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Appendix 1
ABOUT THE AUTHORS
The Projects and
Construction Review
Law Business Research
Fourth Edition
Editor
Júlio César Bueno
The Projects and Construction Review
The Projects and Construction Review
Reproduced with permission from Law Business Research Ltd.This article was first published in The Projects and Construction Review - Edition 4
(published in July 2014 – editor Júlio César Bueno ).
For further information please [email protected]
The Projects and
Construction Review
Fourth Edition
EditorJúlio César Bueno
Law Business Research Ltd
THE MERGERS AND ACQUISITIONS REVIEW
THE RESTRUCTURING REVIEW
THE PRIVATE COMPETITION ENFORCEMENT REVIEW
THE DISPUTE RESOLUTION REVIEW
THE EMPLOYMENT LAW REVIEW
THE PUBLIC COMPETITION ENFORCEMENT REVIEW
THE BANKING REGULATION REVIEW
THE INTERNATIONAL ARBITRATION REVIEW
THE MERGER CONTROL REVIEW
THE TECHNOLOGY, MEDIA AND TELECOMMUNICATIONS REVIEW
THE INWARD INVESTMENT AND INTERNATIONAL TAXATION REVIEW
THE CORPORATE GOVERNANCE REVIEW
THE CORPORATE IMMIGRATION REVIEW
THE INTERNATIONAL INVESTIGATIONS REVIEW
THE PROJECTS AND CONSTRUCTION REVIEW
THE INTERNATIONAL CAPITAL MARKETS REVIEW
THE REAL ESTATE LAW REVIEW
THE PRIVATE EQUITY REVIEW
THE ENERGY REGULATION AND MARKETS REVIEW
THE INTELLECTUAL PROPERTY REVIEW
THE LAW REVIEWS
www.TheLawReviews.co.uk
THE ASSET MANAGEMENT REVIEW
THE PRIVATE WEALTH AND PRIVATE CLIENT REVIEW
THE MINING LAW REVIEW
THE EXECUTIVE REMUNERATION REVIEW
THE ANTI-BRIBERY AND ANTI-CORRUPTION REVIEW
THE CARTELS AND LENIENCY REVIEW
THE TAX DISPUTES AND LITIGATION REVIEW
THE LIFE SCIENCES LAW REVIEW
THE INSURANCE AND REINSURANCE LAW REVIEW
THE GOVERNMENT PROCUREMENT REVIEW
THE DOMINANCE AND MONOPOLIES REVIEW
THE AVIATION LAW REVIEW
THE FOREIGN INVESTMENT REGULATION REVIEW
THE ASSET TRACING AND RECOVERY REVIEW
THE INTERNATIONAL INSOLVENCY REVIEW
THE OIL AND GAS LAW REVIEW
THE FRANCHISE LAW REVIEW
THE PRODUCT REGULATION AND LIABILITY REVIEW
THE SHIPPING LAW REVIEW
PUBLISHER Gideon Roberton
BUSINESS DEVELOPMENT MANAGERS Adam Sargent, Nick Barette
SENIOR ACCOUNT MANAGERS Katherine Jablonowska, Thomas Lee, James Spearing
ACCOUNT MANAGER Felicity Bown
PUBLISHING COORDINATOR Lucy Brewer
MARKETING ASSISTANT Chloe Mclauchlan
EDITORIAL ASSISTANT Shani Bans
HEAD OF PRODUCTION Adam Myers
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Published in the United Kingdom by Law Business Research Ltd, London
87 Lancaster Road, London, W11 1QQ, UK© 2014 Law Business Research Ltd
www.TheLawReviews.co.uk No photocopying: copyright licences do not apply.
The information provided in this publication is general and may not apply in a specific situation, nor does it necessarily represent the views of authors’ firms or their clients.
Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions
contained herein. Although the information provided is accurate as of July 2014, be advised that this is a developing area.
Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed
to the Publisher – [email protected]
ISBN 978-1-909830-08-0
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Tel: 0844 2480 112
i
The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:
ALLEN & OVERY LLP
ANDERSON MŌRI & TOMOTSUNE
ARAQUEREYNA
BASHAM, RINGE Y CORREA, SC
BOWMAN GILFILLAN
BRIGARD & URRUTIA
CLAYTON UTZ
CLIFFORD CHANCE
DAVIS LLP
DENTONS
EISENBERGER & HERZOG RECHTSANWALTS GMBH
ERDEM & ERDEM LAW OFFICE
ESTUDIO BECCAR VARELA
GALADARI ADVOCATES & LEGAL CONSULTANTS
GUYER & REGULES
HILL INTERNATIONAL, INC
J SAGAR ASSOCIATES
K&L GATES
LINKLATERS LLP
ACKNOWLEDGEMENTS
Acknowledgements
ii
LLS LUNGERICH LENZ SCHUHMACHER RECHTSANWÄLTE
MAPLES AND CALDER
MCCULLOUGH ROBERTSON LAWYERS
MILBANK, TWEED, HADLEY & MCCLOY LLP
MOLINA RÍOS ABOGADOS
PECKAR & ABRAMSON, PC
PINHEIRO NETO ADVOGADOS
PLESNER LAW FIRM
ROYAL INSTITUTION OF CHARTERED SURVEYORS
SHIN & KIM
SSEK LEGAL CONSULTANTS
STIBBE
THIRTY NINE ESSEX STREET CHAMBERS
VIEIRA DE ALMEIDA & ASSOCIADOS, SOCIEDADE DE ADVOGADOS, RL
WALDER WYSS LTD
ZHONG LUN LAW FIRM
iii
Editor’s Preface ..................................................................................................viiJúlio César Bueno
Chapter 1 INTERNATIONAL PROJECT FINANCE ..............................1Phillip Fletcher and Andrew Pendleton
Chapter 2 DISPUTE RESOLUTION IN CONSTRUCTION PROJECTS ...............................................................................13
Robert S Peckar and Denis Serkin
Chapter 3 RELATIONSHIP CONTRACTING ......................................23Doug Jones
Chapter 4 A GUIDE TO ALTERNATE PROJECT DELIVERY SYSTEMS .............................................................33
Maurice Masucci, Frank Giunta, and David Price
Chapter 5 STANDARDS FOR THE MEASUREMENT OF LAND AND BUILDINGS ................................................51
Alexander Aronsohn, Ben Elder and Marcia Ferrari
Chapter 6 THE NEED FOR INTERNATIONAL CONSTRUCTION MEASUREMENT STANDARDS .........69
Matthew Saunders and Alan Muse
Chapter 7 ARGENTINA ...........................................................................80Pedro Nicholson
Chapter 8 AUSTRALIA .............................................................................91Matt Bradbury, Kristen Podagiel, Hayden Bentley, Tim Hanmore, Emma Murray, Liam Davis, Meg Morgan and James Arklay
CONTENTS
iv
Contents
Chapter 9 AUSTRIA ...............................................................................105Alric A Ofenheimer and Michael Strenitz
Chapter 10 BELGIUM ..............................................................................118Rony Vermeersch and Diederik De Block
Chapter 11 BRAZIL ..................................................................................130Júlio César Bueno
Chapter 12 CANADA ...............................................................................152Ian Bendell, Andrew Burton, Bruce Darlington, Lana Finney, David Foulds, James Kelsall, Howard Krupat, Elizabeth Mayer and Mitchell Mostyn
Chapter 13 CHILE ....................................................................................167Victor Ríos and Carlos Molina
Chapter 14 CHINA ...................................................................................179Zhu Maoyuan and Zhang Jiong
Chapter 15 COLOMBIA...........................................................................194Carlos Umaña, María Luisa Porto, César Rodríguez and Juan Martín Estrada
Chapter 16 DENMARK ............................................................................208Peter Wengler-Jørgensen, Maygan Mike Lundgaarde and Daniel Hedegaard Nielsen
Chapter 17 FRANCE ................................................................................222Paul Lignières, Mark Barges, Pierre Guillot and Darko Adamovic
Chapter 18 GERMANY ............................................................................232Rouven F Bodenheimer and Claus H Lenz
Chapter 19 INDIA ....................................................................................244Dina Wadia and Divyanshu Pandey
v
Contents
Chapter 20 INDONESIA ..........................................................................258Darrell R Johnson, Ade B Adamy and Awang F Bahrin
Chapter 21 IRELAND...............................................................................272Conor Owens, Mary Dunne and Michael Kennedy
Chapter 22 ITALY .....................................................................................284Francesco Sanna, Anna Amprimo and Carolina Teresa Arroyo
Chapter 23 JAPAN ....................................................................................301Tetsuya Itoh, Reiji Takahashi and Tetsuro Motoyoshi
Chapter 24 KOREA ...................................................................................313Michael Chang, Sang-Hyun Lee and Seung-Gyu Yang
Chapter 25 MEXICO ................................................................................324Juan Carlos Serra and Francisco Javier González
Chapter 26 NETHERLANDS ..................................................................342Frédérique Jacobse, Zeeger de Jongh, Werner Runge and Arent van Wassenaer
Chapter 27 PORTUGAL ...........................................................................354Manuel Protásio, Teresa Empis Falcão and Frederico Quintela
Chapter 28 QATAR ...................................................................................368Andrew Jones, Zaher Nammour and Sarah Stewart
Chapter 29 SOUTH AFRICA ...................................................................381Anton Barnes-Webb, Rob Morson, Lido Fontana and Daryn Webb
Chapter 30 SPAIN .....................................................................................393José Guardo and Alejandro León
Chapter 31 SWITZERLAND ...................................................................406Thomas Mueller-Tschumi and Francis Nordmann
Contents
vi
Chapter 32 TURKEY ................................................................................417H Ercument Erdem
Chapter 33 UNITED ARAB EMIRATES .................................................429Dr Daniel Brawn
Chapter 34 UNITED KINGDOM ...........................................................443David Brynmor Thomas, Alexandra Bodnar and Rebecca Drake
Chapter 35 UNITED STATES .................................................................456Carolina Walther-Meade, Karen Wong, Henry Scott and Miguel Duran
Chapter 36 URUGUAY .............................................................................478Beatriz Spiess
Chapter 37 VENEZUELA.........................................................................490Pedro Ignacio Sosa Mendoza, Pedro Luis Planchart, Verónica Díaz Hernández and Rodrigo Moncho Stefani
Appendix 1 ABOUT THE AUTHORS .................................................... 503
Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS .. 537
Appendix 3 GLOSSARY OF TERMS ....................................................... 543
vii
EDITOR’S PREFACE
La meilleure façon d’être actuel, disait mon frère Daniel Villey, est de résister et de réagir contre les vices de son époque. Michel Villey, Critique de la pensée juridique moderne (Dalloz (Paris), 1976).
This book has been structured following years of debates and lectures promoted by the International Construction Law Committee of the International Bar Association (ICP), the American College of Construction Lawyers (ACCL), the Society of Construction Law (SCL), the Dispute Resolution Board Foundation (DRBF) and the American Bar Association’s Forum on the Construction Industry (ABA). All of these institutions and associations dedicated themselves to promoting an in-depth analysis of the most important issues related to projects and construction law practice and I thank their leaders and members for their important support in the preparation of this book.
Project financing and construction law are relatively young, highly specialised areas of legal practice. They are intrinsically functional and pragmatic and require the combination of a multitask group of professionals – owners, contractors, bankers, insurers, brokers, architects, engineers, geologists, surveyors, public authorities and lawyers – each bringing their own knowledge and perspective to the table. That is why I am very happy to present you non-lawyers’ chapters specifically prepared for the introductory part of this book: ‘The Need for International Construction Measurement Standards’ by Matthew Saunders and Alan Muse at the Royal Institution of Chartered Surveyors (RICS). Frank Giunta, Maurice Masucci and David Price, senior representatives from Hill International, offer us ‘A Guide to Alternate Project Delivery Systems’ and Alexander Aronsohn, Ben Elder and Marcia Ferrari, senior representatives from RICS demonstrate some innovative approaches to spatially enabling land administration and management.
These chapters provide further breadth to the variety already produced by Robert S Peckar (Peckar & Abramson), Douglas S Jones (Clayton Utz) and Phillip Fletcher (Milbank, Tweed, Hadley & McCloy LLP), three leading professionals and lecturers in the field of project finance and construction law. Despite living miles away from each other – in the heartlands of the United States (Bob), the United Kingdom (Phillip) and
Editor’s Preface
viii
Australia (Doug) – they have equally influenced the main players in project financing in dealing with the complex issues related to the development and implementation of projects, the negotiation of construction and engineering contracts and the challenges of crafting the perfect financing package.
I am also glad to say that we have contributions from two new jurisdictions in this year’s edition: Indonesia and Turkey. Although there is an increased perception that project financing and construction law are global issues, the local flavour offered by leading experts in 31 countries has shown us that in order to understand the world we must first make sense of what happens locally; to further advance our understanding of the law, we must resist the modern view (and vice?) that all that matters is global and what is regional is of no importance. Many thanks to all the authors and their law firms that graciously agreed to participate.
Finally, I dedicate this forth edition of The Projects and Construction Review to Dr Kris R Nielsen, PhD, JD, PMP, MRICS, MJSCE, and Dr Sérgio Alfredo Rosa da Silva, professor at the prestigious University of São Paulo Engineering School. Both passed away last year.
I had the honour of working with both of them and it was a remarkable and unique experience to learn how to deal with projects with a global and strategic perspective on risk management and best practices. They spent their career working towards bettering the construction industry and worked tirelessly to promote the areas of law and engineering with a view to their joint futures.1
Dr Nielsen and Dr Rosa da Silva will be greatly missed.I look forward to your comments and contributions for the forthcoming editions.
Júlio César BuenoPinheiro Neto AdvogadosSão PauloJuly 2014
1 Dr Nielsen co-edited and authored an important book entitled Managing Gigaprojects – From Those That Have Been There Done That, published by ASCE Press in October 2012, which is already considered a classic and a great reference for those working in the field. In the words of his beloved wife Dr Patricia Galloway: ‘Dr Nielsen was a global leader in helping contractors and owners to define what makes a successful project. He helped them examine their operations and how to address subjects like risk management, execution, project controls, value engineering, corporate strategy, construction law, dispute resolution, project sustainability, etc. While on assignments, he worked with his clients to help select younger members of their organisation, i.e., to mentor in how to achieve project success. Dr Nielsen derived great satisfaction in knowing there was a growing cadre of people who were learning and then practising their new-found skills while striving for project success.’ See www.pegasus-global.com/personnel/.
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Chapter 17
FRANCE
Paul Lignières, Mark Barges, Pierre Guillot and Darko Adamovic1
I INTRODUCTION
Until the 1990s, the French market for project finance was centred on concessions, which have historically played a key role in the development of infrastructure in France. Due to legal constraints, project finance schemes were usually not available in sectors in which there was no or non-significant payment coming from end users (e.g., health, education, law and order). This changed gradually until a general framework was adopted for partnership agreements in 2004. On that basis, multiple waves of projects were successfully launched, starting with hospitals and prisons, then railway infrastructure and arenas or universities.
Project finance played a key role in the French stimulus plan for the economy during the financial crisis. Major railway projects were launched to keep the market active, most notably the SEA high-speed link, one of the largest project finance transactions in Europe.
Project finance has also been one of the major tools of the French energy transition. More than 13,000MW of renewable energy projects have now reached production stage under a power purchase obligation regime, with fixed preferential tariffs put in place in 2000.
France became the largest market for public-private partnerships (PPPs) in 2011 and remained one of the largest markets in 2012. It is now a mature market, with practices, legal structures and precedents that foreign investors are often familiar with.
Due to the leading position of the French construction contractors, most notably Vinci, Bouygues and Eiffage, the French construction market has always been difficult for foreign players.
1 Paul Lignières is a partner, Mark Barges is a counsel, Pierre Guillot is a managing associate and Darko Adamovic is a senior associate at Linklaters LLP.
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The financing market, on the other hand, has always seen foreign investors and foreign banks playing a major role for project finance, alongside the main French banks (Société Générale, Natixis, CA-CIB and BNPP) and the key public sector players (the French Caisse des dépôts et consignations and the European Investment Bank).
The role of foreign players in the French market should increase in the coming years despite the somewhat protectionist image attached to France, with key opportunities to enter the French market arising from the development of the brownfield market (see below).
II THE YEAR IN REVIEW
The greenfield infrastructure market has seen a significant reduction in size in 2013, due to (1) the stimulus plan for the economy coming to an end, (2) the public finance crisis, (3) the lack of need for new infrastructure after the completion of the previous waves of projects, and (4) the new Socialist government being less enthusiastic about PPPs than its predecessors.
In addition, 2013 also saw some well-known projects facing difficulties. The Ecotax project was suspended by the French government after a series of demonstrations just a few weeks before the official implementation date. The project remains suspended to this day. The hospital of Corbeil-Essones project (CHSF), over which there had been controversy during the French presidential campaign of 2012, faced a number of difficulties and was ultimately terminated in 2014. Finally, third-party challenges affected the Balard project (known as the French Pentagon) and the PPP contract for the new courthouse of Paris, although the claims were ultimately rejected.
Nevertheless, some notable projects have reached financial close, most notably the L2 ring road in Marseille and the Cité de la Musique near Paris. In both cases, project bonds were put in place, with Allianz subscribing to the bonds. Project bonds should remain a key trend in the near future, including on refinancing transactions, as confirmed by the first half of 2014, as they can offer finance for longer periods than conventional debt.
A significant brownfield market for French regulated infrastructure assets has also been growing in 2013. Notable transactions include the sale by Total of TIGF (the gas network in the south of France) and Vinci selling its car parking activity. The secondary market for PPP projects also strengthened in 2013, with sponsors considering the sale of portfolios of assets having entered their operational phase. The development of the brownfield market should remain an important trend over the coming years, with major opportunities for foreign investors.
The greenfield market for energy projects also faced some hurdles throughout 2013, due to state aid issues affecting the French feed-in tariff for wind farms. The market remained active in 2013 nonetheless, thanks to the offshore wind projects launched by the French government, which represent major opportunities for project finance in the near future. With the European Commission having declared the feed-in tariff for onshore wind compatible with European law in March 2014, the market should pick up speed in 2014.
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The brownfield market for energy projects was also active in 2013, with portfolios of existing renewables assets being sold in whole or part. GDF SUEZ notably sold a 50 per cent stake in its wind farms to Crédit Agricole in late 2013.
In a nutshell, the French market is now mature, with fewer major projects being launched and a developing brownfield market. Going forward, we expect many opportunities for smaller, local PPPs and for foreign investors to enter the French market, buying brownfield projects.
III DOCUMENTS AND TRANSACTIONAL STRUCTURES
i Transactional structures
PPP projects on the French market are typically developed by a special purpose vehicle (SPV). Historically, contractors saw the PPP market as an extension of the construction industry. As the market matured, sponsors have become more diverse and also included the concession division of such contractors and specialist financial investors such as ARDIAN (former AXA PE), CDC Infrastructures, FIDEPPP, Macquarie, Marguerite and Meridiam.
PPP projects are structured as build-operate-transfer (BOT) schemes. Renewable energy projects are privately owned.
ii Documentation
The SPV typically enters into a PPP contract with the public sector, and into engineering-procurement-construction (EPC), operation and maintenance (O&M) and financing contracts. Depending on the complexity of the project, other agreements can be required, such as interface agreements to deal with interfaces between construction and maintenance, and direct agreements between the lenders and the sponsors and/or public sector.
Renewable energy projects are developed on the basis of a power purchase agreement and grid connection agreements entered into with various entities of the EDF group (the French electricity integrated historical incumbent).
iii Delivery methods and standard forms
PPP contracts are not standardised, although concessions granted at state level tend to be very similar. MAPPP, the French PPP taskforce, has suggested standard terms, but their use is not mandatory. On the renewable energy market, power purchase and grid connection agreements are standardised.
The FIDIC (International Federation of Consulting Engineers) documents are well known by French players and used for inspiration, although the major French construction contractors usually use their own standard documents as a basis for discussions.
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IV RISK ALLOCATION AND MANAGEMENT
i Management of risks
The management of risks is in line with international project finance standards and based on widely accepted principles, such as the transparency and ‘back-to-back’ principles which govern the relationships between the SPV and its subcontractors.
On the PPP market, the risk of third-party challenge has required specific treatment over the last few years, due to case law being somewhat unclear on certain issues, most notably the treatment of swap breakage costs in the case of judicial cancellation of the PPP contract. Specific arrangements, known as ‘tripartite’ agreements, have often been made available by the public sector to cover such costs should a PPP be held invalid as a result of a challenge.
ii Limitation of liability
Limitation of liability is accepted under French law, except in a few cases, most notably gross misconduct. Public sector clients, however, cannot accept a complete exoneration of liability.
In PPP projects, the liability cap of the construction contractor is often around 20 to 30 per cent of the contract price, with specific risks excluded from the cap (e.g., penalties payable by the SPV to the public sector and gross negligence). The liability cap of the O&M contractor is generally equal to one or two years of payments under the O&M. While PPP, EPC and O&M contracts regularly include liquidated damages provisions (known as penalties), a court can revisit them if it considers them to be unreasonably high or low.
As a general principle, contractors cannot be held liable for the consequences of force majeure.
iii Political risks
Although projects in France are not totally immune from political risks, as recently demonstrated by the suspension of the Ecotax project by the government, it is usually not seen as a major cause for concern given the fairly protective French legal and institutional framework.
PPP contracts can be unilaterally modified or terminated on general interest grounds, but the contractor is entitled to full indemnification of the damage resulting from such decision. PPP contracts also generally provide for protection against changes in law that would specifically affect the project. Such protection is also offered under case law under the theory known as ‘fait du prince’, which entitles contractors to indemnification in the event of unilateral measures affecting the performance of a contract. Another theory, known as ‘imprévision’, offers protection where unforeseeable situations have a significant impact on the projects, which can cover civil disturbance and other political risks to some extent.
PPP contracts do not normally include any termination provisions in favour of the SPV. However, the SPV will be entitled to seek termination of the PPP contract and recover compensation for its losses (including loss of profits) in the event of material breach by the public sector authority.
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The rights of foreign investors, including property rights, are protected under the French Constitution, which does not discriminate against foreign investors. Their rights are therefore protected in the same way as the rights of French citizens and corporate bodies. Expropriation is possible, but only to the extent that it serves a general interest purpose and that appropriate indemnification is paid prior to expropriation. Nationalisations are possible to some extent, provided that indemnification is paid. There have been no examples since the early 1980s, when the socialist government nationalised major French corporates and French banks which were privatised a few years later.
Due to this protective legal framework, the intervention of the Multilateral Investment Guarantee Agency of the World Bank Group is not considered as necessary when acting on the French market.
V SECURITY AND COLLATERAL
Finance parties involved in the financing of projects in France are secured by way of a standard security package, which mainly includes an assignment by way of security under Article L.313-23 et seq. of the French Monetary and Financial Code (the ‘Dailly assignment’) over certain receivables held by the project company in the context of the project.
The package also typically includes pledge agreements in respect of the shares of the project company, the bank accounts and other moveable assets and direct agreements. It should be noted that there is no equivalent in France to the floating charge found under English law, although specific security can be put in place for specific classes of assets.
In the context of the financing of renewable energy projects (such as wind or solar projects), the finance parties also benefit from a mortgage in respect of a percentage of the value of immoveable assets thereunder.
For all projects on the French market, the main security remains the Dailly assignment, which results in an assignment over certain receivables (such as proceeds of the termination compensation that may be due by a public authority under PPP agreements, or proceeds of the termination compensation that may be due by EPC or O&M contractors under their respective contracts with the project company). Although such assignment may only benefit lenders (as opposed to hedging banks, whose interest is equally protected through specific contractual and security arrangements), it is usually considered as a strong bankruptcy remote instrument as it grants to the finance parties full title over the assigned receivables. On the PPP projects, lenders may also benefit to some extent from an ‘accepted Dailly assignment’, whereby, after completion of the construction phase, the public authority is statutorily prevented from raising any defence on the grounds of the PPP agreement against the lenders benefiting from the said accepted Dailly assignment. This makes the underlying loan immune from the risks of the project and results in a structure quite comparable to a loan extended directly to the public authority.
Standard step-in rights are usually available on French projects, although the consent of the public sector will be required before substituting a new entity to the initial project company.
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VI BONDS AND INSURANCE
i Bonds
Standard bonds for projects in France are performance bonds and parent company guarantees.
Bid bonds are not standard in the context of French PPPs. However, for particularly large projects (such as the €7.8 billion high-speed SEA railway project), the bidding consortium, when submitting a bid, might be requested to provide a bid bond to ensure that it will reach financial close within the required period.
A performance bond is usually requested from the EPC contractor to secure performance of its obligations under the EPC contract. Such bonds are usually in the form of first demand bank guarantees issued by financial institutions with a specified credit rating.
Defects liability risks are generally covered through contractual mechanisms and parent company guarantees. However, in the context of important projects, construction contracts may provide for a warranty bond to be issued by a financial institution on behalf of the EPC contractor to cover the defects liability period.
Parent company guarantees are generally required in the form of a ‘cautionnement’ (which is a specific form of performance undertaking) and issued to secure the contractual obligations of both EPC and O&M contractors.
In addition, French law provides that the EPC contractor guarantees the civil works for a period of 10 years (known as the decennial guarantee) from the completion date of the works.
ii Insurance
Insurance coverage of the project is divided between the project company, the EPC contractor and the O&M contractor. Standard insurance policies include construction all risk, delay in start up, business interruption and third-party liability risk. With respect to the insurance policies subscribed by the project company, the finance parties would usually request to be included as co-insured or loss payee.
VII ENFORCEMENT OF SECURITY AND BANKRUPTCY PROCEEDINGS
In France, securities can generally be enforced when the secured claim is due. Securities are enforced in different ways, such as foreclosure of title, sale of pledged assets at public auction or petition to court for appropriation of assets.
In the context of pre-insolvency procedures, French companies may seek protection from their creditors by applying for the opening of a safeguard procedure whenever they are not able to overcome difficulties that may cause the company to become unable to pay its debts as they fall due but without being insolvent. During that period, and subject to certain exceptions, enforcement of security and claim procedures are frozen.
When insolvency proceedings are commenced, the court can order a judicial liquidation, or more commonly a judicial reorganisation, which freezes enforcement of security and any claim against the debtor during a certain period of time determined
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by the court in accordance with boundaries enacted by law. If a plan to continue the business is approved by the court, the secured creditor may still not be able to enforce security or exercise its acceleration rights.
It is worth noting that the Dailly assignment is not affected by the above pre-insolvency and insolvency proceedings.
French public law entities are immune from bankruptcy proceedings and from private law enforcement measures such as seizure. This does not mean, however, that judgments against French public entities are unenforceable. Under a law of 16 July 1980, where a final judgment has been made against a public entity ordering the payment of a sum of money, the payment must be ordered within two months. If the public entity does not order the payment within two months, the representative of the state or the supervising authority for the entity in question must make the order.
If there are insufficient funds available to the public entity to meet the payment, then the supervising authority must issue an injunction against the entity ordering that the necessary resources be created or made available (e.g., raise new taxes). If the public entity does not comply with such injunction, the supervising authority can impose it on the public entity or raise the necessary resources. Should the supervising authority fail to act as provided in the law, an action could be brought against the state for breach of its duties. Such an action could potentially result in the state being ordered to pay damages to the creditor for breach of public duties.
VIII SOCIO-ENVIRONMENTAL ISSUES
i Licensing and permits
As is generally the case throughout Europe, the main permit to be obtained in France is usually a building permit. Large projects will very often require a public enquiry. On major infrastructure projects or on renewable projects, specific environmental permits known as ‘water law’ or ‘ICPE’ permits can be required.
ii Equator Principles
The documentation for French projects does not refer to the Equator Principles, given that French environmental law is considered to require at least equivalent standards.
iii Responsibility of financial institutions
Lenders to an SPV have very few obligations under the finance documentation other than to make the debt available. The only real exception is on the exercise of step-in rights under a direct agreement. Another exception is the requirement on Lenders to disclose the global effective interest rate (‘taux effectif global ’ or ‘TEG’) being charged to the SPV under the finance documents. Failure to do so may lead to an inability to recover the difference between the statutory interest rate (which is very low) and the margins included in the loan.
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IX PPP AND OTHER PUBLIC PROCUREMENT METHODS
i PPP
Concessions are allowed in almost all sectors where end users pay for the service (or at least for a significant part of the costs of the service) and governed by specific legislation (most notably a law dated 1993 known as the ‘Loi Sapin’).
Where there is no payment from end users, the partnership agreement is available, but only to the extent that the project is urgent, complex or that it has specific advantages compared to traditional procurement.
Multiple tools exist in specific sectors for PPP transactions, but generally predate the rules on the partnership agreements. The French government has announced that it would simplify the existing framework when transposing the latest European public procurement directives, so that a lot of these specific tools could disappear.
The procurement process for PPPs is similar to traditional public procurement, save for the use of competitive dialogue, which is widespread for discussing partnership agreements and the negotiation procedure, which is the rule for concessions (although a call for tenders is mandatory before negotiations begin).
The most significant recent PPP transactions are the railway projects developed by RFF, the French rail infrastructure manager. Two were tendered as partnership agreements (CNM and BPL), with no traffic risk being taken by the private sector contractors. The largest project (SEA) was tendered as a concession, with the concessionaire bearing traffic risk.
ii Public procurement
French public procurement law dates back to the 1830s and has been a key source of inspiration for European Public Procurement law.
The French public procurement process is therefore based on the same principles as European rules: equal treatment, transparency, proportionality and the proper use of public funds.
Unsuccessful bidders are allowed to challenge the procurement process before administrative courts through an efficient emergency hearing known as ‘référé précontractuel ’. Such a procedure suspends the conclusion of the contract.
Once the contract is signed, the contract itself can be challenged before courts, but the challenge does not suspend its implementation. An emergency hearing is available to unsuccessful bidders to challenge the contract (‘référé contractuel ’) where blatant violations of public procurement law are involved.
The same rules apply to PPP contracts.
X FOREIGN INVESTMENT AND CROSS-BORDER ISSUES
As a general rule, free movement of capital is guaranteed in France, and foreign investors will in most situations be treated as French investors, either based on bilateral investment treaties or on the general principles at law.
However, in some cases, a prior declaration or authorisation can be needed before acquiring control of a company operating in certain sectors, the list of which has
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been recently revised in the context of the offer of General Electric to purchase part of Alstom. The list of sectors involved varies depending on whether the investor resides within or outside the European Union. It notably covers sectors such as defence, dual use technology, energy, transportation, telecommunications and health.
France has a bank monopoly law whereby only credit institutions can make loans to third parties in the ordinary course (subject to some exceptions such as intragroup loans). In order to be a credit institution, banks must either be licensed by the French Prudential Supervisory Authority (ACPR) or an equivalent regulatory authority in another EU country, provided notice is given to the ACPR of their activity in France (this is known as the ‘European passporting regime’).
XI DISPUTE RESOLUTION
i Special jurisdiction
Disputes between the public authorities and contractors relating to PPP contracts are to be settled by administrative courts, due to the distinction between private and public law that exists in France, as in other continental European countries. This is also the case for disputes relating to power purchase agreements entered into for renewable energy projects (although this remains uncertain for offshore wind farms).
In the case of concessions or PPP projects, the case law of administrative courts has often been more protective than that of civil courts. The imprevision theory, which can protect private parties from an upheaval due to unforeseen circumstances, has been applied by administrative courts for almost a century, whereas it is rejected by civil courts. The existence of these specific courts has therefore not been a major concern for players on the French market.
Disputes between the private parties involved in a project are settled by the civil courts.
ii Arbitration and ADR
Despite Paris being one of the major centres for arbitration, arbitration is not used on the French PPP market. As a general rule, arbitration is not available to French public entities. An exception has been provided for as regards the ‘partnership agreements’, but is generally left unused.
This tendency to settle disputes by reference to national courts will also have been reinforced by the controversy and criminal proceedings around the arbitration involving Crédit Lyonnais and Bernard Tapie regarding the sale of Adidas.
PPP contracts often provide for a preliminary amicable settlement phase before disputes can be taken to courts. Experts can be appointed to help in this phase, although their opinion is generally not binding on the parties.
Arbitration is available to private parties involved in French projects, but the parties usually choose national commercial courts for dispute resolution, even on major projects.
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XII OUTLOOK AND CONCLUSIONS
In the past 10 years the French projects market has become a mature market, with a stable legal regime and relatively stable market practices, despite the lack of standardised documentation.
Over the next few years, renewable energy should keep the market active for greenfield projects.
The secure assets of the brownfield market should remain attractive, and portfolios of medium-sized projects could create new opportunities for investors, including new opportunities to enter the market.
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ABOUT THE AUTHORS
PAUL LIGNIÈRESLinklaters LLPPaul Lignières is the partner in charge of the public law/PPP practice of Linklaters. He has over 20 years’ experience. He recently advised the French government on the Economic Stimulus Plan and worked on the vast majority of major French PPPs as well as on energy projects. He is the author of several books including Partenariats public-privé (2005) and Le Temps des Juristes (2012).
MARK BARGESLinklaters LLPMark Barges is a counsel in the project finance practice of Linklaters in Paris. He has acted on major infrastructure and energy projects in the past 10 years in France, Europe and Africa for both sponsors and lenders. Mark advises on project and finance documentation, with a specific focus on infrastructure and energy.
PIERRE GUILLOTLinklaters LLPPierre Guillot is a managing associate with the public law/PPP practice of Linklaters in Paris. He has acted on most of the major PPP and renewable energy projects of the past 10 years on the French market for sponsors, lenders, hedging banks and public bodies. Pierre specialises in public law, with a specific focus on infrastructure and energy.
DARKO ADAMOVICLinklaters LLPDarko Adamovic is a senior associate in the project finance practice of Linklaters in Paris with a particular focus on the financing of energy and infrastructure projects (including
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public infrastructure projects). Darko advises both sponsors and lenders on the project and finance documentation.
LINKLATERS LLP25 rue de Marignan75008 ParisFranceTel: +33 1 56 43 59 55Fax: +33 1 43 59 41 [email protected]@[email protected]@linklaters.comwww.linklaters.com
