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Construction Arbitration

Last verified on Tuesday 20th June 2017

Germany

Michael J R Kremer and Jan Conrady

    Legal system

  1. 1.

    Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

    1. As a civil law jurisdiction, Germany's laws have often been used as a template for other jurisdictions (eg, the German Civil Code). Instruments of legal effect are both federal and state laws as well as numerous regulations that specify and enforce superseding laws. The main lawmaking bodies on federal level are the German Bundestag, the Federal Parliament, as well as the German Bundesrat, the Federal Council. On a state level, the Landtag, the state parliament, may also enact laws. New federal laws are published in the Federal Law Gazette. With few exceptions, laws may not be passed and enacted with retroactive effect.

    Contract formation

  2. 2.

    What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

    1. The formation of a construction contract requires – as with any other contract under German law – the exchange of an offer and corresponding acceptance of both contract parties. Both must contain the essentialia negotii of the construction contract (ie, a specification/description of the services/scope of supply to be rendered and the contract price to be paid in consideration thereof). A "letter of intent" has not the effect of a "pre-contract" and therefore does not have contractual effect. If binding, though (ie, if the parties declare to be bound by their agreement on certain terms to be entered into the main contract), the ‘letter of intent’ increases the parties’ duty of "fair dealing"/ fair negotiation, which may expose them to liability if the negotiations are subsequently stopped abruptly and without reason.

    Choice of laws, seat, arbitrator and language

  3. 3.

    Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

    1. The parties to a construction contract are free to choose the governing law, choice of dispute resolution, its terms and language, as well as the arbitrators adjudicating the case. Parties may not derogate from any mandatory rules applicable, both in regard of substantive laws as well as procedural rules. Should the parties agree to deviate from such mandatory rules, such agreement is void in regard of such exclusion, but remains intact otherwise.

    Implied terms

  4. 4.

    How might terms be implied into construction contracts? What terms might be implied?

    1. Terms may be implied by either express agreement (written or orally) or by conduct of the parties expressing the intention to be bound by certain terms. The parties are free to include and imply into their construction contract any term they deem necessary. If no express agreement is made on certain aspects of the construction contract, such terms are supplemented by the framework of the section 631 et seq. of the German Civil Code (ie, the terms of standard construction contracts). Nonetheless, it is standard practice that the construction contract addresses all relevant issues expressively. In fact, implied terms are often explicitly excluded in order to avoid ambiguity.

    Certifiers

  5. 5.

    When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

    1. A certifier under the construction contract is obligated to act impartially, fairly and honestly. Such obligation derives from its mandate/contract with the parties and – depending on the nature of the certifier – from its administrative duties deriving from his or her official role as (state certified) certifier. The parties are generally not bound by certificates, but may have them reviewed under the construction contract’s dispute resolution regime. If a certifier's determination is to have binding effect, the parties must agree so explicitly or appoint the certifier to act as "arbitrator expert". Claims may be brought against the certifier him or herself outside of the contract by both the contractor and the employer as obligations and duties of care are created through the mandate to certify certain facts in connection with the construction contract.

    Competing causes of delay

  6. 6.

    If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

    1. A prerequisite for an extension of time for an event caused by the employer requires a culpable fault on part of the employer as well as a causal link between the event and the delay suffered by the contractor him or herself. If additional facts and causes attribute to the delay as well, such causes may oppose the contractor’s entitlement to an extension of time. This is particularly the case if the additional facts are caused by the contractor himself. A delay-related claim for an extension of time requires always that the contractor is in line with his or her contractual obligations as it would be against the principles of good faith to seek an extension of time if the delay had been caused by the contractor’s own fault parallel to the culpable delay of the employer. Therefore, the contractor has to be ready to perform and fulfil his or her own contractual obligations.

    Disruption

  7. 7.

    How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

    1. A "disruption claim" constitutes a specific category of a breach of contract claim of the contractor. The contractor thus must show (i) a particular event, (ii) caused by the employer (iii) owing to a culpable fault of the employer, (iv) which had a direct impact on the works, the work schedule or costs of the contractor. It is the contractor’s obligation to substantiate, specify and prove the losses suffered as a consequence of the disruption. A court or arbitral tribunal may estimate the suffered losses or damages only where sufficient details and facts have been pleaded and shown by the contractor that would allow the court or arbitral tribunal to make a fair and founded estimate. Where even such facts concerning quantum are lacking or uncertain, the court or arbitral tribunal may not proceed to estimate the damages. In order to show sufficient ground for an estimate, the contractor would have to show, for example, general cost structures, effects and delays on the works, cost per day of equipment or manpower, etc. Especially in turnkey contract setups, the contractor is likely to face a high threshold of substantiation and burden of proof to establish a basis that would allow the court or arbitral tribunal to estimate the suffered losses. In such cases contractor's internal calculation of the project may give the necessary information. However, a contractor will be reluctant to reveal the internal calculation.

    Acceleration

  8. 8.

    How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

    1. Generally, the contractor has the stark choice to make between whether to hope that he or she can prove the extension of time or whether he or she should accept the (temporary) default and take steps to mitigate the damages. The contractor must show the general prerequisites of an extension of time claim (ie, an event not caused by the contractor him or herself that caused a delay of the works schedule of the contractor). If the contractor ‘accepted’ fault temporarily, the contractor must also show that the steps it took to mitigate the delay were necessary and reasonable and how those costs incurred in connection are to be specified and quantified. If the employer acted unreasonably, a court or arbitral tribunal could ease the level of burden of substantiation on part of the contractor or even apply a shift of burden of proof in the event of bad faith on part of the employer. Generally, though, a construction acceleration claim presents significant legal difficulties, due to which a disruption claim for the same facts may be more probable.

    Force majeure and hardship

  9. 9.

    What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

    1. As a general rule, force majeure events are only "external" events by elemental forces or actions of third parties that are unforeseeable to both parties and cannot be prevented with reasonable means or under utmost care of either party and which must not be accepted by either party because of their effect and unpredictability. Despite such "definition", there is no enumeration of events that qualify as a force majeure event. A contract must therefore contain an explicit list of events that shall qualify as force majeure. While force majeure clauses may contain "umbrella clauses" to extend the list of majeure events to "events of similar effect", such broadening of force majeure clauses is typically not valid. In fact, the contract's risk allocation structure may limit the interpretation of what events qualify as force majeure. Force majeure events need not be permanent but of effect long enough to affect the performance of the contract of one party in whole or part. As the concept of force majeure must be explicitly included into the contract, so must its legal consequences. Consequences due to a force majeure event may only apply "automatically" or where such force majeure event and its consequences may reach the gravity of a potential frustration of the contract in which case the contract’s terms may be adapted according to section 313 of the German Civil Code.

  10. 10.

    When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

    1. As for the increasing costs of the construction and the potential entitlement of the contractor, there must be a distinction between the primary costs of construction and the costs of remediation of defects.

      As for the construction costs itself, a contractor may not generally seek relief if the contract price was determined on a lump sum or turnkey basis unless certain, openly discussed and agreed assumptions as to the determination of the lump sum price were made. Otherwise, the contractor may seek adjustment of the contract price only where the balance between contract performance and consideration has been shifted to an extent where the contract’s purpose is frustrated. Under section 313 of the German Civil Code, the contractor may seek adjustment of the contract price if unforeseen events that are not in a sphere of either party have affected to the contract and its performance to such extent where either party would reasonably request for a contract adjustment.

      As for the costs of defect remediation, the German Civil Court generally foresees that a contractor may refuse remediation of defects where such costs are unreasonably high compared to the extent or effect of the respective defect. Such clause or principle, though, may be excluded by the parties, in which case the contractor undertakes an unlimited obligation to remedy defects irrespective of the costs. Also, per standing case law, it does not apply to the remediation of defects of key components, ie, those works that constitute the essential part of the contractor's scope of work.

    Impossibility

  11. 11.

    When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

    1. If it is impossible for the contractor to fulfil a certain obligation under the contract, the contractor is ‘freed’ from performing such obligation as per section 275 of the German Civil Code irrespective of the reason. However, if such impossibility is accompanied by a default of the contractor, the employer may be entitled to damages. If performance of the obligation is impossible for reasons other than a fault of the contractor, the contractor is excused from its performance, as is the employer from the corresponding consideration, in general payment of the respective contract price. The employer may also – depending on the nature of the obligation that has become impossible – withdraw from the contract. Notwithstanding the aforementioned, if the performance is impossible for reasons attributable to the employer, the employer remains obligated to pay the respective contract price.

    Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  12. 12.

    How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

    1. The parties to the construction contract are generally free to allocate certain risks to either party. This is  particularly true for force majeure events. The contractor may also assume liability for even unforeseeable ground conditions as well as the documentation provided by the employer. Such assumption of risk and liability, though, may be void and overturned where the employer has withheld information and knowingly shifted risks to the contractor. Hence, the allocation of risks finds limits in the parties’ obligation to negotiate in good faith.

    Duty to warn

  13. 13.

    When must the contractor warn the employer of an error in a design provided by the employer?

    1. Even if the employer has assumed the responsibility for the project’s design, the contractor has an obligation to inform the employer of defects in the design. While there is no contractual obligation to ‘double-check’ the design of the employer, a secondary obligation exists to notify the employer if and as soon as the contractor becomes aware of any errors in the design. Should the contractor fail to raise such concerns and point out errors in the design if such errors have been identified by the contractor, the contractor may later on be precluded from seeking compensation for additional costs for redesign or delay in the works due to that very error in the design.

    Good faith

  14. 14.

    Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

    1. A general duty of good faith is contained in section 242 of the German Civil Code according to which each party has to perform their obligations and enforce their rights under the respective contract in good faith, taking into consideration customary practice as well as the other party’s rights, obligations and interests. The duty of good faith therefore affects the execution of all rights under a contract. A contractor may not claim any intervention in the works by the employer as a “disruption” or “hindrance” as a consequence of such duty of good faith. On the other hand, a party may not seek termination or suspension of the contract for reasons that would formally entitle the party to suspension or termination but that may be unreasonable as to the gravity of the underlying reasons. This is particularly true with regard to the termination for cause. Hence, contracts usually specify such reason. Notwithstanding the aforementioned, under section 649 of the German Civil Code, the employer is entitled to terminate a contract without any reason, but remains obligated to pay the contract price (minus costs saved by the contractor in regard of the terminated part).

      Under such general duty of good faith, a party may be obligated to “accept” certain facts or refrain from the execution of contract rights. The principal of good faith is also used as a control mechanism from pre-agreed sums/liquidated damages. Where such amounts are unreasonably high, the employer may be barred from claiming such damages or they may be reduced to a more reasonable level.

    Time bars

  15. 15.

    How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

    1. The parties are free to raise claims outside the express terms of the construction contract unless the contract explicitly limits recourse and claims to those entitlements explicitly listed in the construction contract. If the contract provides for a notification regime, failure to notify a claim within such regime will – as a general rule – preclude the claim from being pursued. Nonetheless, depending on the notification requirements, its formalities or the extend of failing to comply with it, such failure may be overcome especially in light of the "good faith principles". A party materially in default may, for example, be barred from relying on the objection that a default was notified to late or formally incorrect. This may be the case if employer is aware of the circumstances that would have justified such notification. 

    Suspension

  16. 16.

    What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

    1. Under section 320 of the German Civil Code, either party may suspend the performance of its own obligations, payment or performance if the other party has failed to perform its corresponding reciprocal obligation under the contract. Such right can and is typically excluded by the parties. The reason for such exclusion is that the aforementioned objection in accordance with section 320 of the German Civil Code will lead to further delays in the execution of the construction project and – as a result – the financial risk due to such delay increases.

    Omissions and termination for convenience

  17. 17.

    May the employer exercise an express power to omit work; or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

    1. As per section 649 of the German Civil Code, an employer is entitled – at any time – to terminate the contract for convenience. In return, the contractor is entitled to request payment of the agreed remuneration, which includes loss of profits. However, those costs ‘saved’ as a consequence of the termination are to be deducted from the contractor's payment claim. Such entitlement to a termination for convenience may be excluded by the parties. The reason for such exclusion is that the aforementioned objection in accordance with section 320 of the German Civil Code will lead to further delays in the execution of the construction project and – as a result – the financial risk due to such delay increases.

    Termination

  18. 18.

    What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

    1. A contract may be terminated for various reasons and with different effect. Generally, each termination requires a fault/default of the other part as far as the parties have excluded the employer's right to terminate for convenience. Usual reasons for termination may be breach of contract or delay. The contract may be terminated in full or parts. Partial terminations usually create the issue of interface problems due to the fact that the scope of works that had been terminated must be performed by another party. On the financial side, a partial termination causes the issue of identifying the corresponding consideration connected to the terminated scope of the works. Especially if the contract price has been determined on a lump sum basis without a detailed breakdown or calculation basis, the financial effect of such partial termination may be difficult. In general, if a contract or contract part is terminated for cause, the party in default is not entitled to compensation of the terminated scope of the works. The party may be entitled, though, to compensation for the construction works rendered up to the points of termination.

  19. 19.

    If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

    1. If not explicitly agreed, the construction contract and the remedies provided therein are not exhaustive. A party may therefore also terminate the contract for reasons other than stated explicitly in the contract. As the consequences do not differ with respect to a termination for cause, it makes no difference if the contract is terminated for other reasons than those explicitly listed. The employer may terminate the contract for convenience, in which case the consequences are as described in question 17.

  20. 20.

    What limits apply to exercising termination rights?

    1. If not limited by the contract terms (such as notice period, etc), the exercise of termination rights is limited by the principle of good faith. If a party has continued with the performance of the contract despite a default or breach of contract by the other party that would otherwise entitle it to terminate the contract, the entitled party may have forfeited its right to terminate later on. Also, a party may be barred from terminating the contract if such exercise would be unreasonable and insisting on such right would be against the principal of good faith.

    Completion

  21. 21.

    Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

    1. The principle of deemed acceptance exists under German law. If the employer refuses to accept the works even though he would be obligated to do so (if the works are in fact free of defects and materially completed), acceptance is deemed to have taken place. Deemed acceptance is also assumed where the employer takes possession of the works and especially starts using the works as per their intended purpose. The principle of deemed acceptance may be excluded/derogated by the parties by explicit agreement.

  22. 22.

    Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

    1. Acceptance means acceptance of the works as 'materially in conformity' with the contract's terms and specifications. Some remaining works may have to be completed and some defects may exist, but altogether the execution of the works meets the requirements of the contract. Acceptance triggers the beginning of the defects liability period and therefore bars the employer to claim further performance of the primary construction obligations of the contractor. The employer may therefore pursue warranty rights after acceptance. If the employer is aware of a defect at the time of acceptance, the employer must make an explicit reservation as to such defects in order to request remedy of such defects after acceptance. Without such reservation, such defects are deemed accepted as well as recourse in that regard is forfeited. The taking over of the works may also constitute acceptance if taking over means operation of the works as per its intended purpose. In such case, the same reservation the same consequences apply as for a formal acceptance.

    Liquidated damages and similar pre-agreed sums ('liquidated damages')

  23. 23.

    To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

    1. Liquidated damages under German law do not exclude recovery of additional damages. A provision of liquidated damages is an exhausted remedy only if so explicitly foreseen in the contract. Therefore, the contractor’s wilful or gross negligent actions have no impact on the availability of additional damages or recourse in that sense. If, on the other hand, the contract foresees for a limitation of liability or the exclusion of additional damages, such limitation is void and thus lifted if the contractor has caused such delay or breach of contract by intentional actions or gross negligence. Intentional/wilful misconduct requires a breach of contact or loss in knowledge and with intention thereof to the detriment of the contract party. Gross negligence, on the other hand, requires an obvious omission of standard of care that any party should reasonably obey otherwise.

  24. 24.

    If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

    1. Liquidated damages are solely a pre-estimate of the damages caused as a consequence of the delay. With a delay or default being a prerequisite to a claim for liquidated damages, the prerequisites of such default thus have to be met. Hence, a delay must have been caused as a consequence of a default of the contractor. If the employer has contributed or caused solely such delay, the employer is not entitled to claim liquidated damages as there would be no fault or default on part of the contractor.

  25. 25.

    When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

    1. A court or arbitral tribunal may adjust liquidated damages or the amount of a contract penalty if deemed too high. As for the determination of liquidated damages, such liquidated damages can be reduced only if deemed general terms and conditions in which case German case law established a bandwidth (ie, a percentage of the contract price) in which liquidated damages that are deemed reasonable and fair. If the contract provided for liquidated damages in access of such bandwidth, the court or arbitral tribunal may hold that the respective clause is void. If the rules on general terms and conditions do not apply, the court or arbitral tribunal may reduce liquidated damages if the contractor shows that fewer damages were in fact incurred by the employer. As for a contract penalty, the court or arbitral tribunal may adjust such penalty under section 242 of the German Civil Code taking into account the nature of the respective obligation, the interest of the employer in timely fulfilment as well as the financial impact. Such option is applied with restriction among commercial entities. In construction disputes, a court or arbitral tribunal may reduce the contract penalty under a "good faith" agreement.

  26. 26.

    When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

    1. Liquidated damages are only a pre-estimate of damages incurred by one party in the event of a default or delay. The party may claim damages in access of the pre-estimate – unless excluded in the contract – but bears the burden of proof of such additional damages. Also, recourse to the recovery of additional damages is only open where the contract does not provide the liquidated damages to be exhaustive remedy.

    Assessing damages and limitations and exclusions of liability

  27. 27.

    How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

    1. The compensation for a breach of contract is accessed by comparing the work’s state or financial situation without the breach of contract to the work’s state and financial situation of the contract partner after the breach of contract. This difference is to be compensated by the party in breach. The employer may also recover compensation for lost profits, loss of operation, etc, irrespective of the extent and amount of such lost profits. For that particular reason, it is standard practice that recovery of lost profits, loss of production, etc, is explicitly excluded.

  28. 28.

    If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

    1. As per section 635 paragraph 3 of the German Civil Code, a contractor may refuse to remedy a defect if the costs are disproportionate to the defect and the benefit of the remedy. The parties may exclude application of that clause and therefore impose stricter thus more costly obligations on the contractor with respect to defects in the works. It must be noted, though, that this limitation to remedy does not apply to the 'key parts' of the contractual scope of work. It must be noted, though, that this limitation to remedy does not apply to the 'key parts' of the contractual scope of work.

  29. 29.

    If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

    1. Unless warranty claims have been detected and notified by the employer prior to the end of the defects notification period, such claims are barred and recourse excluded after the end of the defects notification period. There is no extended defects notification period (eg, for ‘latent defects’) under the German Civil Code. However, construction contracts often foresee that the DNP shall be prolonged with respect to the rectified or replaced part of the works.

  30. 30.

    What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

    1. The German law does not differentiate between "direct losses" and "indirect or consequential losses". Therefore, an exclusion of "indirect or consequential losses" by itself has no limiting effect on liability of one of the parties. Instead, an additional definition of what should constitute "indirect or consequential losses" must be included in the respective clause. For that reason, the reference to "indirect or consequential losses" is always accompanied by an enumeration of, for example, lost profits, loss of production, loss of contracts etc, in order to effect the purpose of the limitation of liability.

  31. 31.

    Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

    1. The parties’ limitation of liability is usually effective for both contractual and tort claims. Excluded from such limitation of liability, though, are any injuries and bodily harm caused to third parties as well as any breach of contract or tort that is caused wilful/intentional misconduct or fraud. In such cases, the limitation of liability is voided resulting in full liability of the respective contract party. As per section 276 paragraph 3 of the German Civil Code, the liability for intentional and wilful misconduct (including fraud) cannot be excluded in any case even if the contract is silent in that regard. In the same context, section 639 German Civil Code provides – as a subcategory of "wilful misconduct", that a limitation of warranty is voided if the contractor has intentionally defrauded or kept from the employer certain defects in the works.

    Liens

  32. 32.

    What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

    1. As per section 648 of the German Civil Code, a contractor may demand for collateral of its remuneration claims under the contract that a lien is put in place for the works. Such lien is granted by way or mortgage on the property. If later on, a title for the remuneration claim is obtained, for example by means of a judgment, the contractor may enforce the mortgage and collect any proceeds produced through auction of the property for satisfaction of its remuneration claims.

    Subcontractors

  33. 33.

    How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

    1. Current case law of the courts of appeals hold that pay-when-paid clauses are considered general terms of conditions and deemed to be unilaterally to the detriment of the party seeking payment. A contractor or subcontractor respectively may thus seek payment from its employer or contractor respectively even if the payment on the level ‘above’ was not yet received or effected. The courts reason that a party must not perform its obligations but be requested to wait to receive consideration due to delays or other reasons in a contract separate from its own.

  34. 34.

    May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

    1. A subcontractor may generally not claim compensation from the employer if the subcontractor seeks payments due to the subcontractor from the contractor. Each claim must be raised within its respective contract relation. This changes where the contractor may assign to the subcontractor its own compensation the contractor has against the employer.

  35. 35.

    May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

    1. All disputes must be arbitrated or litigated within the terms of the respective agreements. Hence, an employer must resolve any dispute with its contractor through arbitration even if the underlying dispute between the contractor and the subcontractor is not subject to an arbitration agreement. While the employer and the contractor therefore may not include, by third party notice, the subcontractor into the arbitration the contractor on the other hand cannot force the employer to derogate from the arbitration agreement in order to litigate the overall dispute amongst the three parties in court.

    Third parties

  36. 36.

    May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

    1. Generally, the contract rights are only between the contract parties. The employer may assign part or all rights to third parties, for example in connection with financing documents as a collateral. In such case, claims are assigned to the extent they would arise in the person of the employer. A contractor may raise the same defences as it could raise against the employer, such as the issue of limitation of liability or lack of default etc.

  37. 37.

    How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

    1. Unless individual assurances are given by the affiliates, directors or employees that would amount to an individual and separate contractual obligation towards the other party, such affiliates, directors and employees will only be liable under quasi-contractual terms or tort. If an individual contract is concluded by means of an implied contract, the limitation of liability of the main contract would not automatically apply to such new contract. Also, the limitation of liability is not carried over to tort claims that are separate from the main construction contract.

    Limitation and prescription periods

  38. 38.

    What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

    1. The key limitation period which applies for money, remuneration or damages is three years (section 195 of the German Civil Code), a period that runs from the end of the year in which a claim has arisen. For warranty claims, section 634a of the German Civil Code provides for a staggered warranty/prescription period of two and five years depending on the scope of the construction works. The parties may deviate from such prescription periods, which is usually done in construction contracts at least with respect to those construction works not pertaining to buildings. A shortening of the prescription period for works on and in connection with buildings are usually not reduced as such defects are typically shown only after a longer period of time. Limitation and prescription periods are rules of the substantive law. Nonetheless, the issue of statute of limitation is only considered by the court or arbitral tribunal upon a corresponding objection or plea of a party.

    Other key laws

  39. 39.

    What laws apply which cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

    1. Not applicable.

  40. 40.

    What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

    1. Not applicable.

    Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  41. 41.

    For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

    1. If not finally binding, a DAB decision for payment will not be enforced by the arbitration tribunal nor may enforcement be sought by interim relief from a court. Interim decisions are not subject to enforcement. A party’s failure to satisfy a binding DAB decision may constitute a new breach of contract entitling the other party to additional damages, which are typically of higher interest on amounts due. Nonetheless, such breach of contract would have to be determined by means of the arbitration proceedings. Interim relief is not available as the grant of payment under an interim order would constitute a, even though preliminary, decision on the merits which may not be rendered through interim relief.

    Courts and arbitral tribunals

  42. 42.

    Does your jurisdiction have courts or judges specialising in construction and arbitration?

    1. Most district courts have assigned special jurisdiction over construction disputes to special chambers within the respective court system. Any issues arising out of arbitration that are later on litigated in front of a court are assigned to specific jurisdiction of the court of appeals at the place of arbitration. There, a specific chamber of the court of appeals specialising in arbitration matters will review the questions at hand.

  43. 43.

    What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

    1. The relevant levels of court for construction matters are the district court, the court of appeals and the federal High Court. If the respective district court has a specific chamber dealing with construction matters, the dispute will be held before such chamber. The same is true for the appeal. The federal high court also holds a specific chamber reviewing questions related to construction issues. As for arbitration matters being litigated, any review of arbitration awards or interim decisions by an arbitral tribunal will be reviewed by the court of appeals. Their decisions may be reviewed by the federal High Court.

      Decisions are published in the relevant periodicals. A doctrine of binding precedent applies in that sense that courts are bound by the rulings of the federal high court. Nonetheless, if a court finds reason to distinguish the facts from such precedent or if the economic cornerstones have changed in the view of a lower court, such court may deviate from existing precedent.

  44. 44.

    In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

    1. A judge or arbitrator may raise legal issues other than those presented by the parties if relevant to the dispute. A judge may not undertake its own investigation into the facts, but may require the parties to plead additional facts if certain facts have not been substantiated fully yet. An arbitral tribunal may be empowered by the parties, upon explicit agreement, to investigate the facts on its own notion and in addition to those facts pleaded by the parties. It is common practice that a judge or arbitral tribunal will discuss with the parties during the oral hearing its preliminary views on certain facts and legal consequences resulting thereof both in order to either facilitate a settlement of the dispute or expedite the further proceedings by stressing key points (both factual and legal) that need to be followed up.

  45. 45.

    If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

    1. If parallel disputes under a construction contract exist, these disputes may be arbitrated separately. This may especially be the case if the employer seeks recourse for defects while the contractor seeks payment of his remuneration. Nonetheless, such practice is the exemption as the parties typically try to avoid different decisions on facts relevant in both proceedings. If the preconditions for arbitrations are not met, the arbitral tribunal may decide whether such failure is great enough to deem the complaint as ‘without merit at this time’. The tribunal may also determine that suing a settlement process may simply constitute a formality and thus not be required if the parties are already in arbitration.

  46. 46.

    If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

    1. As per section 1041 of the German Code of Civil Procedure, interim relief both in the domestic as well as for jurisdiction remains available to either party irrespective of an arbitration clause or pending arbitration.

    Expert witnesses

  47. 47.

    In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

    1. Tribunal-appointed as well as party-appointed experts are commonly used in litigation and arbitration. While the party-appointed experts owe their duties to their respective principal only, a tribunal-appointed/court-appointed expert is considered an "assistant of the court" and therefore owes its primary duties to the court or arbitral tribunal. Nonetheless, if grave misrepresentations by the tribunal-appointed or court-appointed expert would be made, a party may be entitled to recourse for damages against this particular expert if false statements or any other breach of duties of such expert have caused damages (such as an incorrect judgment) to a party.

    State entities

  48. 48.

    Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer)?

    1. When the employer is a state entity or public authority, construction contract procedures (VOB/B) apply to the construction agreement. VOB/B is not an act nor an ordinance but rather a standard becoming part of a construction contract by simple reference without the necessity to repeat its text. The VOB/B contains specific regulations regarding compensation, execution documents, execution, execution periods, hindrance and interruption of execution, distribution of risk, termination by principal and by contractor, liability of parties, contractual penalties, acceptance of work, warranty claims, etc.

    Settlement offers

  49. 49.

    If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

    1. The parties to an arbitration are free to negotiate and agree on a settlement at any time before or during an arbitration and decide to keep such settlement separate and confidential from the arbitral tribunal. They may also provide for an agreement on the costs already incurred as a consequence of a started or pending arbitration. Costs of the arbitral tribunal, though, are to be decided once and after the arbitral tribunal has been constituted. If the settlement is reached before that time no costs of the arbitral tribunal are incurred.

    Privilege

  50. 50.

    Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

    1. The concept without prejudice is known but not applied in the sense that statements and communications made in that regard are privileged from disclosure. The parties often make such introductory statements, though, emphasise that their following statements communications may not be interpreted as a mission of fact or liability. Parties may agree on sum payable in the event that the party discloses parts of the without prejudice communications but such sums may never recover the actual damages caused by disclosure of the respective communication. Consequently, the parties are usually well aware that details discussed during such communications are either discoverable later on may be introduced by the other party irrespective of an introductory without prejudice statement.

  51. 51.

    Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

    1. In general, the correspondence of the in-house counsel within its entity is not considered ‘privileged’ as the in-house lawyer does not enjoy the same privilege as an external licensed lawyer. If the in-house counsel is admitted to the bar as well, his or her correspondence may be protected. Internal communication, though, does not fall under any privilege concept that is considered a procedural law concept.

    Guarantees

  52. 52.

    What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

    1. A guarantee (ie, a surety in the meaning of section 765 of the German Civil Code) requires a third party’s obligation to a creditor, which is secured by the terms of the guarantee. Such guaranty must be concluded in writing (section 766 of the German Civil Code). The guarantor may, unless explicitly excluded, raise those objections and defences otherwise available to a third party towards the obligation’s creditor (section 786 of the German Civil Code). The guarantor may also refuse payment under the guaranty unless recourse has been sought by the creditor against the principle debtor (section 770 of the German Civil Code). The latter defence may also be excluded in the guarantee agreement.

  53. 53.

    Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

    1. The terms and liability of the guarantee do not extend beyond the obligations of those of the underlying contract unless so explicitly foreseen.

  54. 54.

    Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

    1. A guarantee may enumerate certain reasons for which the guarantor may be released, such as expiry of a certain time by which a call would have to be made. The main reason that does not need to be stated in the guarantee is the fulfilment/end of the underlying obligation. Once no underlying obligation exists any more, the guarantee is no longer ‘connected’ to an obligation and ceases to bind the guarantor.

    On-demand bonds

  55. 55.

    If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

    1. The call on an on-demand bond may be a challenge by the way of injunctive relieve if the principle debtor or guarantor can argue that (1) by means of evident and inherent facts; (2) the calling party would ‘abuse’ its formal right under the on-demand bond; and (3) the secured event (ie, a default of the principle debtor has not occurred). The court holds the threshold to these prerequisites to a high standard in order to insure that on-demand bond can serve their purpose. An abuse of the on-demand bond must be apparent and must be made plausible with available means of evidence as the call will otherwise be granted and the principle debtor/guarantor will have to seek recourse in ordinary main court proceedings. Available of such injunctive and general recourse to the courts is available irrespective of whether the underlying contract is silent in regard under what prerequisites may be made.

  56. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

    1. One of the prerequisites for a called on-demand bond to be made is that the underlying event for which the guaranty was given (ie, a default with one of the obligations of the contractor) has occurred. If such breach of contract or default has not occurred, ‘the secured event’ for which the guarantee was given has not materialised. If the contractor can show with readily available evidence that the prerequisites of a call have not been made and that the call is made nonetheless by the employer in the awareness of not being entitled to such call, which also needs to be shown and proven by the contractor, then the court restrains a call in full or the corresponding excessive amount. In other words, even a call on the bank guarantee without merit is usually being granted as a contractor will likely not have the means and evidence to show that such meritless call is made with an attempt to abuse the former position under the guaranty.

    Further considerations

  57. 57.

    Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

    1. No.

Interested in contributing to this Know-how?

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GAR know-how provides reliable cross-jurisdictional insight to help cement the building blocks of international practice. In this section, select experienced practitioners answer commonly asked questions for key jurisdictions so allowing readers to be better-placed to solve the challenges of their working days.

Questions

    Legal system

  1. 1.

    Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?


  2. Contract formation

  3. 2.

    What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?


  4. Choice of laws, seat, arbitrator and language

  5. 3.

    Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?


  6. Implied terms

  7. 4.

    How might terms be implied into construction contracts? What terms might be implied?


  8. Certifiers

  9. 5.

    When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?


  10. Competing causes of delay

  11. 6.

    If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?


  12. Disruption

  13. 7.

    How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?


  14. Acceleration

  15. 8.

    How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?


  16. Force majeure and hardship

  17. 9.

    What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?


  18. 10.

    When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?


  19. Impossibility

  20. 11.

    When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?


  21. Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  22. 12.

    How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?


  23. Duty to warn

  24. 13.

    When must the contractor warn the employer of an error in a design provided by the employer?


  25. Good faith

  26. 14.

    Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?


  27. Time bars

  28. 15.

    How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?


  29. Suspension

  30. 16.

    What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?


  31. Omissions and termination for convenience

  32. 17.

    May the employer exercise an express power to omit work; or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?


  33. Termination

  34. 18.

    What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?


  35. 19.

    If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?


  36. 20.

    What limits apply to exercising termination rights?


  37. Completion

  38. 21.

    Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?


  39. 22.

    Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?


  40. Liquidated damages and similar pre-agreed sums ('liquidated damages')

  41. 23.

    To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?


  42. 24.

    If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?


  43. 25.

    When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?


  44. 26.

    When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?


  45. Assessing damages and limitations and exclusions of liability

  46. 27.

    How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?


  47. 28.

    If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?


  48. 29.

    If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?


  49. 30.

    What is the effect of a construction contract excluding liability for “indirect or consequential loss”?


  50. 31.

    Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?


  51. Liens

  52. 32.

    What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?


  53. Subcontractors

  54. 33.

    How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?


  55. 34.

    May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?


  56. 35.

    May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?


  57. Third parties

  58. 36.

    May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?


  59. 37.

    How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?


  60. Limitation and prescription periods

  61. 38.

    What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?


  62. Other key laws

  63. 39.

    What laws apply which cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?


  64. 40.

    What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?


  65. Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  66. 41.

    For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?


  67. Courts and arbitral tribunals

  68. 42.

    Does your jurisdiction have courts or judges specialising in construction and arbitration?


  69. 43.

    What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?


  70. 44.

    In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?


  71. 45.

    If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?


  72. 46.

    If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?


  73. Expert witnesses

  74. 47.

    In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?


  75. State entities

  76. 48.

    Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer)?


  77. Settlement offers

  78. 49.

    If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?


  79. Privilege

  80. 50.

    Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?


  81. 51.

    Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?


  82. Guarantees

  83. 52.

    What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?


  84. 53.

    Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?


  85. 54.

    Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?


  86. On-demand bonds

  87. 55.

    If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.


  88. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?


  89. Further considerations

  90. 57.

    Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?