Summary: In Glen Water v Northern Ireland Water Ltd the Northern Irish courts considered whether the requirement to notify a compensation event was satisfied by a letter which mentioned the event but did not state that it was a notice. The parties were agreed that a notice was a condition precedent. The court held that the letter in question was not a contractual notice. This blog looks at the requirements of contractual notice provisions.
To be is to be perceived. The 18th century philosopher George Berkeley found himself pondering whether a tree still exists if there is no-one to perceive it. In the recent case of Glen Water v Northern Ireland Water a similar question came up regarding notices. Can a letter be a notice if neither party perceived it as such? Are notices like philosophical trees?
The background to the dispute was a PFI contract between Glen Water and Northern Ireland Water (NI Water). Glen Water was responsible for carrying out upgrade works at a sewage treatment works in Belfast, including the construction of a new “line 2” sludge incinerator before taking over the operation of the wider sludge stream at the plant including the existing “line 1” incinerator. As is usual with a PFI contract, the works were split into construction works to be carried out by an EPC subcontractor prior to service commencement, and operation and maintenance works to be carried out by a separate O&M subcontractor.
The compensation event in question related to the alleged failure of NI Water to maintain the pressure steam system of the line 1 incinerator. The line 1 incinerator did not form part of the EPC subcontractor’s scope of works but the O&M subcontractor would be responsible for maintaining it after service commencement.
Was the compensation event notified?
The issue at stake was when the compensation event was notified. It was common ground that notification was a pre-condition to compensation so the dispute focused on the actual content and intent of the notices that were issued.
Glen Water sought to rely on a letter dated 20 October 2009 written in connection with a separate but related compensation event relating to the EPC subcontract works. This letter appeared to have identified the specific breach upon which the claim was based. Glen Water had gone on to identify likely consequences if the breach was continuing at service commencement in a further letter on 25 November 2009. On 10 December 2009, Glen Water again wrote to NI Water stating that defects in the line 1 incinerator due to NI Water breach would constitute compensation events at service commencement. NI Water went on to carry out its own internal valuation of the potential claims on 15 December 2009.
It therefore appears that Glen Water had satisfied all the requirements of a compensation event notice except for actually notifying the event explicitly. The reason for the delay in actually serving the formal notice appears to have been that Glen Water was waiting for service commencement for the claims (which related to the O&M subcontract) to crystallize. However, when service commencement occurred on 31 March 2010 and the O&M subcontractor took over from the EPC subcontractor, no notices were issued. Indeed, it was not until November 2010 that correspondence resumed and not until 14 November 2012 that a formal compensation notice was issued.
As notification was a pre-condition to entitlement, Glen Water appears to have run a merits based case, inviting the court to construe the 20 October 2009 letter as notification of the compensation event. Despite counsel’s considerable powers of persuasion, Keegan J remained unconvinced:
“I should say that Mr Brannigan did leave no stone unturned in arguing this case. However, I have to decide the case within the parameters of commercial and contract law…”
What was the problem with the October 2009 “notice”?
The judgment itself is primarily interesting in terms of the factors that the judge took into account when coming to his decision:
•The notice was not sufficiently clear.
•The claim related to the O&M subcontractor’s entitlement, but the notice related to claims by the EPC subcontractor.
•The author of the notice was not convincing in cross-examination as to his intent when drafting the notice.
•NI Water’s response did not refer to the allegedly notified claim, and this lack of response was not corrected by Glen Water.
•The burden of proving notice lay with the Glen Water, not NI Water.
•The fact that NI Water was aware of and was planning for the potential claim was not determinative that specific notification had been given.
•The letter in question had not been identified as a potential compensation event notice in a prior adjudication.
•There was no clear and consistent thread in meetings to indicate that the defect had been formally notified.
•No waiver, estoppel or similar argument applied.
It seems that the judge took the view that Glen Water had realised that its claim would fail if it could not show that the compensation event had been notified and had sought to make that omission good. It attempted to do so by trawling through the correspondence files to find a letter that could be construed as a suitable notice, and constructed an argument around it to lend the letter a significance that was never intended.
This case stands as a warning that building a case around a likely looking letter is risky. If the wording of the notice that the claimant is hoping to rely on is unclear the courts will look to the intent of the party serving the notice and the subsequent dealings of the parties to determine whether it was indeed intended to be a formal notice of the claim in question. If the letter was not intended as a formal notice and was not read as such by the recipient then it is unlikely to be effective.
The adjudication perspective
The decision is also notable from the point of view of an adjudication practitioner.
Adjudication is supposed to be a rough and ready form of justice usually acknowledged as being carried out quickly and cheaply. In the light of this, it is slightly worrying that the failure of Glen Water’s lawyers to base their claim on the 20 October 2009 letter should be relied on in subsequent court proceedings as evidence that the letter was not significant.
The case serves as a warning that changing your case between adjudication and final determination by court proceedings could well act against you.
Whilst Keegan J’s decision about the notice seems eminently sensible, I still have my doubts about Mr Berkeley’s trees. If the trees in my garden cease to exist when nobody is watching them, then how come my car is always covered in bird poo in the morning?
This blog post first appeared on PLC Construction Blog on 19 July 2017.