Conditions FIDIC, 2e édition / Litige entre l'entrepreneur principal et le sous-traitant / Marché abandonné à la suite de difficultés financières du maître de l'ouvrage / Interprétation de la clause « pay when paid » / Si le sous-traitant supporte les risques relatifs à la défaillance du maître de l'ouvrage / Certificats de paiement approuvés / Si l'acompte versé par le maître de l'ouvrage couvrait les travaux réalisés par le sous-traitant / Créance du sous-traitant couverte par l'acompte versé à l'entrepreneur.

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I. Facts

II. The parties Claims and Defences

[The facts and parties' respective claims are summarized in the Partial Award on Jurisdiction, above.]

III. Definition of issues to be decided on

12. Under the terms of reference, the main issues to be determined by the arbitral tribunal are:

- Does the Claimant have an unconditional claim against the Defendant for the payment of the contractual value of the work performed by the Claimant in accordance with the Subcontract?

And, depending on the answer :

- If the Claimant's claims pursuant to the Subcontract are unconditional, are they (i) due and payable and (ii) not barred by virtue of the applicable statute of limitation rules?

- If the Claimant's claims pursuant to the Subcontract are conditional, has the contractual condition been satisfied or, if not, did the Defendant, in violation of the principle of good faith or any other implied or express obligation, prevent the condition from being satisfied?

IV. Discussion

A. Does the Claimant have an unconditional claim against the Defendant for the payment of the contractual value of the work performed by the Claimant in accordance with the subcontract?

13. Article 3, especially second paragraph (e) and third paragraph, of the Subcontract contains a so called "pay when paid" provision. According to the above mentioned provision, the subcontractor (i.e., the Claimant) will be paid "at the time and in the manner" the main contractor (i.e., the Defendant) receives payment from the Employer.

A first interpretation of such a provision in a subcontract may have the significance of a mere due date rule: only the maturity of the remuneration owed by the main contractor to the subcontractor is postponed and dependent upon the employer's payment. However, the subcontractor's right to remuneration itself is untouched and intact. Accordingly, in case of a definite nonpayment by the employer, "the maturity must be assumed to set in as soon as such absence of payment can be established" (P. Gauch, "Special problems of construction law: international approach," p. 246). The failure by the employer to pay the main contractor does not prevent the subcontractor's claim from eventually falling due.

However, depending on the particular circumstances of the case, the "pay when paid" clause may also lead to the result that the main contractor's duty to pay is subject to the employer's payment. In other words, the subcontractor has a right to payment only provided that the main contractor himself has been paid for the part of the work performed by the subcontractor. The risk of nonpayment by the employer shifts then from the main contractor to the subcontractor.

In the present case, articles 3, especially second paragraph c) and third paragraph, and 4 of the Subcontract, if read in connexion with article 9, imply such a displacement of the risk of nonpayment described above. According to article

9, the Claimant will "bear all obligations and risks" arising from the Main Contract "in such a way as if the Claimant had concluded a direct contract with the Employer for his scope of supply and services". It is clear that the Claimant has accepted not only the risk of delay with respect to payment made by the Employer but also the nonpayment risk in itself. Accordingly, the Defendant is only obliged to pay the Claimant if and when the Defendant has received payment from the Employer in consideration of the work executed by the Claimant. Therefore the payment to be made by the Defendant to the Claimant of the amounts corresponding to the payment certificates (and the extra order) is subject to the condition precedent that the Defendant has itself been paid the corresponding amounts by the Employer.

14. Such a condition precedent, however, is generally speaking inconsistent with the concept of subcontract.

A subcontract is regarded as a full independent contract visàvis the main contract. There is no connection between the subcontractor and the employer. The subcontractor is not liable towards the employer and, equally the employer has normally no direct compensation duty towards the subcontractor. Provisions of the main contract do not apply mechanically to the subcontract for the sole reason that the subcontract contains such a stipulation.

15. And construing anything like a direct contract between the Employer and the Claimant would be in contradiction with the parties' behaviour. The Claimant always sought payment from the Defendant, not from to the Employer. (See, for example, Engineer, June 18, 1978 meeting memo: "the Claimant is facing financial difficulties with the Defendant [...]. The Employer and the Engineer consider this is as an internal matter."; this is confirmed as well by the March 1, 1986, letter from the Claimant to the Defendant: "[ ... ] in respect of the amounts long outstanding to us against you for work done by us, on your behalf, in the project [...]").

Moreover, had the Defendant been nothing but a contractor entrusted with the Claimant's claim against the Employer, then, the Defendant would have reported to and sought the Claimant's instructions. The Defendant would have at least consulted with the Claimant in the prosecution of the Claimant's claim.

Instead, the Defendant treated the claim of the Claimant against the Employer as if it were its own, i.e. in its own discretion, amalgamating it with other claims of the Defendant and eventually giving a political turn to the whole matter. Surely, had there been a direct claim by the Claimant against the Employer, this would have been pursued by the Defendant in the Claimant's best and sole interest.

16. A subcontractor is not a "partner" of the main contractor. The Claimant (as the other subcontractor [not a party to this arbitration]) was not made a party to the Consortium Agreement, even if it could have been (the value of the Claimant's contribution was substantially in excess of that of one of the partners). The Claimant has only to bear the risks resulting from the Subcontract, not the ones generated by the Main Contract or by the fortune of the common venture.

17. Articles 3, 4 and 9 of the subcontract are however lawfull and enforceable under Swiss law, but they must be very carefully interpreted i.e., in a way compatible with the notion of subcontract. The Claimant has indeed to bear all the hazards inherent in his proper contractual task, but not the risks belonging to the responsibility of the main contractor (nor the main contractor's partners and other subcontractors) or the fortune of the common venture.

B. Has the contractual condition of the Claimant's claim against the defendant been satisfied: has the Defendant been paid by the employer in respect of the work performed by the Claimant?

18. It is undisputed that the Defendant received nothing from the Employer but the down-payment of 63 429 180 (or, according to the Claimant, 62 826 947), representing 15% of the contractual price owed to the Defendant for the whole project. Of this amount the Defendant distributed a total of approx. 28.5 million to its partners and subcontractors (including the Claimant that was paid 5 957 343.30). Thus each of the Defendant's partners and subcontractors (including the Claimant) received, as down-payment, 15% of the total amount owed to it under the Consortium agreement or the Subcontract for the work, supplies and services which they were to deliver. The Defendant retained the balance of approx. 34.5 million.

It is also undisputed that the Claimant has performed work for a total price of 26 416 539, for which amount the Claimant submitted statements that were certified by the Engineer and approved by the Defendant and the Employer. This amount exceeds substantially the down-payment paid to the Claimant by the Defendant.

19. The issue to be determined by this arbitral tribunal is the following: shall the down-payment received by the Defendant from the Employer be considered, at least in part, as payment by the Employer for the work performed by the Claimant?

This question may not be answered without considering the principles hereabove mentioned: the agreement concluded between the Claimant and the Defendant has been qualified as a subcontract by both parties and the "pay when paid" clause has to be interpreted in accordance with the notion of a subcontract.

20. The Defendant has received from the Employer a sufficient amount of money, even after deduction of payments made by the Defendant to its partners (and its other subcontractor, the other subcontractor [not a party to this arbitration]), to pay the Claimant. The down-payment surplus retained by the Defendant amounted to approx. 34.5 million. The remainder, even after payment to the other subcontractor (not a party to this arbitration), is more than the amount owed by the Defendant for the work performed by the Claimant under the Subcontract. So it may be decided that indeed the Defendant has been paid by the Employer enough funds to pay the Claimant and that consequently the condition precedent hereabove explained has been fulfilled.

21. Obviously, the payment made by the Employer to the Defendant on June 23, 1977 was nothing but a down-payment, i.e., an advance payment.

The Defendant denies that this advance payment could be treated as a payment for work performed: when the down-payment was received from the Employer, no work had yet been performed by the Claimant, nor by anyone else. Nevertheless, this down-payment was divided among the Defendant, its partners and subcontractors, in the very proportion of the value of the work to be performed by each of them. In the view of the Defendant, there would be no legal or contractual basis to reallocate this down-payment ex post among the parties according to any criteria, such as the amount of work performed by each party or the damage it claims to have suffered. Therefore, in the Defendant's opinion, there should not be any reason to change the initial allocation, to which all the parties had consented.

Such a reasoning cannot be followed. A down-payment is a payment on account for work to be performed in future and no contractor has an inherent right to keep the same; it may do so only to the extent that it performs work for a value equal or greater than the amount of the down-payment. A contractor who never performs any work is not entitled to retain the down-payment. In fact, it seems that a partner of the Defendant under the Consortium Agreement, paid back to the Defendant a fair amount of the down-payment which it initially received, commensurate to the part of the work it did not perform.

Down-payments do not survive the termination of the contract, even if the termination is the result of the default of the employer. They are, at termination, transformed into a definite payment and must be applied against amounts due, according to the expost evaluation of the work that the contractor has performed. In the present case, the project was terminated at the latest on June 15, 1980. At that date, the Defendant assigned and sold substantial equipment for the project to another entirely separate project, under a new contract. The project was stopped and the fulfilment of the Subcontract was no longer possible. Consequently, on June 15, 1980, the down-payment was effectively transformed into a definite payment since the termination of the project necessarily resulted in a final clearing of all accounts.

The initial apportionment of the down-payment was only provisional. In respect of the Claimant's claim, the arbitral tribunal is fully entitled to reallocate it and to decide that the Defendant has indeed received payment from the Employer for the work performed by the Claimant, under the form of a down-payment transformed into a definite one.

22. Assuming the Defendant, as it contends, has not been fully compensated by the Employer, under the project, for its own work and any damage it has suffered, the above interpretation does give the subcontractor a de facto priority right with respect to the payment made by the Employer to the main contractor (i.e., the down-payment that has been transformed into a definite payment by the termination of the project) the Claimant (and the other subcontractor [not a party to this arbitration]) will receive complete payment (at least for the work performed, if not for the possible loss arising from the breach of the Subcontract resulting from the abandonment of the project).

Such a priority is totally appropriate however considering the subcontractor's position. As stated before, the subcontractor is not a partner under any consortium agreement (as others were with the Defendant). The subcontractor does not bear the risk of a possible employer's default, whereas the main contractor does (the main contractor's partners, too).

23. Article 9 of the Subcontract states that "the Subcontractor will take upon himself and bear all obligations and risks ... in such a way as if the Subcontractor had concluded a direct contract with the Employer for his scope of supply and services". This provision does not only, as we have seen, define and limit the risk borne by the Claimant ("his scope of supply and services"), but it also, not surprisingly, connects the risk to the Employer: whether the Claimant's work has been paid for, or shall be deemed paid for in relation to the final apportionment of the down-payment, is a question to be answered by reference to the Employer. This is the risk accepted by the Claimant.

The January 22, 1989 special committee report - the committee members included the Employer - must be regarded as the final and definite position of the Employer on the question of payments in respect of the project. In this report, the Employer acknowledges certified works and supplies totalling approx. 52.5 million, and these include all of the Claimant's works for which payment is sought in the present proceedings. Further, given the lower amount of the down-payment of approx. 63.5 million, the Employer holds that all civil works carried out by the Claimant, and for that matter all other civil works, have in fact been paid for. It concludes that there was in fact a substantial overpayment.

24. The Defendant questions the reliability of the above report, without however adducing any convincing evidence.

The Defendant claims further that this tribunal, in adjudicating the claim made by the Claimant against the Defendant, ought to concern itself and take into account the Defendant's alleged loss and related claim against the Employer.

Preliminarily and incidentally, one may notice that, in the above 1989 special committee report, the Employer does acknowledge an amount of over 10 million worth of supplies certified by the Engineer on top of the civil works of the Claimant and the other subcontractor (not a party to this arbitration), it denies payment, however, claiming setoff. Even if one were to disregard this setoff, the amount of the down-payment (63.5 million) exceeds the sum of all certified works and supplies (52.5 million).

This tribunal is in no position to pass judgement on any claim of the Defendant against the Employer under the Main Contract, whether as a matter of jurisdiction or actual information. It is worth noting that the question of the Defendant's loss was not raised by the Defendant at the outset. It appears to have been developed only in response to loss comparisons subsequently made by the Claimant by way of general background. These are not to the point. The Defendant's alleged own loss and claim for compensation are irrelevant as a defence in this action, which turns on the question of whether or not the Defendant has been paid in respect of the works carried out by the Claimant.

It would be most extraordinary and unacceptable if the outcome of this action were made dependant on the standing of claims of the Defendant the prosecution of which is not only totally outside of the scope of jurisdiction of this tribunal but also lies within the Defendant's exclusive discretion.

The Claimant's certified works have been acknowledged by the Employer; so has the payment of the same pursuant to the final clearing of accounts. In the circumstances, a non-adjudicated claim by the Defendant against the Employer is incapable of being held against the Claimant. Any other holding would be tantamount to having the Claimant bear a risk beyond that assumed under the Subcontract, pursuant in particular to the provisions of article 9, i.e., the risk pertaining to the Claimant's scope of supply and services with regard to the performance of the same, their acknowledgement and payment.

Any remaining claim of the Defendant may only be directed against the Employer. The Defendant seems to have renounced the prosecution of such claim. Nothing in the submissions stands for the proposition that the Claimant would have consented to the same with the consequence of waiving its own claim against the Defendant under the Subcontract.

25. We conclude from the above considerations that the Defendant has been paid - as soon as on June 15, 1980 - by the Employer in respect of the work performed by the Claimant. Thus the payment condition of the Subcontract was met on this date and the Defendant must accordingly pay the Claimant.

Accordingly, the tenyear prescription period began to run on June 15, 1980. Since the Claimant filed its request for arbitration in July 1989, none of its claims for payment is timebarred. The Defendant's eventual request for the allocation of a reasonable amount in compensation of its efforts after June 15, 1980 to obtain payment by the Employer - particularly of the Claimant's claims - is unfounded.

26. The Defendant's objection that the Claimant "decided upon its own judgement to continue its work" after it became allegedly clear that the Employer experienced serious financial difficulties and thereby failed under its obligation to minimise its damage and accordingly could not seek compensation in good faith from the Defendant can not be sustained.

Such a contention is irrelevant because all of the Claimant's payment certificates - including certificates issued after July 1979 - were unreservedly approved by the Defendant (and by the Employer) and the Defendant has been fully paid by the Employer for the whole work performed by the Claimant. Furthermore, the Claimant continued to work confident that the negotiations between the Defendant and the Employer would still end successfully. Finally and importantly, the Claimant was never instructed to stop work by the Defendant (or by the Employer).

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FOR THESE REASONS,

The Arbitral Tribunal rules, at the majority of its members,

that the Defendant shall pay to the Claimant the sum of 20 580 374 plus interest from December 12, 1986 to the date of payment at the rate of 8%;

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