Clause 63 / Expulsion du site / Certificat délivré par l'Ingénieur selon la Clause 63 / En l'espèce, courrier ne pouvant être assimilé à un Certificat / Le tribunal arbitral n'est pas lié par la décision de l'Ingénieur lorsque les conditions de la Clause 63 ne sont pas satisfaites / Expulsion contraire aux conditions contractuelles / Expulsion illicite selon le droit applicable

Clause 67/ Caractère définitif et obligatoire de la décision de l'Ingénieur / Courrier du demandeur à l'Ingénieur déclarant qu'il entend soumettre à l'arbitrage le litige et la décision de l'Ingénieur / Demande d'arbitrage proprement dite non déposée à la CCI dans le délai de 90 jours / La notification écrite à l'Ingénieur, par la partie lésée, de son intention de recourir à l'arbitrage, suffit à préserver le droit de recourir à l'arbitrage

'Background

[from first partial award ]

The Claimant [an American contractor ] and the Defendant [ the Government (Ministry of Public Works) of an Arab State] entered into a contract dated 19th January 1982 for the construction, completion and maintenance of a new hospital. The general conditions of the Contract are those of the State (Ministry of Public Works, Engineering Services Department), being largely identical with the FIDIC Conditions for Civil Engineering Works, 2d edition.

According to Art. 1(1)(c) of the Contract, the Engineer was defined as the Director of Engineering, Ministry of Public Works or other the Engineer appointed from time to time by the Government and notified in writing to the contractor to act as Engineer for the purposes of the Contract in place of the Engineer so designated.

Facts

[from final award, below ]

1. This case arises out of the construction of a hospital in an Arab country.

Pursuant to the Tender of the Claimant (the Contractor) dated 5 October 1981, a contract for the completion and maintenance of a hospital (the Contract) was awarded by the Defendant (the Employer) to the Claimant in April 1982. The contract starting instruction was given on 19 June 1982 designating the contract start date as 20 June 1982. The Articles of Agreement were signed on 4 August 1982.

In respect of certain matters which arose during the execution of the Contract, the parties subsequently entered into the Memorandum of Agreement of 28 June 1986.

On 30 November 1986 notice was given to the Claimant referring to Clause 63(1) of the Contract and on 15 December 1986 the Claimant was expelled from the site.

2. The Request for Arbitration dated 14 May 1987, was received by the International Chamber of Commerce on 18 May 1987. The Request for Arbitration comprised the Claimant's Claims 1 to 8 arising out of the performance of the Contract and the Claimant's expulsion from the site.

3. The Defendant objected to the jurisdiction in respect of any of the Claims raised by the Claimant principally by reason of the Claimant's asserted failure to satisfy one or more preconditions to arbitration under Clause 67 of the Contract. In requesting the dismissal of the Claimant's Claims the Defendant also raised certain Counterclaims against the Claimant.

4. By our first Partial Award in this matter dated 22 February 1989 we decided that we have jurisdiction in the present arbitration to hear and determine only Claims 1 and 2 raised by the Claimant. We further determined that we do not have jurisdiction over any of the Defendant's Counterclaims raised as such in the Defendant's Amended Answer and Counterclaim.

In view of the revised Claims 1 and 2, further briefs were exchanged by the parties on Claims 1 and 2.

[...]

By our second Partial Award of 21 October 1991 in these proceedings [set out below] we decided inter alia that the Claimant was not lawfully expelled from the site and that the Defendant has no valid claim under Clause 63 of the Contract or under the General Law of the Employer's country [lex contractus] in respect of the Claimant's expulsion from the site and therefore no right of set-off based thereon.

In our Partial Award we did not determine, whether the Government might invoke by way of set-off or defence any of its Counterclaims in these proceedings.

[Second Partial Award (1991)]

The Arbitral Tribunal rendered a [First] Partial Award in this arbitration on 22nd February 1989.

Subsequently the parties agreed that we should hear and determine the four preliminary issues set out below. The formulation of the issues agreed between the parties and of certain agreed assumptions is as follows:

1. What is the effect in law of the Engineer's letters/certificates issued on 13th March 1989 under Clause 63 (3) of the Conditions of Contract?

2. What is the effect in law of the Engineer's letter and decision, or purported decision, of 2nd August that "a sum of XXX is due from the Claimant to the Defendant pursuant to Clause 63(3) of the Conditions of Contract"?

3. Was the Claimant lawfully expelled from the Site:

a) in accordance with Clause 63 of the Conditions of Contract; or

b) as an exercise of any right available to the Defendant under the contract and/or as a matter of general law?

4. If the answer to Issue 3 is no, what is the effect in law, if any, of this determination on:

a) the Engineer's letters/certificates issued on 13th March 1989;

b) the Engineer's letter and decision, or purported decision, of 2nd August 1989; and

c) each of the Defendant's claims and counterclaims in respect of which the Arbitral Tribunal has jurisdiction?

In order to determine these issues, the parties agree that the Arbitral Tribunal should assume, for the purposes of these issues only, that all facts relied upon by the Defendant are true and have been so proved.

We heard arguments upon these issues in London in July 1991. During this hearing an expert-witness gave testimony on the law of the Defendant's State.

Having duly considered these arguments and that testimony we now make a further Partial Award on the aforementioned issues.

1. Issue 1

What is the effect in law of the Engineer's letters/certificates issued on 13th March 1989 under Clause 63 (3) of the Conditions of Contract?

The issue as stated by the parties appears to assume that these documents were issued "... under Clause 63 (3) of the Conditions of Contract". They are documents in the form of certificates, are written in the first person, are signed by the Engineer, and expressly purport to be given under Clause 63(3). But they cannot be effective under Clause 63(3) unless the Defendant has entered upon the Site and expelled the Contractor under Clause 63. That Clause is a forfeiture clause and if it is to be relied upon its machinery must be complied with strictly.

2. There can be no entry and expulsion under that clause (and therefore no valid certificate under Clause 63(3)) unless in the first instance the Engineer has certified in writing to the Defendant as far as is herein relevant that in his opinion the Contractor was not executing the Works in accordance with the Contract or was persistently or flagrantly neglecting to carry out his obligations. If, and only if, such certificate is addressed by the Engineer to the Defendant the latter may give 14 days written notice to the Contractor, enter upon the Site, and expel the Contractor therefrom. The first question, therefore, is whether the Government can demonstrate that there was a valid certificate in writing by the Engineer under Clause 63(1). Without such a valid certificate the Defendant cannot invoke the machinery of Clause 63(3), for it would not have entered upon the Site and expelled the Contractor "under this Clause", and thus a condition precedent to the issuance of a certificate under Clause 63(3) would not have been fulfilled.

3. The document relied upon by the Defendant as a certificate of the Engineer satisfying Clause 63(1) is a letter of 30th November 1986. But:

i) this was not addressed to the Defendant, but to the Contractor-the fact that a copy was sent to the Director of Financial and Administrative Affairs of the Public Authority (Employer) of the Ministry is not enough to constitute a certification "to the Defendant". Assuming for the moment that the letter to the Contractor "certifies" certain matters, a notification to the Defendant that a certificate has been addressed to the Contractor is not a certification to the Defendant of the matter in that certificate.

ii) It is debatable if this purported to be a communication from the Engineer, as such, at all. It was not written in the first person. The "we" on whose behalf the document was written recorded "... our intention to enter upon the site... and expel you therefrom", and "our intention to engage another Contractor to complete the Works...".

This suggests a communication from the Defendant, not from the Engineer. Under Clause 1 of the Contract the "Defendant" and the "Engineer" are distinguished by separate definitions. It is true that earlier in the document there is a passage that invokes Clause 63(1)(d) and states "...we are of the opinion that your company is not executing the Works and is persistently and flagrantly neglecting to carry out your obligations under the Contract". But it is not obvious that this is expressing the opinion of the Engineer, as opposed to the opinion of the Defendant. The letter has only one signatory. If this was the Engineer, he did not address his opinion to the Defendant, but to the Contractor. If it was the Defendant, the document is not an Engineer's certificate at all.

iii) The document does not in form "certify" anything at all. It does not use the word "certify". The contrast with the documents of 13th March 1989 ("I hereby certify") is striking.

4. These are very technical objections, since there can be no doubt of the opinion of the Engineer; and no doubt that the Contractor after receipt of the letter of 30th November 1986 was aware of that opinion, and of the intention of the Defendant to enter upon the Site. But it is necessary to decide whether they are valid objections in the context of interpreting a forfeiture clause. In our judgement by reason of the points (i) to (iii) above the letter of 30th November 1986 was not a certificate satisfying Clause 63(1). On that basis, and subject to what is said in respect of Issue 4 below, the certificates of 13th March 1989 were not certificates complying with Clause 63(3).

5. Issue 2

This issue requires us to determine the effect in law of the Engineer's letter or decision of 2nd August 1989 that "a sum of XXX is due from the Claimant to the Defendant pursuant to Clause 63(3) of the Conditions of Contract."

In the first instance the answer here must depend upon the answer to Issue 1 above. Since the machinery of Clause 63 was not complied with, nothing is due to the Defendant pursuant to that clause. It follows that the decision of 2nd August 1989 on that basis cannot be supported in law, and unless it subsequently became final and binding (as to which see Issue 4 below) the Arbitral Tribunal would not be bound by it.

6. Issue 3

This asks two questions. Question (a) is whether the Contractor was lawfully expelled from the Site in accordance with Clause 63.

The answer is dependent on whether the requirements specified in Clause 63 were ever satisfied. For the reasons given above, we consider that they were not and accordingly the answer to (a) is "No".

This leaves question (b), which asks whether the Contractor was lawfully expelled by virtue of any right available to the Defendant under the Contract and/or as a matter of general law.

This depends partly upon the facts. The Arbitral Tribunal is required to assume, for the purposes of these issues only, that all facts relied upon by the Defendant are true and have been so proved. One of the facts relied upon by the Defendant is that, at the material time or times the Contractor was not executing the Works in accordance with the Contract, or was persistently and flagrantly neglecting to carry out its obligations under the Contract. If that fact is assumed it becomes difficult to think of any conduct by the Contractor which could be more repudiatory, and one would expect that under most systems of law this would entitle the Defendant to terminate the Contract and expel the Contractor from the site. Nothing in Clause 63 of the Contract provides that the Defendant's right to exercise the option conferred upon it by that clause is to be the exclusive remedy for persistent and flagrant neglect on the part of the Contractor to carry out his obligations.

But the matter is regulated by the Civil & Commercial Law of the Employer's State, under which the concept of rescission of contract for breach is recognized. The expert witness in law explained that the Law allows a rescission subject to the fulfilment of the requirements of either Art. [A.1] or [A.2]. Art. [A.1] allows a judicial rescission pursuant to an application to the Court, which did not take place in the present case. Art [A.2] allows a non-judicial rescission pursuant to an express contractual agreement. Under Art. [A.2] a further precondition to rescission is an "intimation" to the defaulting party-such intimation must state the intention to rescind the contract-unless the parties have agreed that such intimation is not necessary. The Consultant testified that by virtue of Art. [B.1] no intimation would be necessary if the debtor declares in writing that he is not willing to carry out his obligations.

Our conclusions on the above matters are as follows:

(i) We find no contractual agreement under which the Contract was brought to an end "automatically" as envisaged by Art. [A.2];

(ii) We find no contractual provision agreeing to dispense with the need for "intimation";

(iii) With respect to Art [B.1] we find no declaration in writing by the Contractor that it was not willing to carry out its contractual obligations;

(iv) We find nothing in the nature of an intimation by the Defendant prior to this arbitration either of an intention to rescind or of a purported rescission of the Contract-on the contrary, by the various documents invoking Clause 63 the Defendant asserted that the Contract was not avoided.

For the above reasons we conclude that the necessary prerequisites in the Law of the Employer's State for a valid rescission of the Contract by the Defendant have not been established. Accordingly we conclude that question (b) must also be answered "No."

7. Issue 4

Issues 4 (a) and (b) require the Arbitral Tribunal to determine the effect in law, if any, of the Engineer's letters/certificates of 13th March 1989 and/or of the Engineer's letter or decision of 2nd August 1989.

8. We have concluded above that the documents of 13th March 1989 are prima facie not, in the circumstances, in accordance with Clause 63(3). However, without taking any action in respect of these documents, the Contractor (Claimant) failed to pay the certified [amount] after that amount had been demanded in writing by the Defendant. The Defendant, faced with this failure alleged that in consequence a dispute had arisen and referred that dispute to the Engineer by its letter of 13th July 1989. The Engineer gave his decision on that dispute by his letter to the parties dated 2nd August 1989. Under Clause 67 that decision would become final and binding in respect of the dispute unless within the 90 days time limit one of the parties decided to "require that the matter or matters in dispute be referred to arbitration as hereinafter provided".

If these quoted words call for the formal filing of a Request for Arbitration in accordance with the ICC Rules, this was not done within the 90 days period, and the decision (right or wrong) has become final and binding.

9. Essentially, the question is whether the letter from the Claimant's counsel addressed to the Engineer, satisfied Clause 67. The final paragraph of that letter expressed dissatisfaction with the decision, and stated that the Contractor required that the dispute and decision be referred to arbitration for resolution. It is true that nothing in that letter initiated arbitration proceedings. It is true that if a mere written intimation to a non-contracting party that the Contractor "required" that the dispute be referred to arbitration is sufficient to satisfy Clause 67, the Contractor would be under no obligation to pursue any arbitration within any specified limit of time at all. But Clause 67 is a clause containing provisions which potentially bar a party from exercising its legal rights within the time limits which the law would otherwise allow. Basically, therefore, to be effective its barring stipulations must be unambiguous. While the rival arguments have been dealt with extensively in many ICC awards and differing views on this point have been put forward by various prominent authors, all of which have been duly considered, it seems to us that under the version of Clause 67 found in this Contract (which is modelled on the 2nd edition of the FIDIC Civil Conditions) a notification in writing by the aggrieved party to the Engineer that he requires that the dispute be referred to arbitration under the Contract is sufficient to preserve the right thereafter to proceed to arbitration.

10. This conclusion is confirmed by the Court of Appeal of the Employer's State in a decision of 1984 relied on by the expert witness according to which:

"the fact of raising the objection freezes the Engineer's decision and terminates its existence. Then either of the parties to the dispute would have been able to follow the next step provided in Article (67) namely reference of the dispute to arbitration in accordance with the Rules of Conciliation and Arbitration applied by the International Chamber of Commerce. For this reason, this Court does not see the need to discuss the various grounds for challenging the Decision as it had become non-existent by the mere objection to it for whatever reason-formal or substantive..."

For the above reasons we conclude that, despite the absence of any formal Request for Arbitration, in the circumstances prevailing this Arbitral Tribunal is under no obligation to treat the documents of 13th March 1989 as in any way binding upon it.

As a consequence of the above we find in respect of Issues 4(a) and (b) that neither (a) the Engineer's letters/certificates issued on 13th March 1989 nor (b) the Engineer's letter or decision of 2nd August 1989 have any conclusive effect in law.

11. The final question, under Issue 4 (c), is as to the effect of the foregoing upon any of the Defendant's claims or counterclaims in respect of which the Arbitral Tribunal has jurisdiction.

The Arbitral Tribunal has ruled on 17th November 1989 that "the Defendant may invoke any defences to Claims 1 and 2, including any defence under the Clauses of the Contract, in particular Clauses 47 and 63 thereof, which he may seek to put forward. We therefore shall hear the defences raised by the Defendant under Clauses 47 and 63 of the Contract".

The effect in law of our present determination is that the Defendant has no valid claim under Clause 63 or under the general law of its country in respect of the Claimant's expulsion from the Site and therefore no right of set-off based thereon. We therefore answer question 4 (c) accordingly.

12. In view of the aforesaid we rule on the issues submitted to us as follows:

a) The Engineer's letters/certificates of 13th March 1989 were not certificates complying with Clause 63(3) of the Conditions of Contract.

b) The decision of 2nd August 1989 cannot be supported in law.

c) The Claimant was not lawfully expelled from the site:

- either in accordance with Clause 63 of the Conditions of Contract

- or by virtue of an exercise of any right available to the Defendant under the Contract and/or as a matter of general law.

d) Neither the Engineer's letters/certificates issued on 13th March 1989 nor the Engineer's letter or decision of 2nd August 1989 have any conclusive effect in law.

The Defendant has no valid claim under Clause 63 of the Conditions of Contract or under the general law of its country in respect of the Claimant's expulsion from the Site and therefore no right of set-off based thereon.'