01 October 2020

Red Alert: Unusual Clauses in FIDIC Contracts

Abstract The objective of this paper is to place unusual clauses, as defined by art. 1203 Romanian Civil Code[1], in the context of FIDIC contracts for the purpose of analyzing the legal consequences of certain imbalanced clauses in construction contracts concluded between private Contractors and public Contracting Authorities. The purpose of this paper is two-fold: it aims to present the FIDIC clauses which may be subject to art 1203, in the same time serving as a signal to raise awareness regarding the conclusion of FIDIC contracts, giving due regard to the potential consequences of art. 1203 RCC. Keywords: FIDIC contracts, unusual clauses, imbalanced clauses, construction contracts, public procurement

I. Introduction

The factual premise for unusual contracts consists of a disruption of the contractual equilibrium mainly possible because of the position of power exercised by one of the signing parties. This disruption affects the principle of legal equality position of the signing parties, giving power to one of the parties to draft clauses in its favor, enhancing its rights and/or enforcing supplementary obligations for the other party. The mechanism of unusual clauses aims to reestablish the contractual balance by depriving standard clauses imposed by the powerful party of any effects unless such clauses were expressly accepted, in writing, by the other party. In construction contracts concluded through a public procurement procedure between a private entity – Contractor – and a state entity – Contracting Authority – it is debatable whether and in what conditions certain clauses could be considered unusual and deprived of effects as a protection measure for the Contractor. The issue becomes even more debatable taking into consideration the fact that such contracts are mainly standard contracts – e.g. FIDIC contracts – drafted by an independent international body, therefore not directly drafted by one of the parties of the contract. However, as we shall analyze further on, the possibility to amend such standard contracts through the Particular Conditions of Contracting might, if the required conditions are met, lead to the conclusion that certain clauses are standard clauses imposed by one of the parties, therefore cannot produce any effects in lack of express acceptance by the other party.

II. FIDIC clauses which may be subjected to art. 1203 civil Code

1. Article 1203 RCC – an overview
Unusual clauses are regulated by article 1203 RCC, as an absolute novelty inspired from the Italian civil Code[2], also present in similar forms in UNIDROIT Principles[3] or in Draft Common Frame of Reference[4]: The standard clauses which establish, to the benefit of the proponent party, limitation of liability, the right to unilaterally terminate the contract, the right to suspend the execution of obligations, or which establish, to the detriment of the other party, forfeiture of rights or terms, limitation of the right to raise objections, limitation of the right to conclude agreements with other persons, tacit renewal of the contract, applicable law, compromissory clauses or clauses which derogate from the rules regarding the jurisdiction of courts do not produce any effects unless expressly accepted, in writing, by the other party. Unusual clauses represent a category of standard clauses which significantly derogate from the rule of law. The sanction provided for such clauses, in lack of express acceptance, comes to protect the weaker contracting party through this procedural formality. The protection of the weaker contracting party in this manner became a desideratum for most of the modern legal systems.[5] Regarding the effectiveness of the unusual clauses, regulated by article 1203 RCC, there are several conditions to be met in order to fall within the scope of this regulation.

A. Premise no. 1 – Only standard clauses can be unusual clauses
Standard clauses are defined by article 1202 RCC as stipulations preestablished by one of the parties for general and repeated use, included in a contract without previous negotiations.[6] Therefore, the legislator establishes two conditions for qualifying a clause as standard:
  • the existence of clauses included in a document held by one of the parties, generally prior to the conclusion of the contract;
  • the said clauses were not the object of negotiations between the parties.[7]
DCFR defines standard clauses as clauses priory drafted in order to be utilized in multiple transactions, with different parties and which were not previously negotiated between the parties to a certain contract. It is important to mention that this definition includes clauses drafted by a third party, being mandatory to prove the destination for multiple use. Whether a certain clause was or was not negotiated between the parties is to be determine taking into consideration the real and effective possibility of the weak party to influence the content of such clause. Therefore, a simple correspondence between the parties with regard to such a clause should not be considered sufficient to constitute a negotiation. On the other hand, the modification of the clause during negotiations constituted an indicator of real and significant negotiations leading to the conclusion that a certain clause is no longer standard, in the sense of article 1202 RCC.[8] Also, in case of multiple transactions between the same parties, a sole negotiation for a certain clause which will be further on used in all future contracts represents due negotiation and such clause will not be considered standard between the parties.[9] Another exemplificative hypothesis is the situation when a party is given the possibility to choose from a list of standard clauses. In this case, the simple choice, in lack of other negotiations related to that specific clause cannot constitute enough ground to qualify that clause as negotiated.[10] Therefore, if the liberty to influence the content of the contract is limited to the choice between multiple pre-drafted clauses, such clauses will remain standard and can be unusual in the sense of article 1203 if the other conditions are met. In principle, standard clauses are valid and produce effects without any formality necessary for acceptance. Exceptionally, if a standard clause regards one of the issues listed in article 1203 RCC, the procedural formality of express acceptance, in writing, is needed for the clause to produce effects.

B. Premise no. 2 – Standard clauses referring to issues listed in article 1203 RCC
Standard clauses can be unusual clauses only if they refer to the issues listed in article 1203 RCC, as follows:
  • to the benefit of the proponent party: limitation of liability, the right to unilaterally terminate the contract, the right to suspend the execution of obligations, or
  • to the detriment of the other party: forfeiture of rights or terms, limitation of the right to raise objections, limitation of the right to conclude agreements with other persons, tacit renewal of the contract, applicable law, compromissory clauses or clauses which derogate from the rules regarding the jurisdiction of courts.
Any other clause except from the ones listed above, even if it is a standard clause, will be effective and valid, without any special acceptance formality.

C. The effectiveness condition – the express written acceptance of unusual clauses
In order to be valid and effective, it is not enough for the drafting party to inform the other party regarding the existence of unusual clauses. Such clauses need to be expressly accepted, in writing, acceptance which needs to be separate from the signature of the contract itself.[11] Concerning the acceptance formalities, unusual clauses could be globally accepted, but expressly and separately from the contract itself, therefore it might not be necessary to expressly accept in writing each clause in particular.[12] The purpose of this acceptance formality as a protection measure of the weak party, is to raise the awareness of that party to the existence and content of the unusual clauses.

D. Sanction – the clauses will be considered unwritten
The contractual clauses which fall within the provisions of article 1203 and which were not expressly accepted in writing will not produce any effects, being considered unwritten. As a consequence of the exclusion of such clauses from the contract, the legal provisions will become applicable as rule of law. This specific sanction is regulated by the RCC different from the nullity of the clause. Being considered unwritten, these clauses will be, practically, inexistent in the contract, leading to the applicability of the legal provisions. The sanction is similar to the absolute nullity, however its effects being even more drastic, reason why the legislator chose to provide for a special sanction, regulated for the first time in the new RCC.[13]

2. FIDIC clauses which may be subjected to article 1203 RCC
For the purposes of this analysis, we will refer to the FIDIC clauses as they are regulated, on one hand, in the General Conditions of Contracting and, on the other hand, as they can be modified by one of the parties in the Particular Conditions of Contracting, in order to determine which clauses could be subjected to article 1203 RCC.

A. Unusual clauses in FIDIC General Conditions of Contracting
General Conditions of Contracting are drafted by the International Federation of Consulting Engineers[14] as a model contract for construction works. For the purposes of our paper, we will refer to the FIDIC Yellow Book clauses. The clauses which regulate aspects referred to in article 1203 RCC and which, as a consequence, could fall within the scope of unusual clauses are the following:
  • limitation of liability: clauses 11, 17 & 19
  • the right to unilaterally terminate the contract: clauses 15 & 16
  • the right to suspend the execution of obligations: clauses 8 & 16
  • forfeiture of rights or terms: possible mostly anywhere there is a right or term.
  • limitation of the right to raise objections: clause 20
  • limitation of the right to conclude agreements with other persons/third parties: clause 5
  • tacit renewal of the contract: N/A
  • applicable law: sub-clause 1.4
  • compromissory clauses: clause 20
  • clauses which derogate from the rules regarding the jurisdiction of courts: clause 20
The main issue regarding the applicability of the unusual clauses theory for General Conditions of Contracting is that these clauses are not standard clauses drafted by one of the parties. FIDIC Conditions for Contracting are a set of model clauses drafted by the International Federation of Consulting Engineers, therefore the contract is drafted by a third party. In this respect, it is generally accepted that it is not mandatory for the standard clauses to be drafted by the contracting party. The same solution can be also drawn from the wording of article 1202 RCC which states: “Standard clauses are stipulations priory established by one of the parties to be generally and repeatedly used and which are included in the contract without being negotiated with the other party.” Therefore, it is of no relevance whether the standard clauses were drafted by one party or by a third person. Concerning the condition of being generally and repeatedly used, most Contracting Authorities or private entities use the same FIDIC model contract for all construction works. However, the FIDIC model contracts (especially the Red Book and Yellow Book) were drafted in such a way as to ensure as much as possible the equality of the parties, reason why if a party uses the exact model of the FIDIC contract it would, in principle, be incompatible with the theory of the unusual clauses as it could not fulfill the requirement of depriving one party or benefit the other. Regarding this matter, it is our opinion that, in principle, FIDIC General Conditions of Contracting could not fall within the scope of article 1203 RCC. Of course, this issue is to be determined from case to case depending on the specifics of each situation in particular.

B. Unusual clauses in FIDIC Particular Conditions of Contracting
FIDIC Particular Conditions of Contracting, even if provided in draft by FIDIC, they are to be completed by the parties during negotiations or proposed by one party and accepted without reservations by the other party. When the contract is to be concluded between a public entity – Contracting Authority – and a private entity by means of a public procurement procedure, the Particular Conditions of Contracting are completed by the public authority and published along with the Tender documents. The private entities which file an offer within such a public procurement procedure do not have the possibility to amend the provisions of the Particular Conditions of Contracting, as after the granting of the contract the parties usually sign only a Letter of Acceptance and a short Contractual Agreement. Taking into consideration this factual status, it is to be determined whether certain clauses, as they appear after alteration within the Particular Conditions could fall within the scope of article 1203 RCC. Taking into consideration the first condition – the standard character of the clause – there is no certain or generally applicable answer. In this respect, it is to be determined whether the particular conditions represent a set of clauses generally and repeatedly used by that public authority in all or most similar contracts. For example, there might be public authorities which present on their website a model of both general and particular conditions of contracting. In lack of such a public display of this information, it could be difficult for the interested party to prove that the public authority generally and repeatedly used the same particular conditions in other contractual relationships. Also, the proof regarding the fact that such clauses were included in the contract without being negotiated with the other party could be simply made by showing that there are no differences between the proposed priory established draft (as it appears on a website or in other similar contracts) and the contract itself. If such a proof is provided, the first premise for the applicability of unusual clauses is met. Furthermore, the interested party will have to identify which clauses regulate aspects referred to in article 1203 RCC and which, as a consequence, could constitute unusual clauses. In this respect, in order for a standard clause contained in the Particular Conditions of Contracting to be unusual, it has to regulate in the benefit of the proponent party or in the detriment of the other party any of the matters stated in article 1203 RCC. If this condition will be met too, the interested party can request the competent jurisdictional entity to declare the clause unusual. An unusual clause will be considered unwritten and will not produce any effects between the parties. This sanction aims to reestablish the equilibrium of the contract between the parties.

III. Conclusion

FIDIC Particular Conditions of Contracting in particular, depending on their contents, may lead to the applicability of art. 1203 RCC. The clauses which could most probably be affected, and therefore, that should be given special attention to, are the ones indicated in the present paper. Perhaps the most probable example of applicability of art. 1203 RCC is a FIDIC contract concluded between a Contractor and a state entity, through a public procurement procedure. Such a procedure might give the Employer a certain contractual advantage and could lead to the inclusion of unusual clauses in the contract. In any case, art. 1203 RCC is a useful tool in FIDIC (and any other) contracts: before the conclusion of the contract, complying with the provisions of art. 1203 RCC entails that both parties are aware of and agree to all contractual provisions, especially those which are not common. After the conclusion of the contract, if the requirements of art. 1203 RCC (i.e. written express approval of respective unusual clauses) are not met, the unusual clauses in question remain without effect. This entails that the party which found itself at a disadvantage due to such an unusual clause, could make use of art. 1203 RCC to defend its interests and improve its contractual position.  


[1] Romanian Civil Code, entered into force on 1 October 2011, hereinafter “RCC”.
[2] Article 1341 Italian civil code.
[3] Article 2.1.20 UNIDROIT Principles
[4] Article II. – 1:110 and II. – 9:103
[5] Study Group on a European Civil Code, Research Group on EC Private Law Principles, Definitions and Model Rules of European Private Law, Draft Common Frame of Reference (DCFR). Full Edition, vol. I, Sellier Publishing House, Munich, 2009, p. 592-594.
[6] Fl. A. Baias, E. Chelaru, R. Constantinovici, I. Macovei (coord), Noul Cod civil. Comentariu pe articole, ediția 2, commented by Alin-Adrian Moise, ed. C.H.Beck, 2014, p. 1335.
[7] B. Oglindă, Drept civil. Teoria generală a obligațiilor, ediția a II-a, ed. Universul Juridic, 2017, p. 76.
[8] L. Pop, I-F. Popa, S. I. Vidu, Curs de drept civil. Obligațiile, ed. Universul Juridic, 2015, p. 93.
[9] B. Oglindă, Drept civil. Teoria generală a obligațiilor, ediția a II-a, ed. Universul Juridic, 2017, p. 77.
[10] Fl. A. Baias, E. Chelaru, R. Constantinovici, I. Macovei (coord), Noul Cod civil. Comentariu pe articole, ediția 2, commented by Alin-Adrian Moise, ed. C.H.Beck, 2014, p. 1338.
[11] L. Pop, I-F. Popa, S. I. Vidu, Curs de drept civil. Obligațiile, ed. Universul Juridic, 2015, p. 93.
[12] B. Oglindă, Drept civil. Teoria generală a obligațiilor, ediția a II-a, ed. Universul Juridic, 2017, p. 78.
[13] Fl. A. Baias, E. Chelaru, R. Constantinovici, I. Macovei (coord), Noul Cod civil. Comentariu pe articole, ediția 2, commented by Alin-Adrian Moise, ed. C.H.Beck, 2014, p. 1338-1339.
[14] Federation Internationale des Ingineurs Conseils (fidic.org)
 

Autori
Associate Professor, Ph.D., Bazil OGLINDĂ
LL.M., Cristina OLARIU