Society of Construction Law

(Gulf)
30 November 2010
API Auditorium, Dubai

Advising on Construction Contracts in

Civil Law Jurisdictions

Paul Cowan, Partner, White & Case, London

John Bellhouse, 9 Gray’s Inn Square, London
Introduction & Summary
I. Background
 The Common Law World / the Civil Law World
 The Evolution of Civil Law
 Comparison of Key Elements
 Sources of Law

II. Key Differences of Principle

 Interpretation of Contracts
 Good Faith

III. Typical Construction Issues

 Remedies for Delay
 Delay Analysis
 Change in Circumstances
 Quantum

IV. Different Approaches to Procedure

 Common Law Procedure
 Civil Law Procedure
 Combining the Two: International Arbitration 30 November 2010 2

Advising on Construction Contracts in Civil Law Jurisdictions

I. Background
A. Common Law World / Civil Law World
Common law Jurisdictions:
 England & Wales (plus Ireland and – largely – Scotland)

 Commonwealth e.g. Australia, India (Canada – but not Quebec)

 U.S.A.

Civil law Jurisdictions:

 All other European jurisdictions

 Most Central and Latin American jurisdictions

 Middle East, plus some African and Asian jurisdictions

Not Homogenous in either Common law or Civil law

 Substantive differences in development of common law post-independence

 Different philosophies of civil law e.g. the French Civil Code vs. the German Civil Code

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 I. Background
B. The Evolution of Civil Law
The French Civil Code (Napoleonic Code) The German Civil Code

 Enacted 1804  Enacted 1900

 Conservative and formalistic  More modern, less prescriptive
 Incorporated in Belgium, Luxembourg, Italy,  Incorporated in Austria, Switzerland,
Spain, Louisiana (U.S.A), Quebec (Canada) Greece, Portugal, Turkey, Japan, South
and former colonies Korea and the Republic of China (Taiwan)
The U.A.E. Civil Code
Inspired by Prof. Al-Sanhuri’s Egyptian Civil
Code (which was principally based on the
French Civil Code)

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I. Background
C. Comparison of Key Elements
Civil law Common law

 Based on Roman Law  Based on custom

 Process of codification  System of precedents

 Abstract & theoretical  Pragmatic & applied

 Closed  Open
 Start with the parties’ agreement  More emphasis on freedom of
(pacta sunt servanda) but more contract
mandatory requirements which can
override this

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I. Background
D. Sources of Law
Civil law Common law

 The civil code (!)  Case law

 Central figure: the legal scholar  Statute law

 Decided cases have a secondary  Case law is of central importance

status

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I. Background
D. Sources of Law (Cont’d)
Rapprochement of the two legal traditions:

(a) European Union

 International Treaties e.g. Treaty of Rome

 Direct application of E.U. Directives / Increased use of statute law

(b) More Generally

 Conventions e.g. U.N. Convention on the International Sale of Goods

 Uniform Rules (e.g. UNIDROIT Principles of International Commercial Contracts)

 Increasing reference in civil law jurisdictions to decided court cases as

persuasive authority and as a secondary source of law

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II. Key Differences of Principle
A. Interpretation of Contracts

Fundamental Difference in Interpretation:

Common law: Objective standard

Primary focus on the words in the contract

Civil law: Subjective standard

Primary focus on the wider context and intentions

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II. Key Differences of Principle
A. Interpretation of Contracts (Cont’d)
Common law: Objective standard
 Look first at the express words in the contract itself (“The document should, so
far as possible, speak for itself.” – Chartbrook v Persimmon Homes [2009],
paragraph 36)
 Strong emphasis on freedom of contract and giving effect to the terms agreed
upon by the parties
 If there is ambiguity, the factual background may be considered

 Result = Parol evidence rule (at least under English law)

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II. Key Differences of Principle
A. Interpretation of Contracts (Cont’d)
Common law: Objective standard

 Parol evidence rule

“in my opinion then, evidence of negotiations, or of the parties’ intentions and a
fortiori of [the Plaintiff’s] intentions, ought not to be received, and evidence
should be restricted to evidence of the factual background known to the parties
at or before the date of the contract, including evidence of the “genesis” and
objectively the “aim” of the transaction”

Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1385

Result: Courts not interested in witness testimony on “I meant it to say this…”

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II. Key Differences of Principle
A. Interpretation of Contracts (Cont’d)
Civil law: Subjective standard

 Start with the words the parties have used but you may also look at the wider
context – e.g. Article 1156 of the French Civil Code:
“One must in agreements seek what the common intention of the contracting
party was, rather than pay attention to the literal meaning of the terms”
 Evidence of negotiations is admissible as evidence of the parties’ intentions

 Interest of fairness (over freedom of contract)

 Mandatory provisions in the Civil law cannot be excluded (e.g. liability for acts of
intentional misconduct / “gross negligence”)
 Tribunals have more discretionary powers to intervene to re-write the parties’
agreement

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II. Key Differences of Principle
A. Interpretation of Contracts (Cont’d)
Common law: Moving towards the civil law position?
Recent remark given by Lord Hoffmann in Chartbrook v Persimmon Homes
[2009], paragraph 33:
“it would not be inconsistent with the English objective theory of contractual
interpretation to admit evidence of previous communications between the parties as
part of the background which may throw light upon what they meant by the language
they used…They may be inadmissible…but not always”
Comparison with French law at paragraph 39:
“French law regards the intentions of the parties as a pure question of subjective
fact…uninfluenced by any rules of law. It follows that any evidence of what they said
or did, whether to each other or to third parties, may be relevant to establishing what
their intentions actually were… English law, on the other hand, mixes up the
ascertainment of intention with the rules of law by depersonalising the contracting
parties and asking, not what their intentions actually were, but what a reasonable
outside observer would have taken them to be”

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II. Key Differences of Principle
A. Interpretation of Contracts (Cont’d)
Lord Hoffman (cont’d at paragraph 42)

“The rule excludes evidence of what was said or done during the course of negotiating the
agreement for the purpose of drawing inferences about what the contract meant. It does
not exclude the use of such evidence for other purposes, for example, to establish that a
fact which may be relevant as background was known to the parties, or to support a claim
for rectification or estoppel. These are not exceptions to the rule. They operate outside it”

Looking at such background evidence can evidently also be used to influence the
objective interpretation, per Baroness Hale (paragraph 99):

“But I have to confess that I would not have found it quite so easy to reach this conclusion
had we not been made aware of the agreement which the parties had reached on this
aspect of their bargain during the negotiations which led up to the formal contract. On any
objective view, that made the matter crystal clear”

Final destination – parol evidence rule maintained, but can still look at the material

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II. Key Differences of Principle
B. Good Faith
 English common law: no general duty of good faith (cf. other common law jurisdictions e.g. U.S.A.):
“There is no general doctrine of good faith in the English law of contract. The [injured parties] are free to
act as they wish provided they do not act in breach of a term of the contract” (James Spencer v Tame
Valley Padding (1990) CA – per Potter LJ.)
 Civil law jurisdictions: parties are expected to act in good faith
French law (both pre-contractual and in the performance of the contract) :
Article 1134: “Agreements lawfully entered into take the place of the law for those who have made
them…They must be performed in good faith” (interpreted as applying to pre-contractual conduct as well)
Article 1135: “Agreements are binding not only as to what is therein expressed, but also as to all the
consequences which equity, usage or statute give to the obligation according to its nature”
U.A.E law:
See, e.g., Article 246: “The contract must be performed in accordance with its contents, and in a manner
consistent with the requirements of good faith”
How much difference does it make?
 Common law – no general duties of good faith but analogous remedies in many areas (e.g. estoppel,
misrepresentation, deceit)
 Civil law – a contracting party cannot claim more than it contracted for but, if acting in bad faith, it may be
deprived of its ability to enforce certain rights under the contract and / or be exposed to greater damages

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III. Typical Construction Issues

 International construction contracts follow a common pattern

 Historical background of international construction forms is common law
(e.g. English ICE forms evolving into the international FIDIC forms)
 Construction issues are (largely) the same the world over
 When considered in a civil law context, some issues will be analyzed differently to
the common law approach; others may end at the same conclusion through
different means
 For example:
(A) Remedies for delay
(B) Delay analysis (time at large; concurrent delay)
(C) Change in circumstances / frustration / force majeure
(D) Quantum (global claims)

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III. Typical Construction Issues (Cont’d)

 However, before assessing how the civil law will determine the issue, a key
question to consider is whether the contract is “administrative” or
“commercial”
 Can make a significant difference to how the contract is applied and / or
how the issue is determined
 U.A.E. law – where one of the parties is a public body, the contract may be
construed to be an “administrative contract”
 Consequence: the court may have less power to intervene in an
administrative contract and / or the public body may have additional rights
 Will see this in some of the particular examples…

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III. Typical Construction Issues
A. Remedies for Delay

 Almost all international construction contracts provide for Liquidated

Damages (LDs) for delay to completion
 Under English common law principles, the LDs will be applied regardless
of the actual losses being suffered (provided they were a reasonable pre-
estimate of loss at the time the contract was made)
 Thus: if the Owner suffers greater loss, he is limited to the amount of LDs
(typically limited to an overall cap); if his loss is lower, he can still recover
the amount of LDs
 Civil law codes typically take a different perspective on this, including wider
powers and discretions for the court or tribunal

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III. Typical Construction Issues
A. Remedies for Delay (Cont’d)
Example: French Civil Code

 French courts have the power to reduce or increase the amount of the LDs
stated in the contract (referred to as “penalties” under French law) when they
appear to be manifestly excessive or derisively low

Article 1152: “Where an agreement provides that he who fails to perform it shall
pay a certain sum as damages, the other party may not be awarded a greater sum.
Nevertheless, the judge may even of his own motion, moderate or increase the
agreed penalty, where it is manifestly excessive or derisively low. Any stipulation to
the contrary shall be deemed unwritten”

This power used to be limited only to LDs in civil / commercial contracts, but
French law has now extended this to administrative contracts

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III. Typical Construction Issues
A. Remedies for Delay (Cont’d)

 The French courts take into account various factors when considering
whether to reduce or increase penalties:
 the existence and amount of actual damages suffered as a result of the delay –
e.g. are the LDs “manifestly excessive” as compared with the actual losses
being suffered;
 the value of the contract;
 whether changes in the project required a time extension; and
 the degree to which the party has failed to perform (e.g. deliberate failure might
entail higher levels of damages – “good faith” duties making a difference).
 This is a much wider discretion than under the English common law
(although, in practice, it is difficult to persuade the French courts to exercise
these powers)
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III. Typical Construction Issues
A. Remedies for Delay (Cont’d)
Further Example: U.A.E.

 As a matter of practice, LDs in administrative contracts are normally pre-defined and not
subject to negotiation. By contrast, in a commercial or civil contract, the parties typically
reach their own agreement on the amount of liquidated damages

 U.A.E courts are entitled to modify the amount of LDs to ensure that it is equal to the actual
loss suffered – Article 390(2) of the U.A.E. Civil Code:

“The judge may in all cases, upon the application of either of the parties, vary such agreement so as
to make the compensation equal to the loss, and any agreement to the contrary shall be void”

 But administrative contracts are treated differently from commercial contracts in practice
(commercial contracts: LDs may be increased or decreased; administrative contracts: LDs
may only be reduced)

 Also, under civil law systems generally, LDs limitations can be exceeded where a party has
acted with intentional misconduct and / or “gross negligence”

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III. Typical Construction Issues
B. Delay Analysis

 English common law (as with U.S.A. and Commonwealth common law)
contains considerable case law on various issues of delay analysis
 Civil law codes and doctrine typically do not contain such specific bodies of
law on these detailed areas of construction practice
 Whilst the underlying principles may be different (e.g. the “prevention
principle” will not be recognized as such in civil law), the degree of logical
analysis of basic issues in the common law can be used to persuasive effect
in civil law contexts
 For example:
a) “Time at large” (e.g. principles of contract certainty, substantial performance
and good faith in administering the contract); and
b) Concurrent delay (e.g. apportionment of damages to take account of different
causative effects, e.g. Article 290 of the U.A.E. Civil Code)
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III. Typical Construction Issues
C. Change in Circumstances: Force Majeure, Frustration, General
Hardship

i. Force Majeure
 No defined meaning in common law; therefore extensive contract
provisions. Typically, an event beyond a party’s control which prevents any
particular obligations from being performed
 In civil law, force majeure exists separately to the contract i.e. protection
even where there is no force majeure provision
ii. Frustration
 An external event which renders performance of the contract substantially
impossible
 A common law doctrine permitting termination of the contract, but no
liability for damages

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III. Typical Construction Issues
C. Change in Circumstances: Force Majeure, Frustration, General
Hardship (Cont’d)
iii. General Hardship
 In the common law, there is no ability to adjust a contract to changing circumstances
unless the contract contains a provision to this effect (e.g. Tandrin Aviation v Aero Toy
Store (2010))
 Civil law usually provides a basis on which a contract may be adjusted to reflect
significant changes to the economic equilibrium of the contract
 For example, Article 249 of the U.A.E. Civil Code:
“If exceptional circumstances of a public nature which could not have been foreseen occur as
a result of which the performance of that contractual obligation, even if not impossible,
becomes oppressive for the obligor, so as to threaten him with grave loss, it shall be
permissible for the judge, in accordance with the circumstances and after weighing up of the
interests of each party, to reduce the oppressive obligation to a reasonable level if justice so
requires, and any agreement to the contrary shall be void”
 See also Article 248 of the U.A.E. Civil Code (“unfair provisions”)

 Similarly, Article 6.2.2. of the UNIDROIT Principles provides for relief from hardship:
“where the occurrence of events fundamentally alters the equilibrium of the contract either
because the cost of a party’s performance has increased or because the value of
performance a party receives has diminished”
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III. Typical Construction Issues
D. Quantum

 English law and most other common law jurisdictions have imposed reasonably
strict requirements for claimants to prove cause and effect in order to recover
damages (e.g. Wharf Properties v Eric Cumine (1991))
 The case law on “global claims” has reflected this (although more recent
indications of a more permissive approach e.g. John Doyle v Laing (2004))
 Civil law jurisdictions do not typically have any specific provision or doctrine on
“global claims” as such (e.g. in the U.A.E, the courts require the claimant to provide
supporting evidence for each and every element under the claim)
 However, it may be possible to use other provisions which are included in some
civil codes to support global claims
 For example: Article 1332 of the Peruvian Civil Code:
“If the damage could not be proven in its exact amount, such amount shall be
determined by the judge through equitable quantification”

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IV. Different Approaches to Procedure
A. Common Law Procedure
As well as substantive differences, the legal traditions of the common law and
civil law give rise to distinct differences of approach in matters of dispute
procedure (derived from national court practice)

Common law
 The procedure is “adversarial”
 More emphasis is on the parties for the collection of evidence and presentation of their
case
 Extensive document discovery
 More reliance is put on fact evidence, oral arguments and examination
 Established rules of evidence
 Experts normally are appointed and paid by the parties
 Judges are drawn from senior practising lawyers

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III. Different Approaches to Procedure
B. Civil Law Procedure
Civil law
 The procedure is “inquisitorial”
 The judge plays the main role in collecting evidence
 No pre-trial discovery and parties are only obliged to produce those documents
upon which they rely
 Civil law trials are primarily based on written evidence and argument
 In arbitration practice, there are alternative means to determining the case, beyond
strict legal rights / obligations (e.g. amiable compositeur / ex aequo et bono)
 The courts typically appoint experts
 Judges are trained and recruited separately from lawyers in private practice

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III. Different Approaches to Procedure
C. Combining the Two: International Arbitration

 International construction contracts normally refer disputes to international

arbitration rather than to national courts
 International arbitration is inherently flexible in the procedure to be applied (e.g.
Article 15.1 of the ICC Arbitration Rules)
 International procedural guidelines have been formulated which draw upon both
common law and civil law traditions (e.g. the IBA Rules on the Taking of Evidence
in International Arbitration)
 Composition of the arbitral tribunal will strongly influence the direction that the
arbitration procedure will take
 This underlines the importance of selecting the correct tribunal to conduct the
procedure and to determine the case according to the strengths / weakness of your
case (e.g. seeking document discovery; whether substantive issues like good faith
are involved etc.)

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