Scenario: Seokyo JSC (“the Contractor”), a company incorporated under the laws of the Republic of Korea, entered into a contract (“the Construction Contract”) with Humberstone Salitrera SRL , (“the Employer”), a company incorporated under the laws of the Republic of Chile on 31 March 2013 for the “…design and construction of a 2 MTPA granular potassium nitrate fertiliser plant …” (“the Works”) at the former Humberstone and Santa Laura Saltpeter Works (“the Process Plant”) in the Atacama desert, Chile. The Accepted Contract Amount was USD $ 175,000,000.00 and the Time for Completion was 31 March 2016. The Construction Contract was based upon an amended FIDIC Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works, designed by the Contractor 2017 form of contract1. The Engineer named in the Contract Data was “Senora Emilia Shackleton, Room 51S72W PO Box Puerto Natales 6160000, Magallanes y la Antártica Chilena, Chile” who was also a majority shareholder in Humberstone Salitrera SRL. 1 Although not possible given the chronology, in order to make the assignment as industry relevant as possible and to reflect the latest versions of standard forms of contract please take the above statement as factually correct Brief details of the Construction Contract and other agreements entered into by the parties are set out below: a. An Engineering and Project Management Services contract (“Project Management Contract”) dated 25 December 2012 between the Employer and PMC Inc (“the Project Manager”), an engineering and project management company for the provision of Front End Engineering and Design (“FEED”), Project Management and Project Control Services (“the Services) in respect of the Process Plant that was executed under hand. b. The Construction Contract was similarly executed under hand and the Commencement Date referred to in clause 8.1 was 1 June 2013. c. The Contractor provided an “On-Demand” Performance Guarantee (“Performance Guarantee”) in the Employer’s favour relating to the Construction Contract issued by the Bank of Argentina in the sum of USD $ 10,000,000, which, according to its terms, “…expires upon the issue of a Taking Over Certificate…” 1. Under clause 1 the Project Manager was required to provide a Front End Engineering and Design (“FEED”) for the Process Plant and agreed “…to use the skill, care, judgement and supervision necessary to ensure that the Works are of good quality and meet the Performance Criteria set out in the Construction Contract that one would ordinarily expect an experienced and competent professional engineering organisation to provide, up to the point of commercial operation of the Works…” 2. Under clause 2 the Project Manager was required to “…address all Contractor requests for further information relating to inadequacies or ambiguities in the FEED…” 3. Under clause 3 the Project Manager was to provide “…advice and assistance to the Employer on commercial issues, contract administration and general claims support up to the point of commercial operation…” 4. Under clause 4 the Project Manager was to “…provide evidence of Professional Indemnity insurance to a limit of indemnity of USD $ 10,000,000 each and every claim…” 5. Delete paragraph 1 of clause 4.1 of the standard FIDIC Conditions. Insert: “…When completed the Works shall perform as per the requirements of the Construction Contract so as to ensure a service life of 25 years without planned or unplanned replacement…” 6. Clause 4.2 of the FIDIC Conditions has been deleted in its entirety. 7. new clause has been inserted into the Construction Contract at clause 22 which states: “…The Employer and the Contractor agree that the Contracts (Rights of Third Parties) Act 1999 shall not apply to this agreement. Therefore any person who is not a party to this agreement cannot enforce any term of it in their own right…” 8. new clause has been inserted into the Construction Contract at clause 23 which states: “…This agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) is governed by and will be construed in accordance with the laws of England and Wales…” 9. new clause has been inserted into the Construction Contract at clause 24 which states: “…Each party hereby irrevocably submits to the exclusive jurisdiction of the courts of England and Wales to settle any dispute or claim that arises out of or in connection with this agreement its subject matter or formation (including non-contractual disputes or claims)…” 10. Under clause 1 of the Performance Guarantee the Bank of Argentina undertook to pay the Employer: "... on receipt of your first demand on us in writing stating that the Contractor has not performed its obligations in conformity with the terms of the Construction Contract…" 11. Under clause 2 of the Performance Guarantee it states “…this guarantee expires upon the issue of a Taking-Over Certificate…” Relevant provisions from each of these agreements are set out below. The Project Management Contract: The Project Management Contract included the following relevant provisions: The Construction Contract The Construction Contract contained certain insertions and / or amendments as agreed between the parties as set out below. Save in respect of the above amendments please refer to the FIDIC Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works, designed by the Contractor 2017 form of contract for its full terms and their true meaning and effect. The “On Demand” Performance Guarantee: Extracts from the terms of the Performance Guarantee between the parties are set out below. Chronology Performance Of The Works Between June 2013 and June 2016 the Contractor carried out the Works. Throughout the course of the Works the Contractor repeatedly complained of the Project Manager’s lack of response to a number of requests for additional information relating to inadequacies and ambiguities in the FEED for which the Employer was responsible and bore the risk. At no time however did the Contractor notify the Engineer named under the Contract of any delay and additional cost. The Works were put into commercial operation on 31 August 2016 by the Employer on the advice of the Project Manager. Subsequent Events: Following issues with output of the Works and a drop in market prices for fertiliser, the Performance Tests were never successfully completed for the Works, the Taking Over Certificate was never issued and the Contractor was never paid its final Application For Payment. Despite several requests by the Contractor, the Employer has never returned the Performance Guarantee to the Contractor. The Works, whilst having a number of performance issues, have remained in commercial operation albeit at a much reduced output. Following the recent upsurge in the market price of fertiliser, the Employer contacted the Contractor on 20 May 2022 seeking its assistance in optimising the performance of the Works. The Contractor has refused, stating that it requires payment of its final Application For Payment plus a return of the Performance Guarantee prior to providing any further support to the Employer. Defective Works: The Employer writes to the Contractor on 6 July 2022 stating: “…we hereby put you on notice of a claim for damages in the sum of USD $ 15,000,000 relating to the Contractor’s breaches of the Construction Contract and the substantial liabilities it has to the Employer in respect of latent defects which have now manifested themselves in terms of performance of the Works…” Contractor’s Response: The Contractor replies to the above letter from the Employer on 13 July 2022 copying in the Project Manager and the Engineer named under the Contract stating: “…we are astonished to receive your letter dated 6 July 2022. At no time have we ever been advised that there are any defects in respect of the Works. Whilst we accept that the Works were never fully optimised, this was due to the failure of your Project Manager to provide clarifications relating to the FEED for the Process Plant. Furthermore, we have never received final payment for the Works and the Engineer has failed to issue a Taking Over Certificate despite the Works having been in commercial operation for a number of years. Whilst we are happy to assist you in optimising the Works, we firstly require that you pay our final instalment and return the Performance Guarantee prior to any discussions taking place…” Task Description Please Note: A. It is possible that you may believe as a result of your own personal expertise and knowledge that the events, as described above, would not have occurred as represented and / or the contractual arrangements / terms of various documents were inappropriate. However, such issues are not relevant to the task in hand, which is to interpret the legal implications of the facts as set out in the brief. You are being asked to adopt the role of a legal advisor (based on limited information) and not that of a technical expert. B. It may be that the same issues arise in more than one of the task elements. If so, you need only deal definitively with the issue (e.g. by giving full case law/statutory references and argument etc.) the first time that it occurs. If it arises again, you can then deal very briefly with it. C. The applicable law in relation to all of the agreements is that of England & Wales. D. You should assume you are considering the matter as of 26 August 2022. Tasks 1. Adopting the role of legal advisor to the Employer, write a detailed letter of advice to your client in which you particularise, so far as possible from the information with which you have been provided, the claims which the Employer may be able to pursue against the Contractor and the Project Manager. When doing so, it is important to identify the legal / factual nature and the origin of any such claims. Do not seek to anticipate any defences that the Contractor may raise. Your letter of advice must set out in detail the legal arguments that the Employer could pursue (on current information) in respect of the Contractor and the Project Manager and any actions your client may want to take. Include discussion of whether, and if so how, your client may be able to seek redress from others including the possibility of funding from insurers. Support your answer by reference to properly cited legal authority. [50%] 2. Adopting the role of legal advisor to the Contractor, write a detailed letter of advice to your client setting out in detail the defences available to your client (on current information) in relation to the claims against the Contractor identified in Task 1. When doing so, it is important to identify the legal / factual nature and the origin of any such defences. Your letter of advice must set out in detail the legal arguments that your client could adopt and any actions your client may want to take. Include discussion of whether, and if so how, your client may be able to seek redress from others. Support your answer by reference to properly cited legal authority. [50%]
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