FIDIC: Is the contract engineer an agent for the investor?
The engineer’s task is to take necessary measures to ensure that the contract is performed correctly and on time. But not all actions by the engineer will directly affect the investor’s own rights and obligations.
The Supreme Court of Poland ruled recently on the status of the contract engineer in the construction process in its judgment of 6 February 2015 (Case II CSK 327/14). The case involved the effectiveness of the engineer’s approval of the appointment of a subcontractor.
Under Art. 6471 §2 of Poland’s Civil Code, the general contractor’s conclusion of a contract for construction work with a subcontractor requires the consent of the investor. If the investor does not assert objections or reservations in writing within 14 days after the general contractor presents the investor with the contract with the subcontractor or a draft of the contract (together with a portion of the documentation concerning performance of the work specified in the subcontract or draft), the investor is deemed to consent to conclusion of the subcontract.
Under the facts of the case, notice of the proposed subcontract was provided to the contract engineer rather than the investor (referred to in FIDIC parlance as the “employer”). The engineer did not object to hiring the subcontractor for performance of the work, and the general contractor treated this as approval of the subcontractor in line with Civil Code Art. 6471 §2 and the guidelines from the existing case law concerning the permissibility of tacit consent to hiring of subcontractors. But when the subcontractor sought to hold the investor jointly and severally liable with the general contractor for payment of the subcontractor’s fee, a dispute arose over whether an action by the engineer can be deemed to be effectively made for and on behalf of the employer.
In this case the Supreme Court cited one of its earlier rulings, from 24 October 2003 (Case III CK 57/02), in which it held that “the fact that the inspector for investor’s supervision has duties and entitlements defined by statute, and they do not include acting as a proxy for the investor with respect to the contractor, does not exclude the possibility of authorising the inspector to represent the investor with respect to the contractor. Such authorisation may be express or implied.”
The issue raised in that judgment, although involving the inspector for investor’s supervision, remains relevant with respect to the scope of authority of the engineer appointed under a FIDIC contract to act for the employer. This does not mean that the role of the inspector of investor’s supervision is the same as that of the engineer. The scope of their tasks is not identical, although in practice they usually overlap to some extent (when the engineer also performs the role of the inspector for investor’s supervision). Nonetheless, the ruling is relevant because it refers to a set of duties which—leaving aside the inspector’s responsibility under administrative law—define the engineer’s relations with the employer in a certain way by indicating the tasks performed “for the employer.”
In the new case, the Supreme Court did not rule on how the issue of the engineer’s authority should be interpreted on the basis of FIDIC contract forms. Nor did it decide whether the scope of such authority can be unequivocally determined on the basis of the form contract provisions alone. The court indicated only that “the parties may define the competencies of the contract engineer in a very broad scope. More specifically, there is nothing preventing the contract engineer from acting for the investor.”
The ruling of the court of appeal was set aside and the case was remanded for reconsideration. Based on the guidelines from the Supreme Court, the lower court should reanalyse the provisions of the parties’ contract before issuing a definitive ruling.
However, in the guidelines for the court of appeal, citing another of its earlier rulings (of 22 July 2005, Case III CZP 49/05), the Supreme Court stated that “the general conditions of contracts should be interpreted in light of the directives set forth in Civil Code Art. 65. Under that provision, a declaration of will should be interpreted as required in light of the circumstances under which it was made, principles of social coexistence, and established customs.” The court also stressed that in contracts, the mutual intent of the parties and the purpose of the contract should be examined rather than relying only on the literal wording of the contract.
Thus the conclusion that can be taken from this ruling is that notwithstanding the use of a form contract, the scope of the contract engineer’s authority to act for the employer should be determined in light of the circumstances characteristic for performance of the specific contract, that is, reflecting the behaviour of the parties and the practices developed during their cooperation and indicating the parties’ intent when entering into the contract.
It should be stressed that it is not necessary for the authorisation to be made expressly, let alone in writing, even though that may be the typical practice. Polish law does not prohibit an implied grant of authority. The basis for an implied grant of authority is Civil Code Art. 60, under which any declaration of will may be made through any behaviour that adequately expresses such intent, including by conveying such intent in electronic form (subject to exceptions provided by statute). Thus the intention of a person who wishes to achieve a certain legal effect connected with a legal act performed by the person may be expressed in any manner that is sufficiently clear for the addressee.
Sometimes an agreement creating an internal relationship can be deemed to be an implicit grant of authority. This happens when if there were not a grant of authority, performance of the obligation flowing from the fundamental relationship would be impossible, and while the principal did not grant express authority, the agent’s obligation did arise expressly. This solution is expressly provided for in Civil Code Art. 734, under which, unless otherwise agreed, a commission includes authority to perform the act for the principal.
Therefore it may be accepted that if in the circumstances of the specific case the engineer was issued a specific authorisation for each action separately, then the parties did not regard the engineer as an agent for the employer in general. But if the engineer acted in many matters where he was not expressly authorised to act, and the employer treated such acts as effective, further actions by the engineer with respect to other entities should be treated the same way.
The FIDIC contract forms do not state that the engineer has authority to act for the employer. Also in the agreement between the employer and the engineer, which alongside the contract between the employer and the general contractor regulates in detail the mutual obligations of the employer and the engineer, the engineer as a rule is not appointed as an agent for the employer. Therefore, in light of the general rule of civil law connected with powers of attorney (set forth in Civil Code Art. 734), it should be accepted that the engineer receives implicit authorisation from the employer to take actions with respect to third parties in matters in which the engineer is required to act.
Because in the FIDIC “Red Book” (Construction) and “Yellow Book” (Electrical/Mechanical) the engineer is regarded as an independent expert and contract administrator who only acts in the legal interest of the employer, it would be a dangerous overgeneralisation to vest authority in the engineer to act for and on behalf of the employer in all matters connected with the contract. For this reason as well, to ensure an interpretation of the mutual relations with the engineer which is favourable to the employer, it is important to remember about a contractual exclusion of the possibility of the engineer incurring any obligations legally binding on the employer without the employer’s express consent.
Hanna Drynkorn, Infrastructure, Transport and Public Procurement & PPP practices, Wardyński & Partners
