ICC Awards

'In accordance with Clause 67, by a letter of 16 November 1983 Contractor referred to Engineer a summary of previous claims made by it. These claims fell under two heads:

(A) The performance bond claim for US$ XXX.

(B) The variations and/or omissions claim for US$ XXX.

(…)

Pursuant to clause 67, the Engineer was required, within a period of ninety days, to give written notice of his decision with respect to such claims to the Employer and the Contractor.

[By letters dated 13 December 1983 and 21 December 1983, the <i>Engineer</i> replied to the <i>Contractor</i> regarding the performance bond claim and the claim for variations and/or omissions]

In response to the letter of 13 December 1983 with respect to the performance bond claim, Contractor wrote to Engineer on 17 January 1984. A copy for this letter was forwarded to Employer. The letter indicated clearly that Contractor did not accept the Engineer's decision and traversed the merits of its claim. The second last paragraph of the letter stated:

"Before we conclude, we would like you to clarify whether your letter of December 13, 1983 is a decision under Clause 67 of the Conditions of Contract which we do not think it is. However, in the event the aforesaid letter is your decision under Clause 67, then please treat this letter as a notice of our disagreement to your decision and we hereby serve our notice to refer the matter to Arbitration under Clause 67 of the Conditions of Contract and/or to pursue any other legal remedy under a proper jurisdiction."

Contractor wrote a separate letter dated 18 January 1984 to Engineer (with a copy to Employer) regarding its claim for variations and/or omissions. It again clearly indicated that Contractor did not accept the Engineer's decision and discussed the merits of its claim. The second last paragraph was in virtually identical wording to that of the letter of 17 January 1984.

(…)

On 11 March 1984 Engineer wrote to Contractor, with a copy being sent to Employer, with respect to the performance bond claim. The letter read:

"Your letter of 16 November, 83 presented your claim for extra costs incurred in providing a 100% Bank Guarantee. After a careful review of your letter and all related documents your claim was denied in our letter of Dec. 13, 1983. Additional review of the claim and reading of your letter of Jan. 17, 1984 has not brought any arguments to light which would lead us to change our decision. We confirm that our decision is made under clause 67 of the EMPLOYER/CONTRACTOR Contract dated 16 October 1981. Your claim is denied."

On the same date, a letter was forwarded by Engineer to Contractor (...) in similar terms to the letter of the same date with respect to the performance bond claim.

On 12 March 1984, Contractor replied to Engineer, with a copy to Employer, with respect to the performance bond claim. The letter read:

"...We hereby reaffirm our position indicated in our letter…dated 17 January 1984 in which we have served our notice to refer the matter to Arbitration under Clause 67 of the Conditions of Contract and/or to pursue any other legal remedy under a proper jurisdiction."

On the same date it wrote to Engineer in similar terms, with a copy to Employer, with respect to the variations and/or, omissions claim ....

HAS CLAUSE 67 BEEN COMPLIED WITH?

(…)

At the outset, let me state that it is my clear view that the letters of Engineer dated 13 December 1983 with respect to the performance bond claim and of 21 December 1983 with respect to the variations and/or omissions claim are a "decision" within the meaning of clause 67 ... .

Clause 67 provides that Engineer's decision is final and binding unless a "claim to arbitration" bas been communicated to it by either party within ninety days. The clause also provides that within this ninety day period, Contractor, if dissatisfied with Engineer's decision, may, 'require that the matter or matters in dispute be referred to Arbitration as hereinafter provided'.

The time constraint in Clause 67 that steps must be taken to dispute the Engineer's decision within ninety days causes no problems.(...)

The issue is rather whether, apart from the time question, the letters of 17 January 1984 and 18 January 1984 comply with the requirements of Clause 67 or if not, whether the two letters from Contractor to the Engineer dated 12 March 1984, and which are in substantially similar terms, comply with the requirements of Clause 67.

Do these letters of 17 January 1984 with respect to the performance bond claim and 18 January 1984 with respect to the variations and/or omissions claim amount to a "claim to Arbitration" and a requirement "that the matter or matters in dispute be referred to Arbitration" as required by Clause 67?

Mr. Duncan Wallace in his article referred to above ["The Time Bar in FIDIC Clause 67", The International Construction Law Review, Vol. 2 ,Part 4, July 1985] (at p. 332) suggests that the difference in these two sets of wordings is of no real significance. I find his article generally, very compelling and, on this point, accept his approach.

His article is primarily addressed to the issue of whether or not Clause 67 requires a formal Request for Arbitration to the ICC in accordance with the Rules for the ICC Court of Arbitration to be given within the ninety day period. He concludes that it does not. Employer however, does not contend for such an extreme interpretation of Clause 67 (...).

He makes the point of the practical necessity of one of the parties indicating the seriousness of its intention to dispute the Engineer's decision and to give a final opportunity for resolution of the matters in dispute. There is also a need to avoid any assertion of waiver of rights. The notification also ascertains whether the other party is willing to cooperate in preparations for the Arbitration including such matters as agreement upon an Arbitrator. The article also makes the trite points that an exclusionary provision must be interpreted strictly (p.337) and that in cases of ambiguity the more reasonable of two meanings is to be adopted (p.337). The author concludes (at p.334):

"In my opinion, the contract intention is that the dissatisfied party should record or notify his intention to arbitrate. I[t] matters not in my opinion whether he is said to 'require', 'claim to', 'call for' or 'request' arbitration within the stipulated period. The essential requirement is the notification of a serious intention to arbitrate, perhaps at a relatively early stage..."

Again at p. 340, the author states:

"It is therefore submitted that a serious notification of an intention to claim or require arbitration will satisfy the requirements of both of the relevant sentences in Clause 67 of FIDIC"

(…)

Subject to one qualification, I adopt the approach of Mr. Duncan Wallace as set out above and take the view that the wording in the letters of 17 and 18 January 1984, "...please treat this letter as a notice of our disagreement to your decision and we hereby serve you (only in the letter of 18 January 1984) our notice to refer the matter to Arbitration under Clause 67 of the Conditions of Contract" is a "claim to arbitration" and a requirement "that the matter or matters in dispute be referred to arbitration" within the meaning of Clause 67. I particularly note the use of the word "refer" which picks up the reference to "referred" in Clause 67. I note that copies of the letters of 17 and 18 January 1984 were forwarded to Employer. Employer appears to half concede that the quoted words comply with the requirements of Clause 67 when it states at page 13 of its submission that "Had Contractor not mentioned that they might choose legal action, Contractor could possibly argue that they made a request for arbitration if the Engineer would not review his decision".

The tentative suggestion of Mr. Wallace that perhaps there should be an indication that arbitration is to be pursued at a relatively early stage does not appeal to me. I see nothing in the wording of Clause 67 which requires such a conclusion. In any event, at the date of giving of the notices on 17 and 18 January 1984, there is no indication that the arbitration is not to be immediately pursued.

Contractor in its submission refers me to ICC case number 5029 where an arbitral tribunal of three arbitrators approved the comment of the arbitral tribunal in ICC case number 3790 upon Clause 67, "A claim to arbitration without need for particular formalities is to be explicit and clear and clearly show that a Plaintiff's intention to submit the dispute to arbitration". The tribunal, in case 5029 again comments:

"...Clause 67 must be interpreted as requiring a party who is dissatisfied with the decision of the Engineer, in order not to lose his right to have the matter resolved by arbitration, solely to notify the Engineer, within 90 days after the Engineer has rendered his decision, that he requires the dispute to be referred to arbitration." The quoted words from the letters of 17 and 18 January 1984 in my view fall within these requirements.

The real issue with respect to whether or not Clause 67 has been complied with lies in the additional wording in the letters of 17 and 18 January 1984 "and/or to (only in the letter of 17 January 1984) pursue any other legal remedy under a proper jurisdiction". Employer contends that these words make "the claim" or "requirement" equivocal and therefore do not comply with Clause 67. To quote from page 4 of its reply "But in the present proceeding the alleged notices of arbitration were equivocal and conditional and far from being positive in its terms and did not reflect any 'serious' intention to go for arbitration. By the alleged notices of arbitration, Contractor did not notify its clear intention to submit the disputes to arbitration, but merely notified the Engineer that Contractor would in future choose between arbitration and legal action and, in fact, Contractor went for legal action." I cannot accept this argument.

The procedure for the resolution of disputes between the parties as set out in Clause 67 does not, and cannot, preclude a party from taking proceedings somehow connected with or related to the contract against a party not a party to the contract. In the present case, Contractor wished to pursue a claim against the United States. The only method it could do this was by Court proceedings. It also wanted to pursue its remedies against Employer. The only method it could do so was by arbitration pursuant to Clause 67. If it did not pursue arbitration, then the decisions of the Engineer became final and binding. Contractor filed its claim against KZ in the United States Claims Court on 12 March 1984. It only submitted its formal Request for Arbitration over two years later. It could have submitted its Request for Arbitration in 1984 or 1985 while the proceedings in the United States Claims Court were still pending and run both actions concurrently. It chose not to do so.

In making reference to pursuing other legal remedies in its letters of 17 and 18 January 1984, Contractor in my view was only indicating that it may pursue remedies against other parties in other jurisdictions such as it in fact did. It was in no way suggesting that it did not wish to pursue its rights to proceed to arbitration against Employer.

It was indicating to the Engineer that it was seriously disputing its decision. To emphasise the seriousness of its approach it indicated that not only was it giving notice pursuant to Clause 67 requiring the matters in issue to be referred to arbitration between it and Employer but also indicating that it may seek redress by other means against other parties.

Employer has referred me to three cases which require comment.

In Nea Agrex SA v Baltic Shipping Co. Ltd. & Anor. [1976] 2 All E.R. 842, the English Court of Appeal considered Section 27(3) of the Limitation Act 1939 which provided that "... an arbitration shall be deemed to be commenced when one party to the arbitration serves on the other party or parties a notice requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator..." Under consideration was a letter which stated "Please advise your proposals in order to settle this matter, or name your arbitrators".

It will be noted that this case was concerned with the construction of a statutory provision and not with Clause 67. The word "require" which appears in Clause 67, however, also appears in Section 27(3) which was under review. The Court held that the wording under review, although somewhat vague, fell within the meaning of Section 27(3) and was an appropriate notice. Lord Denning M.R. in his judgment (at p.848), stated:

"In a commercial dispute, a letter requesting arbitration should not be construed too strictly. The writer should not be impaled on a timebar because he writes in polite and courteous terms or because he leaves open a possibility of settlement by agreement."

The decision of the Court and the comment of Lord Denning, if anything, would seem to assist Contractor rather than Employer.

In Surrendfa Overseas Ltd. v. Government of Sri Lanka [1977] 2 All E.R. 481, Kerr J. again considered Section 27(3). There he had to decide whether the words "In view of the attitude taken by the Charterers in their calculation of Laytime, owners will be putting the matter to Arbitration. We will be advising you concerning details of the Arbitrator appointed in due course." Kerr J. found that this wording did not amount to a "notice requiring" the addressee to appoint an arbitrator or to agree to the appointment of an arbitrator. So far as is relevant, the wording in the clause under consideration in this case was not clearly as clear and definite as the wording in Contractor's letters of 17 and 18 January 1984.

Finally, I was referred to the decision in International Tank & Pipe SAK v. The Kuwait Aviation Fuellingh Co. KSC [1975] 1 All E.R. 242 which is concerned with the Second Edition of the F.I.D.I.C. Conditions of Contract where Clause 67, so far as is relevant, is in similar terms. There, the Contractor had written within the 90 day period,

"We take the opportunity of advising you that. at present the dispute between ourselves and the Employer is being discussed with a view to possible settlement, before proceeding to arbitration in accordance with Clause 67 of the Contract 'Settlement of Disputes'. Should no settlement be reached, we reserve our right to have the matters in dispute settled by arbitration in accordance with Clause 67."

As the Contractor had doubts as to whether this amounted to proper notice in accordance with Clause 67, it applied for an extension of time under Section 27 of the English Arbitration Act and the Court granted the extension. No determination was made by the Court as to whether or not Clause 67 had been complied with in the first instance.

I therefore determine that Contractor has properly challenged the Engineer's decision in accordance with Clause 67 by giving a "claim to arbitration" and by requiring "that the matter or matters in dispute be referred to arbitration" by its letter of 17 January 1984 with respect to the performance bond claim and by its letter of 18 January 1984 with respect to the variations and/or omissions claim. Therefore the Engineer's decision is not final and binding upon Contractor within the meaning of Clause 67.'