A number of recent decisions of the Courts have underlined the importance of complying with express time bar provisions in construction contracts.

In 2014[1] the Technology and Construction Court (TCC) considered clause 20 in the standard FIDIC contracts.  In summary, this provides that the contractor is to give notice of a claim for an extension of time, or additional payment under the contract “as soon as practicable, and not later than 28 days after the contractor became aware, or should have become aware, of the event or circumstance”.  If the contractor “fails to give notice of a claim within 28 days”, the entitlement to an extension of time and additional payment is lost.

The TCC applied a strict interpretation, holding that failure to give notice within the period of 28 days meant the contractor lost its right to pursue a claim.  The Court however provided an escape route for the contractor when interpreting the words “became aware, or should have become aware”.  The TCC  decided that the extension of time and cost could be claimed either within 28 days from when it became apparent to the contractor that an event would occur or within 28 days of when the event actually occurred.

The shoe was on the other foot in 2015 when the Privy Council[2] (made up of Judges of the English Supreme Court) considered clause 2.5 of the standard FIDIC contract which requires notice of claims to be given by the employer to the contractor.

In summary, clause 2.5 provides:

“If the Employer considers himself to be entitled to any payment under any Clause or otherwise in connection with the Contract… the Employer or the Engineer shall give notice and particulars to the Contractor. 

The notice shall be given as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim. 

The particulars shall specify the clause or other basis of the claim and include substantiation of the amount to which the Employer considers himself to be entitled in connection with the Contract.

The Employer shall only be entitled to set off against or make any deduction from an amount certified in a Payment Certificate, or to otherwise claim against the Contractor, in accordance with the Sub-Clause.”

The contractor had terminated the contract following the employer’s failure to provide evidence, as required by clause 2.4 of the contract, that the employer had sufficient finance to pay the contract price (another cautionary note for employers under FIDIC contracts).  The contractor claimed loss of profit and damages arising from the termination.  The employer sought to set off its own claims against the contractor arising prior to the termination.  The contractor argued no prior notice of the claims had been given.

At arbitration, the arbitrator decided the employer could set off its claim against the contractor’s claims for loss of profit as these were not set off against an amount “certified in a Payment Certificate”,  so no prior notice of the claims was required under clause 2.5.  On appeal by the contractor, the Privy Council held that the wording of the clause and “or otherwise claim” was clear.  To be valid, any claim by an employer must comply for the first two parts of the clause, namely to give notice as soon as practicable and particulars of the claim

The upshot was that the employer was not able to set off any of its claims against sums due to the contractor because it had failed to give notice in accordance with clause 2.5.

On the face of it, clause 2.5 is a more onerous clause for an employer than clause 20 is for a contractor.  The employer must give notice “as soon as practicable” and particulars specifying the clause or basis of its claim and include substantiation of the amount.  Under clause 20 the contractor is to give notice within the later of a period of 28 days of when it should have become aware or when it actively became aware of the event.

Employers will want to review the drafting of clause 2.5 if using a FIDIC contract.  Employers should also consider other employer condition precedent or time bar clauses in standard form contracts, for example in the NEC form of contract.

For more information, email blogs@gateleyplc.com.

[1] Obrascon Huarte Lain SA –v- Her Majesty’s Attorney general for Gibraltar [2014] EWCH 1028 (TCC)

[2] NH International (Caribbean) Limited (Appellant) –v- National Insurance Property Development Company Limited (Respondent) (Trinidad and Tobago) [2015] UKPC 37

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.