An acceleration of the drilling and construction of the Gotthard Base Tunnel over the past years has left its planners faced with the unusual prospect of the project being completed a year ahead of schedule. Work on the 57 km long railway tunnel through the Swiss alps, the longest in the world, was scheduled to be completed in 2017. However, following faster than anticipated progress in the excavation and construction of the tunnel, the consortium of companies responsible for the second phase of the works, the installation of the railway infrastructure, will propose the possibility of a 2016 hand-over date.

The Gotthard Base Tunnel is part of the 20 billion Swiss Franc AlpTransit project to build a new rail link through the Alps, with the objective of creating a direct and level route for high speed passenger and freight trains. The new rail link will lead to significantly shorter travel times, for example shaving an hour off the current 3.5 hour trip from Zurich to Milan, and will partially accommodate the projected increase in passenger and freight traffic through the Alps. The project involves the boring of several tunnels, of which the Gotthard Base Tunnel will be the longest and most costly, at just under 10 billion Swiss Francs. The tunnel construction is led by Alptransit Gotthard GA, a wholly owned subsidiary of the Swiss Federal Railways.

Instead of the dual-track tunnel which was initially planned, the Gotthard Base Tunnel consists of two parallel single track tunnels, allowing for faster excavation and shortening construction time by two to three years. Construction time was also shortened by digging several access tunnels, allowing for construction to be conducted on several sections simultaneously. Various consortia were assigned the construction works for different sections of the tunnel, and consist of several major international construction companies. For example, the Consorzio TAT, responsible for the Faido and Bodio sections, includes Hochtief, Implenia and Impregilo, among others. Excavation works are being conducted using four imposing tunnel boring machines, as well as by drilling and blasting. Only a small portion of the tunnel still remains to be excavated, with final break-through in one of the parallel tunnels expected to occur in the autumn of 2010, and break-through in the other expected for the beginning of 2011.

The progress of the boring and construction works has allowed for the second main phase of the project to begin at the end of June 2010: the installation of the railway infrastructure, including the railway tracks, power supply, telecommunication and safety systems. The consortium which was awarded the 1.7 billion Swiss Franc contract for installing the railway infrastructure, Transtec Gotthard, is composed of Swiss energy company Alpiq, British infrastructure company Balfour Betty, French technology company Alcatel-Lucent/Thales and Austrian construction company Alpine Bau. Transtec Gotthard expects to complete the first section of the tunnel by 2013, allowing for test runs at speeds of up to 230 km/h.

AlpTransit Gotthard SA has recognised that it would be technically possible to complete the project a year before schedule, barring any delays to the final break-through of the excavation works, which could for example be caused by cavities or water. It is uncertain however whether AlpTransit Gotthard SA and the ultimate user of the tunnel, the Swiss Federal Railways, will approve the acceleration of the works. In particular, such an acceleration would engender additional costs and would require a greater coordination of the construction works. The political overseers of the project have expressed reservations. Moreover, given that the tunnel is unlikely to be profitable, the advantages of a sooner than planned entry into service are not readily apparent. Indeed, it is uncertain whether revenues from the tunnel will even be sufficient to cover its operating and maintenance costs.

By Matthias Scherer and Samuel Moss

Article 14 and Article 15 of the French civil code give the French Courts jurisdiction on the basis of, respectively, the claimant’s or the defendant’s French nationality. Accordingly, a French party can sue at home on any cause of action, whether or not the events in issue relate to France, and regardless of the defendant’s nationality, connections and interests. However, these articles are not mandatory and this jurisdictional privilege can easily be waived if one of the parties sues abroad and there is no challenge to the jurisdiction of the foreign Court, or if the relevant contract contains a jurisdiction clause. These rather controversial provisions are often criticized as being too nationalistic but the French legal system is by no means the only one with this rule of “privilège de juridiction” (“exorbitant jurisdiction”).

Despite such criticism, the French Court of cassation has recently applied the rule of exorbitant jurisdiction based on the nationality of the claimant in a dispute between a Saudi employer and a French contractor.

In a judgment dated September 30, 2009 (No. 08-17587), the Court of cassation had to deal with the following situation: a Saudi company concluded a contract for the construction of its headquarter in Riyadh with a construction company incorporated in France. It is noteworthy that the construction company had a business establishment in Saudi Arabia. The contract, written in Arabic, included a clause conferring jurisdiction to a particular Saudi Court (the Grievance Bureau). Following difficulties with the performance of the contract, the French company issued proceedings before the Saudi Court designated by the jurisdiction clause. The Saudi Court rendered a judgment which was later annulled by the Saudi Court of appeal on the ground that the nature of the dispute was civil, not commercial, and the Saudi Court seized lacked jurisdiction over this type of dispute.

The French company later brought the same dispute before the French Commercial Tribunal of Paris on the basis of Article 14 of the French civil code which provides that:

“An alien, even if not residing in France, may be cited before French Courts for the performance of obligations contracted by him in France with a French person; he may be called before the Courts of France for obligations contracted by him in a foreign country towards French persons.”

The dispute proceeded to the Paris Court of appeal and finally to the Court of cassation. The question addressed by the Court of cassation was whether French Courts have jurisdiction over a dispute despite a jurisdiction clause included in the contract designating a foreign court which, seized by one of the parties to the contract, holds that it lacks jurisdiction.

In each stage of the proceedings, the jurisdiction of the French Courts was challenged by the Saudi company based on three main arguments. First, as Article 14 of the French civil code is not mandatory, the French judges should decline jurisdiction because the connection with France was not strong enough to give jurisdiction to French Courts. Indeed, the contract was performed in Saudi Arabia, governed by Saudi laws and entered into by a Saudi company and a construction company with a business establishment in Saudi Arabia (which happened to be incorporated in France). Second, the incorporation in France of the construction company was a sham as no minutes of meetings of the board were produced and as this company had no actual business activity in France. Third, French judges could not have jurisdiction over the dispute because the jurisdiction clause designated a Saudi Court and thus excluded the possibility of bringing the dispute before French judges.

The Court of cassation, in its judgment, applied the rule of exorbitant jurisdiction contained in Article 14 of the French civil code. The Court found that it was sufficient to show that the construction company was formally incorporated in France to consider it as French for the purposes of Article 14. Moreover, the Court found that the French judges had jurisdiction over the dispute because, in spite of the jurisdiction clause, the Saudi judges had found that they lacked jurisdiction over the dispute in question, and the dispute had not been brought before another foreign judge, which would have had the effect of a waiver of Article 14.

Thus, parties contracting as, or with, a French party should be aware that if the Court designated by a jurisdiction clause decides that it does not have jurisdiction over a contract-related dispute, French Courts might have jurisdiction over it because of Article 14 (and Article 15) of the French civil code.

By Gauthier Vannieuwenhuyse and Joanne Clarke

Underlying this success is the program of regulatory legal acts developed and implemented in St. Petersburg, which provide a clear and detailed framework for investment projects (many St. Petersburg laws have been taken as models by other regions). In particular, special (beneficial) procedures and conditions apply to projects of particular social, economic, cultural or other significance, known as “strategic investment projects”. (There are currently 21 strategic projects at various stages in St. Petersburg, including the automotive projects mentioned above). City officials have also acquired significant experience in commercial negotiations and show a willingness for open dialog with developers.

Practically all the investment projects in question are taking place on state land, as historically land has been and continues to largely be in state ownership. The most commonly used procedure for non-residential greenfield investment projects on state land is targeted allocation with prior site approval (Residential greenfield projects follow a different scheme – with allocation of the land plot under lease or into ownership by auction). This procedure has two main stages: (i) the developer conducts a survey of the site (in practice, the survey involves the collection of documents determining the ownership/legal status of the land plot, and engineering surveys), and (ii) the actual design and construction process. Legally, these two stages are covered by separate land plot leases concluded on the basis of a St. Petersburg Government Resolution allocating the land plots for the above purposes and on the terms in the Resolutions (usually up to one year for surveying, and up to three years for design and construction). Upon completing construction and obtaining a commissioning permit, the developer registers its title to the new building and has the right to buy out the underlying land plot from the city at a regulated price (the price is determined by a special formula based on the cadastral value), or to conclude a long-term lease agreement (up to 49 years).

Nevertheless, despite the well developed and smooth-running greenfield project system in St. Petersburg, there are a number of issues investors should take into consideration when deciding whether to proceed with a greenfield project in St. Petersburg. Among these questions are the following:

Limited choice of sites. The large number of investment projects has inevitably led to a shortage of suitable sites for greenfield projects. This is related both to the limited territory of St. Petersburg itself, and the specific site requirements for certain projects. The City Government is therefore lobbying for a merger with the neighboring region – Leningradskaya Oblast – and reclamation of additional territory from the Gulf of Finland (at least two major projects are underway on reclaimed territory).

Payments to the St. Petersburg budget for the right to implement an investment project. These payments can be significant (except strategic projects, which have large discounts and exemptions) and are calculated on the basis of the market value of the planned building. The market value is determined by an independent expert chosen by the developer, but must be approved by a special city institution.

Insufficient external infrastructure. Although St. Petersburg spends significant funds each year on developing and enlarging its utilities infrastructure, developers are often faced with non-existent or insufficient utilities capacity for their projects, particularly with regard to power. This issue is also complicated by the connection fee, which can be considerable. Where infrastructure is insufficient developers may be required to build the required capacity and hand it over to the operating companies as the connection fee.

Actual impediments. Often, greenfield project investors encounter the situation where the chosen site has vegetation, bodies of water or other features of indeterminate status (such as trees not in city woodland records, unregistered bodies of water). The indeterminate legal status of these features can significantly delay the process of determining the risks for the project, and steps to be taken to mitigate the risks.

These problems are, of course, not the only ones. At the same time, after more than 15 years of experience on the St. Petersburg real estate market, we can see that St. Petersburg is ready to go to developers and discuss how to reduce and/or redistribute the risks involved in projects. This does not, however, make it any less necessary for developers to ensure they have sound legal, technical and financial advisors for each greenfield project in St. Petersburg.

By

To protect the contractor from the risk of the owner’s insolvency, the law No. 94-475 of June 10, 1994 on the prevention and treatment of the difficulties encountered by contractors instituted the obligation for the owner to guarantee the contractor that the price of the ordered works would be paid.

This obligation, set out in Article 1799-1 of the Civil Code, concerns exclusively private works contracts, whose amount exceeds the minimum threshold fixed by the decree of July 30, 1999 at EUR 12,000.

It is mandatory, as Article 1799-1 of the Civil Code is public policy, and is materialized by a control mechanism of the payment of the loan financing the contractor’s contract, or, in the absence of a loan, by an obligation for the owner to provide to the contractor a specific guarantee.

In a decision rendered on September 9, 2009, the third civil chamber of the Cour de Cassation confirmed once again these various principles by recalling that the owner which enters into a private works contract must guarantee the contractor that the sums owed will be paid, no derogation being allowed.

Moreover and above all else, the Court recalled that the owner is liable for this payment guarantee obligation as from the execution of the works contract, the owner being unable to postpone it or make it conditional.

In this case, an owner had engaged a private contractor to renovate hotel rooms.

The owner had placed three service orders with its contractor, subject however to the latter providing to the owner a bank guarantee for the total amount of the works (considering its wish to subcontract the contract).

The contractor’s bank, for its part, agreed to provide it with this guarantee, but subject to the contractor obtaining from the owner a joint suretyship guaranteeing the payment of the contracts, in accordance with Article 1799-1 of the Civil Code.

Confronted with this request from the bank, the owner notified its contractor that the service orders were null and void on the grounds of the failure to meet the condition precedent to obtain the bank guarantee.

Having had its claims for the payment of various down payments and damages dismissed in first instance and in appeal, the contractor lodged an appeal before the Cour de Cassation.

Referring to paragraphs 1 and 3 of Article 1799-1 of the Civil Code, the Cour de Cassation quashed the decision of the Court of Appeal and granted the contractor’s claim.

Because, as from the execution of the contract, the owner was indeed liable, under Article 1799-1 of the Civil Code, for its legal guarantee obligation, without being able to condition it on the provision of a guarantee by the contractor.

By Maxime Simonnet and Chloé Niedermaier

For several years, there has been a debate among scholars on the classification of certain provisions of the 1975 Law as mandatory within the context of international subcontracting. This Law allows, amongst other things, a subcontractor to initiate legal proceedings directly against the employer, should the main contractor fail to pay monies due by virtue of the subcontract.

The legal basis for the mandatory application of this Law is Article 7 of the Rome Convention on the law applicable to contractual obligations which provides that

when applying under this Convention the law of a country, effect may be given to the mandatory rules of the law of another country with which the situation has a close connection, if and in so far as, under the law of the latter country, those rules must be applied whatever the law applicable to the contract. In considering whether to give effect to these mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or non-application.

While the first civil chamber of the Court of cassation held, in its judgment dated January 23, 2007 (Cour de cassation, civ. 1, 23 January 2007, Bull. Civ. 2007, n°33) that the Law did not qualify as a mandatory rule, the joint chambers of the Court of cassation held, several months later, in its judgment dated November 30, 2007 (op. cit.), that regarding the construction of a building in France, the provisions of the 1975 Law which protect the subcontractor, are mandatory within the meaning of the Rome Convention. Because this jurisprudence has subsequently been confirmed by several judgments of the Court of cassation, it has to be considered a real trend.

This trend has at least two significant implications.

First, even if the contractual relationship between the parties is international, the provisions which protect the subcontractor under the 1975 Law will be applicable, if the construction works take place on French territory. For instance, the Court of cassation had to deal, in a judgment dated January 30, 2008 (op. cit.), with the following situation: the employer, a company registered in Belgium, entered into a contract with a German company. This contract provided for delivery of certain products and the erection of machines in France. The contract was governed by Swiss law. The contractor entered into a Subcontracting agreement with another German company, which itself entered into several Subcontracting agreements with three German companies. All the Subcontracting agreements were governed by German law. A French company intervened as the employer’s representative. Therefore, the only criteria which led to the mandatory application of the provisions regarding the direct action of the subcontractor under the 1975 Law was the location of the works in France.

Contracting parties should therefore be aware that their choice of governing law may be overridden by the mandatory laws of some jurisdictions. In France, the mandatory rules contained in the 1975 Law will be applied as soon as the works take place in France, regardless of the governing law of the contract or the nationality of the parties.

Second, the transformation of the 1975 Law into a mandatory rule could be considered as the first step of a more general trend towards the protection of one of the contracting parties in an international construction contract. It is possible that certain other provisions and principles of French construction law which are also aimed at protecting parties to a construction contract – such as the presumption of liability of the builder of the works or the guarantee by the building owner of payment of sums owed to the contractor when they exceed a certain threshold– might in the future be considered mandatory.

Your thoughts and comments on other implications of the recognition of new mandatory rules and on the existence of such a trend in other jurisdictions are welcomed.

By Joanne Clarke and Gauthier Vannieuwenhuyse

As of January 1, 2010, licensing of engineering survey, design and construction activities, including developer (“zakazchik-zastroishchik”) functions will be completely abolished. Developers, engineers, designers and contractors will be allowed to continue such construction related activities under an SRO (self-regulating organization) mandate.

To explain what this means to organizations operating in the Russian Federation, an SRO mandate is a document issued by the SRO to a legal entity/individual entrepreneur in the form of a permit for a particular type or types of works (such as engineering surveys, design and construction). It is nevertheless worth noting that state regulation in the construction industry will continue by means of: the approval of design documentation by state expert assessment, technical requirements, the supervision of construction and related activities and state supervision of the SRO’s activities.

The failure to comply with the new requirements will result in an administrative fine or suspension of business for a certain period. The specifics are as follows:

– No more licenses are to be issued as of January 1, 2009 and licensing of construction related activities will be abolished from January 1, 2010.
– During the transition period (January 1, 2009 – January 1, 2010) licensed companies are allowed to carry out construction related activities either under an existing license or an SRO mandate.
– Licensing of construction related activities will be completely abolished from January 1, 2010. Thereafter, SRO certification in the form of an SRO mandate will be required to perform such activities. It is worth noting that a draft law proposing to prohibit the extension of the term of existing licenses has been passed by the RF State Duma in the first reading recently.
– Each engineering survey, design and construction (including developer functions) activities company will require an SRO mandate to be able to perform the works the SRO regulates from January 1, 2010.
– After January 1, 2010, conducting construction related activities without an SRO mandate will be illegal and will lead to the imposition of administrative fines of approximately USD 1,500, or in certain cases suspension of business for 90 days.

Given the above, engineers, designers, contractors and developers should consider either the creation of a new SRO, or joining as a member an existing SRO and obtaining the SRO mandate before January 1, 2010.

Your views and comments on how you believe this is going to affect the construction market in Russia would be welcomed. I would also be interested to hear how similar developments in different jurisdictions have played out in those markets.