English may be becoming the lingua franca of international commerce but don’t make the mistake of thinking that construction law is the same everywhere
Robert Akenhead postulates that most foreign cultures are governed by the same legal principles as English law (9 July, page 49) and therefore that lawyers and clients ought not to have too much anxiety about working abroad.
However, while it is true that there are legal principles common to most legal systems, there are many significant differences, and often, in the context of construction and engineering projects, these have the capacity to cause surprise and severe financial discomfort to the unwary.
So it is usually a shrewd move, prior to contract execution, to have the documents reviews by local lawyers, well versed in these intricacies and peculiarities.
Experienced contractors and equipment suppliers investing resources in projects in foreign countries are usually alive to the increased risks of such projects. They are keen to limit liability and potential exposure wherever possible, and they usually think carefully about local laws and how they may be applied. It is well understood that one relies on the letter of the contract at one’s peril.
Although it is true that in many parts of the world the law is clearly set out in civil codes, in the Middle East, for example, those codes are often based on Muslim jurisprudence and the principles of Sharia law. While Mr Akenhead is correct that civil codes can give some comfort and confidence to foreign investors and contractors, it ought not to be forgotten that, when it comes to interpreting these codes, all is not always as it seems.
Furthermore, unlike in the UK, many countries in the developing world and the Middle East do not have a specific body of construction or engineering-related law and precedents.
Particular problems recur time and time again. One example is with the formation and termination of contracts. Some local legal systems require contracts to be registered with the local court at the outset, failing which they might not be valid – particularly when the contracts are with government agencies. Similarly, there is often a particular procedure to follow when contracts are terminated. These may involve the local court giving its approval prior to the termination.
It is a shrewd move, prior to contract execution, to have a local lawyer on hand to review the contract
Perhaps the area fraught with the most problems for contractors and investors wishing to limit their liability and exposure to the often increased risks associated with projects in foreign climes is how local laws and civil codes deal with the attempt by one party to limit or exclude liability for its own default.
Some codes provide that, although the parties may limit the amount of damages by express provision in the contract, the court may, on the application of either party, amend that agreement to render the estimated damages equal to the actual damage. This may come as a rather large surprise to contractors that have sought to limit their liability for delay by reference to liquidated damages.
Similarly, there are civil codes that provide that any condition intended to exempt or limit the contractor’s liability shall be void. Under the European codes, for example, any attempt to limit or exclude liability for gross negligence or wilful misconduct is normally void.
All this highlights the dangers of relying on standard forms of international contract, such as FIDIC, which usually contain clauses in relation to liquidated damages and limitation of liability that the unwary might assume are valid the world over. They are not. The message is simple. It is a high-risk strategy, in the pursuit of profit on foreign projects, to assume that local laws will protect a foreign investor’s position in the same way that the more familiar common-law countries do. It is always sensible, if a local lawyer whose opinion one can trust can be found, to check that the key clauses upon which one intends to rely are enforceable under the relevant law.
Nick Henchie is a partner in the construction and engineering group of Mayer, Brown, Rowe & Maw