The Claimant/Contractor, a New Zealand company, and Respondent/Employer, an Asian State, entered into a construction contract relating to the upgrading of a gravel highway. The Claimant/Contractor began arbitration to recover compensation in relation to certain matters.

FIDIC Red Book, Third Edition (1977). Clauses 11, 12 and 65.

The partial award considered:

whether unforeseeable physical conditions encountered by the Claimant/Contractor in the procurement of materials for upgrading the highway could be the subject of a claim under Clause 12; and

whether interferences by an indigenous group of landowners with the Claimant/Contractor's work could constitute the 'special risk' of 'disorder' under Clause 65(5) entitling the Claimant/Contractor to relief under Clause 65(4).

Unforeseen physical conditions

'12.1 The Claimant's case in relation to unforeseen physical conditions was central to both the evidence and to the debate that took place at the hearing.

12.2 The particular conditions that are alleged to have been unforeseen are set out in . . . the Statement of Claim as follows: . . .

12.3 Inherent within this pleading is the proposition that the Claimant did foresee, or should have foreseen, some "soft rock" but not its extent. Furthermore, the alternative pleas . . . accept that a contractor might have foreseen some unspecified quantity of smectite.

. . . . . . . . .

12.5 In both the written and oral closing submissions, counsel for the Claimant indicated that its case on unforeseen physical conditions was confined to "encountering smectite in the fabric of the rock" . . .

So the kernel of this aspect of the case became now much more limited than originally foreshadowed and canvassed in evidence and was, in essence, confined to a case that the Claimant could not have foreseen the existence or possibly the extent, of a particular mineral in the rock. As the Tribunal has noted earlier [omitted from this extract], that mineral is one of several which has the effect of causing high plasticity.

12.6 It seems to the Tribunal that this shift in the Claimant's case is of considerable significance. The pleaded case, which included the reference "soft rock", permitted the Claimant to run, and indeed it did run, a case that, in substance, it could not have foreseen that it would encounter rock which had a high plasticity. This is because an extent of "soft rock" is a cause of high plasticity. Without the case that "the extent of soft rock" could not be foreseen, then the Claimant is in difficulty.

It seems to the Tribunal that it is strictly impossible to maintain the implicit argument that it could not have been foreseen that the rock was capable of being highly plastic. What is clear is that, in the light of the amendment, the Claimant must now accept that "an extent of soft rock" was foreseeable.

12.7 The Claimant supported its case by a wealth of technical evidence from the following experts: . . .

12.8 The Respondent's defence to this basis of claim is as follows:

12.8.1 The provisions of clause 12 of the conditions are not applicable to the claim at all.

12.8.2 In any event, the conditions that were encountered were foreseeable by a competent contractor and hence the claim under clause 12 must fail.

12.8.3 Even if, in principle, the conditions might not strictly have been foreseen from the IFT and other information, the cause of the problem with the production of basecourse was one which was identified by [A, engineer and project manager, witness for Claimant] at a relatively early stage (i.e. in September 1997). The delays and losses that were sustained by the Claimant and which are pursued under this head of claim were a consequence of the problems with its own crusher which for many months had been prone to mechanical failure and which failed, until July 1998, to incorporate an essential item of equipment namely the [dewaterer].

12.9 It is first necessary to consider the scheme of the FIDIC Conditions and the relationship between clauses 11 and 12 and the Contract Addendum paragraph 5.

12.10 The Claimant's claim of unforeseen physical conditions requires consideration of sections 11 and 12 of the General Conditions of Contract, Specification 1215 and section 1 of the IFT [Information to Tenderers]. It is necessary for these to provisions to be set out in full.

Information for Tenderers

1.0 Introduction

This document is provided to Tenderers in accordance with Clause 11 of the General Conditions of Contract and summaries data on subsurface conditions that have been obtained during the course of the design of the Works.

Further information relating to traffic and climatic conditions is also provided herein for the convenience of the tenderer but climatic information in particular should be supplemented by seeking local knowledge.

This document does not form a part of the contract save in so far as the Employer is obliged to provide data as required by Clause 11 of the Conditions of Contract.

The Tenderer is entirely responsible for his own interpretation of data contained herein and no responsibility shall be accepted by the Employer for any opinions that may be expressed herein, or for any inferences that may be drawn from comments contained herein.

…

General Conditions of Contract

11. The Employer shall have made available to the Contractor with the Tender documents such data on hydrological and subsurface conditions as shall have been obtained by or on behalf of the Employer from investigations undertaken relevant to the Works and the Tender shall be deemed to have been based on such data, but the Contractor shall be responsible for his own interpretation thereof.

The Contractor shall also be deemed to have inspected and examined the Site and its surroundings and information available in connection therewith and to have satisfied himself, so far as is practicable, before submitting his Tender, as to the form and nature thereof, including the subsurface conditions, the hydrological and climatic conditions, the extent and nature of work and materials necessary for the completion of the Works, the means of access to the Site and the accommodation he may require and, in general, shall be deemed to have obtained all necessary information, subject as mentioned above, as to risks, contingencies and all other circumstances which may influence or affect his Tender.

12. The Contractor shall be deemed to have satisfied himself before tendering as to the correctness and sufficiency of his Tender for the Works and of the rates and prices stated in the priced Bill of Quantities and the Schedule of Rates and Prices, if any, which Tender rates and prices shall, except insofar as it is otherwise provided in the Contract, cover all his obligations under the Contract and all matters and things necessary for the proper execution and maintenance of the Works. If, however, during the execution of the Works, the Contractor shall encounter physical conditions, other than climatic conditions on the Site, or artificial obstructions, which conditions or obstructions could, in his opinion, not have been reasonably foreseen by an experienced contractor, the Contractor shall forthwith give written notice thereof to the Engineer's Representative and if, in the opinion of the Engineer, such conditions or artificial obstructions could not have been reasonably foreseen by an experienced contractor, then the Engineer shall certify and the Employer shall pay the additional cost to which the Contractors shall have been put by reason of such conditions, including the proper and reasonable cost

(a) of complying with any instruction which the Engineer may issue to the Contractor in connection therewith, and

(b) of any proper and reasonable measures approved by the Engineer which the Contractor may take in the absence of specific instructions from the Engineer,

as a result of such conditions or obstructions being encountered.

…

Specification

1216 Information Furnished by the Employer

Certain information contained in these Contract Documents or provided separately is being offered in good faith but in the circumstances pertaining to the type of information supplied, no guarantee can be given that all the information is necessarily correct or representative of the in situ conditions.

More specifically this applies to all deflection surveys, soil tests, soil mapping, drilling results, geophysical surveys, geological reports, borrow pit information, material surveys and reports and similar information, the accuracy of which is necessarily subject to limitations of testing, sampling, the natural variation of material and formations being investigated and the measuring of certainty with which conclusion can be drawn from an investigations carried out.

It also applies to any Material Utilization Diagram supplied, as the diagram may be subject to major alterations during the progress of the work, depending on site conditions.

The Employer accepts no liability for the correctness or otherwise of the information supplied or for any resulting damages whether direct or consequential should it prove during the course of the Contract that the information supplied is either not correct or not representative [sic] Any reliance placed by the Contractor on this information shall be at his own risk."

12.11 From a consideration of the legal effects of these provisions, the Tribunal concludes as follows:

12.11.1 Whilst under Clause 11 of the General Conditions the data in the IFT on hydrological and subsurface conditions obtained by the Employer "from investigations undertaken relevant to the Works and the Tender" shall be deemed to have been based on such data, the Claimant is responsible for its own interpretation thereof.

12.11.2 Any inferences drawn by the Claimant from such data and any consequent decisions based on such inferences were at the Claimant's risk.

12.11.3 Provisions such as Clause 12 are common in engineering contracts and have been upheld by the Courts. For example, Denis Friedman (Earthmovers) Ltd v. Rodney County Council [1988] 1 NZLR 184 which refers to many authorities which reach similar conclusions. The cases emphasise that the obligations of proper site investigation and the subsequent compilation of an adequate tender rest on the Contractor.

12.11.4 No claim was made in the Statement of Claim nor was any pursued at the hearing based on any misrepresentation by understatement or omission in the IFT about the testing of [river] material. It was accepted by the Claimant that the information there given had been accurate . . .

12.11.5 As was noted in the Denis Friedman case, certain Australian authorities demonstrate that even contractual provisions as staunch as Condition 12 can be dented by a claim by a contractor based on negligent representation. However, no such claim was advanced. It is hard to see how one could succeed in the absence of any evidence from those of the Claimant's employees involved with the tender process (such as [C] or [D]) about exactly what inferences they did or did not take from the information in the IFT.

12.11.6 There is no evidence as to what investigations, if any, the Claimant carried out prior to tender. Again, the lack of witnesses about this crucial phase is surprising. As noted earlier from [E, former general manager of one of joint venturers constituting Claimant]'s evidence, there were some investigations but he was unable to enlighten the Tribunal further.

12.12 The Tribunal is not convinced that the particular information contained in the IFT relating to the [river] site as a source of roading material is necessarily covered by Clause 11. That Clause refers to "investigations undertaken relevant to the Works". The mining of material from the [riverbed] was not part of "the Works" which term meant, in general terms, the building of a road. The roading foundations could have come from anywhere, provided the material satisfied the specifications when tested. Indeed, the Claimant had investigated other sources and may have based its tender on supplies being sourced from an outside source. It had a duty under the contract to provide acceptable material. The cost of obtaining that material was written into the tender doubtless, but subject to the necessity to obtain its approval of a source, it was of no concern to the Respondent whether the roading material was to have been won from the [river] or purchased from [company] or anybody else. At least one other river source was seen by the Respondent as at least worthy of consideration.

12.13 The Tribunal considers that the meaning of clause 12 is clear. It is concerned with unforeseen conditions encountered by a contractor in the execution of the works on the site. That must be so because of the following considerations:

12.13.1 The following words contained in clause 12

If however during the execution of the Works, the contractor shall encounter physical conditions, other than climatic conditions on the Site, or artificial obstructions, which conditions or obstructions could not have been reasonably foreseen.

These words are concerned with conditions encountered in the execution of "the Works" on "the Site".

As the Tribunal has said, the definition of "the Works" did not include the winning and processing of aggregate. But quite apart from that, it is clear that the words of clause 12 are directed to conditions encountered on the Site. Indeed the use of both the words "Works" and "Site" make the position clear beyond doubt.

12.13.2 Even if there were any doubt about the meaning and scope of clause 12, the contractual scheme is clear. The words appear in a well-known and muchused international standard form of civil engineering contract.

That contract contains sophisticated provisions which, amongst other things, allocate the commercial and other risks that might be encountered during the execution of Works under such a contract.

One aspect of that scheme is to impose upon the Contractor the consequences of encountering ground and other physical conditions at the site which could reasonably be foreseen. Conversely, the Employer accepts the risk that the Contractor may encounter conditions at the Site which could not reasonably have been foreseen.

This scheme exists because of the particular problems inherent in a civil engineering contract where much depends upon the physical conditions of the site at which the works are to be constructed. A contractor competing in a tendering situation cannot generally be expected to assume the risks about the unforeseen ground conditions at the site.

12.13.3 The supply of specified goods, materials and equipment for incorporation into the works is in a wholly different category. There can be no reason in principle why, in the ordinary course of business, a contractor should not take the commercial risk that problems will be encountered in the supply of such components for the works. To suggest, as the Claimant does, that clause 12 can be extended to include problems encountered in the supply of goods, materials and equipment cannot therefore be correct.

12.14 It follows from what is set out above that the Tribunal has reached the following conclusions:

12.14.1 Conditions encountered by the Claimant in the procurement of basecourse are not conditions to which clause 12 of the Conditions apply at all. That provision is intended to deal with physical conditions encountered by the Claimant on the site.

12.14.2 It would be straining the language of clause 12 to an impermissible extent to hold that the difficulties encountered by the Claimant in the procurement or production of basecourse for incorporation into the permanent works were comprehended by the clause.

12.14.3 By the Tender Addendum paragraph 5, the Claimant agreed that the Respondent gave no warranty regarding the quantity, quality or suitability of the materials contained in the [river] for the purpose of the Contract. In the light of this acknowledgement, it is clear that the commercial risk that the [river] aggregates might prove inadequate as to quality or in any other way unsuitable, was assumed by the Claimant.

12.14.4 To construe clause 12 in a way that entitled the Claimant to recover its alleged additional costs on the basis that the [river] aggregates were not of the quality or suitability assumed by the Claimant would involve a rewriting of the commercial bargain that the parties had freely concluded. The effect of that rewriting would include disregarding entirely paragraph 5 of the Tender Addendum. It is no part of the Tribunal's function to rewrite a bilateral arrangement freely made between the parties.'

Landowner interference

'16.1 The Claimant seeks [amount] on the basis that its work was the subject of interference by indigenous [State X] landowners on two occasions as follows:

16.1.1 A landowner from . . ., who was head of the [indigenous group], set up a roadblock close to the entrance to the crusher site and to part of the excavation site between 31 October and 5 November 1996. This roadblock prevented the Claimant from having access to the crusher site.

16.1.2 On 11 January 1997, landowners from nearby villages denied the Claimant access to the crusher site and to part of the excavation site until 20 January 1997 when the High Court of [State X] issued an injunction against the landowners at the suit of the Respondent and the Claimant which permitted access to be resumed.

16.2 Facts relevant to this cause of action are:

16.2.1 The [indigenous group] had permitted the Claimant access to the crusher site over their land.

16.2.2 The Claimant had been issued with a licence from the [authority] to extract gravel from the river but the necessary approval from that body to the access to the crusher site had not been given. In terms of the . . . Act . . ., the Claimant had no legal right to that access at the relevant dates. Under the legislation, it does not matter that the local people had given approval to access by the Claimant to the crusher site.

16.2.3 Under Clause 1213 of the Specification, it was the Claimant's duty to obtain legal entitlement to access to the land. The Engineer's Representative emphasised this obligation in a letter to the Claimant dated 1 February 1996.

16.2.4 Some previous claims had been allowed by the Engineer on 31 October 1997 based on "disorder" in terms of Clause 65 of the Conditions.

16.2.5 On 31 October 1997, the Engineer's Representative advised the Claimant that the licence over the access way was invalid in that it had not been sanctioned by [authority].

16.2.6 A letter from the Claimant to the Engineer's Representative dated 14 January 1997 stated that the cause of the disruption was the pursuit of employment opportunities by the demonstrators.

16.2.7 There was no evidence that the activities of the landowners were anything other than peaceful.

16.3 The claim was originally pleaded on two bases. One has now been abandoned, i.e. that the Respondent breached an implied term that, as Employer, it would do whatever was reasonably necessary to enable the Claimant to perform its obligations under the contract and that, therefore, it should have taken steps to prevent the landowners from engaging in the activities described.

16.4 The remaining basis for the claim is that the activities of landowners complained of amount to "disorder" in terms of Clause 65(4) of the Conditions as a result of which the Claimant suffered delay and disruption and incurred additional costs.

16.5 Clause 65(4) and (5) of the Conditions provides:

(4) The contractor shall be under no liability whatsoever whether by way of indemnity or otherwise for or in respect of destruction or damage to the works, save to work condemned under the provisions of Clause 39 hereof prior to the occurrence of any special risk hereinafter mentioned, or to any property whether of the employer or third parties of for or in respect of any injury or loss of life which is the consequence of any special risk as hereinafter defined. The employer shall indemnify and save harmless the contractor against and from the same and all claims, proceedings, damages, costs, charges and expenses whatsoever arising thereout or in connection therewith.

(5) The special risk are war, hostilities (whether war be declared or not), invasion, act of foreign enemies, the nuclear and pressurewaves risk described in clause 20(2) hereof, or insofar as it relates to the country in which the works are being or are to be executed or maintained, rebellion, revolution, insurrection, military or usurped power, civil war, or unless solely restricted to the employees of the contractor or of his subcontractors and arising from the conduct of the Works, riot commotion or disorder.

16.6 In the Tribunal's view, the peaceful protests of the native landowners, no matter what their motivation, cannot be considered "riot" or "commotion". What occurred was akin to a trade union picket. The question is was it "disorder" in terms of Clause 65(5)? The New Shorter Oxford Dictionary defines "disorder" as: 1. Lack of order or regular arrangement, disarray, a confused state. 2. Disturbance, commotion, breach of public order. Obviously, the second tranche of definitions is the appropriate one. The Tribunal cannot interpret the peaceful protest of the landowners as being "disorder" in terms of Clause 65 particularly when the use of the access was illegal. The term incorporates some form of active, if not forceful, civil disobedience.

16.7 Moreover, although the objective merit in the Respondent's claim of illegality is scant, the Claimant had no legal right to access because of the lack of [the aforementioned body's] sanction to its access arrangements with the landowners. The Tribunal has difficulty in seeing, in these circumstances, how the High Court had been able to issue an injunction which would have had the effect of giving approval to a technically illegal action. However, the Tribunal does not have to consider that point, since, in its view, there was no "disorder" in terms of clause 65(3).

16.8 Accordingly, for the reasons given, the Tribunal dismisses this claim.'