Taking-Over Under FIDIC

It is not often that the FIDIC form of contract comes before the English courts. The primary reason for this is that almost all disputes, if they arise, are settled through arbitration. The case of Doosan Babcock Ltd v Comercializadora de Equipos y Materiales Mabe Limitada1 is one exception.

Why did the court have jurisdiction?

The reason it came before the courts was because Doosan had applied to the Technology and Construction Court ("TCC") asking that the TCC grant relief under section 44(3) of the 1996 Arbitration Act. Section 44 of that Act deals with the court's powers that may be exercisable in support of arbitral proceedings. Under sub-clause 44(3), unless otherwise agreed by the parties, the court has the same power of making orders for the purposes of and in relation to arbitral proceedings as it has for the purposes of and in relation to legal proceedings:

"(3) If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets."

The Judge applied the reasoning of Clarke LJ in the Court of Appeal case of Cetelem SA v Roust Holdings2 and held that there was no reason why an order should not be made for the purpose of the preservation of a right if its effect is to preserve the value of that right. As Mr Justice Edwards- Stuart noted, a contractual right is not preserved if a failure to give effect to it would destroy much or all of its value. Therefore provided the requirements of urgency and necessity were met, the court would have the power to grant an injunction under section 44(3).

The performance guarantee

Here the case was said to be of some urgency because Doosan feared that Mabe might make a call under the performance guarantee. The situation was as follows. Doosan had contracted to supply two boilers to Mabe for a power plant in Brazil. In accordance with the Contract, Doosan arranged performance guarantees. The guarantees entitled Mabe to payment on demand and were to expire upon the issue by Mabe of Taking-Over Certificates ("TOCs") or by 31 December 2013, whichever was earlier. By the terms of the guarantees the provider of the guarantee undertook to pay Mabe:

"on receipt of your first demand on us in writing stating that [the Claimant] has not performed its obligations in conformity with the terms of the Contract".

As Mr Justice Edwards-Stuart noted:

"This wording could hardly...