In the execution of the construction project, the Contractor often deals with situation where it suffers delay and/or incurs extra cost due to circumstances attributable to the Employer. For this matter, FIDIC1 contract, the most commonly used standard forms of contract, renders the Contractor an entitlement to submit claim for extension of time for completion (“EOT”) and/or additional payment under Sub-Clause 20.1 [Contractor’s Claim]. This Sub-Clause provides the detailed procedures that the Contractor must adhere in submitting its claim, including the 28-day notification period which serves as the contractual time limit for the Contractor to bring its claim to the attention of the Employer.

Nonetheless, the applicability of the contractual time limit under Sub-Clause 20.1 might be seen as contravention towards the statute of limitation under the Indonesian Civil Code (“ICC”). This article discusses the enforceability of the time bar under Sub-Clause 20.1 of FIDIC contract2 from the perspective of Indonesian law.

Contractual Time Limit

The first paragraph of Sub-Clause 20.1 provides that if the Contractor considers himself to be entitled to any EOT and/or additional payment in connection with the contract, the Contractor shall give notice to the Engineer on the event giving rise to the claim. The claim must be given as soon as practicable, but not later than 28 days3 after the Contractor became aware, or should became aware, of the event or circumstances. Furthermore, the subsequent paragraph stipulates that if the Contractor fails to give notice of claim within such period of 28 days, the EOT shall not be extended, and the additional payment shall not be granted. The Employer is discharged from all liability in connection with the claim.

Sub-Clause 20.1 illustrates the procedure that the Contractor must follow in notifying the occurrence giving rise to claim for EOT or additional payment. The time is ticking away since the Contractor become aware, or should have become aware of the event or circumstances giving rise to the claim, until 28 days afterwards. For example, if the Employer is supposed to handover the site to the Contractor on 1 January 2023, but there is a delay by the Employer and the Contractor realized that such delay may causes the Contractor to suffer delay in work completion and incur additional cost. According to Sub-Clause 20.1, the Contractor must give notice to the Engineer no later than 29 January 2023.

The second paragraph of Sub-Clause 20.1 establishes a harsh consequence for the Contractor for its non-compliance with the 28-day time bar, namely the rejection of the Contractor’s claim and the relief of the Employer from all liabilities pertaining to the claim.

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We often see the Employer applies Sub-Clause 20.1 strictly to justify its rejection towards Contractor’s claim, since the time-bar provision under Sub-Clause 20.1 serves as the implementation of pacta sunt servanda principle. The principle means that both Employer and the Contractor are bound by the terms of the contract which they entered into. Notwithstanding, it does not necessarily nullify the right of Contractor to submit the claim, as we further explain below.

ICC Statute of Limitation

Article 1335 of ICC stipulates that an agreement which is made in forbidden cause shall have no legally binding power. What constitutes a forbidden cause is explained under Article 1337, namely violating the law, ethics, or public order. Sub-Clause 20.1 may be regarded as violating the ICC, in particular, Article 1967 of ICC on the statute of limitation which essentially provides that any legal claim, either in rem or in personam, shall expire after 30 years.

There is a debate however on whether the statute of limitation can be waived in the contract, since it is a common practice in contract drafting that the certain provision of Indonesian Civil Code is waived. On this subject matter, J. Sartio, a distinguished Indonesian legal scholar, explains that what cannot be waived is the coercive provision of the law.4 This legal doctrine of J. Satrio is also supported by the legal doctrine of Prof. Dr. Soerjono Soekanto, S.H., M.A dan Prof. Purnadi Purbacaraka, S.H., which explain that the coercive provision (imperative) is the set of rules which a priori must be adhered.5

Arguably, the statute of limitation under Article 1967 of ICC is a coercive provision, hence it is not allowed to waive the applicability of the 30-year statute of limitation, or stipulated otherwise as in Sub-Clause 20.1. Therefore, Sub-Clause 20.1 might be regarded as violating the ICC, and as the consequence, this provision might be considered as unlawful and not having legally binding power.6

We do not found general approach of the court in Indonesia which affirms the aforementioned legal argument. There is a court decision which briefly touches the applicability of the 30-year statute of limitation under Article 1967 of ICC to overrule the 28-day time bar under Sub-Clause 20.1 of FIDIC Contract. This court decision was an annulment of arbitration award. In the court decision, there is an excerpt of the legal consideration of the Arbitral Tribunal which essentially held that the 28-day time bar under Sub-Clause 20.1 violates Article 1967 of ICC on the statute of limitation to submit claim, as supported with the legal doctrine of one Indonesian legal scholar.7

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Practical Implication

It is unfortunate that there is no firm position taken by the courts which can conclude the debate between the applicability of contractual time limit and the statute of limitation. The failure of the Contractor in submitting the notification of claim to the Engineer within 28 days window might be an easy defense for the Employer to reject the Contractor’s claim. On the other side, it does not mean an end of the world for the Contractor, as the Contractor may use Article 1967 as Contractor’s last Hail Mary in justifying its entitlement to submit claim for EOT and/or additional payment.

What can be learned by the Contractor from the debate between the applicability of contractual time limit and statute of limitation?

In construction project based on FIDIC forms of contract, the Contractor should be alerted on this 28-day time bar in order to prepare itself in administrating the claim whenever it faces a circumstances giving rise to the claim in order to minimize the risk of the submission of the claim to no avail. The Contractor may also raise issue on the applicability of Sub-Clause 20.1 to the Employer in the negotiation table prior to finalizing the contract, by either amending the time bar to the period more reasonable for the Contractor, or delete the 28-day time bar in the particular condition of contract.

Kevin Samuel Fridolin Manogari

Sources

  1. International Federation of Consulting Engineers
  2. This Article focuses on the FIDIC Conditions of Contracts for Construction (Red Book) for Building and Engineering Works Designed by the Employer 1999 Edition
  3. The “28 days” is the default time limit stipulated under FIDIC contract. As per FIDIC task group, this 28 days period is deemed as a reasonable period to make all involved parties are aware that there is an event or circumstances where extra payment or time may be due to the contractor (Christoper R. Seppala: 2005)
  4. J. Satrio, Hukum Perikatan, Perikatan Yang Lahir dari Perjanjian, page 239
  5. Prof. Dr. Soerjono Soekanto, S.H., M.A., dan Prof. Purnadi Purbacaraka, S.H., Aneka Cara Pembedaan Hukum, page 22
  6. Article 1335 jo. Article 1377 of ICC
  7. The legal consideration of the Arbitration Award No. 895/X/ARB-BANI/2016 dated 16 November 2017, as cited from the Decision of Banjarmasin District Court No. 3/Pdt.Sus-Arb/2018/PN Bjm