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contractor makes a claim after the contractual deadline,the engineer has to inform the contractor within 14 days,by way of a notice, that the claim is late. If the engineerfails to do so, the contractor’s notice of the claim isconsidered to have been made in time. Likewise, underthe new sub-clause 3.7.5, a party that is dissatisfied witha decision made by the engineer must submit a relevantnotice within 14 days. If the party fails to do so, theengineer’s decision becomes final and binding on theparties.In practice, stricter formal requirements in therealisation of contract may lead to a number ofconsequences. One can expect an increased numberof claims because, from the legal point of view, it willdefinitely be more prudent to make a claim by acontractual deadline and then analyse its justifiabilityafterwards. In order to comply with a number of thenew procedures, the parties to a contract may be forcedto cooperate even more closely with professional legaladvisors from the very beginning of the realisation ofthe project. In extreme cases, it may happen that theformalities and the observance of procedural rules willrequire the use of a disproportionate amount of timeand resources in comparison to actually carrying out theconstruction work. The response of the market to thistype of situation is unlikely to be enthusiastic.NEW OBLIGATIONS OF THE ENGINEERSignificant changes have also been made in relationto the role and duties of the engineer. In particular,the requirement of sub-clause 3.7 that the engineermust act neutrally in making decisions has caused muchcontroversy. It is undoubtedly desirable that the engineerperform the role of a neutral, professional arbitrator indisputes between the contractor and the employer, butit should not be forgotten that the engineer is boundby a separate contract for the provision of serviceswith the employer and, in principle, acts on its behalfduring the realisation of the contract. Therefore, it isdoubtful whether one may reasonably demand neutralityfrom the engineer and the question arises as to whatneutrality could mean in this situation. At the sametime, it is not clear what consequences would followfrom the engineer’s partiality, and in particular whetherthe engineer would be exposed to liability if damagewere caused to any of the parties to the contract inconnection with his lack of impartiality. Furthermore,there are organisational challenges for contractengineers connected with the changes in the FIDICgeneral conditions of contract that should be taken intoaccount. The new procedures impose an obligation onthe engineer to take actions within short, strictly defineddeadlines, on pain of adverse legal consequences for theemployer, which will require engineers to react morequickly to events taking place on the construction site.Greater formalism in communication with the contractorand the employer may make it necessary for firmsrendering contract engineer services to engage greaterresources in the service of projects.The following articles discuss in greater detail someselected institutions and clauses of the new FIDICgeneral conditions of contract. We hope that theanalysis of these institutions and clauses in the contextof both domestic and international experience will helpclients to understand the implemented changes betterand contribute to the improvement of the practice ofapplying FIDIC contract templates in Poland.We invite you to read them!06 The New FIDIC Conditions of Contract (2017) from the Polish Perspective

MODIFICATIONS OF THE GENERAL PRINCIPLESGOVERNING CONTRACTUAL LIABILITY FORDAMAGES IN FIDIC CONTRACT TEMPLATESwww.dlapiper.com 07

PAWEŁ BARTOSIEWICZ, DLA PIPERFIDIC contract templates regulate a broad range of issues related to liability fordamages of the parties to a contract in the event of a breach. However, the appliedconstructions originate from foreign legal systems and, therefore, do not alwaysconform to the requirements of Polish law, including the provisions of the Civil Code.Moreover, in particular conditions of contracts used by Polish employers, additionalregulations are inserted that contain stricter rules concerning contractors’ liability.As a whole, this creates a complicated and non-transparent system of rules wheredisputes on the interpretation of particular contractual provisions may arise.INTRODUCTIONThe second edition of Conditions of Contract forConstruction, published by FIDIC in December 2017,introduces changes concerning the rules of contractualliability of the parties to a contract, which will bediscussed in this article in the context of the existingPolish experience. The Conditions of Contract forConstruction For Building and Engineering Works Designedby the Employer (the FIDIC Red Book 2017) and theConditions of Contract for Construction For Building andEngineering Works Designed by the Contractor (the FIDICYellow Book 2017), which are of principal significancefor the Polish market will be discussed together. In theconfines of the issues addressed, the provisions of bothtemplates are for the most part the same and where anydifferences appear, it has been each time pointed out inthe text.To begin with, it must be clarified that in accordance withthe principle of freedom of contract, the parties havea significant degree of freedom to modify the generalprinciples governing liability for damages as laid downin the Civil Code. It is permissible to define the typesof categories of circumstances for which the debtor isliable, to change the rules concerning causal relationship,as well as to specify, on a quantitative basis, the amountof the debtor’s liability. The most important limitationregarding the scope of permissible changes is providedfor in Art. 473 § 2 of the Civil Code, whereby it is notpermissible to exclude or limit the liability of the partiesto a contract for wilful damage. Also, the content ofArt. 3531 of the Civil Code must be taken into account,according to which freedom of contract is generallyrestricted not only by the provisions of law, but also bythe character (nature) of the legal relationship and theprinciples of social existence.LIMITATION OF LIABILITYIn the 1999 FIDIC general conditions of contract, theprincipal regulation concerning limitation of liability fordamages of the parties to a contract is contained in subclause 17.6. In the 2017 edition, the provision governingthe limitation of liability has been moved to sub-clause1.15 and its wording has been changed. However, its basicassumptions and mechanism of operation have remainedthe same. Pursuant to the new sub-clause 1.15, neitherparty is liable to the other party for the damage resultingfrom the loss of the possibility to use the works, the lossof profit, the loss of any contract, or for any indirect orconsequential loss or damage which may be suffered bythe other party in connection with the contract, with theexception of liability on the basis of a closed catalogueof indicated sub-clauses. Subject to the exceptionsindicated in another closed catalogue of contractual subclauses, the contractor’s liability toward the employermay not exceed an aggregate maximum sum stated inthe contract, and if such a sum has not been expresslystated, the amount of the accepted contract amount.Also, the sub-clause stipulates that the limitation of08 The New FIDIC Conditions of Contract (2017) from the Polish Perspective

liability does not apply to any case of fraud, grossnegligence, deliberate default or reckless misconduct byany of the parties.In principle, the regulation discussed above is consistentwith the mandatory provisions of Polish law, as itexpressly provides for unlimited liability for damage thatis caused wilfully. However, it is not adjusted to Polishlegal constructions in many regards. The first part of thesub-clause seems to be intended to exclude the parties’liability for lost profits (lucrum cessans) in the meaningof Art. 361 § 2 in fine of the Civil Code, but since FIDICdoes not use this expression, the exact scope of theexclusion in particular factual states may give rise tosome doubts. For instance, such doubts may arise whenthe parties’ liability in the event of the rescission of acontract is considered. It should be noted that both subclause 17.6 of the 1999 general conditions of contract andthe new sub-clause 1.15 provide for the possibility of thecontractor’s seeking lost profit from the employer undersub-clause 16.4 [Payment after Termination by Contractor]1,but the employer does not have the same right undersub-clause 15.4 [Payment after Termination by Employer].Therefore, the legal situation of the contractor is morefavourable because if the contractor effectively rescindsthe contract, it has an additional claim for redress of thedamage in the form of lost profits. On the basis of thecited sub-clauses, the contractor may also defend itselfagainst the employer’s claim for payment of damages forlost profits if the contract is rescinded by the employer.Secondly, the construction of the concepts of indirectand consequential loss may give rise to concerns. UnderEnglish law, these concepts have the meanings establishedin the prevailing judicial decisions and modify thescope of the causal relationship such that they excludethe debtor’s liability for objectively non-foreseeabledamage arising from the breach of a contract, even ifthe parties could have subjectively foreseen them uponthe conclusion of the contract2 . Whereas in Polish law,the debtor is liable, in principle, only for the normalconsequences of the action or omission that gave riseto the damage (Art. 361 § 1 of the Civil Code) and,in practice, it may be doubtful whether the indirectand consequential loss formula changes this rule inany way. By way of supplementary explanation, theabove-described limitation of liability of the parties wasoriginally introduced in Great Britain because the eventsof indirect and consequential loss were not subject tostandard insurance cover3. Therefore, it does not seemnecessary in the Polish reality.Thirdly, an issue that needs to be interpreted is the scopeof events that are not subject to limitation of liability,i.e. fraud, deliberate default, or reckless misconduct.In Polish law, fraud means a criminal offence under Art.286 § 1 of the Criminal Code, but this term is not used incivil law. It seems that in interpreting contracts governedby Polish law, fraud should be construed simply as adeliberate action. Therefore, limitation of liability will notapply to damage caused wilfully or as a result of grossnegligence.Save for the foregoing doubts, the default solutions inthe FIDIC general conditions of contract should be seenas being consistent with the principles of contractualbalance and as being relatively favourable to contractors.In addition to the above-mentioned issue of damages forlost profits after the rescission of a contract, anotherthing to be noted is that sub-clause 1.15 of the 2017general conditions of contract provides for the unilaterallimitation of a contractor’s maximum liability fordamages, expressed as a sum, but not of the employer’sliability. The authors of the 2017 new general conditionsof contract also proposed, as an option, a more specificformulation of sub-clause 1.15 by introducing separatesum limitations in respect of particular kinds of liabilityunder the subsequent sub-clauses of the contract4.Certainly, such a modification would be favourable tocontractors, but it is doubtful whether it will be widelyused in Poland.Polish practice concerning the limitation of liability incontracts based on FIDIC templates is not uniform. Inthe particular conditions of contract template currentlyused by GDDKiA5, the entire sub-clause 17.6 of theEIC Contractor’s Guide to The FIDIC Conditions of Contract for Construction (The New Red Book), International Construction Law Review, 2003, p. 77.² J. Glover, Understanding the New FIDIC Red Book. A Clause-By-Clause Commentary, London 2009, point 17-032, p. 346³ N. Bunni, The FIDIC Forms of Contract. Third Edition, London 2005, point 23.3.14, p. 5324Conditions of Contract for Construction, second edition FIDIC 2017, Guidance on the Preparation of the Particular Conditions, pp. 16 – 18.5 General Directorate for National Roads and Motorways, template published on the GDDKiA’s web site -Kontraktowe-WWK-dla-systemu-Projektuj-ibuduj (accessed on 24 March 2018).1www.dlapiper.com 09

1999 general conditions of contract has been deletedand instead of the limitation of liability of the parties to acontract, a detailed list of contractual penalties containedin sub-clause 8.7 has been added, providing for stricterliability of the contractor. In PKP PLK’s6 particularconditions of contract, there are no changes to thewording of sub-clause 17.6 and therefore it remains in fullforce in railway contracts, subject to the above-describeddoubts and potential problems.INDEMNITIESConsiderable interpretation difficulties under Polishlaw may arise from sub-clause 17.1 of the 1999 generalconditions of contract, which provides for mutualindemnities for the parties to a contract. Indemnitiesis an instrument originating from common law legalsystems, by which the parties to a contract undertaketo release each other from liability for certaincircumstances and to pay the costs of the claims thatmay be raised by third parties on the basis thereof 7.In particular, an indemnity may entitle a party to demandthe repayment of the costs that would otherwise benon-refundable as they are not directly connectedwith the breach of the contract by the other party8.In contracts governed by Polish law, sub-clause 17.1 is,to a large extent, unclear and incomprehensible – theterm indemnities has been inaccurately translated asdamages and the phrase saying that the contractor willsecure the employer has been inserted in the contentof the provision, and yet, it is not clear what securityis meant in this context. In the event of a dispute asto the construction of the provisions of the contract,the contractor will be in a better position because anydoubts should be interpreted, in accordance with thecontra proferentem construction rule, to the disadvantageof the party which has drafted the contract. This meansthat in contracts concluded under public procurementlaw, any unclear provisions should be interpreted to thedisadvantage of the employer9. This is a universal rulethat is also in force in foreign legal systems10.In the 2017 FIDIC general conditions of contract,the provisions on indemnities have been moved tosub-clauses 17.4 and 17.5. It must be underlined thatin accordance with the strict reading of the modelprovisions of the FIDIC books, indemnities granted bythe contractor and the employer cover, in principle, theconsequences of the damage arising from the deliberateor negligent acts of the relevant parties. Indemnities ina broader scope are granted only in respect of specificdamage.New sub-clause 17.6 provides for the mutual reductionof liability on the basis of indemnities in the event thatany circumstances attributable to the other party mayhave contributed to the damage, which makes theFIDIC contractual mechanism similar to the statutoryrules of recourse liability in Polish law. It must be notedthat in the event any third parties raise claims againsteither party for damage incurred in connection withperforming a contract, mutual settlements betweenthe employer and the contractor would be regulatedunder the statutory model by Art. 441 § 2 and § 3 ofthe Civil Code. On the basis of these provisions, theparties would be entitled to pursue recourse claimsin proportion to the degree to which each of themcontributed to the occurrence of the damage and theirfault. It is not clear whether in the event of a dispute thecontractual indemnities would have an impact on theapplication of the foregoing rule in the relations betweenthe contractor and the employer.Irrespective of the above doubts, particular conditionsof contract drafted by Polish employers provide forthe application of indemnity clauses. They containboth general indemnities for any damage caused bythe contractor to anyone in performing a contract(sub-clause 7.1 of GDDKiA’s particular conditions)and detailed regulations concerning particular casesof liability (sub-clause 7.1 of PKP PLK’s particularconditions). For instance, in sub-clause 4.18 of itsparticular conditions of contract, GDDKiA providesfor the contractor’s obligation to release the employerfrom liability and to cover the costs arising from thecontractor’s breach of the obligation to repay theemployer the costs incurred as a result of unplannedtrack closures and delays in train services, which resultsfrom the specific nature of risks occurring in the railwaysector. The validity and effectiveness of indemnity clausesPKP Polish Railway Lines, specific conditions of contract in respect of contract No. 90/101/0036/17/Z/I and No. 90/101/0037/17/Z/I concluded by PKP PLK, as representative examples, have been analysed.E. Baker, B. Mellors, S. Chalmers, A. Lavers, FIDIC Contracts: Law and Practice, London 2009, point 7.58, p. 359.Conditions of Contract for Construction, second edition FIDIC 2017, Guidance on the Preparation of the Particular Conditions, p. 13.9The judgment of the Supreme Court of 29 April 2016, Case No. I CSK 306/15, Lex No. 2032362.10N. Bunni, The FIDIC , op. cit., point 3.10, p. 68.67810 The New FIDIC Conditions of Contract (2017) from the Polish Perspective

in contracts governed by Polish law should be evaluatedeach time on the basis of their Polish wording and thecircumstances of the specific case. In particular, it isdoubtful whether the contractor would be obliged torelease the employer from liability and from paying forthird-party claims in the situation where such claims arethe result of actions for which the employer is at fault.CONTRACTOR’S LIABILITY FOR DELAYThe question of the contractor’s liability for damagesfor a delay in performing a contract has been regulatedin sub-clause 8.7 of the 1999 FIDIC general conditionsof contract and in the corresponding sub-clause 8.8of the 2017 second edition titled [Delay Damages].The obligation contained in those sub-clauses for thecontractor to pay the employer a specific sum for eachday of delay constitutes an example of a contractualpenalty under Polish law and, therefore, Articles 483and 484 of the Polish Civil Code apply. In the defaultFIDIC model, the possibility of the employer’s seekingdamages of an amount exceeding the amount of thecontractual penalties has not been provided for and,therefore, it would be inadmissible on the basis ofArt. 484 § 1, sentence two of the Civil Code. In Polishmarket practice, sub-clause 8.7 is subject to far-reachingmodifications in particular conditions of contract andmost often the employer reserves the right to seekadditional damages under general rules. Both GDDKiAand PKP PLK decided to insert in their particularconditions of contract a long list of contractual penaltiesfor a contractor’s delay in meeting the final deadlineand the milestones in the course of the realisation of aproject.SUB-CLAUSES 1.9 AND 2.1 OF FIDIC –PRACTICAL PROBLEMS IN POLANDIn the existing Polish judicial decisions, the issues ofinterpretation of sub-clauses 1.9 and 2.1 of the FIDICgeneral conditions of contract have acquired a particularsignificance. Sub-clause 2.1 [Right of Access to the Site]of the 1999 general conditions of contract contains aregulation concerning the effects of the contractor’sfailure to fulfil the obligation of timely delivery of thesite to the contractor. In this situation, the contractorwas entitled, firstly, to demand the extension of timefor completion and, secondly, the repayment of theincurred costs plus reasonable profit, which wereincluded in the contractual price. The same legalmechanism was included in sub-clause 1.9 [DelayedDrawings or Instructions] in relation to the delays andcosts incurred by the contractor as a result of the delayin receiving designs (the FIDIC Red Book) or as a resultof the contractor’s having complied with the employer’sspecification (the FIDIC Yellow Book). In the secondedition of the general conditions from 2017, the essenceof the contractor’s rights has remained unchanged.

FIDIC Yellow Book and Red Book 1999 and 2017 (Szymon Sakowski) 23 Unilateral dissolution of a contract for building works based on the 1999 and 2017 versions of the FIDIC template (FIDIC sub-clauses 15.2 and 16.2 in the light of Polish law) (Mikołaj Strojnowski) 27 Not