To what extent shall the engineer be independent and impartial under FIDIC construction contracts? Are the same standards applicable to the members of the dispute board? Do they have an obligation of disclosure? We address these questions in the light of the Hungarian court practice.
Engineer: fairness but not independency
Is the Engineer required to be impartial and independent?
This was the main question in a dispute before the Court of Appeal of Budapest, where the Engineer company was fully owned by the Employer, and the Contractor was seeking for the invalidity of their service contract.
In the contractor’s views the Engineer should have been independent and impartial; it is a common requirement in construction business.
However, the FIDIC-based contract did not contain such requirements in relation with the Engineer, so the Court rejected the claim, and held that according to FIDIC, the legal disputes arising from the contractual relationship shall be decided by the Dispute Board, so the role of the Engineer does not include decision-making between the parties.
The Court determined that the central role of the Engineer in FIDIC contracts has transformed compared to the original terms and conditions, and now he does not have important competency in relation with legal disputes; he is not required to be independent.
The abovementioned transformation of the Engineer’s role also had an effect on the requirement of impartiality. The Engineer is basically employed and paid by the Employer; however, traditionally he had to be impartial if a dispute was arisen. This regulation was widely debated because of the practical controversies, so the FIDIC terms have changed and now “the Engineer shall make a fair determination”.
Dispute Board’s members: independency and impartiality
A similar question was disputed in relation with the members of the Dispute Board (DB) in another case before the Court of Appeal of Budapest.
The Contractor was seeking for the invalidity of the DB’s decision in a counterclaim, because the president of the DB was in personal and business relationship with the Employer, and the contractor was not officially notified about that. The Employer responded that every party knew about the nature of their relationship, so the official notification was not necessary.
However, the Court found that the president of the DB has to clarify his relationships before his nomination and shall be impartial and independent of the Employer, the Contractor and the Engineer according to the FIDIC terms and conditions.
The parties’ contract provided that every member shall promptly disclose any fact or circumstance which might appear inconsistent with his warranty and agreement of impartiality and independence. The Court stated that the parties’ knowledge of the relationship between a party and a DB member does not exempt the DB member from the obligation of proper disclosure.
These decisions reflect the different roles of the Engineer and the Dispute Resolution Board.
The FIDIC clearly provides that only the Dispute Board is authorized to make decisions in legal disputes, however, these disputes could be arisen from the activity of the Engineer. In practice it means that the members of the DB have to be independent and impartial, but these qualities are not expected from the Engineer who shall make “fair determination” of the circumstances.
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