Differences between the Civil and Common Law: Part 2: Delay Damages and Taking-Over Cremona Cotovelea Nina Tsaturova Jeremy Glover
Sub-Clause 10.1: Taking Over The Engineer shall, within 28 days after receiving the Contractor s Notice either: (i) issue the Taking-Over Certificate to the Contractor, stating the date on which the Works or Section were completed in accordance with the Contract, except for any minor outstanding work and defects (as listed in the Taking-Over Certificate) which will not substantially affect the safe use of the Works or Section for their intended purpose (either until or whilst this work is completed and these defects are remedied);
Taking Over: Common Law Approach Practical completion means the completion of all the work that has been done under the contract. It is possible for the works to be practically complete even though there may be latent (i.e. hidden) defects in the works. The works will not be complete if there are patent defects (i.e. visible defects). If there are patent defects in the works, practical completion should not be certified. It is possible to certify practical completion where there is minor (often called de minimis) work still to be carried out.
Sub-Clause 10.1: Taking Over Common law approach: For all practical purposes, that is to say for purposes of allowing the Employer to take possession of the works and use them as intended, but not complete down to the last detail, however trivial and unimportant. Jarvis v Westminster [1981] CA 1 WLR 448
Taking Over: Civil Law Approach There is no unitary legal regulation Usually: It could be mandatory, therefore applicable to both: private and public projects. Contractual Taking Over procedure could add to the legal procedure or be replaced by it. Implications: Acceptance of the Works DNP regime under applicable law Legal warranty
Taking Over: Civil Law Approach When mandatory, it could request the verification of the: Works: the completion of all the works stipulated in the contract the works have been completed in accordance with the contract, of the design documentation, of the execution documentation, and of the specific regulations, in compliance with the fundamental requirements, according to the law compliance with the provisions of the building permit as well as the permits / agreements and the conditions of execution imposed by the competent authorities Documents (i.e. as-built records) required by law/contract were submitted
Taking Over: Georgian Law Approach Contractor shall deliver the works to the Employer and the Employer shall accept the works when the works are completed in accordance with the contract. Article 652 of the Civil Code: If the employer is aware of a defect in an object and still accepts it without asserting a claim, then the employer may not assert any claims with regards to defect.
Taking Over: Georgian Law Approach Article 649 of the Civil Code: The works shall be deemed to be accepted, if the Employer delays the acceptance within the time stipulated by the Contractor. Article 633(1) of the Civil Code: The contractor may claim loss if the employer does not accept the work performed. The employer shall also pay damages if he/she does not perform actions necessary for performance of the work.
Taking Over: Georgian Law Approach FIDIC Red Book Sub-Clause 11.9: Only the Performance Certificate shall be deemed to constitute the acceptance of the Works. What about Taking Over under Sub-Clause 10.1?
Sub-Clause 8.8: Delay Damages If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Employer shall be entitled subject to Sub-Clause 20.2 [Claims For Payment and/or EOT] to payment of Delay Damages by the Contractor for this default. Delay Damages shall be the amount stated in the Contract Data, which shall be paid for every day which shall elapse between the relevant Time for Completion and the relevant Date of Completion of the Works or Section. The total amount due under this Sub-Clause shall not exceed the maximum amount of Delay Damages (if any) stated in the Contract Data.
Delay Damages: Common Law Approach The new test for whether a clause is a penalty is, as set out by Lord Neuberger: "whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation." Cavendish Square Holding BV v Talal El Makdessi But what does that mean? [2015] UKSC 67
Delay Damages: Common Law Approach A Tribunal will now consider the wider commercial context of a transaction. A clause will not necessarily be penal, and therefore unenforceable, simply because it is aimed at deterrence rather than compensation, e.g. delay damages might be set by government bodies which do not necessarily suffer financial losses in the same way as commercial parties.
Delay Damages: Common Law Approach Even if the amount required by a clause bears no relationship to the loss actually attributable to the breach, it will not necessarily be a penalty if it can be shown that there is a legitimate reason why compensation for the actual loss suffered would not be sufficient. Successful challenges to delay damages clauses historically have been rare and that positon will remain, especially where the parties have negotiated a contract and with the assistance of professional advisors.
Delay Damages: Civil Law Approach Damages: Could have a double nature: compensatory and punitive Both acceptable depending on the national legislation and the evolution of the concept Could be compensatory or moratory* *moratory damages (mora from Latin- delay) meaning, as the contract shows, that they are damages recoverable for loss resulting from the Contractor's delay in performing the Works.
Delay Damages: Civil Law Approach Both categories are usually acceptable: Compensatory damages OR the execution of contract (fulfilment of the principal obligation) Moratory* damages AND the execution of contract *moratory damages (mora from Latin- delay) meaning, as the contract shows, that they are damages recoverable for loss resulting from the Contractor's delay in performing the Works.
Delay Damages: Civil Law Approach Penal Clause Penalty Clause (Stipulatio poenae) A penalty is a clause by which a person, in order to ensure performance of an agreement, binds himself to something in case of non-performance. A penalty clause is a compensation for the damages which the creditor suffers from the non-performance of the principal obligation (art 1226, 1229 French Civil Code 2016) Contractual penalties can often be reduced by judges if they are unreasonably high or not drafted in strict accordance with the governing law.
Delay Damages: Georgian Law Approach For breaking a promise to secure the performance of primary obligation (Article 417 of the Civil Code) Amount of penalty may exceed the actual loss (Article 418(1) of the Civil Code) Not an exhaustive remedy for delay (unless otherwise agreed by the parties) loss caused by delay may always be claimed (Article 419(2) of the Civil Code) Parties may agree on exclusion of liability other than that caused by intentional/deliberate breach of obligation (Article 395(2) of the Civil Code)