Reflection 2 of 14 - Chapter 2 and the sources of a Claim

Introduction

Thank you, again, friends, for subscribing to my newsletter and for your interest in these ‘Reflections’. ‘Reflection 2’ (of 14) offers you a brief tour of Chapter 2 of my book.  Following ‘Reflections’ will guide you through, in ascending order, each of the other 12 chapters of the book.  

Chapter 2 introduces the reader to the ‘Claim’, not a dirty word but rather a crucial, defined term.  Generally, this is the device by which the commercial bargain between the parties is rebalanced when costly and/or delaying things happen or arise after they’ve committed to the contract price and construction period.  The Contract Price (another defined term) is, of course, just the starting position.

The FIDIC Second Editions clarify a crucial concept having substantial financial consequences for both Parties: the ‘Claim’.

The Claim

First, I consider the concept of the ‘Claim’, including what it is and what are its potential sources both generally and under the FIDIC Second Editions in particular.   Briefly, a Claim may be founded on, or limited by, something other than the Contract itself, be it the ‘common law’ or the legislation of a particular jurisdiction, or on some combination of both.  

Thus, the types of ‘Claim’ that are expressly dealt with in the Contract now include:

1. additional payment (or a reduction in the Contract Price) for a Party; 
2. an Extension of the Time for Completion (an ‘EOT’) for the Contractor; 
3. an extension of the ‘Defects Notification Period’ for the Employer; and
4. a catch-all category of any other entitlement or relief for a Party.

Entitlement

Second, Chapter 2 explores the concept of ‘entitlement’, including what an entitlement is for each Party and by reference to the pertinent sub-clauses and potential non-contractual sources of the various entitlements.  

The Contractor’s potential entitlements to either additional payment and/or an EOT under the FIDIC Second Editions are the most prevalent, arising from 25 distinct sub-clauses of the General Conditions.  The Employer’s potential entitlements to additional payment emerge from 11 distinct sub-clauses of the General Conditions and one sub-clause of the General Conditions of the DA/AAA.  The Contractor’s potential entitlements of other kinds are fivefold.  The Employers are twofold.

Relief

Finally, Chapter 2 also briefly summarises the concept of ‘relief’, including what it is for each Party and the relevant sub-clauses which may give rise to their relief.  For the Contractor, the potential sources of relief are again numerous - found in 16 sub-clauses of the Conditions and paragraphs thereof.  For the Employer, potentially, there are only forms of relief.

Some important distinctions

All too often, the Claim, entitlement and relief are not distinguished from the related yet different concept of the ‘Dispute’ (the focus of Chapter 8).  For instance, the Claim is often the subject matter of the Dispute.  Yet it is managed differently.  It is notified, detailed and substantiated (see Chapter 3).  One hopes that it is resolved amicably (see Chapter 4) and that that resolution is fully implemented (see Chapter 5).  Perhaps a formal determination of the Claim is called for (see Chapter 6), in which case one hopes the determination is fully implemented (see Chapter 7).  If those things do not occur and the Parties cannot avoid this with the informal assistance of the DAAB (see Chapter 1), then we have a ‘Dispute’.  The Dispute is then decided through an escalating two-tier dispute resolution procedure that shares some similarities with the Claim management procedure yet, ultimately, is distinctly different (see Chapters 8 to 13).  So we see that the distinctive meaning of these critical terms really matters and are best kept in mind by the user of the FIDIC Second Editions especially.

Look Ahead

In the third edition of this newsletter, I will take you further on this whistle-stop tour, taking in my treatment of the formal inception of a Claim.  Many a contractor’s leadership and shareholders will have hoped that its project managers would have better-understood provisions of this kind.  Of course, the FIDIC Second Editions do not discriminate between Claims of one Party from those of the other, so developers/owner and their advisors will do well to pay attention equally.  

Thank you for your attention, and feel free to share this content.

Incidentally, friends, I have a special request to make of you.  Pinsent Masons are partnering (again) with Queen Mary University of London on an important survey on the future of #energy #arbitration to understand what the sector needs now and in the future from #internationalarbitration as a process for resolving cross-border commercial and investor-state energy-related #disputes.  I (and we) would be very grateful if you would help us in our research by participating in this survey https://lnkd.in/eTMy_fEw  It isn’t the shortest on record; although, as I soon discovered, just taking it is a helpfully instructive use of one's time.

Nicholas

Monday, 8 August 2022