FIDIC - Russian Practice

In 2020, the International Federation of Consulting Engineers (FIDIC) will celebrate its 107th anniversary. The Federation was founded in 1913 and its initial goal was to create an international methodological basis for the activities of consulting engineers. Now the main mission is to develop standard contract terms to regulate relations between participants in international investment and construction activities.

The interest of Russian participants in international investment and construction projects in the standard agreements of the International Federation of Consulting Engineers (FIDIC), the increasingly widespread use of these standard agreements in the practice of Russian construction industry entities lead to the introduction of dispute resolution procedures provided for by these standard agreements. Some of these procedures have long been known to the Russian legal order, in particular the arbitration procedure for resolving disputes (arbitration). Other procedures, for example, have no analogues in the Russian legal system - which is called Adjudication.

Adjudication (from English - “dispute consideration”) is a procedure for transferring a dispute to a third party (one person or several persons) for resolution on the merits." The role of the "third party" is played by generally recognized professionals in the construction industry, who are elected by agreement of the counterparties (the parties can choose one specialist (Adjudicator) or a panel of specialists (Dispute Adjudication Board - (DAB))).

DAB is formed by agreement of the parties to the contract (clause 20.2 of the General Conditions of the FIDIC Red Book 1999) and can include from 1 to 3 members. Depending on the moment of formation, permanent (standing DAB) and one-time (ad hoc DAB) boards are distinguished: the first is formed by the parties to the agreement upon its conclusion, and the second - after a controversial situation arises during the execution of the agreement.

DAB has jurisdiction over any disputes that may arise in connection with the conclusion and execution of the contract (clause 20.4 of the General Conditions of the Red Book). In FIDIC standard contracts, the corresponding provision is included in clause.

20.2 General Conditions. In addition, by virtue of the terms of this paragraph, the General Conditions of the Dispute Resolution Agreement are applied to the relations of the parties as an annex to the construction contract.

Based on the results of the dispute consideration, the DAB makes a decision. The decision is a set of recommendations addressed to the parties to the dispute.

Currently, the following pre-trial procedures are used in Russia: negotiations, claims procedure, mediation. As follows from the analysis of the General Conditions of the Red Book of 1999, which regulate the organization and conduct of DAB, this procedure does not coincide in content with any of them. Unlike negotiations and claims procedures, DAB is implemented by contacting a third party. DAB differs from mediation in the purpose of its activity: the specialist/collegium makes a decision on the merits of the dispute, and does not ensure reconciliation of the parties. DAB also differs from arbitration (arbitration proceedings). Firstly, the DAB is not a jurisdictional body, secondly, there are no regulations governing the procedures for resolving disputes through the DAB, and thirdly, the status of the DAB decision as a final decision is controversial.

In principle, the DAB dispute resolution procedure could well be reflected in Russian practice on pre-trial dispute resolution procedures. Moreover, the legislator directs the parties to resolve disagreements through reconciliation.

However, the binding nature of the DAB decision will essentially not be binding in Russia, since this clause can be regarded as a waiver of the right to defense, which, as follows from Art. 4 of the Arbitration Procedure Code of the Russian Federation is declared invalid.

However, despite a certain hesitancy of subjects of legal relations to regulate rights and obligations by FIDIC pro formas, there is nevertheless judicial practice that considers controversial issues with these pro formas.

The Moscow Arbitration Court considered a case brought by Engineering Corporation Transstroy CJSC against the Ministry of Regional Development of the Russian Federation to change the terms of a construction contract. The contract was concluded using the 1999 FIDIC Red Book as a standard form, Article 20 of which provides for the referral of disputes to the DAB for consideration. One of the issues that was resolved by the court during the consideration of this dispute was the defendant’s objection, according to to which the court should have left the claim without consideration

due to the fact that the plaintiff violated the pre-trial procedure for resolving the dispute. The court did not take this objection into account due to the fact that “the parties did not provide the court with evidence” of the formation of the DAB (the “Council”, in the terminology of the decision) “within the time period agreed upon by the Contract.”¹

In another case, according to the claim of Gera LLC against Stroydom Plus LLC, the court left the claim without consideration, indicating that, by filing this claim in court, the plaintiff violated the procedure for pre-trial dispute resolution established by Contract Agreement No. VOLCONST under FIDIC terms dated 12/01/2010 and Agreement No. IMMO 8 (Volgograd Project) dated 12/01/2009 d., which is not disputed by the parties.²

 

There is also judicial practice in which the requirements were considered on the merits of construction proformas, for example, in the claim of the COMPANY ANT YAPI SANAYI VE TIJARET ANONYM SHIRKETI to

LLC "Argus" on the collection of debt for payment for work performed.³

It is worth paying attention to the conclusion that the court came to when considering the case, namely: the court established the priority of the general terms of the contract (FIDIC Yellow Book) over national law (Civil Code of the Russian Federation) - in terms of establishing the payment period for work performed.

The Federal Antimonopoly Service of the North-Western District comes to an interesting conclusion that FIDIC proformas relate to established business practices: “... in Article 2 of the agreement dated 02/01/2011, the parties recognized it (the Agreement) as integral parts of the estimate, the contractor’s commercial proposal dated 01/27/2011, special terms of the agreement, work schedule, rules for work by tenants in the business center, working documentation (drawings, specifications) with the seal "for the execution of work", as well as Appendix No. 3 - General Conditions of the International Federation of Consulting Engineers (FIDIC), first edition 1991 (taking into account the typo - 1999) "Conditions of the construction contract for construction and engineering work on the customer's project" (hereinafter referred to as the General Conditions), which, by virtue ofArticle 5The Civil Code of the Russian Federation (hereinafter referred to as the Civil Code of the Russian Federation) is essentially a document that unifies business practices associated with the implementation of construction and engineering work according to the customer’s project. Therefore, the provisions of this model agreement can be applied in

¹Resolution of the Ninth Arbitration Court of Appeal dated September 11, 2009 in case No. A40-4363/09-104-30

²Determination of the Moscow Arbitration Court dated October 17, 2012 in case No. A40-87391/12-141-808

³Case No. A40-170190/2017

part that does not contradict the norms of the legislation of the Russian Federation, and taking into account other terms of the agreement...".⁴

Summarizing the above, it is worth coming to the conclusion that there is a tendency towards the use of proformas in FIDIC in modern Russia, which cannot but reflect the desire to improve quality in construction and engineering work.
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Author:
Alexey Pankratov,
Lawyer
law officeRBL, associated officeGRATA Internationalin Samara, Russia