An employer cannot rely upon a contractor's failure to comply with a condition precedent for commencing arbitration if the employer's action caused the failure. The Technology and Construction Court in England and Wales so held in the case of Al-Waddan v Man on 12 December 2014 (only reported in May 2015).
The case concerned works to a hotel in the Middle East and the contract was based on the FIDIC Red Book Fourth Edition, 1992 version. This provides that disputes between the employer and the contractor are to be referred to the Engineer who must then give his decision within 84 days of the reference. If either party is dissatisfied with his decision, or if he fails to give it within the 84 day period, the employer or contractor may give notice of arbitration.
The decision (or failure to give it) is therefore a condition precedent to commencement of arbitration. The problem that faced the contractor in this case is that, when he sought a decision as to his entitlement under the interim certificate, the Engineer said that his services contract with the client had expired and that he had ceased to be the Engineer. The contractor asked the employer to confirm that it agreed to re-engage the Engineer or appoint a new one; alternatively its letter was to be treated as a Notice of Arbitration. The employer gave no substantive reply to this letter and the contractor proceeded with the arbitration. The employer challenged the arbitrator's jurisdiction to make an award under Section 67 of the English Arbitration Act 1996.
The Court drew on long-standing authority in support of the prevention principle, namely that a party cannot take advantage of failure by another party to comply with a condition, when that party has hindered or prevented performance. The employer had failed to re-engage the Engineer or appoint a new one. The Engineer had made it clear that he would not give a Notice of Decision either within 84 days or at all. Effectively he had "washed his hands" of his duties and responsibilities. The employer was under a duty to employ an Engineer and could not rely on his failure to do so to prevent the issue of a Notice of Arbitration.
Accordingly, the Court decided that the Engineer had not given a Notice of Decision but rather had failed to do so, such failure being of contractual importance in the light of the employer's ending of the Engineer's retainer. In the circumstances, the employer could not now object to the arbitration proceeding.
The decision is of particular interest on two grounds. First, it identifies the prevention principle as an aspect of the implied duty to co-operate which the Courts readily imply into building contracts. Secondly, the Court took note of FIDIC's Guide to the Red Book which refers to the Engineer's duty in terms of a mandatory obligation, to carry out his services as described in the contract.