Construction 2018 Comparisons

Last Updated June 21, 2019

Law and Practice

Authors



Rojs, Peljhan, Prelesnik & partnerji, o.p., d.o.o. The law firm, established in 1989, is probably the largest Slovenian law firm in terms of the number of fully qualified lawyers specialising in different aspects of commercial and corporate law and providing services solely to legal entities such as companies, financial institutions and governments. The firm is recognised by peers and clients alike, as a market leader in corporate and commercial law, litigation, banking and finance, pharmaceutical law, competition and M&A transactions. The client portfolio of the firm includes, among others, the Slovenian Motorways Company as the biggest investor in Slovenia, several domestic and foreign investment and commercial banks, leasing companies, automotive sector corporations, construction companies, insurance corporations, trade associations, pharmaceutical companies, state and private owned funds and selected individuals. In 2014, the law firm became member of the new regional alliance TLA (www.toptierlegal.org).

There are not yet any typical or standard forms of construction contract in Slovenia, but there are certain legislative provisions and codified business customs that govern the drafting and conclusion of construction contracts. Accordingly, legislative provisions of the Code of Obligations and Special Construction Usances embodying business customs developed over time specifically refer to construction contracts. These provisions are not mandatory for the parties to construction contracts, as one of the key principles of the Code of Obligations governing contractual affairs is the optional nature of legal provisions, and thus the parties may regulate their obligational relationships in a manner different to that set out in the Code (only a limited number of provisions in the Code are of ius cogens nature, where indicated directly or indirectly in the Code). Since legislative provisions of the Code of Obligations in regard to construction contracts are quite scarce, business customs embodied in Special Construction Usances are often used to fill the essence of rights and obligations stipulated in construction contracts. In recent years, provisions developed by the Federation Internationale des Ingenieurs-Conseils (hereinafter FIDIC standard forms of contract) are gradually gaining attention as part of construction affairs in Slovenia. Regardless, FIDIC standard forms of contract are not used as the primary source of regulation governing construction relations, but are sometimes used as a subsidiary source to define the provisions of the construction contract in question and provisions of the national legal framework. 

Like any other contractual relationship, construction affairs governed by the Code of Obligations may on first instance be subjected to proceedings in front of either Local or District courts, depending on the value of the dispute and the parties thereto. While both are courts of first instance, Municipal courts are typically competent to adjudicate disputes of value not exceeding EUR20,000, while District courts are typically competent to adjudicate disputes exceeding EUR20,000, and commercial disputes. The right to judicial remedy in cases of construction contracts in Slovenia may thus only be exercised in front of regular courts as no other specialised court has been established, although the parties may agree on alternative dispute resolution, such as arbitration.

The interpretation of contracts in Slovenia is governed by general principles embedded in the Slovenian Code of Obligations (Obligacijski zakonik; published in Official gazette of Republic of Slovenia, No. 83/01, as amended), regulating contractual affairs in Slovenia. One of the main principles under the Code of Obligations is the principle of equality, the essence of which dictates that all participants in obligational relationships are considered equal (principle of equality of participants). The obligations undertaken by the parties to contractual affairs must be duly performed, and the parties are typically liable for the performance thereof. In correlation to the principle of good faith as one of the key principles in some jurisdictions, the parties to contractual affairs must typically observe the principle of conscientiousness and fairness, and must refrain from any action inflicting damage on another (lat. neminem laedere) and from actions that would render the performance of obligations of other participants more difficult . Any action undertaken with the sole or clear intention of harming another shall typically be deemed a fictitious exercise of that right. Rights are typically considered limited by the equal rights of others. 

Another key principle of the law governing contractual relations is the freedom of contract principle. Participants are typically free to regulate their contractual relationships in a manner different to that set out in the Code, but may not act in contravention to the Constitution, compulsory regulations or moral principles. Good business customs and standards of due care may also be relevant for interpretation. Depending on the type of obligational relationship, the standard that needs to be taken into account typically amounts to the diligence of a good businessperson or a good manager. However, when performing obligations arising out of their professional activities, participants in obligational relationships must typically act with a higher standard of diligence, according to the rules and custom of the profession (the diligence of a good expert). The business customs, usages and practice established between parties shall be taken into consideration in the assessment of the behaviour required and the effects thereof in the obligational relationships of commercial entities. Participants in an obligational relationship must endeavour to resolve disputes by co-ordination, mediation or any other amicable means. 

Under the provisions of the Code of Obligations, a contract is deemed concluded when the contracting parties agree upon its essence. A letter of intent or similar documents that would lead to the conclusion of a contract are not explicitly regulated by Slovenian contracts law (with the exception of the so-called “precontract”, by which an obligation to subsequently conclude a different, main contract is accepted. Nevertheless, it has to be emphasised that even a pre-contract is a contract, and thus generally speaking all preconditions which are necessary for any other contract to be concluded have to be satisfied). In line with the autonomy of contractual relations, every person should typically have a choice to freely decide whether or not to enter into a contract. It necessarily follows from the freedom of contract principle that the expectations on performance of the contract by the other party may generally only gain legal protection after a contract has been concluded. 

Accordingly, any documents adopted by the parties prior to concluding a contract that are not binding upon the parties may nevertheless still be used as a secondary source of interpretation in case of unclear or disputable provisions of a contract. It should be noted that the primary source to the interpretation of a contract and rights and obligations deriving therefrom is the contract itself. The provisions of a contract shall be applied as they read (the Code of Obligations enforces the old Roman rule - in claris non fit interpretation). Referring to secondary sources of interpretation is generally only allowed if the provisions of the contract in question are unclear or disputable. Of foremost importance when interpreting contractual provisions is the identification of the contracting parties’ common intentions. The provisions should be interpreted so as to comply with the principles of contracts law, as stipulated by the Code of Obligations. The mutual purpose of the parties may potentially be construed through negotiations and interests as disclosed by both parties guiding the conclusion of the contract. In commercial contracts (contracts concluded between commercial entities), the Code of Obligations expressly provides for business customs, usages and practices established between parties to be taken into consideration in the assessment of the behaviour required and effects thereof in the obligational relationships of commercial entities. Additionally, even post-contract conduct may be taken into account in the interpretation of unclear and disputable provisions of a contract, such as the manner of parties’ exercise and the performance of mutual obligations and rights on the basis of the contract prior to the dispute arising. 

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The core principles of conscientiousness and fairness underlining all contractual relations demand that the party seeking realisation of its rights through the contractual relations takes into consideration the rights and interests of the other contractual party. It can hardly be argued that the rights and obligations of both parties have equally been taken into account when the obligations of performance of both parties have not been balanced. Stemming from the principles of conscientiousness, fairness and equality are the provisions of the Code of Obligations that set the grounds for challenging the validity of the contract if there is a clear disproportion between the contracting parties’ obligations (lat. laesio enormis). Accordingly, within one year of the contract being concluded the injured party may request the rescission of the contract if such party did not know and was not obliged to know of the true value at the time (this is not applicable in contracts of chance or public auction). Such imbalance in mutual obligations does not render the contract null and void per se, but rather must be challenged by the party with the disproportionate obligation. After the contract is annulled, typically the state prior to the conclusion of the agreement must be restored, or, if return is prevented by the nature of that which was performed, appropriate monetary compensation must be provided, according to the prices at the time of return or at the time the court ruling was issued, unless stipulated otherwise by law.

On the other hand, when a contract is considered usurious because one party exploits another’s distress, the severity of the assets situation thereof, or the inexperience, recklessness or dependence thereof, and reserves for the former or for a third person benefits that are in clear disproportion to what the former provided or did or undertook to provide or do, such contract may be considered null and void. In such cases, the injured party may (if prerequisites are fulfilled) request that obligations thereof be reduced to a just size within five years of the contract being concluded. If a contract is null and void, each contracting party must typically return everything that was received on the basis of the contract to the other party; if this is impossible or if return is prevented by the nature of what was performed, appropriate monetary compensation must be provided according to the prices at the time the court ruling was issued, unless stipulated otherwise by law.

Additionally, if a contract was concluded using content printed in advance or if the contract was otherwise prepared and proposed by one of the contracting parties, the unclear provisions are typically interpreted in favour of the other party. The provisions of the Code of Obligations concerning general terms and conditions prepared by one of the parties are even stricter. Any provision of general terms and conditions that opposes the actual purpose of the contract or good business customs may be considered null and void, even if the general terms and conditions were approved by the relevant authority. Similarly, the court may reject the application of individual provisions of general terms and conditions that remove another party’s right to object or appeal, or of provisions based on which a party loses contractual rights or deadlines, or any that are otherwise unjust or too strict for the other party.

The claim for the performance of a contractual obligation is subject to a statute of limitations, the expiry of which does not generally mean that the right arising out of such contract has ceased to exist, but rather that the creditor may no longer demand its fulfilment. The consequence of the right still existing is that the debtor may still validly fulfil its obligation, and the return cannot be requested if it the obligation fulfilled after the period of statute of limitations has passed. The Slovenian law of contracts does not provide a special statute of limitations for construction contracts, which are thus subject to general rules on statutes of limitations in the Code of Obligations. Generally, claims become statute-barred after five years, unless a different period is stipulated by the statute of limitations. Claims arising out of commercial contracts typically become statute-barred after three years, with the statute-barring period typically running separately for each supply of goods, performance of work and provision of services. Compensation claims for non-contractual damage typically become statute-barred within three years of the injured party learning of the damage and the person that inflicted it, but in any case typically no later than five years after the damage occurred. When the damage arises out of the breach of a contract, the claim typically becomes statute-barred after the period stipulated for the statute-barring of the obligation has passed. If the damage is caused by an act that is directly or indirectly influenced by an offering, provision, acceptance or demanding of a bribe or any other benefit or the promise thereof, or by the omission of action that would have prevented an act of corruption, or by any other act that according to law or international treaty entails corruption, the claim typically becomes statute-barred five years after the injured party learnt of the damage and of the person that inflicted it; in any case, it shall typically become statute-barred fifteen years after the act was committed. All claims determined by a final court ruling or by a ruling of another relevant authority or through settlement before the court or another relevant authority shall typically become statute-barred after ten years, including those for which a shorter period is stipulated by the statute of limitations. All periodic claims originating from such rulings or settlements and falling due in the future shall typically become statute-barred after the period stipulated for the statute-barring of periodic claims. The period of statute of limitation typically begins on the first day after the day the creditor was entitled to demand the performance of the obligation, unless stipulated otherwise by law for individual cases.

The statute of limitations is determined by the Code of Obligations. The nature of these provisions represents ius cogens provisions and thus may not be changed by the parties to the contract. Pursuant to the law, it is thus not possible to stipulate a longer or shorter statute-barring period than that stipulated by the law for that legal transaction. 

However, the statute of limitations does not per se bar the right of parties to bring the claims in front of the court. Typically, the termination of the period of the statute of limitations will only be taken into account if the debtor objects to the claim with the objection on statute of limitation. Additionally, as a general rule the debtor may not waive statute-barring before the period therefor expires. 

In practice, the parties sometimes try to overcome the ius cogens nature of the provisions on the statute of limitations by agreeing that certain types of claims have to be notified to the other contractual party in a certain period of time, which could be considered a grey area, as such arrangements have not yet been thoroughly tested by established court practice. 

Under Slovenian legislation, the contract is deemed to be concluded when the parties have agreed upon its essence. The law mandates that the construction agreement should be concluded in writing. Negotiations prior to the conclusion of a contract are typically not binding and may be terminated by either of the parties whenever the party so desires. Nevertheless, a party that has negotiated without the intent of concluding a contract or negotiated with the intent of concluding a contract but abandons the intent without justifiable ground may be liable for any damage inflicted on the other party. In such cases, general rules on the recovery of damages apply.

The conclusion of a construction contract under Slovenian law is guided by general rules governing the conclusion of contracts, as well as provisions specifically referring to construction contracts. Thus, the contract will be deemed concluded when the parties have agreed upon the main elements of a contract. First and foremost, the parties must agree upon the subject of the contract. In construction contracts, the subject of the contract (anticipated construction) is usually determined on the basis of project documentation, where the characteristics of the construction are determined. As a counter-obligation of the ordering party to the contractor’s obligation to perform the agreed-upon works, the price of these works is typically stipulated by the parties. The law also stipulates that the construction contract must be concluded in a written form, but it should be noted that the requirement of a written form is (according to some interpretations) prescribed for evidentiary purposes (ad probationem) and not as a precondition for its validity (ad valorem). 

The Code of Obligations contains no specific provisions that would award legal effect to letters of intent or similar documents drafted before the conclusion of a construction contract. While negotiations and the parties’ behaviour before and after the contract has been concluded may be relevant for shedding light upon the parties’ intentions in case of unclear provisions of a contract, typically only what was agreed upon in a written construction contract will have valid legal effect and give the parties the right to claim the performance of the obligation of the opposite party. However, simultaneous verbal agreements on accessory points about which nothing is mentioned in the formal contract are typically valid if they are not in contravention of the content thereof or of the purpose for which the form is prescribed. Also, a contract for which the written form is required may be valid even if not concluded in this form if the contracting parties fully or predominantly perform the obligations arising therefrom, unless it clearly follows otherwise from the purpose for which the form was prescribed. 

Despite the legal demand for the construction contract to be concluded in a written form, the contract could nevertheless be considered to be concluded if the parties have fully or predominantly performed the obligations arising therefrom. For example, the contract may be considered as convalidated if the building has been constructed, despite the contract being concluded only in verbal form (see Slovenian Supreme court decision no. II Ips 360/98, dated 19 May 1999).

If the construction contract has not been concluded in any form and the works have nevertheless been performed, the contractor typically does not have any claims that would otherwise arise if the contract had been concluded. Nevertheless, such construction could mean that a party was enriched without legal basis, to the detriment of another. In such cases, the enriched party may be obliged to return what was received if possible, or to otherwise compensate the value of the benefit achieved. The same obligation on return of unjustified enrichment may likewise exist if the basis is not realised or subsequently disappears.

Special provisions are determined by the law in cases of urgent works that are performed without the other party’s approval. If prerequisites are fulfilled, the contractor is entitled to carry out urgent unforeseen works without the ordering party’s prior approval, if this cannot be supplied because of the urgency of the works. Unforeseen works are those that have to be performed urgently to ensure the stability of the structure or to prevent the occurrence of damage, and that are caused by the unexpectedly heavy nature of the land, unexpected water or any other extraordinary, unexpected development. The contractor should notify the ordering party without delay regarding such phenomena and the measures taken, and should typically be entitled to the right to fair payment for the unforeseen works that were necessary to perform. 

As mentioned above, in order to validly conclude a construction contract, the agreement on material elements of the contract should exist between the parties, namely the subject of the contract. In the absence of agreement on any other element that is not considered a material provision, all questions that have not been regulated by the parties will typically be governed by the provisions of the Code of Obligations.

As a general rule, the Slovenian Code of Obligations contains a presumption on completeness of the document, namely that if a contract is to be concluded in a special form either pursuant to the law or at the will of the parties, typically only what is expressed in such form shall apply. However, simultaneous verbal agreements on accessory points which are not mentioned in the formal contract are nevertheless considered valid if they are not in contravention of the content thereof or of the purpose for which the form is prescribed. 

Subsequent simultaneous verbal agreements to reduce or alleviate the obligation of either or both of the parties shall also typically be valid if special form is prescribed solely in the interest of contracting parties. 

In practice, construction agreements concluded in Slovenia commonly include “entire agreement” clauses, with the intent of facilitating the burden of proof in case of a dispute (ie, to try to show that the parties explicitly agreed that there are no other agreements – oral or otherwise – in addition to what is explicitly written down in the written agreement).

In accordance with the principle of the freedom of contract, the parties may try to limit or exclude remedies in relation to defects or damages arising out of a breach of contractual obligations. This means that the parties may, for example, try to exclude the liability for all risks or only certain risks (for example, damage arising out of late performance of the obligation), or certain types of damages, or by determining the highest amount of damages. 

Nevertheless, while the regulation of their contractual affairs is generally left to the autonomy of the parties, there are certain limits to this and there are certain provisions or legal safeguards that cannot be excluded through agreements between parties. Therefore, while it is typically possible to limit or exclude liability for damages, a debtor’s liability for intent or gross negligence typically cannot be excluded in advance by contract; even more, such clauses could be considered null and void. At the request of an interested party, the court may potentially also annul a contractual provision on the exclusion of liability for slight negligence if such agreement derives from the debtor’s monopoly position or in any way from the unequal nature of the relationship between the contracting parties. A contractual provision that stipulates the maximum amount of compensation may be valid if the amount stipulated is not in clear disproportion to the damage, or unless stipulated otherwise by law for an individual case. If the level of compensation is limited, the creditor shall typically have the right to full compensation if the debtor intentionally or through gross negligence caused the incapacity to perform .

Furthermore, some liabilities of the contractor and designer for defects in construction may not be excluded by parties to the contract. For example, the contractor typically remains liable for any defects in the execution of the structure regarding its solidity and any deficiencies in the land on which the structure is built, within the periods determined by the law. A similar stipulation applies to the designer, if the defect in the structure originates from any defect in the plan.

Generally speaking, the agreement is only concluded when the parties agree on its fundamental elements. According to leading commentary on the Slovenian Code of Obligations (N. Plavšak, in M. Juhart/N. Plavšak, Obligacijski zakonik (OZ) (posebni del) s komentarjem, 3. knjiga (435. do 703. člen), GV Založba, Ljubljana, 2004, p. 649), agreement on price is not a fundamental element of the construction agreement that would require parties to agree on price in agreement. According to the commentary, if the payment (price) or methods for its determination are not regulated with provisions of the construction agreement, a general rule should apply whereby the amount of payment (price) should be determined based on the time usually required for such construction works to be performed, and on the payment (amount) that is (in business transactions) customary for such type of work. 

The value of the work, the time customarily required for such a transaction and the customary payment for the type of work are the factors typically taken into account when determining the amount of an unstipulated price. However, it should be noted that, when a construction contract contains a turnkey or any similar provision, the contractor typically independently undertakes to carry out all the works required for the construction and use of a specific structure. In this case, the agreed fee also typically covers the value of unforeseen and excess works, and shall exclude the influence of missing works thereon. 

As a general rule of the Slovenian Code of Obligations, if the contracting parties defer any accessory points after reaching agreement on the essence of the contract, the contract shall be deemed to have been concluded, while the accessory points may be regulated by the court if the contracting parties fail to reach agreement on them, and in so doing may take into consideration the previous negotiations, the practice established between the parties, and customs.

Generally speaking, the fee for (construction) works may be stipulated for a unit of measurement of agreed works (unit fee) or as a total sum for the entire structure (total agreed fee). In a stipulated unit fee, the contractor typically has the right to receive payment for all works actually performed (the units may exceed the amount of units estimated in the offer). However, a total agreed fee typically does not change if the actual amount of units is greater than was estimated in the offer. The construction contract may also include a “turnkey” clause or a similar provision, which typically means that the contractor independently undertakes to carry out all the works required for the construction and use of a specific structure, and the agreed fee should also cover the value of unforeseen and excess works, and excludes the influence of missing works.

The Slovenian Code of Obligations includes some provisions on pricing, which could have effect as implied terms of the contract (there is typically no requirement to include such provisions mandated by the law to the wording of the contract, but some provisions may be limited or excluded to an extent as permitted by the applicable law). For example, the law has provisions on payment of urgent unforeseen works, increases of fees (due to an increase in the price of elements on which the fee for the works was based) or reductions of fees (due to a decrease in the price of elements on which the fee for the works was based) – all subject to prerequisites as stipulated in the law. 

A construction contract is considered a subtype of a work contract, and limit between the two is, in certain instances, difficult to define. In different cases, the courts have been trying to differentiate the construction contract from a work contract, by typically defining a construction contract as relating to works of greater extent or more demanding construction works, requiring a larger amount of contractors, more preparations, obtaining a construction permit, etc, while works of a smaller extent are typically subject to a work contract (for example, see Decision of the High court of Maribor, no. Cpg 23/82, dated 17 November 1982, Decision of the Supreme court of Slovenia, no. III Ips 11/93, dated 8 April 1994).

When such contracts are entered into by the public sector, the provisions governing a construction contract between private parties also apply. However, there are certain specifics provided by other laws, which specifically refer to actions in the public sector (such as rules governing public tenders).

In accordance with the freedom of contract principle, the parties (contractor and subcontractor) may theoretically stipulate various conditions for payment, and may also potentially try to link the payment of a subcontractor to the payment received by the contractor from the employer. The potential restrictions of contractual freedom are, as mentioned, mandatory provisions of the law and moral principles. Many “creative” payment arrangements still have to be tested in court practice (also from the viewpoint of mandatory provisions and moral principles) to have a better understanding of whether the court would consider such arrangements to be within the scope of admissible contractual freedom. 

In bilateral contracts, typically neither party is obliged to perform their own obligations if the other party is not simultaneously performing their own obligations or is unwilling to do so, unless agreed otherwise or stipulated otherwise by law, or unless it follows otherwise from the nature of the transaction. Thus, general rules regulating contractual affairs should also apply in cases of construction contracts and provide for the party’s right to demand the performance of the obligations or withdraw from the contract (if prerequisites are fulfilled). 

The termination of a contract in case of delay (with payment) typically depends on the importance of the obligation of payment to be fulfilled within a stipulated period. If the performance of obligations within a specific period is an essential component of the contract, then the contract may be considered as being terminated by law. Nevertheless, the contract may remain in force if the creditor immediately after expiry of the deadline informs the debtor that it demands the performance of its obligation. A creditor that demands the performance of the contract and does not obtain it within a suitable period may generally withdraw from the contract. If the performance of obligations within a specific period is not an essential component of the contract, the debtor typically retains the right to perform his obligations, and the creditor retains the right to demand performance. In such cases, the creditor that wishes to withdraw from the contract must typically allow the debtor a suitable additional period for performance. If the debtor fails to perform the obligations within the additional period, the same consequences arise as if the deadline was an essential component of the contract.

Regardless of the above, the creditor may typically withdraw from the contract without allowing the debtor an additional period for performance if it follows from the debtor’s behaviour that the obligations will not be performed within the additional period. Similarly, if it is clear before the deadline for the performance of obligations that one party will not do so, the other party may typically withdraw from the contract and demand the reimbursement of damage.

Even if the contractor is obliged to perform first, some safeguards may still be applicable. As a general rule, if it is agreed that one party will perform their obligations first, and after the contract is concluded the material circumstances of the other party deteriorate to the extent that it is uncertain that the latter will be able to perform their obligations, or if this is uncertain for other serious reasons, the party that undertook to perform the obligations first may have the right to defer performance until the other party performs their obligations, or until the other party provides sufficient security that the obligations will be performed. This rule may also apply if the material circumstances of the other party were sufficiently serious before the contract was concluded and the first party did not know and was not obliged to know of such. In such cases, the party that undertook to perform the obligations first may typically request security by a suitable deadline, and may withdraw from the contract if that deadline is not. 

Pursuant to the Code of Obligations, the ordering party is typically not obliged to make the payment before inspecting and approving the executed work, unless agreed otherwise. However, in practice, due to the size of construction projects, the contractor is often not able to finance the materials and performance of work by himself, until the payment is made by the employer upon approving the work, so payments are typically made on the basis of interim and final draw schedules (called situations, in Slovenian situacije). Interim situations (draw schedules) typically represent calculations for works performed during construction. Through interim situations, the contractor typically presents the works already performed and the value of all works performed. The employer then reviews the interim situation and certifies it. 

On the basis of the final draw schedule (situation), the parties typically regulate their mutual relations stemming from the construction contract and determine a manner of execution for these mutual rights and obligations. 

The Slovenian Code of Obligations does not call for a special third party certifier to assess a contractor's interim or final entitlements under the contract, but parties may agree upon this within the scope of described contractual freedom. As a general rule, under the Slovenian Code of Obligations the subject matter of an obligation shall be deemed specifiable if the contract contains information based on which it is possible to specify such subject matter, or if the parties have left it to a third party to specify the subject matter. If such third person does not wish to or cannot specify the subject of the obligation, the contract may be null and void.

As Slovenian law governing obligations does not call for a special third party certifier to assess a contractor's interim or final entitlements under the contract, with the appointment of any such third party certifier (as far as determination of entitlements under the contract) being left to the parties and their contractual freedom (subject to limitations of such contractual freedom under the law), Slovenian jurisdiction consequently does not explicitly govern the obligations of such certifier and it is left to the parties to govern the role and obligations of such certifier (if appointed). As for any contractual arrangement, the principles of the Slovenian Code of Obligations should also be taken into account, including the principle of conscientiousness and fairness, diligence required in legal transactions for the relevant type of relationship, prohibition on abuse of rights, etc. 

As the role of third party certifier is not explicitly governed by the Slovenian Code of Obligations, with the parties being left to agree on any certifier's role and obligations, the liability of the certifier and/or the employer vis-à-vis the contractor may depend on the contractual provisions. That being said, where the certifier is acting as a supervisor (in Slovenian nadzornik) from a contractual point of view in the name of the employer and is considered an attorney-in-fact for the employer, such certifier typically cannot be considered a “third party” and should not be able to make an independent (third party) determination that would be binding for both parties. 

The parties in practice (in context of the role of the third party certifier) may sometimes try to agree that the contents of certificates that have been issued are conclusive and may not subsequently be reviewed, either upon the issue of the certificate or upon the failure to challenge within a prescribed time; however, different types of such arrangements still have to be tested in court practice (also from the viewpoint of mandatory provisions and moral principles) to enable a better understanding of whether the court would consider such arrangements to be within the scope of admissible contractual freedom (and to which extent). As mentioned, one could say that where the certifier is from a contractual point of view supervisor (in Slovenian nadzornik) acting in the name of the employer and is considered an attorney-in-fact for the employer, such certifier typically cannot be considered a “third party” and typically should not be able to make an independent (third party) determination that would be automatically binding for both parties. 

As the Slovenian Code of Obligations does not specifically regulate certificates issued by a certifier as a basis for the determination of entitlements under the contract, the procedure for opening up, review and/or revision of a certificate could also be agreed upon within the scope of admissible contractual freedom. As far as dispute resolution is concerned, typically the same rules apply as for any other disputes arising out of construction contracts. Disputes are usually decided by the courts, but the parties may also agree on arbitration. 

Generally, the provisions of the Code of Obligations set forth that the time by which the construction needs to be finalised has to be agreed upon by the parties to the construction contract. If a deadline is not agreed upon, the contractor typically has an obligation to perform its obligations within a reasonable time. The legal standard of reasonable time should be based on the time needed for comparable projects, taking into account the specifics of each construction. 

When deciding what is to be deemed reasonable time, in the absence of any contractual provisions the Code of Obligations refers to usages and business practice established between the parties to such agreement. In Slovenia, the business practice for construction contracts has been established through a long period of application of Special Construction Usages, and still resembles many provisions as set therein. Therefore, it may be argued that, according to business practice in cases when the contract lacks concrete provision about the time limit of when the works need to begin on a project, the contractor is obliged to begin the works without due delay after it was introduced into the project. 

In cases when the construction contract remains silent on the question of extension of time due to non-performance on the employer’s side, the default regime as provided for by the Code of Obligations should typically be applied, which may to a certain extent be supplemented by an established business practice: the contractor is typically entitled to request a deadline extension for the time during which it has been unable to perform the works on the project due to the employer’s delay. Additionally, the time for performance in such cases is typically extended for the additional time needed, due to the renewed start with the works or due to the performance of the works at a less favourable time of the year.

The contractor typically has to submit the request for extension to the employer without undue delay when it became aware of the reasons causing the delay. 

Generally, Slovenian law acknowledges an option for the parties to agree on the payment of contractual penalty and also liquidated damages, according to some court decisions (such as the decision of the Slovenian Supreme Court in the matters III Ips 80/2009 and III Ips 81/2009). The legal consequences of the two mentioned contractual agreements with regard to the penalties are, however, somewhat different. 

Firstly, the contractual penalty is expressly governed by the Code of Obligations, which sets forth that the creditor and debtor may agree that the debtor will pay the creditor a specific monetary sum or will provide any other type of material benefit thereto if the debtor fails to perform its obligation or is late in performing. The contractual penalty typically cannot be agreed for a pecuniary obligation. If the parties have agreed upon a contractual penalty, the party who is entitled to claim does not generally need to prove occurrence of actual damage, but rather only the existence of a breach of the contract. 

Such provision is typically enforceable under Slovenian law, with an exception set forth for cases where disproportionally high amounts are agreed as contractual penalties. Should the contractor consider the agreed amount of the penalty to be grossly disproportionate to the damages that actually occurred or to the total contractual value, the law provides for an option that the court at the contractor’s request may reduce the penalty. However, the reduction of the contractual penalty is subject to the court’s decision (and to prerequisites prescribed by law), and cannot be done unilaterally by the contractor. 

Secondly, Slovenian law contains no express provisions to deal with cases when the parties agree on payment of a certain amount as liquidated damages, although such clauses are generally upheld by the courts and it is typically deemed that the innocent party is entitled to payment of agreed liquidated damages if it is able to prove that the contract has been breached and that prerequisites are fulfilled. The innocent party, on the other hand, is typically not obliged to prove the amount of incurred damages. Further, it should be noted that the validity of a clause whereby the parties agree to the liquidated damages could in some cases be set aside (held null and void); the preponderant recent Slovenian judicial decisions on the subject matter hold such agreement to be null and void in cases when the amount of agreed damages exceeds or (depending on the circumstances) disproportionately exceeds the damage actually occurred. Some judicial decisions follow the Slovenian legal principle that no party should benefit from the breach or termination of the contract more than it would if the contract was still in force and binding upon the parties. If the contractual provisions are found to be null and void, the damaged party may nevertheless try to claim the amount of actual damages incurred due to the breach of contract or its termination. 

Concurrent delay from the contractor and the employer is not explicitly regulated under Slovenian law and the question of entitlement to an extension of time and compensation for costs is not entirely clear, which is why it may be prudent to try to regulate such eventualities in advance. 

According to Slovenian law, the construction contract is typically deemed a bilateral contract, whereby typically neither party is obliged to perform its own obligations if the other party is not simultaneously performing its obligations or is unwilling to do so, unless stipulated otherwise or unless it follows otherwise from the nature of the transaction. 

As explained, the Slovenian courts sometimes apply Special Construction Usances, arguing that they embody business customs developed over time. Pursuant to these Special Construction Usances, the contractor is typically obliged to grant the employer appropriate additional time (set a deadline) to fulfil its obligation. If the employer fails to do so, the contractor would be entitled to suspend work on the project, pursuant to Special Construction Usances. The contractor is also typically entitled to request a deadline extension for the time when it has been unable to perform the works on the project due to the employer’s delay. In such cases, the Usances recognise the deadline extension also for the additional time needed, due to the renewed start with the works or due to the performance of the works at a less favourable time of the year. The stated rules do not, however, explicitly govern the situation of concurrent delay. 

Slovenian law does not provide for a specific set of rules dealing with claims for acceleration. Pursuant to Slovenian law, and in the absence of express contractual provisions,acceleration should be  examined from the viewpoint of general provisions of the law regarding responsibility for the delay, and of the rules governing mitigation of damages. 

Pursuant to the Slovenian Code of Obligations, a party that makes reference to a breach of contract must typically take all reasonable measures to reduce the damage inflicted by the breach; otherwise, the other party may demand only reduced compensation. The law does not explicitly govern the question of costs incurred by the contractor mitigating or avoiding a delay caused by the employer. The matter of responsibility for costs is therefore not entirely clear; however, one could potentially argue that if such costs (of acceleration) are substantially less than the damage that would otherwise have been incurred by the contractor (due to delay which is the responsibility of the employer), then such acceleration may be a reasonable measure to try to mitigate damages. 

As far as extension (in case of a delay that is the responsibility of the employer) is concerned, as explained, the Slovenian courts sometimes apply Special Construction Usances arguing that they embody business customs developed over time and Pursuant to Special Construction Usances the contractor is typically entitled to request a deadline extension for the time it has been unable to perform the works on the project due to the employer’s delay.

Slovenian law does not contain any provisions dealing specifically with “global” or “total loss” claims, thus the damages incurred as a result of a number of different events or breaches resulting in a single and undivided loss are to be dealt with within the general legal framework regulating damages claims. When applying the general legal framework to “total loss” claims, the problem of causality may appear. Slovenian judicial decisions typically require the damaged party to prove the causal link between the damages and the damaging event(s). Should a single damage occur as a result of multiple events (some caused by one and some by the other party), proving which cause was a condition sine qua non for the occurrence of damage could be rather difficult, if not impossible. As a general rule, the Code of Obligation states that an injured party that contributed to the occurrence of the damage or caused the damage to be greater than it would otherwise have been shall have the right to proportionately reduced compensation only, and further sets forth that, when it is impossible to determine which part of the damage is the consequence of the injured party’s action, the court shall award compensation that takes the circumstances of the case into consideration. 

The legal nature of the obligation of one party to give notice in certain circumstances may depend on the function of such notice. For example, in accordance with the Code of Obligations, the obligation to give notice of defect is typically material ie the employer loses its remedies if it does not notify the defect on time (within deadlines prescribed by law). 

Where the obligation to give notice is contractually agreed upon, the judicial interpretation of such clauses varies significantly depending on the text and/or structure of the relevant contractual provisions. Certain recent judicial decisions already upheld the contractual provisions requiring timely notice in certain circumstances (for example, contractually agreed timely notice of circumstances giving rise to potential extension of time; see the decision of the High court in Ljubljana I Cpg 1593/2013 of 5 May 2015). 

Where there is a contractual provision requiring notice of claims, a failure to give notice by a contractor of a claim for an extension of time may potentially cause the contractor to lose the right, if it is so stipulated in the contract. Certain recent judicial decisions have upheld the contractual provisions requiring timely notice in certain circumstances (for example, contractually agreed timely notice of circumstances giving rise to potential extension of time; see the decision of the High court in Ljubljana I Cpg 1593/2013 of 5 May 2015). 

If a party to a construction contract fails to perform its obligations and it is not stipulated otherwise, the other party may demand the performance of the obligations, or may withdraw from the contract (if prerequisites for termination are fulfilled). Typically, the non-defaulting party has to notify the other party of the breach and give the latter an appropriate additional deadline in which it has to perform its obligations under the contract. If the party in breach fails to comply with the contractual provisions within the appropriate additional period of time, the contract may be deemed rescinded by law. In any case, the non-defaulting party may be entitled to claim damages caused by the breach (delay or non-performance). 

Contractual claims

The innocent party typically has the right to the reimbursement of ordinary damage and lost profit that the party in breach should have expected upon breach of contract as potential consequences of the breach of the contract given the facts that were known or should have been known; however, in the case of fraud, intentional non-performance or non-performance owing to gross negligence, the innocent party will typically have the right to demand that the debtor reimburse all the damage that occurred because of the breach of contract, irrespective of whether the breaching party knew of the particular circumstances for which reason it occurred. 

If during a breach of contract any benefit accrued to the innocent party in addition to the damage, the courts typically take the benefit into suitable consideration when levying the compensation. On the other hand, a party that makes reference to a breach of contract must typically take all reasonable measures to reduce the damage inflicted by the breach, otherwise the other party may demand reduced compensation. 

Non-contractual claims

Any person that inflicts damage on another is typically obliged to reimburse it unless it is proved that the damage was incurred without the culpability of the former. Damage typically comprises the diminution of property (ordinary damage), prevention of the appreciation of property (lost profits), and encroachment upon the reputation of a legal person. In the estimation of lost profit, the profit that could justifiably have been expected given the normal course of events or given the special circumstances but could not be achieved owing to the injurer’s action or omission shall typically be taken into consideration. The obligation to compensate shall typically be deemed to have fallen due at the moment the damage occurred.

The reimbursement of damage is generally levied according to the prices when the court ruling is issued, unless stipulated otherwise by law. If an object was destroyed or damaged intentionally, the court may levy compensation with regard to the value the object held for the injured party.

Slovenian law provides options for the contractual parties either to expand their liability or to limit and/or exclude their liability. Generally speaking, a party's liability may be expanded by contract to cover a case in which the party would otherwise not be liable. Nevertheless, as a rule, the fulfilment of such a contractual provision cannot be agreed upon if it is in contravention of the principle of conscientiousness and fairness. 

While it is generally possible to limit or exclude liability for damages, debtor’s liability for intent or gross negligence typically cannot be excluded in advance by contract. Even more, such a clause could be considered null and void. However, at the request of an interested party, the court may potentially also annul a contractual provision on the exclusion of liability for slight negligence if such agreement derives from the debtor’s monopoly position or in any way from the unequal nature of the relationship between the contracting parties. A contractual provision that stipulates the maximum amount of compensation may be valid if the amount stipulated is not in clear disproportion to the damage or unless stipulated otherwise by law for an individual case. In the case of limitation of the level of compensation, the creditor typically has the right to full compensation if the debtor caused the incapacity to perform intentionally or out of gross negligence.

Slovenian law prescribes that a debtor that has delayed performing a pecuniary obligation owes late payment (default) interest in addition to the principal amount. This obligation may also apply to the obligation to compensate for damages. According to some judicial decisions, in some cases the payment of damages has to be requested first in order for default interest to start running. 

The law further limits the parties' possibilities to freely agree on the manner of calculation of late payment interests. The main limitation is general prohibition of agreement on compound interest as, pursuant to the Code of Obligations, a contractual provision that interest shall run on interest that has fallen due for payment but has not been paid is typically null and void. However, it may be agreed in advance in a contract that the interest rate will be higher if the debtor fails to pay interest on time.

The current statutory rate of late payment interest (applicable from January to June 2016) amounts to 8.05% and is comprised of European Central Bank's main refinancing rate of 6-months (as per relevant date as stipulated by the law), with an additional 8 percentage points. The parties are typically free to agree on a contractual rate of late payment (default) interest, whereby the Code of Obligations provides for a presumption of usurious interests in cases of non-commercial contracts. Namely, if the agreed interest rate for late payment or contractual interest is more than 50% higher than the statutory late payment (default) interest rate, such an agreement is generally deemed a usurious contract, unless the creditor shows that the creditor has not exploited the debtor’s distress, the severity of the pecuniary situation thereof, or the inexperience, recklessness or dependence thereof, or that the benefits reserved for the former or for a third person are not in clear disproportion to that which the former provided or undertook to provide.

If a party to a bilateral contract fails to perform its obligations and it is not stipulated otherwise, the other party may typically demand the performance of the obligations or withdraw from the contract (if prerequisites are fulfilled), with a declaration under the conditions as described below (if the contract is not rescinded by law alone). The Code of Obligations limits the option of withdrawal, so that it is typically not possible to withdraw from a contract owing to the non-performance of an insignificant part of an obligation.

Slovenian law provides different regulatory regimes depending on whether or not timely performance is an essential component of the contract. It also regulates cases when a party is entitled to withdraw without an additional deadline and when a party is entitled to withdraw before the deadline.

Firstly, if the performance of obligations by a specific deadline is an essential component of the contract and a party fails to perform them by the deadline, the contract shall typically be rescinded by law alone. Nevertheless, the innocent party may typically retain the contract in force if after the deadline the innocent party notifies the breaching party immediately that performance of the contract is demanded. An innocent party that demands the performance of the contract and does not obtain it within a suitable period may typically withdraw from the contract. 

Secondly, if the performance of obligations by a specific deadline is not an essential component of the contract, the breaching party typically retains the right to perform its obligations and the innocent party typically retains the right to demand performance. An innocent party that wishes to withdraw from the contract must typically allow the breaching party a suitable additional period for performance. If the breaching party fails to perform the obligations within the additional period, the contract shall typically be deemed rescinded by the law itself.

Thirdly, the innocent party is typically entitled to withdraw from the contract without allowing the breaching party an additional period for performance if it follows from the behaviour of the latter that the obligations will not be performed within the additional period.

Finally, the innocent party is typically entitled to withdraw from the contract before the deadline for the performance of obligations if it is clear that the other party will not perform its contractual obligations.

The innocent party that withdraws from a contract owing to the non-performance of the other party's obligation must typically notify the other party of withdrawal immediately. 

A contractual agreement providing a party the right to determine the contract upon the giving of notice (either for convenience or in response to breach) has to be interpreted according to the specific circumstances of the case and the formulation of the contractual provision. However, compliance with the notice provisions shall generally be considered a condition precedent to the valid exercise of the right to determine. 

The Code of Obligations provides the possibility of voluntary set-off in cases when mutual claims are already due for payment (and prerequisites for set-off are fulfilled) and set-off notified by the employer to the contractor may potentially also affect the contractor’s right to terminate for non-payment of sums due by the employer (should potential claims of the contractor be deemed set-off).

Slovenian law defines the term material breach by a negative definition: namely, any party is typically entitled to unilaterally terminate the contract in the case of another party’s breach (if all the prerequisites are fulfilled), except for cases when the latter fails to perform only an insignificant part of an obligation. According to some interpretations, the legal standard of an insignificant part of an obligation depends on whether the breach led to a significant deviation from the contract based equivalence of the obligations and, at the same time, whether or not the breach affected the common legal ground of the contract in such a manner that it cannot consequently be realised. 

Of course, the parties may also try to contractually agree on their own definition of materiality threshold in relation to a termination right (where so permitted by the applicable law and within the scope of allowed contractual freedom). 

The majority of construction disputes in Slovenia are resolved through litigation  as opposed to alternative dispute resolution mechanisms. Approximately 8% of cases that come to court are successfully resolved in mediation. Although arbitration has been gaining a more visible role in construction dispute resolution in Slovenia of late, it remains on a side track, reserved mainly for international construction projects. 

The relationship between arbitration and the courts in Slovenia is governed by the Slovenian Arbitration Act (Zakon o arbitraži), which closely follows the UNICTRAL Model Law on International Commercial Arbitration. The role of the courts in cases when the parties concluded an arbitration agreement is thus appropriately typically limited to the procedures of admissibility or inadmissibility of arbitral proceedings, the appointment or challenge of an arbitrator, the termination of the mandate of an arbitrator, the jurisdiction of the arbitral tribunal, the setting aside of the arbitral award, and the declaration of enforceability of domestic awards and the recognition of foreign awards. Generally speaking, the law does not provide the ability to turn to the court to determine certain points of law. 

The District Court in Ljubljana typically decides on the enforceability of domestic awards, and may reject an application for the enforcement of a domestic award if it finds that the subject matter is not capable of settlement by arbitration or that the award violates public policy (the same reasons for which the award may be set aside). The District Court in Ljubljana also decides on the enforceability of foreign awards, whereby the law explicitly refers to the New York Convection. 

The party applying for enforcement of an award has to supply the original award or a copy of it. Additionally, a court may request that a party provides an original or a certified copy of the arbitration agreement. 

In addition to litigation and arbitration, Slovenian law expressly provides a basic framework for mediation as an alternative dispute resolution method, contained in theMediation in Civil and Commercial Matters Act (Zakon o mediaciji v civilnih in gospodarskih zadevah), with the Act on Alternative Dispute Resolution in Judicial Matters (Zakon o alternativnem reševanju sodnih sporov) governing the mediation provided by court. 

Regarding construction contracts, the main institutions are the Slovenian Chamber of Engineers and the National Association of Consulting Engineers of Slovenia (comprising certified civil engineers), and the Chamber of Construction and Building Materials Industry of Slovenia and the Chamber of Construction Industry of Slovenia, covering other professions in the construction industry. It should be noted that none of these institutions offers early expert determination or early neutral evaluation services. 

Furthermore, expert determination and early neutral evaluation services are rarely used in business practice and are yet to be picked up as an alternative dispute resolution method. 

Mediation is the most common alternative dispute resolution method, especially within the litigation procedure. Approximately 15% of parties in commercial litigation procedures give consent to the mediation procedure, with about 60% of cases being meditated successfully concluding with a settlement. 

There is a general obligation of the courts to offer the parties mediation with the aim of amicable dispute resolution. However, an attempt at mediation is not a condition precedent to the litigation proceedings and the parties are typically free to give or deny their consent to such a process. Should the parties establish that there is no possibility of amicable dispute resolution, the process typically continues as a litigation procedure.

Rojs, Peljhan, Prelesnik & partnerji, o.p., d.o.o.

Tivolska 48
Ljubljana
Central Slovenia
Slovenia
1000

+386 1 23 06 750

+386 1 43 25 123

info@rppp.si www.rppp.si
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Rojs, Peljhan, Prelesnik & partnerji, o.p., d.o.o. The law firm, established in 1989, is probably the largest Slovenian law firm in terms of the number of fully qualified lawyers specialising in different aspects of commercial and corporate law and providing services solely to legal entities such as companies, financial institutions and governments. The firm is recognised by peers and clients alike, as a market leader in corporate and commercial law, litigation, banking and finance, pharmaceutical law, competition and M&A transactions. The client portfolio of the firm includes, among others, the Slovenian Motorways Company as the biggest investor in Slovenia, several domestic and foreign investment and commercial banks, leasing companies, automotive sector corporations, construction companies, insurance corporations, trade associations, pharmaceutical companies, state and private owned funds and selected individuals. In 2014, the law firm became member of the new regional alliance TLA (www.toptierlegal.org).

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