Techno Engineering & Associates

1. Finance Charges on Late Payments
James Wood
Claims Manager & Head of Quantity
Surveying & Quantum Department
Finance Charges on Late Payments
James Wood
Claims Manager & Head of Quantity
Surveying & Quantum Department
Assessing damages in construction
contracts: Establishing causation
and the concept of direct and
indirect losses in Romanian law
Corina Dragota
Senior Lawyer
Contracting in Romania – Risks,
advantages, constraints, contract
management, construction law and
guidance, best practices, disputes
and arbitration 5
to the contractor as a consequence of
delays on a project that stem from such
Employer Risk Events, and this month we
are going to consider the impact of late or
no payment of sums due to the contractor
andhowthecontractormayredressthis.
Such an entitlement may arise under a
number of exemplified circumstances, as
follows:
· Engineer certifies monies due yet the
Employerfailstopay;
· Engineer certifies monies due yet the
Employerpayslate;
· E n g i n e e r fai ls to certify and
consequentlytheEmployerfailstopay;
· Engineerdelaysthecertificationand the
Employerpayslateorfailstopay;and
· No Engineer available to certify and
consequentlytheEmployerfailstopay.
The Contractor's entitlement to financing
charges arises automatically; the
Contactor is not required to serve any
notice, nor this require a formal
certification.
The terms that govern when payments
should be made to the Contractor are
covered under Sub-Clause 14.7 of the
General Conditions of Contract of the
FIDIC suite of Contracts, and we often find
that there are amendments to these
provisions in the Particular Conditions for
specific Projects. Such amendments are
usually intended to be helpful by reflecting
the accounting processes that both the
Employer and Contractor may have to
follow to facilitate payment, such as the
agreement of a Certified amount followed
by the raising of an appropriate invoice by
theContractor.
Intimesofeconomicdown-turn,theability
to receive payment for work executed or
other monies that may be due and payable
to a contractor, becomes increasingly
more difficult to achieve as Employers and
Engineers alike become more resistant to
doing things in accordance with the terms
and conditions of the contract. There may
be valid reasons why Employers and
Engineers believe that they are entitled to
withhold money, but most circumstances
seem to arise from ill-informed and
somewhat naïve stances being taken by
theseparties.
As part of our approach to claims, we
always have to consider what entitlement
the Contractor may have accrued due to
circumstances beyond its control for
which the Employer takes responsibility
and carries the risk under the contract. In
previous Newsletters, we have given
consideration to the calculation of
additional Site Overheads and Head Office
Overheads that become due and payable
Issue 9, December 2016
6

2. collectingandprocessingtheinputdata.
Consideration should also be given to local
legal provisions which may impact further
upon the nature of the calculation of this
head of claim. For example, in accordance
with the legal provisions regulating the
application of financing charge payments
in Romania, any payment ultimately
received form the Employer in respect of
the payments in question in such head of
claim, should be first considered as
payment towards the financing charges
that are due and payable to the
Contractor.Anyresidualamountscanthen
be used to fund the payment towards the
original principal amount that was due for
payment. This is often misunderstood by
Employers, who, once a payment has been
made of consider that the debt of the
principal has been settled. This is not the
case and has been upheld by tribunals and
courtsinthecountry.
Inconclusion,theContractorshould:
· Knowyourentitlement;
· Issuetimelynotices;
· Issuetimelyinvoices,and
· Understand how to calculate the
amountsoffinancechargesdue.
toissueanyformofnoticeinrespectofthe
application of its entitlement under Sub-
Clause 14.8. Deviation from this principle
could be found in the Particular Conditions
where the Contractor loses its rights to
receive financing charges to the unpaid
amounts if it does not issue an invoice for
the amount of financing charges it
considers to be due. Despite this, it is
always good practice for the Contractor to
issue a letter to the Employer, advising him
that payment has in fact not been received
and notifying that financing charges shall
be applied to the unpaid amounts. For
practical reasons, the Contractor should
include the financing charges it considers
to be due to it in each Statement as part of
theinterimpaymentprocedures.
In some jurisdictions, we find that Sub-
Clause 14.8 is quite often heavily amended
through the Particular Conditions, and it is
often the case that such amendments are
poorly drafted resulting in confusion as to
what, how and from when the financing
chargesaretobeapplied.
Once any anomalies from the Particular
Conditions have been addressed, the
calculation of the financing charges is a
relatively simple affair, and involves
Irrespective of the amendments that may
be made in this context, and as reflected in
the General Conditions of Sub-Clause 14.7,
the Employer would ordinarily be
expected to make a payment to the
Contractorwithinacertainnumberofdays
following a triggering event, whether this
be the issue of a Payment Certificate as
anticipated by the General Conditions, or
an invoice date as is often the case in
ParticularConditions.
Where payment is not made by the
Employer in accordance with the timing
provisions of Sub-Clause 14.7, the
subsequent Sub-Clause provides the
mechanics for determining the rights of
the Contractor to apply financing charges
to the unpaid amounts. The standard
drafting contained within the FIDIC
contracts is quite simple in its intention, in
that monthly compounding of finance
charges are to apply to the unpaid
amounts during the period of delayed
payment. The reference rate for the
calculation is also legislated for in the
standarddrafting.
It is important to note that the standard
drafting of this Sub-Clause expressly
excludes the necessity for the Contractor
Issue 9, December 2016

3. business who, at the time of the conclusion of
the contract, could have foreseen the
consequences of non-performance in the
ordinarycourseofeventsandintheparticular
circumstancesofthecontract.
By exception, the debtor shall also be liable
for unforeseeable loss whenever its actions
constituted wilful misconduct and gross
negligence (this is the case of tortious
liability).
2. Theconceptofdirectandindirectlosses
Consequential or indirect losses, which are a
feature of the FIDIC Suite of Contracts (Sub-
Clause 17.6), are not expressly provided for in
the Romanian Civil Code and have a different
meaning.
In common law, these losses arise out of
special circumstances not ordinarily
foreseeable, rather than arising naturally in
the ordinary course of events (such as direct
losses). They still result directly from the
breach, but may not be noticeable to one of
t h e p a r t i e s i n a d v a n c e w i t h o u t
communication of the other party's special
circumstances. They are recoverable in
English Law, under the second limb of Hadley
3
vBaxendale.
UnderRomanianlaw,thereisnosuchexpress
qualification for the recovery of losses.
According to Article 1533 of the New Civil
Code, the recoverable losses are only those
which are a 'direct and necessary consequence
ofnon-performance'.
Corina Dragota
Senior Lawyer
Assessing damages in construction contracts: Establishing causation
and the concept of direct and indirect losses in Romanian law
1. Causation–TheForeseeabilityTest
One of the prerequisites of being awarded
damages under Romanian law is for the
claimant to establish the causation between
the unlawful act (or breach) and the loss
incurred. Further, it is for the courts to assess
whether and to what extent the loss claimed
was a direct and necessary consequence of
the breach and to award the appropriate
damages to the claimant. It has been argued
1
by the doctrine that, when evaluating the
extent of the loss, the court should not take
into account any other element of civil
liability, such as the magnitude of the
unlawfulactandthedegreeoffault.
In order to put the aggrieved party in the
position it would have been in had the breach
not occurred and ensure full recovery,
Romanian law set the test as the
foreseeability of the loss, unlike in English law
where the test is that of remoteness, set by
2
the famous case of Hadley v Baxendale . The
foreseeability test is provided by Article 1533
oftheNewCivilCode:
'The debtor is liable only for the loss which it
foresaw or could have foreseen at the time of
theconclusionofthecontractasbeinglikelyto
result from its own non-performance, except
thecaseinwhichthenon-performanceisdueto
its wilful misconduct or to its gross negligence.
Even in the latter case, damages do not
comprise anything else than what is the direct
and necessary consequence of non-
performance.'[Emphasisadded]
According to the above, the rule is that only
thelossforeseenorforeseeableatthedateof
the contract can be recovered. It is thus
assumed that the parties undertook to
perform only those obligations whose
consequences they could have foreseen at
the time of concluding the contract. The
standard of foreseeability is abstract and, in
construction contracts, is that of a diligent
person/professional in the construction
1
I.MAnghel,Fr.DeakandM.Popa,Raspundereacivila,StiintificaPublishing,1970,pp.273-274.
2
[1854]9Ex341.
Twotypeofdamagesarerecoverableaccordingtothislaw:
(i) general damages or direct damages, according to which the parties are taken to foresee loss which is not unlikely to happen as a result of a breach of contract in
the ordinary course of things. This type of loss is known as "first limb" loss. The standard is that of a reasonable person that is assumed to know information in the
"ordinarycourseofthings.";and
(ii) special damages or consequential/indirect damages aimed to recover loss which arises from the actual knowledge or special circumstances that the parties had
atthetimetheyenteredintothecontract;theyareadditionaldamagesotherthanthosederivingfromordinarycourseofthings.Thisisknownas"secondlimb"loss.
3
[1854]9Ex341.
____________
Issue 9, December 2016

4. circumstances, caused the loss. This
means that in a construction contract, one
should analyse the causal link in an
objective manner and from the acts which
occurred prior to the loss, choosing only
those which caused the damage to a
smaller or bigger extent. The judge should
decide the recoverable law based on the
generalrulethatthelossshouldbeadirect
and necessary consequence of the non-
performance.
Applying the rationale mentioned above,
the general approach of Romanian law is
that the 'indirect losses' are also
recoverable provided that they
unequivocally result from the non-
performance (presumably this situation
could also cover the other party's notice),
as opposed to those indirect losses that
a r e n o t a d i r e c t a n d n e c e s s a r y
consequence of the breach, as they fail the
foreseeabilitytest.
to pay the debt and the alleged loss of the
creditor to pay interest on the agreements
forfinancingthecreditor'scurrentactivity,
being unforeseeable, and dismissed the
7
creditor'srequest.
1. Conclusions
Proof of causation is usually an essential
ingredient to finding liability. Thus, it is
generally incumbent upon the claimant to
show not only the fact of the damage itself
but also that it is causally connected to the
matter complained of (the non-
performancelatosensu).
The causation is decided based on the
vague test of foreseeability, and there are
no special provisions in the Civil Code to
assist the court to determine the
causation.
A judge must enquire into the cause-
phenomenon which, in the complex
Hence, the debtor shall be liable only for
losses that result directly from the
4
unlawful act. Certain Romanian scholars
have qualified these recoverable losses as
'direct losses'. However, it has been
counter-argued that this legal provision
not only covers the direct losses, but also
implies the recovery of indirect and
necessary losses, i.e. losses that
undoubtedly resulted from the non-
5 6
performance . Furthermore, the doctrine
explained that the direct loss is different
than the loss caused directly, as the direct
lossmayincludenotonlythelosscausedin
a direct manner, but also the loss caused in
anindirectmanner.
As a result of the above rule, one can
certainly argue that the debtor shall not be
liable for indirect damages which are not a
necessary consequence of the non-
performance. Applying this principle, the
Supreme Court of Justice decided that
there is no causal link between the failure
4
Fl.Baiasandothers,NoulCodCivil.Comentariupearticole,C.H.BeckPrinting,2012,p.1247.
5
D.E.Singeorzan,Raspundereacontractualainmateriecivilasicomerciala, HamangiuPrinting,2009,p.39.
6
C.Jugastru, Prejudiciul.Repereromanestiin contexteuropean, Hamangiu Printing, 2013, p.45 quoting M.Eliescu, Raspundereaciviladelictuala, Academiei Publishing,
1972,p.97.
7
SupremeCourtofJustice,Decisionno.1117/1998ofthe,inCommercialLawReviewno.3/1999.
____________
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Issue 9, December 2016

5. 5
Contracting in Romania – Risks, advantages, constraints, contract management,
construction law and guidance, best practices, disputes and arbitration
WeprideourselvesinbeinginvitedbytheAssociationofSpanishCompaniesinRomania(ASEMER),toorganisetheworkshopon“ContractinginRomanianowadays
– Risks, advantages, constraints, contract management, construction law and guidance best practice. Disputes and arbitration”, which took place on 29 November
2016attheCrownePlazaHotel,withguestspeakerMr.LaurentiuPlosceanu,thePresidentoftheRomanianAssociationofConstructionContractors.
Engaging and inspiring experts from Techno Engineering & Associates such as James Wood (Claims Manager & Head of Quantity Surveying and Quantum
Department), Clive Horridge (Senior Contracts Advisor) and Marius Teodorescu (Senior Lawyer & Deputy Head of Legal Department), together with our President
and Senior Partner, Giovanni Di Folco gave informative presentations, advising on issues faced by International Contracting companies involved in major
infrastructureprojectsinRomania.
The workshop agenda included Risks, Constraints, Integrated Contract Management, Construction Law and guidance on best practice in the construction industry.
The event was considered very successful,attractingseniorrepresentativesof variousinternationalcontractorsfromcountriesoutside of RomaniaincludingSpain,
Portugal,Germany,IsraelandGreece,eitheralreadyoperatinginRomania,orintendingtotakeonprojectsinthecountry.
The presentations attracted fruitful discussions in an atmosphere of lively interactive debate, and our experts shared their experiences and know-how of the
Romanian construction market, presenting the advantages of doing business in the construction sector in Romania, the constraints that exist, and how they could
besurpassedbyapplyingworldbestpracticeofIntegratedContractManagementtothewholeconstructionprocess,frombidtocompletion.
After all is said and done, we at Techno Engineering & Associates wish to share our experiences by communicating what we know and the experience that we have
gained. We have a very special team of professionals with backgrounds in project and contract management, claim preparation, as well as construction
professionals.Combined,theycanprovideyouwithexceptionalknowledgewhichwillenableyournextprojecttobeconductedassafelyandsecurelyaspossible.
WefeelthattheInternationalContractorsactivelyinvolvedinRomanianprojectsneedtobe representedwithacommonvoice,tobetterfacethechallengesthatare
evident in the construction business environment in Romania. We understand the difficulties in the sector and it is our mission to keep you up-to-date with the latest
bestpracticesandguidancethatyouwillneedtobeaspreparedaspossibletosafeguardyourprojectsasmuchaspossible.
Thinking ahead, we shall be participating at special events coming up in 2017. For instance, our President and Senior Partner, Mr. Giovanni Di Folco will be the main
speaker at a seminar on the 11th of January 2017 in the capital of Serbia, Belgrade, the subject being “Adequate management of claims and dispute resolution under
FIDIC's suite of Conditions of Contract, First edition 1999, and the operation of Clause 20 therein following international expert and construction law best practice”.
Renowned teachers from the Faculty of Construction Management, Belgrade will join the seminar. We will very soon reveal all the details of this informative event.
Staytuned!
Issue 9, December 2016

6. 6
Issue 9, December 2016

7. Issue 9, December 2016
We hereby kindly inform you that
Techno Engineering & Associates
will be closed for the winter holidays
from 24th of December 2016
to 2nd of January 2017.