Lord Neuberger, in this decision, held that a contractor had been entitled to terminate its engagement under a contract based on the FIDIC Red Book (1999). The contract related to the construction of a hospital in Trinidad and Tobago. Disagreements arose between the parties, and the contractor (NHIC) suspended work. It subsequently purported to terminate the agreement. A number of issues were then referred to arbitration, leading to five arbitration awards, two of which were appealed on points of law. Under clause 2.4 of FIDIC Red book the contractor is entitled to request evidence from the employer that it has made arrangements to pay the contract price. NHIC made such a request of the employer (NIPD). Unsatisfied with the letters sent in response, it initially suspended works and subsequently issued a notice of termination. NHIC disputed that the contract had been validly terminated.
The Arbitrator held that it had been, and in doing so concluded that the evidence required under clause 2.4 must go beyond merely showing that the employer is able to pay. After this decision was reversed at the Court of Appeal, the Privy Council upheld the Arbitrator's finding that NHIC was entitled to terminate. The second appeal related to clause 2.5, which gives the employer a right of set off. The Court of Appeal, agreeing with the Arbitrator, found that the clause prohibits the employer from setting off a sum against any amount certified, but does not prevent the employer from exercising its right of set off in another way. The Privy Council disagreed, noting that clause 2.5 makes it clear that any claim by the employer must be notified promptly and particularised, and that failure to comply with the notice requirement would invalidate the claim.
The case provides useful guidance for employers on what is required to comply with these clauses.
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