Sub-clause 20.1 of the FIDIC Under Polish Law – Is It an Enforceable Time Bar?

By: Dominika Jędrzejczyk

Whether the lapse of the 28-day notification period under sub-clause 20.1 of the International Federation of Consulting Engineers (FIDIC) Red and Yellow Books renders the contractor’s claim time-barred has been a point of interest for courts in civil law jurisdictions for years. Polish courts have also not shied away from commenting upon the legal nature of sub-clause 20.1. The legal landscape seemed relatively settled in this regard until March 2017, when the Supreme Court took an unequivocally pro-employer perspective on the matter.

Things seem quite easy on the face of it. Under sub-clause 20.1 of the FIDIC Red and Yellow Books (leaving aside the 2017 revision for a moment), a contractor has 28 days to notify the engineer about an event giving basis to the contractor’s claim; otherwise, the employer can be released from liability. In other words, whenever the contractor misses the deadline, the claim becomes time-barred and, hence, unenforceable. However, though things may be relatively straightforward in a common law jurisdiction, they are more complicated when the FIDIC-based contract is governed by civil law (in this case, Polish law). This is mainly due to the fact that Polish law envisages a variety of time-related effects for claims.

For the purposes of this entry, two such effects are of particular importance. First, any claim may “expire” (i.e., become unenforceable — hereinafter, “Expiration Periods”). This would usually occur after the lapse of the statutory limitation period, when the debtor may still voluntarily satisfy the claim, but the creditor cannot demand that the debtor does so. Secondly, the lapse of certain other time limits causes the claim to cease to exist altogether (hereinafter, “Nullifying Periods”).

Pursuant to Article 119 of the Polish Civil Code, Expiration Periods are solely statutory in nature and cannot be modified by parties in a contract. Nullifying Periods are more controversial. Some scholars submit that they cannot be agreed upon by parties in their contracts; others believe that nothing precludes parties from agreeing on such time bars under the general principle of freedom of contracts (Article 353[1] of the Polish Civil Code). For the sake of transparency, the author of this article subscribes to the belief that Nullifying Periods cannot form part of contracts and must remain the sole prerogative of the legislature.

Though the above distinction seems theoretical at best, it bears crucial consequence on the effects of sub-clause 20.1 of the FIDIC conditions of contract when governed by Polish law. Depending on whether the court assesses the time limits envisaged in this sub-clause as an Expiration Period or Nullifying Period, it will consequently declare the said sub-clause either as unenforceable or as enforceable. The simple consequence of this decision being that in one case the contractor’s claims will be allowed, while in the other they will be dismissed as time-barred.

The long-standing consensus of the lower instance courts has been that the 28-day notification period in sub-clause 20.1 is an Expiration Period. Consequently, since parties to contracts are not allowed to introduce or modify such periods in contracts, sub-clause 20.1 was deemed unenforceable, and the contractor’s belated claims were allowed. Even in cases where the courts were tempted to describe the claim notification period as a Nullifying Period, the result of their analysis was almost always to state that — as per the view of the majority of scholars — such periods cannot be agreed upon in contracts. As a result, the courts would, again, allow the contractor’s belated claims.

The general argument in support of the above stance was that the FIDIC conditions of contract have common law origins and should, therefore, not be blindly adopted with all their consequences in civil law jurisdictions. Additionally, the courts would often point out that sub-clause 20.1 gives an unfair benefit to employers, who might otherwise be tempted to shorten the notification period from 28 days to, for example, 14 days. With FIDIC-based contracts being heavily adopted by Polish public employers, the courts often restored balance between the contractor and the employer and provided for fair resolutions of construction disputes.

All seemed relatively settled until March 23, 2017, when the Supreme Court decided that the notification period in sub-clause 20.1 was a Nullifying Period (judgment no. V CSK 449/16). The Supreme Court additionally decided that parties to contracts were allowed to agree upon Nullifying Periods, and therefore, sub-clause 20.1 was valid and enforceable under the Polish law. Since the contractor in the case analyzed by the Supreme Court had submitted its claims belatedly (i.e., after the lapse of the 28-day period), the contractor’s contractual claim for payment for additional works was deemed to have expired. Unfortunately, the Supreme Court gave very little legal reasoning to its judgment, which is hard to understand given its implications for the construction industry.

The Supreme Court’s ruling of March 23, 2017 constitutes a sudden and unexpected reversal of the previous treatment of sub-clause 20.1 under the Polish law. Even though the Supreme Court’s judgments are binding only in cases in which they are issued, lower instance courts will undoubtedly follow the new approach, fearing that their decisions might ultimately be overruled by courts of higher instance (or by the Supreme Court itself). Employers will most likely use sub-clause 20.1 to protect themselves from contractor’s claims, shortening the claim notification period to 14 or possibly even seven days.

One way to remedy the consequences of the Supreme Court’s judgment of March 23, 2017, would be to use the FIDIC 2017 wording of sub-clause 20.1. The 2017 FIDIC revision extends the application of the 28-day notification period to employer’s claims. Therefore, if the current jurisprudence of the Supreme Court were to be adopted, employer’s claims would become time-barred and unenforceable whenever the employer missed the claim notification period. This could discourage employers from adopting short claim notification periods (an incentive that currently does not exist). However, it is unlikely that Polish employers will ever decide to use the 2017 FIDIC revision without amendments or modifications, and sub-clause 20.1 will most probably remain one of the most heavily changed provisions of the FIDIC conditions of contracts. For contractors, the consequences of such modifications have never been more grave.

Copyright © 2024, K&L Gates LLP. All Rights Reserved.