Specific performance in construction contracts under German law

by | 22. June 2016 | Commercial Law

Construction contracts come in all shapes and sizes from the simple short form of Contract (the FIDIC Green Book) to the 1999 FIDIC suite of contracts (including the FIDIC Red Book, Yellow Book and Silver Book) and other Standards like NEC. It is common practise in anglo-saxon construction contracts to provide a maintenance period (also referred to sometimes as defects liability period, defects notification period or defects correction period).

Thus, one will find in the NEC standard clause 43.1:

The Contractor corrects defects whether or not the Supervisor notifies him of them. The Contractor corrects notified defects before the end of the defect correction period. …

The FIDIC wording in clause 11.2 Red Book (1999 Edition) is the following:

All work referred to in sub-paragraph (b) of Sub-Clause 11.1 [Completion of Outstanding Work and Remedying Defects] shall be executed at the risk and cost of the Contractor, if and to the extent that the work is attributable to:

(a) any design for which the Contractor is responsible,

(b) Plant, Materials or workmanship not being in accordance with the Contract, or

(c) failure by the Contractor to comply with any other obligation.

If and to the extent that such work is attributable to any other cause, the Contractor shall be notified promptly by (or on behalf of) the Employer, and Sub-Clause 13.3 [Variation Procedure] shall apply.

Conversely, under German law contractors always owe specific performance. They are also held liable for supplementary performance (see Section 635 German Civil Code). It is provided that:

(1) If the customer claims supplementary performance, the contractor may, at his option, remove the defect or produce new work.

(2) The contractor must bear the expenditure necessary for supplementary performance, in particular the costs of carriage, transport, labour and material.

(3) Without prejudice to § 275 (2) and (3) [German Civil Code], the contractor may refuse supplementary performance if it is possible only at unreasonable cost.

(4) If the contractor produces a new work, he may claim the return of the defective work from the customer in accordance with §§ 346 to 348 [German Civil Code].

The issue arising is this: If the parties to a contract agree upon an anglo-saxon standard form such as the FIDIC standard forms and at the same time agree that German law shall govern the contract, do the contractual remedies under the FIDIC standard form replace or supersede the statutory remedy of Section 635 German Civil Code? In so far the most important issue is, that in respect of construction services for a building claims under Section 635 German Civil Code are time-barred after five years (beginning on the date of acceptance in accordance with German laws).

Our answer is clearly: No ! If the construction contract is governed by English law the NEC and FIDIC wording do not limit the liability for breach of contract at all. The employer, who is not himself in breach of  contract, can still claim specific performance as an equitable remedy under English law, though he of course has to show inter alia why money damages are inappropriate. In any case he will be allowed to claim for breach of contract. The fact that none common law jurisdictions such as Germany  frequently provide statutory remedies, that turn around the preference that the common law gives to money damages as opposed to specific performance, has apparently not been contemplated by the drafters of these formulas, who had common law jurisdictions in mind when drafting these forms. Furthermore, there is no language in the contract terms in support of the conclusion that they are meant to vary and abolish statutory legal remedies. On the contrary the drafters frequently warn that possible contradictions between the standard formulas and the governing law of the applicable jurisdictions should be figured out and be resolved by “suitably qualified lawyers”.

However, in spite of this reasoning we strongly recommend to find a special wording in the Particular Conditions in order to make clear that the English wording does not limit special and supplementary performance under German law. Such a clause could have the following wording:

“For the avoidance of doubt clause … does not limit the rights under § 635 German Civil Code.”

Under FIDIC Rainbow 1999 forms of contract Sub-Clause 11.9 additionally provides very clearly that only the issue of the Performance Certificate constitutes acceptance of the works. This is a strong reference to civil law where “acceptance of the works” is a common feature of construction contracts being submitted to a particular framework given by law (see Section 640 German Civil Code and art. 1792 et seq. French Civil Code).

The above concerns will not only apply to German law. Rather all civil law jurisdictions will typically involve the same questions. Care has to be taken in orde rto avoid premature assumptions with regard to end of any liability for defects.

WARNING: the material contained in these notes is a simplified guide to some of the major topics in German construction law. It is not intended as a substitute for legal advice on individual transactions, and does not necessarily stand on its own. Whilst the contents are believed to be correct, the author cannot accept any responsibility for errors or omissions.