirmed this position by recognizing that
the contractor has a right to terminate a contract due to the fault of the Employer, where
there is a contractual clause allowing this (Cons. d’Etat, 29 March 1985, Société française de
travaux publics Fougerolles nos. 26676 and 26677).
In any administrative contract, the absence of an automatic termination clause means, as

one author has written, that ‘the private party is always bound to perform, no matter what
the default of the public authority’. . .
. . . the power to terminate an administrative contract lies solely with the public authority
which can exercise it unilaterally and at its discretion. There is nothing similar to the benefit
of the private contracting party, unless it implements an automatic termination clause
provided in the contract.22
The tribunal found that the only Clause on which the Claimant/Contractor could rely to
terminate the contract was Clause 60(12). However, the tribunal found that while such
Clause gave the Claimant/Contractor the right to terminate the contract ostensibly, it did
not do so ‘de plein droit’, that is, automatically:
But if we then turn from the Civil Code of [State X] to the provisions of the 1989 contract, it
is true that we find the above-mentioned Clause 60(12), according to which, under certain
conditions, ‘the contractor shall be entitled to terminate the contract’ (emphasis added).
While considering the contract to be valid, the Arbitral Tribunal may enquire as to the
validity of inserting such a clause in an administrative contract, especially in light of the
terms, as already analysed, of Article [...] of Decree [A] relating to the regulation of
administrative contracts.
Furthermore, upon analysis, Clause 60(12) does not appear to be a clause intended to
allow the ‘automatic’ termination of the contract, relieving the contractor from having to
call upon the courts. Clause 60(12) of the 1989 contract (‘The contractor shall be entitled
to terminate the contract’) does not, at least as far as French civil law is concerned, contain
the conditions required for it to be characterized as an automatic termination clause, since
(i) it does not expressly rule out the intervention of the courts,
(ii) it does not embody the parties’ intention to terminate the contract automatically, and
lastly
(iii) it appears flawed by ambiguity, as the contractor is offered an alternative before
terminating the contract (payment by way of oil barter). There can be no question of
termination being ‘automatic’, if at the same time another possibility remains open to the
contractor.23
22
Extracts, pages 83-84, paragraphs 31–35.
23
Extracts, page 84, paragraphs 38–39.
Even disregarding the administrative nature of the contract and the deletion of
Clause 69, the tribunal found that the Claimant/Contractor should, in the absence of a
clause authorizing it to terminate the contract automatically, have referred the matter to
the Engineer under Clause 67 and subsequently (if necessary) requested an arbitral
tribunal to decide the termination of the contract.24
As the tribunal found that no clause of the contract authorized the Claimant/Contractor
to terminate the contract automatically (‘de plein droit’) and as the Claimant/Contractor
had failed to submit the issue to the Engineer under Clause 67 before requesting an
arbitral tribunal to decide the termination of the contract, the tribunal held that the
Claimant/Contractor’s unilateral decision to stop performing the works was unjustified
and, consequently, that it was liable for having abandoned the project.
Comments:
This case highlights a fundamental difference between the law in common law countries
relating to the termination of contracts from the law in many civil law countries. In
common law countries, the provisions in the FIDIC Conditions giving the Contractor the
right to terminate in the case of the Employer’s default (albeit that Clause 69 had been
deleted from the Contract in this case) are valid and effective. However, in France and
other civil law countries (such as the State concerned in this case), the traditional rule of
law has been that a bilateral contract, such as a normal construction contract, can
ordinarily only be terminated by the Contractor by an order of a court or (where the
contract contains an arbitration clause) an arbitral tribunal, unless such contract contains
a provision giving the Contractor the express right to terminate the contract
automatically (‘de plein droit’).25 The FIDIC Conditions do not expressly state this.
Consequently, it was understandable that the tribunal found in this case that
(disregarding the administrative contract issue and deletion of Clause 69) the Claimant/
Contractor had to refer its claim for termination of the contract to the Engineer under
Clause 67 and subsequently (if necessary) to an arbitral tribunal.
B. Third Edition (1977)—Partial Award in ICC Case No. 11499
The partial award was issued in September 2002 and the place of arbitration was
Wellington, New Zealand.
The Claimant/Contractor, a New Zealand company, and Respondent/Employer, an Asian

State, entered into a construction contract relating to the upgrading of a gravel highway.
The Claimant/Contractor began arbitration to recover compensation in relation to
certain matters.
The partial award considered:
(1) whether unforeseeable physical conditions encountered by the Claimant/Contractor

in the procurement of materials (basecourse here) for upgrading the highway could be
the subject of a claim under Clause 12; and
24
Extracts, pages 84-85, paragraph 40. (where the contract contains an arbitration clause) an arbitral
25 tribunal, even when the contract does not give that party the
French case law now admits the unilateral termination of a express right to terminate the contract automatically (‘de plein
bilateral contract by one party without the order of a court or droit’).
(2) whether interferences by an indigenous group of landowners with the Claimant/

Contractor’s work could constitute the ‘special risk’ of ‘disorder’ under Clause 65(5)
entitling the Claimant/Contractor to relief under Clause 65(4).
Issue 1: Can the conditions encountered by the Claimant/Contractor in the

procurement of materials for upgrading the highway be the subject of a claim under
Clause 12, due to information provided by the Respondent/Employer at the tender
stage regarding the same (Clause 11)?
The Claimant/Contractor submitted a claim for extension of time and extra cost on
account of allegedly unforeseeable physical conditions under Clause 12, i.e. physical
conditions which could not have been foreseen by an experienced contractor, based on
information provided by the Respondent/Employer at the tender stage (‘Information for
Tenderers’ or ‘IFT’) (Clause 11).
The Claimant/Contractor maintained that it had encountered an unforeseeable physical

condition at the source for the roading material, information about which was provided
by the Respondent/Employer during the tender stage.
The tribunal’s partial award provides, in part, as follows:

12.9 It is first necessary to consider the scheme of the FIDIC Conditions and the
relationship between clauses 11 and 12 and the Contract Addendum paragraph 5.
...
12.11 From a consideration of the legal effects of these provisions [Clauses 11 and 12 of
the General Conditions and the Contract Addendum paragraph 5], the Tribunal concludes
as follows:
12.11.1 Whilst under Clause 11 of the General Conditions the data in the IFT on
hydrological and sub-surface conditions obtained by the Employer ‘from investigations
undertaken relevant to the Works and the Tender’ shall be deemed to have been based on
such data, the Claimant is responsible for its own interpretation thereof.
12.11.2 Any inferences drawn by the Claimant from such data and any consequent
decisions based on such inferences were at the Claimant’s risk.
12.11.3 Provisions such as Clause 12 are common in engineering contracts and have been
upheld by the Courts. For example, Denis Friedman (Earthmovers) Ltd v. Rodney County
Council [1988] 1 NZLR 184 which refers to many authorities which reach similar
conclusions. The cases emphasize that the obligations of proper site investigation and the
subsequent compilation of an adequate tender rest on the Contractor.
12.11.4 No claim was made in the Statement of Claim nor was any pursued at the hearing
based on any misrepresentation by understatement or omission in the IFT about the
testing of [river] material. It was accepted by the Claimant that the information there given
had been accurate
...
12.11.6 There is no evidence as to what investigations, if any, the Claimant carried out
prior to tender. Again, the lack of witnesses about this crucial phase is surprising. As noted
earlier from [E, former general manager of one of joint venturers constituting Claimant]’s
evidence, there were some investigations but he was unable to enlighten the Tribunal
further.
12.12 The Tribunal is not convinced that the particular information contained in the IFT
relating to the [river] site as a source of roading material is necessarily covered by
Clause 11. That Clause refers to ‘investigations undertaken relevant to the Works’. The
mining of material from the [riverbed] was not part of “the Works” which term meant, in
general terms, the building of a road. The roading foundations could have come from
anywhere, provided the material satisfied the specifications when tested. Indeed, the
Claimant had investigated other sources and may have based its tender on supplies being
sourced from an outside source. It had a duty under the contract to provide acceptable
material. The cost of obtaining that material was written into the tender doubtless, but
subject to the necessity to obtain its approval of a source, it was of no concern to the
Respondent whether the roading material was to have been won from the [river] or
purchased from [company] or anybody else. At least one other river source was seen by
the Respondent as at least worthy of consideration.
12.13 The Tribunal considers that the meaning of clause 12 is clear. It is concerned with
unforeseen conditions encountered by a contractor in the execution of the works on the
site. That must be so because of the following considerations:
12.13.1 The following words contained in clause 12
If however during the execution of the Works, the contractor shall encounter physical
conditions, other than climatic conditions on the Site, or artificial obstructions, which
conditions or obstructions could not have been reasonably foreseen.
These words are concerned with conditions encountered in the execution of ‘the Works’
on ‘the Site’.
As the Tribunal has said, the definition of ‘the Works’ did not include the winning and
processing of aggregate. But quite apart from that, it is clear that the words of clause 12 are
directed to conditions encountered on the Site. Indeed the use of both the words ‘Works’
and ‘Site’ make the position clear beyond doubt.
12.13.2 Even if there were any doubt about the meaning and scope of clause 12, the
contractual scheme is clear. The words appear in a well-known and much-used
international standard form of civil engineering contract.
That contract contains sophisticated provisions which, amongst other things, allocate the
commercial and other risks that might be encountered during the execution of Works
under such a contract.
One aspect of that scheme is to impose upon the Contractor the consequences of
encountering ground and other physical conditions at the site which could reasonably be
foreseen. Conversely, the Employer accepts the risk that the Contractor may encounter
conditions at the Site which could not reasonably have been foreseen.
...
12.13.3 The supply of specified goods, materials and equipment for incorporation into the
works is in a wholly different category. There can be no reason in principle why, in the
ordinary course of business, a contractor should not take the commercial risk that
problems will be encountered in the supply of such components for the works. To suggest,
as the Claimant does, that clause 12 can be extended to include problems encountered in
the supply of goods, materials and equipment cannot therefore be correct.26
Comments:
Contractors have always been inclined to give a wide meaning to Clause 12.27 This is
understandable both because the Clause grants the Contractor claim rights and because
it contains broad terms of uncertain scope, e.g. unforeseeable ‘physical conditions’ and
‘artificial obstructions’. However, in a well-reasoned decision, this tribunal refused to
26
Extracts, pages 98-101, paragraphs 12.9–12.13.
27
See C.R. Seppälä, ‘Contractor’s Claims under the FIDIC Civil
Engineering Contract, Fourth (1987) Edition – I’ (1991) 19
International Business Lawyer 395, especially at 397–99.
extend Clause 12 to a claim for an unforeseeable physical condition at the source for
roading materials for incorporation into the works as opposed to physical conditions at
the site (to which the Clause clearly applies).
Issue 2: Do alleged interferences by an indigenous group of landowners with the

Claimant/Contractor’s work constitute a ‘disorder’ for purposes of Clause 65
entitling the Contractor to additional costs?
Relevant FIDIC Clause: 65.
The Claimant/Contractor submitted a claim for alleged landowner interference and

protests (under Clause 65), which prevented the access to the crusher site28 necessary to
process the road basecourse material. The partial award provides in part:
16.1 The Claimant seeks [amount] on the basis that its work was the subject of interference
by indigenous [State X] landowners on two occasions as follows:
16.1.1 A landowner from . . ., who was head of the head of the [indigenous group], set up a
roadblock close to the entrance to the crusher site and to part of the excavation site
between 31 October and 5 November 1996. This roadblock prevented the Claimant from
having access to the crusher site.
16.1.2 On 11 January 1997, landowners from nearby villages denied the Claimant access to
the crusher site and to part of the excavation site until 20 January 1997 when the High
Court of [State X] issued an injunction against the landowners at the suit of the Respondent
and the Claimant which permitted access to be resumed.
16.2 Facts relevant to this cause of action are:
16.2.1 The [indigenous group] had permitted the Claimant access to the crusher site over
their land.
16.2.2 The Claimant had been issued with a licence from the [authority] to extract gravel
from the river but the necessary approval from that body to the access to the crusher site
had not been given. In terms of the . . . Act . . ., the Claimant had no legal right to that
access at the relevant dates. Under the legislation, it does not matter that the local people
had given approval to access by the Claimant to the crusher site.
16.2.3 Under Clause 1213 of the Specification, it was the Claimant’s duty to obtain legal
entitlement to access to the land[29]
...
16.2.6 A letter from the Claimant to the Engineer’s Representative dated 14 January 1997
stated that the cause of the disruption was the pursuit of employment opportunities by the
demonstrators.
16.2.7 There was no evidence that the activities of the landowners were anything other
than peaceful.
...
16.4 The . . . basis for the claim is that the activities of landowners complained of amount to
‘disorder’ in terms of Clause 65(4) of the Conditions as a result of which the Claimant
suffered delay and disruption and incurred additional costs.
...
16.6 In the Tribunal’s view, the peaceful protests of the native landowners, no matter what
their motivation, cannot be considered ‘riot’ or ‘commotion’. What occurred was akin to a
trade union picket. The question is was it ‘disorder’ in terms of Clause 65(5)? The New
Shorter Oxford Dictionary defines ‘disorder’ as: 1. Lack of order or regular arrangement,
disarray, a confused state. 2. Disturbance, commotion, breach of public order. Obviously,
28 29
It appears from the available extracts of the award that the It appears that the ‘land’ refers to the ‘crusher site’.
crusher site was not part of the Site.
the second tranche of definitions is the appropriate one. The Tribunal cannot interpret the
peaceful protest of the landowners as being ‘disorder’ in terms of Clause 65 particularly
when the use of the access was illegal. The term incorporates some form of active, if not
forceful, civil disobedience.
16.7 Moreover, although the objective merit in the Respondent’s claim of illegality is scant,
the Claimant had no legal right to access because of the lack of [the aforementioned
body’s] sanction to its access arrangements with the landowners. The Tribunal has difficulty
in seeing, in these circumstances, how the High Court had been able to issue an injunction
which would have had the effect of giving approval to a technically illegal action. However,
the Tribunal does not have to consider that point, since, in its view, there was no ‘disorder’
in terms of clause 65(3) [sic].
16.8 Accordingly, for the reasons given, the Tribunal dismisses this claim.30
Comments:
In summary, the tribunal concluded that inasmuch as the interference by the landowners
was a peaceful protest it could not constitute a ‘disorder’ under Clause 65(5), and hence
the Claimant/Contractor was not entitled to relief under Clause 65(4). The tribunal’s
award is well reasoned and calls for no special comment.
C. Fourth Edition (1987)
1. ICC Case No. 10619
An Italian Claimant/Contractor entered into contracts with a public authority in an African

State (the Respondent/Employer) for the construction of roads in that State. A German
engineer was appointed for the work. The Claimant/Contractor brought an arbitration for
damages for various matters for which it alleged the Respondent/Employer was
responsible.
The place of arbitration was Paris, France.

(a) Interim Award in ICC Case No. 10619
The interim award was issued in March 2001.
The Claimant/Contractor requested immediate enforcement, by way of an interim award

(and the provisional enforcement of such award, as permitted under French law31), of
certain decisions of the Engineer under Clause 67 with which the Respondent/Employer
failed to comply (and which had been the subject of a notice of intention to commence
arbitration from the Claimant/Contractor).
Issue: How may a binding but not final decision of the Engineer under Clause 67 be
enforced?
One of the most important legal issues in relation to international construction contracts
in recent years has been how to enforce decisions of the Engineer under Clause 67 of the
30
31
Under French arbitration law (Article 1479 of the Code of Civil
Procedure), provisional enforcement refers to the immediate
enforcement of an award notwithstanding appeal or another
procedure for judicial review of an award.
FIDIC Conditions, Fourth Edition (1987), and, since it was replaced by the DAB in the
1999 FIDIC Books, how to enforce decisions of a DAB. The interim award in Case
No. 10619, an award made in 2001 but which has only now been published, expressly
addresses this question and the solution which it provides is most welcome and to be
commended.
By that interim award, the arbitrators held that, at the request of the Claimant/
Contractor, certain decisions of the Engineer under Clause 67 of the FIDIC Conditions,
Fourth Edition, could be enforced by an interim or partial32 award under the ICC Rules,
even though one of the parties (the Claimant/Contractor in fact, who, as mentioned
above, was seeking to enforce the decisions) had given a notice of intention to
commence arbitration with respect to the decisions.33 The arbitrators held that such
decisions can be given effect to by such an award because Clause 67 expressly provides
that a decision of the Engineer under Clause 67 is binding on the parties notwithstanding
that either (or, in this author’s submission, both) party (parties) has (have) given a
notice of intention to commence arbitration. In this connection, the second paragraph of
SubClause 67.1 provides:
. . . the Contractor and the Employer shall give effect forthwith to every such decision of
the Engineer unless and until the same shall be revised, as hereinafter provided, in an
amicable settlement or an arbitral award.34
The tribunal stated as follows:

If the above Engineer’s decisions have an immediate binding effect on the parties so that
the mere fact that any party does not comply with them forthwith is deemed a breach of
contract, notwithstanding the possibility that at the end they may be revised or set aside in
arbitration or by a further agreement to the contrary, there is no reason why in the face of
such a breach the arbitral tribunal should refrain from an immediate judgment giving the
Engineer’s decisions their full force and effect. This simply is the law of the contract.35
(Emphasis added)
In addition to basing its case on the words in Clause 67, the Claimant/Contractor had
relied on Article 23 of the ICC Rules relating to conservatory and interim measures and
on certain related French legal doctrines (the place of arbitration being France).
However, the tribunal emphasized, quite correctly (in this author’s opinion), that its
decision was not based on these provisions but on the contract itself:
the judgement [sic] to be hereby made is not one of a conservatory or interim measure,
stricto sensu, but rather one [of] giving full immediate effect to a right that a party enjoys
without discussion on the basis of the Contract and which the parties have agreed shall
extend at least until the end of the arbitration. For the second thing, the will of the parties
shall prevail over any consideration of urgency or irreparable harm or fumus boni juris
which are among the basics of the French référé provision.36 (Emphasis added)
Thus, an arbitral tribunal may and, when requested to do so, should enforce decisions of
the Engineer under Clause 67 by an interim or partial award under the ICC Rules
ordering the other party immediately to pay their amount even though one (or, in this
32 34
The ICC Rules of Arbitration do not distinguish between Extracts, page 88, paragraph 18.
interim or partial awards, see Article 2(iii) of those Rules. Both 35
result in final decisions as to the matters decided by them. Extracts, page 88, paragraph 22.
33
36
The interim award was subsequently confirmed in the Extracts, pages 88-89, paragraph 22.
tribunal’s final award, which is commented upon in other
respects below.
author’s submission, both) party (parties) has (have) expressed dissatisfaction with
them. In this author’s view, the arbitral tribunal in this case has understood perfectly the
way Clause 67 of the FIDIC Conditions was intended to operate.
In an earlier award which has been published,37 an arbitral tribunal had ordered payment
of ‘final and binding’ decisions of the Engineer under Clause 67 of the FIDIC Conditions
of Contract, Second Edition (1969), that is, decisions which had not been the subject of
any notice of intention to commence arbitration within the contractually stipulated time
limit (90 days under the Second Edition) at all. However, the interim award in Case
No. 10619 is the first example of a published award of which this author is aware where
the arbitral tribunal has ordered payment by an interim award of the amount of an
Engineer’s decision which is ‘binding’ but not ‘final’, that is, which had been challenged,
within the contractually stipulated time period, by one or other of the parties.
This author submits that the same result should obtain in the case of a decision of a DAB
under the 1999 FIDIC Books as was found to apply in Case No. 10619 in the case of a
decision of the Engineer under Clause 67 of the FIDIC Conditions, Fourth Edition. This
should be so because the relevant language of Clause 67 of the Fourth Edition and of
Clause 20 of the 1999 FIDIC Books is to all intents and purposes the same.
The language in Sub-Clause 20.4 of the 1999 FIDIC Books is, if anything, even stronger
than that in the second paragraph of SubClause 67.1 of the FIDIC Conditions, Fourth
Edition quoted above. Sub-Clause 20.4 of the 1999 FIDIC Books provides as follows:
The decision [of a DAB] shall be binding on both Parties, who shall promptly give effect to
it unless and until it shall be revised in an amicable settlement or an arbitral award as
described below.
Accordingly, the interim award in this case is relevant to a decision of a DAB under the
1999 FIDIC Books.38 Even if one, or (this author submits) both, parties have given a
notice of dissatisfaction (which is equivalent to the notice of intention to commence
arbitration under the Fourth Edition of the FIDIC Red Book) with respect to a decision
of a DAB pursuant to Sub Clause 20.4, each party is bound to give effect to that decision
(unless and until overturned by a subsequent amicable settlement or arbitral award) and,
if that decision calls, for example, for a payment to be made by one party to the other,
then that decision may be enforced directly by an interim or partial award pursuant to
the Rules of Arbitration of the ICC which, in France, may be the subject of provisional
enforcement by national courts.39 This is the consequence of the interim award in Case
No. 10619.
(b) Final Award in ICC Case No. 10619
The final award was issued in April 2002.
In the final award in Case No. 10619, the arbitral tribunal examined, among other things:
37 39
ICC Case Nos 3790/3902/4050/4051/4054 (joined cases), See supra note 31.
summarized in Abdul Hamid El-Ahdab, Arbitration with the
Arab Countries (Deventer: Kluwer, 1990) at 889–91.
38
See, in this connection, C.R. Seppälä, ‘The Arbitration Clause
In FIDIC Contracts For Major Works’ (2005) 22 The
International Construction Law Review 4.
(1) whether the Respondent/Employer could rely on a notice of intention to commence

arbitration of the Claimant/Contractor in order to be entitled to request the tribunal to
revise decisions of the Engineer under Clause 67; and
(2) whether the Claimant/Contractor could justifiably rely on data as to the local
resources for materials provided by the Respondent/Employer during the tender period,
for purposes of Clause 11, to justify a claim for unforeseeable physical obstructions or
conditions under Clause 12 (which was ultimately rejected by the tribunal).
Issue 1: Can the Respondent/Employer rely on a notice of intention to commence

arbitration proceedings issued by the Claimant/Contractor in order to be entitled to
request an arbitral tribunal to revise the decisions of the Engineer under Clause 67?
The above issue arose as the Respondent/Employer, though evidently dissatisfied with
certain decisions of the Engineer, had failed to give itself a notice of intention to
commence arbitration with respect to such decisions. In addressing this issue, the
arbitral tribunal stated, as follows:
17. . . . Under Clause 67.1 of the Conditions of Contract any dispute arising between the
Employer and the Contractor shall have first to be referred in writing to the Engineer, with
a copy to the Employer.
This is what the Claimant had done by letters of 18 October 1998, leading to the Engineer’s
decisions of 17 November 1998, and by letters of 9 September 1998, leading to the
Engineer’s decisions of 5 May 1999.
The Claimant, being dissatisfied with both the time extensions and the amount of money
granted to him by the Engineer has notified the Employer and the Engineer, within the
prescribed time limit, of his intention to commence arbitration and filed on 11 August 1999
the Request for Arbitration initiating this proceedings.
The only question which deserves consideration at this stage is whether the Respondent,
who has not objected within the prescribed time limit to the Engineer’s decisions and has
not stated his intention to commence arbitration to have the same reviewed and revised,
may take advantage of the notice made by the Claimant to that effect and request the
Arbitral Tribunal to reverse the Engineer’s decisions.
18. The answer should be in the affirmative considering that the Claimant has declared his
dissatisfaction with the entire content of the Engineer’s decisions. Therefore, since
notification of intention to commence arbitration has been given within the prescribed time
limit by the Contractor, the Engineer’s decisions have not become final and binding and
‘the arbitrator(s) shall have full power to open up, review and revise any decision, opinion,
instruction, determination, certificate or valuation of the Engineer related to the dispute’
(Sub-clause 67.3). This conclusion is confirmed by Sub-clause 67.3 when the same provides
that ‘neither party shall be limited in the proceeding before the arbitrator(s) to the
evidence put before the Engineer . . .’.40
Comments:
This author agrees with the tribunal’s basic reasoning and conclusion: since a
notification of intention to commence arbitration has been given by one party—it does
not matter which party—the Engineer’s decisions had not become final and binding and,
consequently, can be opened up in arbitration. However, the last sentence of the above
quotation from the award may be irrelevant to the issue, as it relates to the conduct of
40
the arbitration once it has been validly begun (and therefore may not be a criterion for
determining whether it has been validly begun).
Issue 2: To what extent can a Contractor rely on data as to the local resources for
materials provided by an Employer during the tender period for purposes of
Clause 11?
The above issue arose as the Claimant/Contractor claimed to have relied on the
information contained in documents provided by the Respondent/Employer during the
tender period, the Material Reports, to select its construction equipment and to find
materials for the works, which eventually proved deficient and insufficient.
73. A first issue to determine in connection with the [alleged design changes] is whether
the Contractor justifiably relies on the Materials Reports as a legal basis for his contention.
There is no doubt that the Materials Reports were not contractual in nature. It was said in
introduction thereto that they were ‘not definitive and should be used as a guideline only
as to what can be encountered in the projected area. It is also expected that during the
construction period additional and differing materials will be encountered from those
described therein’. In paragraph 2.2., ‘Pavement materials’, it was also said that ‘the results
of the preliminary tests undertaken on these materials indicate that all sites are potential
sources for natural gravel wearing course material’: ‘potential’ undoubtedly leaves a margin
of uncertainty. Furthermore, in the last lines of the minutes of the pre-bid meeting held on
31 March 1994, ‘the Bidders [sic] attention [was] drawn to the fact, that the Materials
Report [sic] does not form part of the Contract Documents, and is provided for
information only’. Undoubtedly that statement should have been an incentive to the
bidders to carefully verify by their own means the reliability of the relevant information.
For its part, Article 11 GCC [General Conditions of Contract] requires that ‘the Employer
shall have made available to the Contractor, before the submission by the Contractor of the
tender, such data from investigations undertaken relevant to the Works, but the Contractor
shall be responsible for his own interpretation thereof ’. The tribunal thinks, however, that
one cannot expect from a bidder, within the short period of time left for him to prepare his
bid, to investigate on matters of local resources of materials over the Employer’s findings
which are deemed to result from lengthy prior queries in subsoil [sic] and are supported by
graphs, diagrams, samples and other probatory materials; a bidder is justifiably required to
interpret the data made available to him; he is not required to expedite new thorough
investigations which the Employer says in good faith to have carefully carried on
presumably for months if not years, in the interest of the Works. Interpreting data is one
thing; undertaking new investigations in a region plus or minus close to the road of about
180 kms to check whether the required materials exist or not as described in quantity and
quality, at the locations identified by the Employer, is not a thing which can reasonably be
said to pertain to a bidder.41
The Tribunal found that the data provided by the Respondent/Employer in its invitation
to tender was erroneous and misleading, and confirmed the decision of the Engineer
which had granted a time extension and extra costs to the Claimant/Contractor.
Comments:
The arbitral tribunal does not clearly articulate the contractual basis of its decision in this
respect in its award. However, this author believes that the decision can be justified on
41
Extracts, pages 90-91, paragraph 73.
the basis of the last sentence of Sub-Clause 11.1 of the FIDIC Conditions, Fourth Edition,
which provides as follows:
The Contractor shall be deemed to have based his tender on the data made available by the
Employer and on his own interpretation and examination, all as aforementioned. (Emphasis
added)
2. Final Award in ICC Case No. 10892
Relevant FIDIC Clauses: 1.1, 39 and 63.
The award was issued in March 2002 and the place of arbitration was the Caribbean.
In order to build a sport’s stadium, a Caribbean State engaged the services of the
Respondent/Employer, a Caribbean company, who entered, in turn, into a construction
contract with the Claimant/Contractor, also a Caribbean company.
While the construction contract incorporated the FIDIC Conditions Parts I and II, Fourth
Edition, the Respondent/Employer never filled in the name of the Engineer in Clause 1.1
of Part II of the FIDIC Conditions, thereby leading to a dispute over the Engineer’s
identity.
The Respondent/Employer terminated the construction contract on account of the

Claimant/Contractor’s alleged default. The Claimant/Contractor initiated arbitration
proceedings claiming the termination of the contract was wrongful and seeking damages
for, among other things, sums allegedly due and owing under the contract and the value
of alleged variations.
Issue 1: What are the attributes of the Engineer and when can a party be said to have
tacitly accepted someone as the Engineer?
Relevant FIDIC Clause: 1.1 (of Parts I and II).
With respect to the parties’ dispute over the identity of the Engineer, the tribunal stated,
as follows:
159. At the first site meeting of August 14, 1997, [Employer] is expressly reported as
appointing itself as Engineer. . . . [Employer] delegated [Primary Consultant] as its
representative to act on its behalf. . . . In the first Quarterly Progress Report submitted in
October 1997, however, [Primary Consultant] reported that [A senior] was the Engineer.
. . . [A senior], the Project Manager, was apparently delegated the responsibility of signing
the Engineer’s certifications for payment, which he did on all but one occasion before
August 1998. As the last witness in the case—long after the fact—[A junior] testified that
[A senior] was empowered at times to sign payment certificates as the Engineer, but
otherwise, he was never the Engineer. Before August 7, 1998, apparently because [A senior]
signed payment certificates as Engineer, [Contractor] appeared to think of him as the
Engineer.
160. Apparently in response to letters from [Contractor] complaining about the lack of a
clear designation of the Engineer, and wishing to remove [A senior] from the project, by
letter of August 7, 1998, [Employer] purported to expressly designate [B], the Project
Manager of [Primary Consultant], as Engineer for certain important (but limited) purposes:
(1) certifying payments to the contractor, (2) determining the value of variations,
(3) determining the cost of construction, and (4) determining the Contractor’s rates. . . .
But the same letter purports to designate [C] to replace [A senior] as Project Manager with
the authority to vary the decisions of the ‘consultants’, except for certifying payments.
According to the letter, the Employer . . . also maintained the authority to instruct the
Contactor. This ultimate letter of [Employer] should be noted.
...
162. In these circumstances, which are wholly the responsibility of the Employer, it is not
surprising that there was considerable confusion as to the identity of the Engineer. In
various letters, [Contractor] brought this matter to the attention of [Employer] and sought
a clear appointment of an engineer.42
The tribunal found that, in these circumstances, the Engineer was the Employer itself:
163. I find that the Engineer for the entire term of the project was [Employer], the
Employer itself. This was true before August 7, 1998, because [Employer] was expressly
designated as the Engineer at the first site meeting. Even thereafter, [B] signed all
payments certificates ‘For and on Behalf of the Engineer’, designated usually as [Employer].
Also, although [B] was purportedly designated as Engineer by [Employer]’s letter of August
7, 1998, he was designated Engineer only for certain limited purposes. For all other
purposes, it must be assumed that [Employer] retained the position of Engineer as stated
at the first site meeting and as indicated by [Employer]’s express retention in the letter of
August 7, 1998, of the power to instruct the Contractor. I find that the letter of August 7,
1998, referred to by [Employer]’s own expert as ambiguous in its appointment of the
Engineer, was intended to delegate certain functions of the Engineer to [B], but with
[Employer] retaining the role of Engineer.
...
165. The FIDIC Conditions require the Engineer to be impartial in making his decisions.
While the FIDIC Conditions do not expressly say the engineer must be independent, an
independent engineer is clearly preferable because impartiality is then more transparent. . . .
There are different levels of independence. At the lowest level, when a government,
employer or owner appoints itself or its own employee as engineer, there is no
independence, and impartiality is unlikely.
...
167. In this case, it was not the Engineer ([Employer]) who issued the certificate of failure
by [Contractor] to carry out instructions, which led to termination, but its delegate, [B].
The acts of [B], [Primary Consultant] or [A senior], as delegates of the Engineer, must be
deemed to be acts of the Engineer, [Employer]. The Engineer’s conflict of interest in also
being the Employer prevents it from claiming it acted impartially by delegating its
responsibility to a third party. The Employer who also acts as Engineer cannot hide behind
its delegate to claim impartiality. This is especially true here since certain of [B]’s decisions
appear to consist of relatively uncritical acceptance of [Employer]’s ‘suggestions’.43
The tribunal also noted that the Contractor had tacitly accepted the Respondent/
Employer as the Engineer:
168. If this situation is accepted by the Contractor, as it was grudgingly and reluctantly here
(despite its questioning of the situation) by the Contractor continuing to work, then the
Employer is accepted as the Engineer. . . . A Contract governed by the FIDIC Conditions of
Contract is unworkable without an Engineer, and it cannot be accepted that the parties
moved forward with performance of the Contract without any way in which the Contractor
could be terminated for cause, if necessary. . . . The acceptance of the Employer as
Engineer and its delegates is imperfect under the facts of the case, but necessary for the
functioning of the Contract and project. [B] was entitled to issue a certificate of non-
performance by [Contractor] upon which [Employer] could rely to terminate the
Contractor because [Contractor] impliedly accepted [Employer] as the Engineer and [B] as
the Engineer’s delegate (however grudgingly and however ambiguous the appointment) by
continuing to work.44
42
43
44
Extracts, page 93, paragraph 168.
Comments:
An Employer may sometimes be reluctant to delegate power to administer a

construction contract incorporating the FIDIC Conditions to an independent Engineer as
those Conditions require. On the other hand, the Employer may itself often have neither
the competence nor experience to administer such a contract itself. These conflicting
pressures or factors appear to have contributed to the confusion about the identity of
the Engineer in this case, leading the tribunal to consider that the Engineer was the
Respondent/Employer.
The tribunal is plainly correct in stating that a contract incorporating the FIDIC
Conditions is normally ‘unworkable without an Engineer’. Among other things, a
certificate of the Engineer that the Contractor is not performing the contract may be a
necessary condition precedent to the giving of a notice of termination by the Employer
under Clause 63.1.
Issue 2: Did the Respondent/Employer validly terminate the Contract under

Clause 63?
The arbitral tribunal then examined whether the Respondent/Employer had validly
terminated the Contract under Clause 63, as follows:
172. [Employer] purported to terminate [Contractor] for failure to comply with the
instructions of [B], the Engineer’s delegate, under Clause 39.1 of the FIDIC Conditions
[empowering the Engineer to issue instructions for removal from the site of any materials
or Plant which, in the opinion of the Engineer, are not in accordance with the Contract]
...
180. It must be remembered that [B] was the Engineer’s delegate, not the Engineer. If [B]
were the Engineer, as testified by [A junior], he would have been the Engineer for the
limited purposes only expressly stated in [Employer]’s letter of August 7, 1998 [author’s
note: see paragraph 160 above]. The letter of August 7, 1998, does not purport to designate
[B] as the Engineer for the purpose of giving instructions under Clause 39.1 or certifying
noncompliance with such instructions under Clause 63.1 of the FIDIC Conditions. Thus,
[B] was not empowered as Engineer to make such decisions or take such actions. As the
supervisor on the project for [Primary Consultant], the delegate of the Engineer
([Employer]), as shown by the minutes of the first site meeting, however, he was so
empowered.
181. Clause 63.1(e)[45] of the FIDIC Conditions requires that ‘the Employer may, after
giving 14 days’ notice to the Contractor, enter upon the Site and the Works and terminate
the employment of the Contractor . . .’ [Employer] gave a 14-day notice of its intent to
terminate the Contract (dated October 29, delivered on November 1, and terminated on
November 15), but it did not wait 14 days to enter the premises. [Employer] obtained an
injunction on the date of its notice, ejected [Contractor] from the site the same day, and
seized [Contractor]’s equipment and records for its use.
182. I find that the failure to wait 14 days to take possession was a violation by [Employer]
of Clause 63.1(e).
45
In fact, the correct reference in the FIDIC Conditions should
be to Clause 63.1 and not Clause 63.1(e). Thus, the 14-day
notice period clearly applies to defaults of the Contractor
described in paragraphs (a) to (e) of Sub-Clause 63.1 and not
just to Sub-Clause 63.1(e).
183. In determining whether the termination was substantively proper, it must be kept in
mind that [B] did not recommend termination and did not believe that the two items that
were the subject of his September 1999 instructions justified termination. . . . I do not find
that the termination was proper. 46
Comments:
It is a commonplace that when a party terminates a contract on account of the other

party’s default, it must strictly observe the termination procedures provided for by the
contract or risk itself being found to have wrongly terminated the contract with all the
ensuing consequences in damages. The decision to terminate a construction contract is
the remedy of last resort and rarely risk free. The Respondent/Employer failed here,
among other things, strictly to respect the 14-day notice period provided for in Clause 63
entitled ‘Forfeiture’ and had therefore to bear the consequences.
3. Final Award in ICC Case No. 8677
The final award was issued in September 1997 and the place of arbitration was London,
UK.
A Middle East Claimant/Contractor had entered into a construction contract with the
Government of an Asian State, the Employer/Respondent, for the performance of certain
works in that State.
While the Claimant/Contractor was mobilizing Contractor’s Equipment, Plant and

materials in the Claimant/Contractor’s country for shipment to the Asian State
concerned, the Claimant/Contractor’s country was invaded and war ensued. As a result
of looting by the invading forces, such Contractor’s Equipment, Plant and materials were
lost. While the Claimant/Contractor completed the contract (having replaced the original
Contractor’s Equipment, Plant and materials at its own cost), it began arbitration against
the Respondent/Employer for, among other things:
(1) approximately USD 5 million for the loss of Contractor’s Equipment, Plant and
materials as a result of the outbreak of war in the Claimant/Contractor’s country, where
such items were being assembled before their transport to the Asian State concerned;
and
(2) the release of approximately USD 140,000 of retention money.
Issue 1: Whether the Contractor could recover for the loss of Contractor’s
Equipment, Plant and materials situated in its own country as a result of invasion and
war even before they had been transported to the Employer’s country where the site
was located?
As stated above, the Claimant/Contractor claimed for the loss of Contractor’s Equipment
(as defined), Plant (as defined) and materials as a result of the invasion of Claimant/
Contractor’s country and ensuing war.
46
After reviewing Clauses 20 and 65 generally,47 the sole arbitrator examined whether
Clause 20 applied to risk of damage or destruction to ‘materials’ or ‘Plant’ intended to be
incorporated into the Works which were still in the Claimant/Contractor’s country (and
had not yet been transported to the Respondent/Employer’s country). The sole
arbitrator concluded that Clause 20 did apply to such risk:
(1) the Commencement Date (as defined) had occurred with the result that under
Clause 20, the Claimant/Contractor assumed responsibility for the Works (as defined),
and the materials and Plant to be incorporated therein, except in the case of loss or
damage resulting from Employer’s Risks (as defined); and
(2) the Employer’s Risks referred to in Sub-Clause 20(4), which included ‘war’ and
‘invasion’, were of ‘worldwide application’.
The sole arbitrator stated, as follows:

53. . . . The starting point is Clause 20. The purpose of this Clause is to allocate the risk of
damage or destruction to the Works and to material and Plant intended to be incorporated
into the Works during the period for which the Contractor is to be responsible, namely
from the Commencement Date to the Taking-Over Certificate. . . . Given that this is an
international contract where various parts of the performance of the core obligation may
take place in several different countries, one would, I think, expect that the Clause 20 risks
were stateless in the sense of it being immaterial where in the world the particular risk
occurred. This construction gains support from Clause 65.2(b) which, for Clause 65
purposes, limits the risk of rebellion, revolution, insurrection and so on to the country in
which the Works are to be executed. This is in contradistinction to the other special risks,
which, in my opinion, are ‘worldwide’ for both Clause 65 and Clause 20 purposes. If this
were not so, the limitation introduced by Clause 65.2(b) is inexplicable. . . . I conclude that
[Claimant’s counsel] is entitled to base his Clients’ claim for materials or Plant on Clause
20.3 in the alternative and so hold. . . .48
The difficult point for the sole arbitrator was whether the Claimant/Contractor could also
recover for the loss of Contractor’s Equipment, the loss of which was not provided for in
Clause 20, which deals only with care of the Works (as defined). The sole arbitrator
found that the Claimant/Contractor could recover for this based on Clause 65(3),
reasoning as follows:
57. . . . The difficult point is whether a loss suffered by reason of looting by an invading
army constitutes ‘destruction or damage’ within Clause 65.3. It seems to me to be clear that
the looting of materials or Plant amounts to the loss [emphasis in original] of materials or
Plant for incorporation in the Works within Clauses 20.2 and 20.3. [Defendant’s counsel]
says that Clause 65.3 does not cover items which were, in effect, stolen: ‘damage’ must
connote items which are available still but which require repair: ‘destruction’ means
physically destroyed or demolished so that the item is beyond repair. So [Defendant’s
counsel] would argue that, on the findings above, the Claimants could recover for the work
boat (assuming, for the sake of argument, that this was owned by the Contractor) and for
the grout spears but for nothing else. This is a question of the interpretation or
construction of the Contract . . .
At first sight, the juxtaposition of ‘destruction’ with ‘damage’ in Clause 65.3 strongly
supports [Defendant’s counsel’s] argument, and I accept that damage must mean physical
47 Plant for incorporation therein from the Commencement Date

Extracts, pages 73-74, paragraph 52. Clause 20.1 (Care of until the date of issue of the Taking-Over Certificate for the
Works) of the Fourth Edition of the FIDIC Red Book, which is whole of the Works, when the responsibility for the said care
not quoted in the award, is also relevant and provides, in shall pass to the Employer.’
relevant part, as follows: ‘The Contractor shall take full 48
responsibility for the care of the Works and materials and Extracts, pages 74-75, paragraph 53.
damage. But the general intention behind Clause 65.3 (and Clause 20.3) is to protect the
Contractor from the occurrence of the special risks, which would otherwise certainly affect
the Contractor’s price and might result in international contractors being unwilling to
tender. In interpreting the meaning of destruction, regard must be had to the scope of the
Employer’s risks as defined in Clause 20.4. In sub-paragraph (a) of that Clause, there are
grouped together war, hostilities (whether war be declared or not), invasion and act of
foreign enemies. Civil war falls within the risks in sub-paragraph (b). If ‘destruction’ were
limited to physical destruction, there would appear to be no point in including ‘invasion’
and ‘act of foreign enemies’ as special risks. Furthermore, an indication that ‘destruction’
within Clause 65.3 may include a total loss caused otherwise than by physical destruction is
provided by Clause 54.2, which provides:
The Employer shall not at any time be liable, save as mentioned in Clauses 20 and 65,
for the loss of or damage to any of the said Contractor’s Equipment Temporary Works
or materials.
Since the only term of this contract which places Contractor’s Equipment at the risk of the
Employer in the event of war, hostilities invasion and so on is Clause 65.3, it seems to me
that the language of Clause 54.2 is not consistent with [Defendant’s counsel]’s construction
of ‘destruction’ in Clause 65.3. While I confess to having found this point most difficult, I
have decided that [Claimant’s counsel]’s arguments prevail. Subject to the remaining issues
going to liability and to quantum, I propose, therefore, to allow the Claimants’ claim for the
Loss of Contractor’s Equipment under Clause 65.3.49
The sole arbitrator thus determined that looting was covered by ‘destruction or damage’
under Clause 65.3.
Issue 2: May a Contractor enforce an undisputed contract entitlement by way of

arbitration without first complying with the pre-arbitral procedures in Clause 67?
In addition to the Claimant/Contractor’s main claim referred to above, the Claimant/

Contractor also sought in the arbitration to recover approximately USD 140,000 of
retention money. The Respondent/Employer had not disputed that the Claimant/
Contractor was entitled to recover this sum but, at the same time, the Respondent/
Employer had not returned it to the Claimant/Contractor. This gave rise to the issue of
whether the Claimant/Contractor could claim for this amount in the arbitration although
it had not referred the issue through the pre-arbitral procedures in Clause 67.
The sole arbitrator first reviewed Clause 67 of the FIDIC Conditions, which provides,
among other things, that:
(1) if a dispute arises between an Employer and a Contractor in connection with, or

arising out of, the Contract or the execution of the Works, the matter shall first be
referred to the Engineer; and
(2) only a dispute in respect of which the decision of the Engineer has not become final
and binding (because it has been challenged by one of the parties within a 70 day time
limit) can be referred to arbitration.50
The sole arbitrator then examined the parties’ respective positions.
49
Extracts, page 76, paragraph 57.
50
The Respondent/Employer argued, as follows:

(1) there is no entitlement to start an arbitration and the arbitrator does not have
jurisdiction to determine a dispute unless the procedure under Clause 67 is followed;
(2) the relevant dispute has never been referred to the Engineer; and
(3) the relevant dispute had never crystallized as it has never been the subject of any
communication between the parties.51
The Claimant/ Contractor argued, as follows:

(1) the existence of a dispute was clear from the amended counterclaim (where this
claim was first raised) and from its inclusion in the Terms of Reference;
(2) the Respondent/Employer cannot rely on the absence of a Clause 67 reference to the
Engineer, as by the time the money which was the object of the claim became due, there
was no Engineer in place (which was a breach of contract by the Respondent/Employer);
and
(3) alternatively, it was impossible to refer this claim to the Engineer and Clause 13.1 of
the Conditions52 operated to ‘excuse’ the absence of a Clause 67 reference.53
While the sole arbitrator found that the retention money was a ‘debt due’ about which
‘there was no crystallized dispute’,54 he then stated, as follows:
49. The question for me is whether or not, in all the circumstances, I have power to make
an award in the Claimants’ favour for this sum of . . . There is great force in [Defendant’s
counsel]’s argument that an ICC arbitrator is appointed to resolve disputes which are
existing [emphasis in the original] disputes at the time of the appointment and about
which there is either an Engineer’s Clause 67.1 decision or a failure to give a decision.
However, it seems to me that [Defendant’s counsel]’s quintessentially English law
submission on this point is one which ought not to be slavishly accepted in the case of an
international civil engineering contract. Not all countries, in which a contract incorporating
the FIDIC Conditions falls to be performed, have a legal system as good as that in [State X],
embryonic though that system may be. If a party cannot enforce a contract entitlement
over which there is no or no real dispute through the arbitral process, there will be cases . .
. in which there is no available remedy. For this reason, I have concluded that it would be
right to award the Claimants the [aforementioned sum].55 (Emphasis added)
Comments:
The sole arbitrator thus decided to award the claimed money to the Claimant/
Contractor, notwithstanding that the issue had not been referred to the Engineer under
Clause 67. In this connection, it should be noted that the sum was relatively small
(approximately USD 140,000) in relation to the Claimant/Contractor’s main claim
(approximately USD 5 million), which had clearly satisfied Clause 67. It was considered
to be a ‘debt due’ and would almost certainly itself not have justified a further arbitration
for its recovery. Consequently, this result is understandable on the particular facts in this
case.
51 54
Extracts, page 72, paragraphs 43–45. Extracts, page 73, paragraph 48.
52 55
Clause 13.1 (‘Work to be in Accordance with Contract’) Extracts, page 73, paragraph 49.
provides, as follows: ‘Unless it is legally or physically
impossible, the Contractor shall execute and complete the
Works … in strict accordance with the Contract . . .’
53
III. FIDIC Client/Consultant Model Services

Agreement (White Book, Second Edition (1991))—
Final Award in ICC Case No. 11039
Relevant FIDIC Clause: 17 of the FIDIC White Book (Second Edition).
The (majority) award in ICC Case No. 11039 was issued in April 2002 and the place of
arbitration was Berlin, Germany.
The Respondent/Consultant, a Danish engineering company, entered into an agreement

to provide technical assistance to the Claimant/Client, a German construction company,
which proposed to submit a tender for a construction project in Germany. The
construction project was awarded to the Claimant/Client, which pursued its
collaboration with the Respondent/Consultant under a further contract covering detailed
design. During construction, the Claimant/Client incurred additional costs as a result of
underestimations of quantities in its tender for which it maintained that the Respondent/
Consultant was responsible.
Consequently, the Claimant/Client initiated arbitration against the Respondent/

Consultant to recover these costs. In the arbitration, the parties disputed whether their
agreement incorporated the FIDIC’s Client/Consultant Model Services Agreement
(‘White Book’) and, if so, whether a one-year period of limitation in Part II thereof was
valid under German law and, hence, whether the Claimant/Client’s claim was time-
barred.
Issue 1: Did the agreement between the parties include the FIDIC White Book
contract, which in this case provided for a one-year time bar on liability?
No relevant FIDIC Clause.
The first issue was whether the parties’ contract consisted only of correspondence
between parties (and was a works contract (Werkvertrag) in accordance with §§ 631 et
seq. of the BGB56 through correspondence) or incorporated the FIDIC White Book
contract which included Clause 17, which provides that:
[N]either the Client nor the Consultant shall be considered liable for any loss or damage
resulting from any occurrence unless a claim is formally made on him before the expiry of
the relevant period stated in Part II, or such earlier date as may be prescribed by law.57
Part II provided for a one-year duration of liability ‘reckoned’ from 22 May 1995, which
was about when work began (work was completed on 15 or 29 June 1995).
The Claimant/Client argued, among other things, that the Respondent/Consultant could
not expect the Claimant/Client to have agreed on contract terms that ‘in comparison to
the equilibrium that should normally prevail in such contracts, created a considerable
unbalance’. According to the Claimant/Client, Clauses 17 and 18.1 (which also limited the
Respondent’s liability to DEM 250,000) of Part II would create an imbalance between the
parties, arguing:
56
Bürgerliches Gesetzbuch (the German Civil Code).
57
Extracts, page 95, section 6.2.3.
In the guide to the FIDIC Agreement ten (10) years is recommended as [sic] figure in the
statute of limitation. Furthermore, it is suggested that the duration should begin to elapse
at the completion or termination of the services. This is to be compared with the one (1)
year term from the beginning of the services as [Respondent] alleges was agreed between
the Parties. This period is unreasonably short and it was possible that [Respondent]’s
liability would have been covered by the statute of limitation prior to the completion of
[Respondent]’s services.58 (Emphasis added)
After reviewing the facts, the tribunal concluded that, although the parties never signed
the FIDIC (White Book) Agreement, it formed part of the contract that they had entered
into by correspondence, stating:
The Parties had earlier made their intention clear to enter into the FIDIC Agreement and
had now agreed on the wording by the exchange of various drafts and views on individual
clauses. [Claimant] must have been aware that [Respondent] presumed that the Agreement
was valid between the Parties, even without joint signatures on the FIDIC Agreement. The
exchange of the written drafts fulfils the requirement of a written contract under German
Law (§ 127 BGB). [Claimant] had therefore to object before 30 June 1995 [the deadline set
by the Respondent for the Claimant to discuss the latest version of the FIDIC Agreement] if
it did not wish to be bound by the typed version of the FIDIC Agreement sent to
[Claimant]. [Claimant] never objected and is therefore bound to the FIDIC Agreement by
way of passivity.
Thus, the majority of the Arbitrators find that the FIDIC Agreement in its entirety was
validly agreed between the Parties.59
Comments:
The award illustrates a quite common practice in relation to FIDIC contracts: as they are
so well known in the construction industry, they are often incorporated by reference into
parties’ contracts, subject to specific agreements of the parties in relation to the contents
of Part II, without actually being incorporated physically into a contract or set of contract
documents.
Issue 2: Is a one-year time bar on liability included in a FIDIC White Book contract
valid under German law?
Relevant FIDIC Clause: 17 of the FIDIC White Book (Second Edition).
The majority of the tribunal considered whether the one-year limitation period in
Clause 17 was valid under German law and thus barred the Claimant/Client’s claim. The
majority concluded that the Claimant/Client’s claim was time-barred:
[Respondent] undertook to deliver a work result to [Claimant]. [Respondent] had to
perform the Tender Design calculations and deliver them to [Claimant] before 30 June
1995. The Arbitrators have therefore qualified the FIDIC Agreement as agreed by the
Parties as a works contract [under German law].
The Arbitrators have not found that the limitation period agreed by the Parties should be
void according to German law. A reduction of the statutory limitation period is permissible
according to § 225 sent. 2 BGB. The reduction of the limitation period was proposed by
[Respondent] and was accepted by [Claimant] as is evidenced by the Annex to the letter of
13 June 1995. The reduction has thus been agreed between two business parties. The
reduction of the period of limitation agreed by two business parties with equal bargaining
58
59
power cannot be deemed unreasonable or create an unreasonable imbalance between the

parties.
The reduction does also not contravene the principles of § 9 of the AGBG [60], since the
AGBG is not applicable. The insertions in Part II have to be specifically drafted by the
parties for each individual contract. The provisions of Part II have no meaning unless their
details are entered into the blanks by the Parties. The insertion in respect of the reduction
of the period of limitation is therefore no preformulated general condition but a specific
provision, which has been individually agreed upon by the Parties.
[Claimant]’s claim was thus time barred before the request for Arbitration was filed to the
ICC and the claim is therefore not recoverable.61
Comments:
The case illustrates that even comparatively short (1 year) time-bars may be valid though
it is unusual for them to commence as from the beginning of services, as was the case
here.
IV. Non-FIDIC construction contract issue: allocation

of costs in construction arbitrations
As international construction disputes are often factually and/or technically complex,

involving voluminous documents and expert evidence, the amount of arbitration costs
(actual or anticipated) can weigh heavily on a party’s decision whether to arbitrate and
on how such disputes are resolved. Accordingly, although not involving FIDIC contracts,
the following two awards are of interest as they relate to use of special arrangements for
the allocation or payment of legal fees and expenses in construction arbitrations. In this
author’s view, the use of a so-called ‘Calderbank offer’ (see Case No. 11499), especially,
should be much better known and more widely resorted to in international arbitrations
than is the case today.
A. Conditional fee arrangement—Final Award in Case No. 11813
The award was issued in October 2005 and the place of arbitration was London, UK.
Under Article 31 of the ICC Rules, a final award must fix the costs of the arbitration and
decide how they are to be allocated between the parties. How should an arbitral tribunal
deal with an award of costs when there is a conditional fee arrangement, i.e. where one
party’s lawyer is to be paid based on a success or contingency fee, that is, a fee for
lawyer’s services the payment of which is dependent, in whole or in part, upon whether
there is a favorable result, as defined?
This was an issue in a case involving two German Claimants/Contractors who had entered
into a construction contract with an Egyptian Respondent/Employer for the design,
supply and erection of certain works in Egypt. Disputes arose between the parties and
the resolution of certain of these was the subject of a partial award. One of the issues in
the final award was whether and, if so, how the Claimants/Contractor could recover for a
success or contingency fee paid or payable to their counsel.
60
Allgemeines Bürgerliches Gesetzbuch (the Austrian Civil
Code).
61
Extracts, pages 96-97, section 6.3.3.
This issue was addressed by the arbitral tribunal, which (as mentioned above) was sitting
in London, as follows:
83. . . . the Tribunal is not persuaded that it would be appropriate to require [Respondent]
to bear the costs of a success fee when [First Claimant] did not disclose the existence of
the Conditional Fee Agreement to [Respondent]. [First Claimant]’s claimed expectation
that the arbitration would be heard in Paris and subject to French procedural law is not
relevant. As made plain in the Second Partial Award (at paragraph 12), the seat of the
arbitration is London, England. This was obvious from a very early date in the proceedings
and whatever initial expectations [First Claimant] may have had, it knew from this date
forward that England would be the seat of the arbitration and that the Arbitration Act 1996
and other relevant English lex arbitri would apply.
84. Under English law, a successful party cannot recover a success fee from the other side
unless the other side was notified (in a timely fashion) of the existence of that agreement.
The rationale for the English law rule is that the other side should be made aware of this
additional risk of continuing to litigate if it is to be held liable to pay the success fee.
According to English legislation, therefore, conditional fee agreements which do not satisfy
the requirements of the principal and subordinate legislation (e.g., the requirement to
notify the other party of the existence of such an arrangement) are not considered lawful
and are thus unenforceable.
85. It is true that the foregoing rule is applicable, by its terms, in English litigation and not
necessarily in international arbitrations sited in England. Nonetheless, just as the English
rule that ‘costs follow the event’ applies generally in international arbitration sited in
London, so the general approach towards conditional fee arrangements should also inform
the allocation of costs in international arbitration. That is particularly true where the
substance of the rule (e.g., parties should be aware of unusual fee arrangements, for which
costs might be claimed, before they can be liable pursuant to such arrangements) applies
in international arbitration as well as in domestic litigation.
86. It is undisputed that the CFA was not disclosed to [Respondent] by [First Claimant]. For
this reason as well, the Tribunal would disallow the success fee sought by [First Claimant].62
Comments:
Consequently, despite Article 15 of the ICC Rules (providing for the autonomy of arbitral
procedure from the rules of procedure of any national law, including that of the place of
arbitration), a party always needs to be attentive to the procedural law at the place of
arbitration, especially perhaps if the place is London (the assumption by the tribunal that
the English ‘costs follow the event’ rule applies to the allocation of costs between the
parties where London is the place of arbitration should be noted). It follows from this
award that, when an international arbitration is taking place in London, a party with a
conditional fee agreement with its lawyer or law firm needs to disclose that agreement if
it wants to be able to recover the success fee from the other party. In addition, as such
disclosure would seem to be fair and reasonable in any event (the other side should be
made aware of this additional risk of continuing to arbitrate if it is to be held liable to pay
the additional amount represented by the success fee), it could be expected that the
same principle should be applied in international arbitration generally, whatever the
place of arbitration.
62
B. ‘Calderbank offer’ (or ‘sealed offer’)—Final Award in Case No. 11499
The award was issued in March 2003 and the place of arbitration was Wellington, New
Zealand.63
The final award in this case on costs included discussion of whether an offer to settle
made by the Respondent/Employer prior to the arbitration constituted a ‘Calderbank
offer’, which calls for a brief explanation of the meaning of such an offer.
In ICC arbitrations, as under civil procedure in England, reasonable legal fees and
expenses are typically awarded to the successful party, however ‘success’ may be defined
for the purposes of any given case. Quite often, in construction cases, legal fees and
expenses can come to represent a high proportion of the amount in dispute.
Consequently, a respondent’s exposure to liability for the claimant’s legal fees and
expenses can be an important factor for a respondent to take into account in assessing
whether to proceed or continue with an international construction arbitration.64
The so-called ‘Calderbank offer’ is a written offer to settle a dispute referred to

arbitration or litigation made by one of the parties to the other, ‘without prejudice save
as to costs’. The effect of the offer is that should the other party reject it and
subsequently fail to obtain a more favourable award by continuing the proceedings, an
arbitral tribunal familiar with such a procedure should award reasonable legal fees and
expenses after the time the offer expired (or was rejected) to the party that had made
the offer. The justification for this solution is that, had the offer been accepted when it
was made, such legal fees and expenses could have been avoided.65
The Calderbank offer can therefore be a useful procedure for respondents66 as, in
addition to potentially limiting their liability for future legal fees and expenses, it can be
an incentive for the offeree (the claimant) to settle a dispute or case if a reasonable offer
is made. When the Calderbank offer results in a settlement between parties, no award is
usually issued and the case is therefore not reported.
In Case No. 11499, the Respondent/Employer argued that it had issued a Calderbank
offer after the date of Practical Completion and before the arbitration had been
commenced:
At the time when the Claimant [the Contractor] had first presented its claim to the
Respondent [the Employer] in an organized way, after the date of Practical Completion and
before the arbitration had been commenced, it rejected an offer made by the Respondent
to settle, made without prejudice save as to costs . . .67
The Claimant/Contractor argued that the Respondent/Employer’s offer was not a true
Calderbank offer.68 The tribunal agreed, for the following reasons:
63
See Section II.B above (which relates to the partial award in (2007) 10 International Arbitration Law Review 38 for a further
the same ICC case) for a summary of facts. explanation of the Calderbank offer.
64 66
Similarly, if the respondent submits a counterclaim, a claimant As well as claimants when they are subject to a counterclaim.
can find itself in a comparable position to that of a 67
respondent with possibly a similar incentive to issue a Extracts, page 103, paragraph 4.2(b).
Calderbank offer.
68
65
Extracts, page 103, paragraph 5.2.
See P. Anjomshoaa, ‘Costs Awards in International Arbitration
and the Use of “Sealed Offers” to Limit Liability for Costs’
(1) the offer was made and withdrawn before completion and two years before any
arbitration had begun; and
(2) it did not coincide with the claim that was ultimately brought in arbitration.
The tribunal also commented, as follows:

7.2 . . . legal authorities cited by the Claimant show:
(a) An offer to settle must be unambiguous and clear;
(b) The offeree must be given reasonable time and opportunity to assess the relative
strengths and weaknesses of the other party’s case;
(c) The fact that an unsuccessful party failed at trial does not necessarily mean it acted
unreasonably in rejecting the initial offer when it did;
(d) The fact that the initial offer was itself reasonable does not mean that it was
unreasonable to reject it at the time.69
The tribunal thus concluded that the offer should not be considered a Calderbank
offer.70
Comments:
While the Respondent/Employer was found not to have used the Calderbank offer
procedure effectively in this case, this author was involved in a case where this
procedure was used successfully on behalf of a respondent in an ICC construction
arbitration relating to a claim by an Asian subcontractor against a contractor that was an
unincorporated joint venture made up of European and Asian companies. This case has
been briefly described in a published article.71 Within three to four weeks after the
contractor had made its offer, it was accepted and the matter settled. In that case, the
seat of arbitration was London and, while the chairman of the arbitral tribunal was a civil
law lawyer, the two party-nominated arbitrators were English and the claimant was
represented in the arbitration by an English claims consultant.
While the Calderbank offer procedure is well known in England, it is not yet well known
in international construction arbitrations, as it should be, in this author’s opinion. This
makes it especially important, if such procedure is resorted to in an international case,
that the full meaning and consequences of the procedure are explained in detail in the
offer letter or document, so that all parties (including potentially the arbitrators) are
informed and the risk of argument about its purported meaning and effect reduced.72
69
Extracts, page 103, paragraph 7.2.
70
71
P. Anjomshoaa, supra note 65.
72
For an example of where a Calderbank offer letter was
insufficiently explicit and therefore failed in its intention in an
international arbitration, see J. Wood, ‘Protection Against
Adverse Costs’ Awards in International Arbitration’ (2008) 74
Arbitration: the Journal of the Chartered Institute of Arbitrators
139.

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International Construction Contract

II. FIDIC Civil Engineering Conditions of Contract

A. Second Edition (1969)—Partial Award in ICC Case No. 9202 (Award

Relevant FIDIC Clauses: 1, 60, 67 and 69.

The Respondent/Employer, an African State entity, had entered into a construction

The tribunal’s consideration of these issues is discussed below.

Issue 1: Is the Claimant/Contractor’s Request for Arbitration admissible under

Relevant FIDIC Clauses: 1 and 67.

The Respondent/Employer raised two objections to the admissibility of the Claimant/

‘. . . your above-referenced letter relating to indemnification (on account) of contract

This letter continues as follows:

dispute be referred to arbitration’ within such second period of 90 days, arbitral

Issue 2: Is the contract, which is written in English, ‘absolutely void’ because it

No relevant FIDIC Clause.

The Respondent/Employer argued that the construction contract was an ‘administrative

The tribunal also noted that:

This is important to note as construction contracts incorporating FIDIC conditions are

Relevant FIDIC Clauses: 60, 67 and 69.

The tribunal then continued as follows:

In any administrative contract, the absence of an automatic termination clause means, as

B. Third Edition (1977)—Partial Award in ICC Case No. 11499

Relevant FIDIC Clauses: 11, 12 and 65.

The Claimant/Contractor, a New Zealand company, and Respondent/Employer, an Asian

The partial award considered:

(1) whether unforeseeable physical conditions encountered by the Claimant/Contractor

(2) whether interferences by an indigenous group of landowners with the Claimant/

Issue 1: Can the conditions encountered by the Claimant/Contractor in the

Relevant FIDIC Clauses: 11 and 12.

The Claimant/Contractor maintained that it had encountered an unforeseeable physical

The tribunal’s partial award provides, in part, as follows:

Issue 2: Do alleged interferences by an indigenous group of landowners with the

Relevant FIDIC Clause: 65.

The Claimant/Contractor submitted a claim for alleged landowner interference and

C. Fourth Edition (1987)

1. ICC Case No. 10619

An Italian Claimant/Contractor entered into contracts with a public authority in an African

The place of arbitration was Paris, France.

Relevant FIDIC Clause: 67.

The interim award was issued in March 2001.

The Claimant/Contractor requested immediate enforcement, by way of an interim award

The tribunal stated as follows:

Relevant FIDIC Clauses: 11 and 67.

The final award was issued in April 2002.

(1) whether the Respondent/Employer could rely on a notice of intention to commence

Issue 1: Can the Respondent/Employer rely on a notice of intention to commence

Relevant FIDIC Clause: 67.

Relevant FIDIC Clause: 11.

2. Final Award in ICC Case No. 10892

Relevant FIDIC Clauses: 1.1, 39 and 63.

The Respondent/Employer terminated the construction contract on account of the

Relevant FIDIC Clause: 1.1 (of Parts I and II).

An Employer may sometimes be reluctant to delegate power to administer a

Issue 2: Did the Respondent/Employer validly terminate the Contract under

Relevant FIDIC Clauses: 39 and 63.