Under most formal contracts it is necessary for the Contractor to give notice of various matters as part of the process of seeking extensions of time and/or loss and expense. Depending on its terms, the notice provision will be treated either as a condition precedent or merely as a warranty, breach of which will typically sound in only nominal damages. Increasingly notices clauses are expressed as conditions precedent. In other words, a failure to comply with the requirements of the clause will result in a party being prevented from making what might otherwise be a perfectly valid claim.
The FIDIC 1999 form, sub-clause 20.1 expressly makes it clear that:
Core clause 61.3 of both the new NEC4 forms provides that:
“lf the Contractor does not notify a compensation event within eight weeks of becoming aware that the event has happened, the Prices, the Completion Date or a Key Date are not changed unless the event arises from the Project Manager or the Supervisor giving an instruction or notification, issuing a certificate or changing an earlier decision.”
The attitude of the UK courts to time bars
Generally, in the UK, the courts will take the view that timescales in construction contracts are directory rather than mandatory1, unless, that is, the contract clause in question clearly states that the party with a claim will lose the right to bring that claim if it fails to comply with the required timescale. In the case of Bremer Handelgesellschaft mbH v Vanden Avenne Izegem nv2, the House of Lords held that a notice provision should be construed as a condition precedent, and so would be binding if:
(i) it states the precise time within which the notice is to be served; and
(ii) it makes plain by express language that unless the notice is served within that time the party making the claim will lose its rights under the clause.
Here, under the FIDIC 1999 form, sub-clause 20.1 expressly makes it clear that:
Further, the English courts have confirmed their approval for conditions precedent, provided they fulfil the conditions laid out in the Bremer case. For example, in the case of Multiplex Construction v Honeywell Control Systems3, Mr Justice Jackson (as he then was) held that:
“Contractual terms requiring a contractor to give prompt notice of delay serve a valuable purpose; such notice enables matters to be investigated while they are still current. Furthermore, such notice sometimes gives the employer the opportunity to withdraw instructions when the financial consequences become apparent.”
At the same time, the courts have also recognised that care should be exercised when considering the potentially harsh effects of notice requirements. In the case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar4, a case involving the FIDIC 1999 form, Mr Justice Akenhead said that he could see:
“no reason why this clause should be construed strictly against the Contractor and can see reason why it should be construed reasonably broadly, given its serious effect on what could otherwise be good claims for instance for breach of contract by the Employer”.
Changes to the FIDIC time bar
Indeed, FIDIC, in the Second Edition of the Rainbow suite5, are introducing a new sub-clause, 20.3 “Waiver of Time-limits”, which provides the DAB with the power to waive a refusal of an Engineer to consider a claim because it is said to be time barred. The DAB can take the following into account:
- whether the other Party would be prejudiced by acceptance of the late submission;
- whether the other Party had prior knowledge of the event in question or basis of claim; and
- the extent to which, if at all, the Engineer may already have proceeded to make a determination, or more likely sought to negotiate an agreement.
That said, FIDIC are retaining the 28-day time bar which will apply to both Contractor and Employer claims. For FIDIC, notice provisions are intended to provide certainty to both parties as well as to preserve the contractual arrangement if the works are delayed or additional costs are incurred.
The position in 2017
It should be noted that Mr Justice Akenhead, in the Obrascon case, was not saying that clause 20.1 was not a condition precedent, but rather that care should be taken when alleging that proper notice had not been given on time.
The importance of following the notice provisions to be found in any contract was reinforced in the 2017 case of Glen Water Ltd v Northern Ireland Water Ltd6. Although this was not a FIDIC contract, there was a condition precedent notice clause requiring claims for compensation to be submitted by Glen Water within 21 days of the occurrence of the compensation event that had caused or was likely to cause delay and additional cost.
The project in question was a PFI project agreement for the upgrade of sludge treatment services in Northern Ireland. The agreement provided for an initial construction phase followed by a 25-year operation and maintenance period. During the construction phase, Northern Ireland Water was required, acting as a prudent operator, to maintain its existing sludge treatment assets.
During the construction phase Glen Water issued several compensation event notifications including in relation to the new build cooling water system. Glen Water also notified concerns about Northern Ireland Water’s maintenance of the existing assets. In a letter dated 20 October 2009 Glen Water alleged that Northern Ireland Water was not maintaining the existing assets. The letter went on to reject Northern Ireland Water’s criticism of the new cooling water system design and assert that a compensation event had occurred.
At a meeting on 14 December 2009 Glen Water mentioned a claim for £3—9m in relation to Northern Ireland Water’s maintenance of an incinerator within the existing assets. An internal Northern Ireland Water document dated 15 December 2009 referred to the possibility of a claim arising out of Northern Ireland Water’s failure to maintain the existing assets.
Glen Water subsequently commenced proceedings, claiming some £4.4m in compensation for defects in the pressure steam system. The question of whether or not effective notice of a compensation event had been given was addressed as a preliminary issue.
Glen Water argued that its letter of 20 October 2009 and the discussions at a meeting held on 14 December 2009 were sufficient to satisfy the clause in question when looked at in proper context with all of the background taken into account, in particular that in advance of 20 October 2009, Glen Water had frequently expressed concern about Northern Ireland Water’s maintenance of the existing assets, the subject of the claim. In reply, Northern Ireland Water said that on an objective construction the letter was concerned with the cooling water claim, something different.
Here, Keegan J noted that:
“I do have some sympathy for the plaintiff’s position because the failure to notify prevents a claim being made. That may seem harsh when commercial parties anticipated that a claim might come to pass. 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. The contractual terms are clear and commercial certainty is an overarching consideration. The evidence as to the commercial context and surrounding circumstances has not remedied the defect in the letter. It seems to me likely that the notification requirement was overlooked amid a mass of claims and in the midst of an ongoing process of discussions.”
As notice had not been given within the time limits laid down by the contract, the claim was barred. The Judge was clear that any “notification should be clear and unambiguous”. Meeting minutes did not constitute a proper notification of claim. Whilst the parties had had discussions regarding the potential claim event, the onus was still on the Contractor to have followed the contract and notify its claim formally. It was also an issue of some importance that the letter Glen Water was trying to rely upon, in contrast to the other compensation event notifications, was not clearly marked as such. The fact that internally, Northern Ireland Water had considered the possibility of a claim arising was irrelevant. The fact that Northern Ireland Water had apparently anticipated (and possibly obstructed a claim by ignoring Glen Water’s requests to inspect the existing assets) was again not sufficient to override a failure to give proper notice.
Whilst, as the words of Mr Justice Akenhead in the Obrascon case suggest, courts may have some sympathy for the potentially harsh effects of time bar clauses, that sympathy will only go so far. Keegan J thought it significant that in adjudication proceedings brought in 2014, Glen Water had not based a claim for the same compensation upon the letter of 20 October 2009 or the meeting on 14 December 2009. They had not approached the claim in a consistent way.
It is possible that the changed approach was made because of the fact that the claims had reached the courts. However, in reaching her decision, Keegan J referred favourably to the Scottish case of Education 4 Ayrshire Ltd v South Ayrshire Council7 where Lord Glennie was wholly unsympathetic to the suggestion that allowance should be made for the fact that notices given in compliance with conditions precedent might have been drafted by businessmen rather than lawyers, noting that:
“It is within judicial knowledge that parties to contracts containing formal notice provisions turn immediately to their lawyers whenever there is a requirement to give notice in accordance with those provisions. But even if that were not the case, there is nothing in clause 17.6.1 [of a Public Private Partnership or PPP Contract] that would not readily be understood by a businessman unversed in the law.”
Under clause 20.3 of the new FIDIC form, Glen Water would have been able to argue that Northern Ireland Water had prior knowledge of the event in question and understood the basis of the claim being made. Therefore it could not be said that they were prejudiced by acceptance of the late submission. However, under the contract in question, those arguments were not open to them. Here the contract was clear and whilst the parties had had discussions regarding a potential claim event, that, under the strict words of this particular contract, did not relieve the contractor of the obligation to formally notify the claim.