In last year’s review we highlighted the increasing tendency in construction contracts to include time bar clauses which are intended to have the effect of disallowing the contractor a claim that might otherwise be legally recognisable. As Simon Tolson and Jeremy Glover explain, this trend has continued.
There is still a real danger that a contractor cannot claim for an extension of time or loss and expense simply because it has forgotten to issue an appropriate contractual notice within the time specified in the contract. Accordingly, contractors and subcontractors should carefully check their contracts when entering into them in order to see whether there are any time bars. On the other hand, of course, employers may seek to include time bars more frequently. It gives them the greater confidence in the outturn costs as there would then be an obligation on the contractor to put an employer on notice, such that the employer would then have the option to withdraw an instruction or attempt to mitigate the costs and delays.
Construction contracts like the NEC3 and FIDIC forms contain clauses that bar contractors’ claims that are not made on time. Sometimes a claim is on time but challenged because it was not made in the specified form or with the required information. A recent shipping case Waterfront Shipping Company Ltd v Trafigura AG1 confirms the courts’ willingness to strike down otherwise valid claims if time bar provisions are not complied with. Delays occurred and the contract required the Charterer to compensate the Owner for such delays if the Owner made a claim within 90 days after completion of discharge. However, the Owner’s claim failed because:
- The contract expressly required the claim to be accompanied by the vessel’s pumping records signed by one of its officers and a representative of the terminal or the Charterer. The records were important because the Charterer was only liable for the discharge delay if the Owner’s vessel had pumps that met the required pressure. It was not disputed that they did, but the records that the Owner provided were unsigned;
- This non-compliance was not so minor as to be irrelevant given the clear requirement for signatures. The court held that the signatures were important to confirm the accuracy, authenticity and provenance of the pumping records; and
- It did not matter that the Charterer had received pumping records from its own representative within the 90 day period. A key purpose of the time bar provisions was that the Charterer was presented with documentation by the Owner that was sufficient in itself for the Charterer to evaluate the claim without needing to consider other documents. In a construction context:
- Parties should take care when concluding contracts to check any time bar clauses governing claims they might make;
- Parties should appreciate the risks they then run of not making a claim (even if to maintain goodwill) unless the other party agrees to relax the requirements or clearly waives them. Of course, time bar clauses, if cautiously operated, may generate a proliferation of claims, which may test the partnering ethos of forms such as the NEC3;
- The courts see the benefits of time bar provisions and support their operation. A tribunal might bar an entire claim for what seems like a technical reason (by which time it will usually be too late to make a new, compliant, claim); and
- It may be that non-compliance with a specific requirement (e.g. that a notice should be “communicated separately from other communications”, as per the NEC3 form) would not be so minor that it might be ignored. Nor should claimants necessarily rely upon the other party already having the information they are required to provide.
Indeed as we noted in last year’s Review, the English and Welsh courts have made it clear that there is nothing inherently wrong in that. In the case of Multiplex Construction v Honeywell Control Systems2, Mr Justice Jackson 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.”
HHJ Davies followed the approach of Mr Justice Jackson in the case of Steria Ltd v Sigma Wireless Communications Ltd2. The case related to the provision of a new computerised system for fire and ambulance services. Sigma contracted to provide a communications system and Steria, in turn, subcontracted with Sigma to provide the computer-aided despatch system. The subcontract was a heavily amended version of the standard MF/1 form of subcontract. A dispute arose in relation to the release of the final trance of retention due at the expiry of the defects liability period. Sigma asserted that Steria had delayed in completing the subcontract works and as a result Sigma was entitled to set off against the final payment and/or counterclaim LADs or general damages. Clause 6.1 of the subcontract stated:
“... if by reason of any circumstance which entitles the Contractor to an extension of time for the Completion of the Works under the Main Contract, or by reason of a variation to the Sub-Contract Works, or by reason of any breach by the Contractor the Sub-Contractor shall be delayed in the execution of the Sub-Contract Works, then in any such case provided the Sub-Contractor shall have given within a reasonable period written notice to the Contractor of the circumstances giving rise to the delay, the time for completion hereunder shall be extended by such period as may in all the circumstance be justified...”
Now, clause 6.1 is similar in type to standard forms such as the JCT contract. The language is very different from the conditions precedent to be found in FIDIC and the NEC3. Sigma argued that the written notice referred to in clause 6.1 was a condition precedent to a grant of an extension of time and that it had not been complied with. Steria countered that there was no such condition precedent but that if there were, then either it had been complied with and/or it had been waived. The Judge held that clause 6.1 was a condition precedent requiring Steria to give written notice within a reasonable period. That notice had to emanate from the subcontractor claiming the extension of time. Therefore, for example, minutes of meetings prepared by third parties recording that the subcontract works had been delayed did not constitute adequate notice. Judge Davies agreed with Mr Justice Jackson’s comments in the Multiplex case and said that:
“In my judgment an extension of time provision confers benefits on both parties; in particular it enables a contractor to recover reasonable extensions of time whilst still maintaining the contractually agreed structure of a specified time for completion (together, in the majority of cases, with the contractual certainty of agreed liquidated damages, as opposed to uncertain unliquidated damages). So far as the application of the contra proferentum rule is concerned, it seems to me that the correct question to ask is not whether the clause was put forward originally by Steria or by Sigma; the principle which applies here is that if there is genuine ambiguity as to whether or not notification is a condition precedent, then the notification should not be construed as being a condition precedent, since such a provision operates for the benefit of only one party...”
The Judge felt that the clause was clear. The subcontractor was required to give written notice within a reasonable period from when he is delayed, and the fact that there may be scope for argument in an individual case as to whether or not a notice was given within a reasonable period is not in itself any reason for arguing that it is unclear in its meaning and intent. The case is important because the Judge held that the extension of time clause gave rise to a condition precedent even though there were no express words to that effect. Therefore the case seems to confirm that the courts may well follow a strict line when it comes to interpreting such clauses.
Are there any ways round the condition precedent?
Is there the possibility that a court/arbitral tribunal might decline to construe the time bar as a condition precedent, having regard to the particular circumstances of the matter before it and the impact of the applicable law? The Scottish case of City Inn Ltd v Shepherd Construction Ltd4 suggests there may be. The disputes related to the construction of a hotel under a contract incorporating the JCT Standard Form (Private Edition with Quantities) 1980 as amended. The core element of the dispute was whether or not the contractor was entitled to an extension of time of 11 weeks and consequently whether or not the employer was entitled to deduct LADs. Clause 13.8 contained a time bar clause, requiring the contractor to provide details of the estimated effect of an instruction within ten days. Lord Drummond Young characterised the clause thus:
“I am of opinion that the pursuers’ right to invoke clause 13.8 is properly characterized as an immunity; the defenders have a power to use that clause to claim an extension of time, and the pursuers have an immunity against that power if the defendants do not fulfil the requirements of the clause.”
However, the Judge also felt that an immunity can be the subject of waiver. The architect and employer have the power, at least under the JCT Standard Forms, to waive or otherwise dispense with any procedural requirements. This was what happened here. Whilst the employer (in discussions with the contractor) and the architect (by issuing delay notices) both made it clear that the contractor was not getting an extension of time, neither gave the failure to operate the condition precedent at clause 13.8 as a reason. The purpose of clause 13.8 is to ensure that any potential delay or cost consequences arising from an instruction are dealt with immediately.
The point made by the Judge is that whilst clause 13.8 provides immunity, that immunity must be invoked or referred to. At a meeting between contractor and employer, the EOT claim was discussed at length. Given the importance of clause 13.8, the Judge felt that it would be surprising if no mention was made of the clause unless the employer, or architect, had decided not to invoke it. Significantly, the Judge held that both employer and architect should be aware of all of the terms of the contract. Employers and certifiers alike will need to pay close attention to their conduct in administering contracts in order to avoid the potential consequences of this decision.
In summary, it seems clear that under English law a condition precedent will be held to be effective, so as to preclude a claimant from bringing an otherwise valid claim, provided that the wording of the contract is clear that that is its intention. However, might the comments of Mr Justice Jackson’s amount to a high-water mark in the enforcement of condition precedents? As we set out on pages 32-33 below, the FIDIC approach seems to be changing. In the autumn of 2007, FIDIC introduced a new draft form of contract, the Gold Book for DBO projects. This included the following concession within clause 20:
“20.1(a) However, if the Contractor considers there are circumstances which justify the late submission, he may submit the details to the DAB for a ruling. If the DAB considers the circumstances are such that the late submission was acceptable, the DAB shall have the authority under this sub-clause to override the given 28-day limit and advise both the parties accordingly.”
Further, as can be seen from the City Inn case, in practice, the particular circumstances of each situation will need to be considered, not solely because the courts construe these provisions extremely strictly, but also because the actual circumstances of the case might reveal that the time bar provision cannot be considered to be effective.