FIDIC White Book (FWB) is a set of rules offering an international counterpart to the Danish General Conditions for Consultancy Services for Building and Construction Works (ABR18). FWB is used in construction law in connection with consultancy agreements involving foreign parties. In this article we'll take at look at what you need to know in relation to background law (choice of law) if you wish to use or will be contracting under FWB.
What is FIDIC White Book?
FIDIC, short for Fédération Internationale des Ingénieurs-Conseils, has issued international standardised contracts, predominantly for the construction industry, since 1957. The FIDIC contracts are among the most frequently used standard contracts internationally in construction law.
FWB is a so-called "Model Services Agreement" and consists of general clauses (General Conditions ("GC")) and special clauses (Particular Conditions ("PC")). From the FWB foreword, we see that the authors intended for the GC to apply in more or less any contract, whereas the PC are provisions governing matters that will have to be decided on a case-by-case basis.
What makes the choice of background law important?
If you and your organisation want to use FWB, an internationally applied set of rules, it is important that you define the background law. That is, you define what law will apply if the standard FWB contract does not adequately regulate a given issue.
If you choose a background law other than Danish law, we recommend that you involve a local lawyer from the country whose background law you intend to use. That way your organisation and the parties involved under FWB will be sure to have the right understanding of the terms and concepts. The rules on limitation, for example, vary from one jurisdiction to the other and may potentially have a huge impact on your rights and claims. There are jurisdictions in which the rules on limitation in relation to defects are more favourable to clients than is the case in Denmark.
Differences in the interpretation of the terms and concepts in the individual clauses
FWB is first and foremost a contractual instrument. This means, for example, that the courts, when interpreting the parties' agreement, must apply national rules of interpretation on FWB and on the contract as such.
Example of the challenge of applying national interpretation rules
One example that amply illustrates the problem is the use of the term 'good faith' in FWB, GC clause 1.16. At first glance, the provision may appear fairly simple and unproblematic. It states that the parties to an FWB contract must act in good faith and in a spirit of mutual trust.
The problem arises if you enter into a FIDIC contract whose background law is governed by common law, such as the UK, the USA or Canada, as traditionally these countries do not really use 'good faith' provisions in a legal context. Therefore, if the choice of law is English law, for example, it could be worth your while to clarify what exactly constitutes 'good faith' under English law and what their judicial application of the notion is. You and a common-law contracting party may very well agree that each must act in good faith, but you should know that what defines 'good faith' in a court of law is not necessarily the same in every country.
Similar ambiguities may muddy the picture if English is selected as the 'Ruling Language of Agreement'. If American English is chosen, should then the FIDIC contract wording be interpreted according to American practices? If yes, then, for example, the term 'damages' will also include 'punitive damages' and will also allow 'competing claims'. Therefore, for choice of language purposes, too, defining the background law matters greatly.
If you find yourself about to enter into a FIDIC contract under common law, we at Kromann Reumert have common-law qualified lawyers ready to advise you. Please do not hesitate to contact us.
The examples above illustrate the importance of understanding the background law. Only that way will you be able to minimise the likelihood of interpretation problems - problems that may, at worst, result in significant financial consequences for one party.
Our recommendation for choice of background law when contracting on FIDIC terms
When entering into an agreement on FIDIC terms, we recommend that you check the possibilities and limitations of the chosen background law compared against the law you are familiar with.
Also, you need to be clear on how you yourself and the various parties to the agreement interpret the terms and concepts. For example, how do you interpret 'good faith' or 'reckless default, fraud, fraudulent misrepresentation or reckless misconduct'? You should strive always to have the contract written in a way that - in a Danish context - minimises both the risk of interpretation difficulties and of undesirable interpretation outcomes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
