Contract Administration - NOTICES or CONDITIONS PRECEDENT TO A CLAIM
When drafting contracts and/or special conditions, there is a need to consider how a contract will be administered and; in particular, what warnings or “notices” should be required from the parties. Likewise it is incumbent on the Contracts Administrator to read and understand the entire contract and ensure this knowledge is imparted to the project team(s).
Contracts carry certain obligations associated with the administration of claims and changes. Not unreasonably Employers need fair warning of a change or delay claim arising from the Works; whether due to the Employer; a third party; or, the Contractor.
There are several differing views on what constitutes a “notice” and what information it should contain. The Scottish case John L. Haley Ltd v. Dumfries & Galloway Regional Council (1988) determined that minutes of meeting, unless expressly identified as a valid form of notice in the Contract, do not constitute a valid notice. Although that may be the case, if a definition of “Notice” is not provided a daily record sheet signed contemporaneously by both parties, could constitute such a notice since it will include the facts of the issue.
Likewise, the timing of such notices can also vary to meet the needs of the situation at hand. A force Majeure event may be immediately evident and thus it may reasonably be expected that the affected party would issue a notice on the same day or within a couple of days. However sometimes these events are not evident immediately such as loss of cargo at sea. FIDIC Conditions of Contract for Turnkey Projects 1999 has this to say:
“If a Party is or will be prevented from performing any of its obligations under the Contract by Force Majeure, then it shall give notice to the other Party of the event or circumstances constituting the Force Majeure and shall specify the obligations, the performance of which is or will be prevented. The notice shall be given within 14 days after the Party became aware, or should have become aware, of the relevant event or circumstance constituting Force Majeure.”
Impacts resulting from delays to the Works are also sometimes difficult to identify immediately, thus there is usually a time limit applied in the form of a period of days from “first becoming aware” of the issue. This gives the contractor the opportunity to review the circumstances, identify any initial or ongoing impacts and advise the Client. The time limit for these notices varies with each contract. Again, FIDIC Conditions of Contract for Turnkey Projects 1999 states:
“If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Employer, describing the event or circumstance giving rise to the Claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, of the event or circumstance.”
Here the clause continues with the circumstances that arise should the Contractor fail to comply:
“If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim.”
This second limb of the clause is generally known as a waiver of rights or condition precedent to a claim. Waivers or conditions precedent to a claim have unsurprisingly, received scrutiny in the courts.
In the Australian case Gaymark Investments Pty Ltd. v Walter Construction Group Ltd (1999) (Australia) the court considered whether the waiver of rights was contrary to the prevention principle. The court determined that in this case the Client would gain a benefit beyond its contractual rights if the waivers were applied because it found that the whole of the delay was caused by the Client.
It is generally accepted that “English Courts” take the view that the parties are commercially aware businesses and as such any implications of a waiver would be clearly understood, thus it appears unlikely that there would be other considerations where a contractor failed to comply with the notice requirements.
However, in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) Mr Justice Akenhead, referring to FIDIC Clause 20.1 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”. This appears to reflect the “Gaymark” approach.
This approach was reflected in the ICE 7 Conditions where the engineer is permitted to uphold a claim where there has been no impediment to investigation of the claim “to the extent that the Engineer has not been prevented from or substantially prejudiced by such failure in investigating the said claim….” This indicates that a notice has been delivered but may not have met the time bar.
So, based upon the foregoing, it seems that where an Employer or Client is relying on the waiver to protect it from a breach of contract (delayed variations/instructions) the courts may take the view that the Contractor has a valid claim and thus cannot be time barred. Therefore, when operating waivers under the Contract the Contract Administrator should take cognizance of the circumstances leading to the claim and not simply operate the waiver as written.
Obviously other considerations such as concurrency will also need to be considered but initially a simple rejection by using the waiver, may not prove successful. It would, however, bring the parties to the table where a reasoned argument could be considered thereby providing the opportunity for settlement before heading into dispute.
Ultimately the Contractor is still obliged to submit a notice, no matter whether that notice format has been defined or not. Likewise, even if deemed late in terms of the waiver, the notice should be issued, identifying the nature and cause of the event. If the notice is not issued by the Contractor there is a danger that the claim will morph into a “Global Claim” which would be extremely difficult to settle satisfactorily.
References:
https://www.isurv.com/directory_record/4095/gaymark_investments_pty_ltd_v_walter_construction_group_ltd this is a simplified statement since other factors, such as contra proferentum came into play.
https://www.fenwickelliott.com/research-insight/newsletters/dispatch/archive/obrascon-huarte-lain-attorney-general-gibraltar 4
Construction Contracts Law and Management Fourth Edition John Murdoch and Will Hughes
Contracts carry certain obligations associated with the administration of claims and changes. Not unreasonably Employers need fair warning of a change or delay claim arising from the Works; whether due to the Employer; a third party; or, the Contractor.
There are several differing views on what constitutes a “notice” and what information it should contain. The Scottish case John L. Haley Ltd v. Dumfries & Galloway Regional Council (1988) determined that minutes of meeting, unless expressly identified as a valid form of notice in the Contract, do not constitute a valid notice. Although that may be the case, if a definition of “Notice” is not provided a daily record sheet signed contemporaneously by both parties, could constitute such a notice since it will include the facts of the issue.
Likewise, the timing of such notices can also vary to meet the needs of the situation at hand. A force Majeure event may be immediately evident and thus it may reasonably be expected that the affected party would issue a notice on the same day or within a couple of days. However sometimes these events are not evident immediately such as loss of cargo at sea. FIDIC Conditions of Contract for Turnkey Projects 1999 has this to say:
“If a Party is or will be prevented from performing any of its obligations under the Contract by Force Majeure, then it shall give notice to the other Party of the event or circumstances constituting the Force Majeure and shall specify the obligations, the performance of which is or will be prevented. The notice shall be given within 14 days after the Party became aware, or should have become aware, of the relevant event or circumstance constituting Force Majeure.”
Impacts resulting from delays to the Works are also sometimes difficult to identify immediately, thus there is usually a time limit applied in the form of a period of days from “first becoming aware” of the issue. This gives the contractor the opportunity to review the circumstances, identify any initial or ongoing impacts and advise the Client. The time limit for these notices varies with each contract. Again, FIDIC Conditions of Contract for Turnkey Projects 1999 states:
“If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Employer, describing the event or circumstance giving rise to the Claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, of the event or circumstance.”
Here the clause continues with the circumstances that arise should the Contractor fail to comply:
“If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim.”
This second limb of the clause is generally known as a waiver of rights or condition precedent to a claim. Waivers or conditions precedent to a claim have unsurprisingly, received scrutiny in the courts.
In the Australian case Gaymark Investments Pty Ltd. v Walter Construction Group Ltd (1999) (Australia) the court considered whether the waiver of rights was contrary to the prevention principle. The court determined that in this case the Client would gain a benefit beyond its contractual rights if the waivers were applied because it found that the whole of the delay was caused by the Client.
It is generally accepted that “English Courts” take the view that the parties are commercially aware businesses and as such any implications of a waiver would be clearly understood, thus it appears unlikely that there would be other considerations where a contractor failed to comply with the notice requirements.
However, in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) Mr Justice Akenhead, referring to FIDIC Clause 20.1 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”. This appears to reflect the “Gaymark” approach.
This approach was reflected in the ICE 7 Conditions where the engineer is permitted to uphold a claim where there has been no impediment to investigation of the claim “to the extent that the Engineer has not been prevented from or substantially prejudiced by such failure in investigating the said claim….” This indicates that a notice has been delivered but may not have met the time bar.
So, based upon the foregoing, it seems that where an Employer or Client is relying on the waiver to protect it from a breach of contract (delayed variations/instructions) the courts may take the view that the Contractor has a valid claim and thus cannot be time barred. Therefore, when operating waivers under the Contract the Contract Administrator should take cognizance of the circumstances leading to the claim and not simply operate the waiver as written.
Obviously other considerations such as concurrency will also need to be considered but initially a simple rejection by using the waiver, may not prove successful. It would, however, bring the parties to the table where a reasoned argument could be considered thereby providing the opportunity for settlement before heading into dispute.
Ultimately the Contractor is still obliged to submit a notice, no matter whether that notice format has been defined or not. Likewise, even if deemed late in terms of the waiver, the notice should be issued, identifying the nature and cause of the event. If the notice is not issued by the Contractor there is a danger that the claim will morph into a “Global Claim” which would be extremely difficult to settle satisfactorily.
References:
https://www.isurv.com/directory_record/4095/gaymark_investments_pty_ltd_v_walter_construction_group_ltd this is a simplified statement since other factors, such as contra proferentum came into play.
https://www.fenwickelliott.com/research-insight/newsletters/dispatch/archive/obrascon-huarte-lain-attorney-general-gibraltar 4
Construction Contracts Law and Management Fourth Edition John Murdoch and Will Hughes
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