Conditions precedent: Sub-Clause 20.1 of the FIDIC form of contract
In April 2014 Mr Justice Akenhead had to consider a case arising from disputes relating to a project to build a tunnel at Gibraltar airport. The case, Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar,1 was unusual because the contract in question was in the FIDIC Form. Usually disputes under the FIDIC Form are heard in private, in arbitration proceedings. Needless to say the case raised a number of interesting issues. In the first of three articles arising out of the decision, Matthew Simson introduces the case and looks at the Judge’s comments on the Sub-Clause 20.1 notice.
Introduction
On 21 November 2008, the Government of Gibraltar (“GOG”) engaged Obrascon Huarte Lain SA (“OHL”) to design and construct a new road and tunnel under the runway of Gibraltar Airport (“the Works”). The General Conditions of Contract were, subject to some minor amendments, those contained in the FIDIC Yellow Book (“the Contract”).
There were a number of disputes between the parties and the judgment was a lengthy one. The Judge noted that the main underlying issue revolved around whether the extent and amount of contaminated materials in the ground to be excavated were or were not reasonably foreseeable by an experienced contractor at the time of tender; if not so foreseeable, then that would not be OHL’s risk. OHL’s case was that the amount and location of contaminated materials were such that it had to re-design the work particularly in the tunnel area, which it did after the original contract period had expired. Such re-design having been approved, it was OHL’s case that it was ready, willing and able to proceed with the work but it was unable to proceed with the works due to various obstacles put in its way by GOG when GOG purported to terminate the contract.
The Commencement Date was 1 December 2008 and the Time for Completion was 24 months thereafter. By October 2010 OHL was in serious delay, with only 25% of the Works having been carried out.
On 20 December 2010, OHL served a report on the engineer concerning, amongst other things, the presence of contaminated materials on site. OHL requested authorisation for an immediate suspension of the Works, and on 23 December 2010, without any authorisation to do so, OHL suspended the Works.
On 11 January 2011, GOG gave written notice to OHL that it had failed to complete the Works within the contractual Time for Completion. On 16 May 2011, the engineer sent to OHL at its site office a “Sub-Clause 15.1 Notice to Correct” in which the engineer set out a number of contractual obligations it considered OHL was failing to carry out. These included:
(i) Sub-Clause 8.1 in failing to proceed with due expedition and without delay;
(ii) Sub-Clauses 3.3, 4.1 and 8.1 in failing to provide acceptable details of methods which OHL proposed to adopt for tunnel excavation work;
(iii) Sub-Clause 8.1 in failing to proceed with dewatering with due expedition;
(iv) Sub-Clauses 3.3, 8.3 and 8.6 in failing to comply with instructions by the engineer to produce a revised programme; and
(v) Sub-Clause 4.1 and/or 5.2 in failing to provide the engineer with appropriate signed certificates for various components of the Works.
The engineer required OHL to make good those failures by remedying them within specified times.
On 24 May 2011, OHL responded to the 16 May 2011 Notice to Correct asserting it was not in breach of contract and that there was no entitlement to issue the Notice to Correct.
On 28 July 2011, GOG sent to OHL a Notice of Termination at its site office stating that the Contract would be terminated on 12 August 2011 as a result of:
(i) OHL’s failure to comply with the Notice to Correct issued pursuant to Subclause 15.1 (per Sub-Clause 15.2(a)); and/or
(ii) OHL having demonstrated an intention not to continue performance of its obligations under the Contract (per Sub-Clause 15.2(b)); and/or
(iii) OHL’s failure to proceed with the Works in accordance with Clause 8 (per Sub-Clause 15.2(c)).
On 3 August 2011, OHL replied to the Notice of Termination claiming that the letter was invalid and therefore ineffective for a number of reasons, including that the Notice of Termination was sent to the wrong address (site as opposed to the Madrid office) and there were no grounds under the Contract which justified termination. OHL claimed that the Notice of Termination was a repudiatory breach of contract and purported to accept that repudiatory breach as bringing the Contract to an end.
“I see no reason why this clause should be construed strictly against the contractor… it should be construed reasonably…”
On 4 August 2011, GOG served the Notice of Termination letter at OHL’s Madrid office dated 28 July 2011, saying that termination would take place 14 days later.
On 20 August 2011, GOG informed OHL that it was terminating the Contract, alternatively accepting repudiation on the part of OHL. GOG took possession of the site on or shortly after 20 August 2011.
Claim brought by OHL
Amongst a number of claims, OHL sought an extension of time of 474 days.
Sub-Clause 20.1 – extension of time claims
Under, Sub-Clause 20.1 of the FIDIC form, a contractor must give notice of a claim for an extension of time or additional payment “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 such notice within 28 days then time shall not be extended and the contractor loses the right to payment. The perennial questions that arise are whether this clause is a condition precedent and whether a court will enforce it.
Under English law,2 a notice provision will be construed as a condition precedent, and so would be considered to be binding provided:
(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.
Further the English courts have confirmed their approval for conditions precedents, provided they fulfil the conditions laid out above. For example, in the case of Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd,3 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.”
So when does the 28-day period referred to in Sub-Clause 20.1 start? It does not run from the actual occurrence of the event or circumstance giving rise to the claim. Instead, it runs from when the contractor “became aware, or should have become aware, of the event or circumstance” giving rise to the claim. That is something rather different and introduces a subjective element into the test.
Mr Justice Akenhead said that:
“I 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.”
In coming to this conclusion, the Judge, made reference to Sub-Clause 8.4 of the FIDIC conditions, which sets out the circumstances in which the contractor is entitled to an extension of time. Sub-Clause 8.4 states that:
“The Contractor shall be entitled subject to Sub-Clause 20.1… to an extension of the Time for Completion if and to the extent that the completion for the purposes of Sub-Clause 10.1… is or will be delayed by any of the following causes…”
This suggested that the extension of time can be claimed either when it is clear that there will be delay (a prospective delay) or when the delay has been at least started to be incurred (a retrospective delay). Thus notice does not have to be given until there actually is a delay. The Judge in particular noted that the wording of the clause is not: “is or will be delayed whichever is the earliest”. The Judge further confirmed that the onus is on the employer to establish that a notice is not given in time.
There is also often discussion about the form that a notice must take. The Judge recognised that there is no particular form of notice required by the FIDIC form. However by virtue of Sub-Clause 1.3, it must be in writing. Further, and this is important, the notice must be recognisable as a “claim”. In this case, OHL had tried to rely on a monthly progress report. This is not unusual, especially, where a contractor has recognised that it failed to provide a particular notice under Sub-Clause 20.1. The problem for OHL was that the report relied upon for its adverse weather claim, stated that: “The adverse weather condition (rain) have [sic] affected the works”. This made no reference to OHL being delayed and could not be said to amount to notice that a claim for an extension of time was being made. In the Judge’s view, this was “clearly nowhere near a notice under Sub-Clause 20.1”.
The Judge therefore ruled that OHL had failed to give notice of the exceptionally adverse weather within the 28-day period. This is to be contrasted with the wording of its claim in relation to unforeseeable conditions, where OHL had used the words: “In our opinion the excavation of all rock will entitle us to an extension of time…” This clearly constituted a claim.
Conclusion
Although the Judge’s conclusion favoured the employer, the judgment makes a number of important observations about the approach to take when considering the overall effect of Sub-Clause 20.1 It is clear that as an overall approach, Mr Justice Akenhead did not consider that Sub-Clause 20.1 should be construed strictly against a contractor, especially given the potentially serious effect it might have on what could otherwise be good claims for breach of contract against the employer. Further, although the Obrascon case only considered the approach to extension of time claims, it is likely that the same principle will also apply to claims for additional payment.
It is also likely that the Judge’s comment that for the purposes of the 28-day time limit in Sub-Clause 20.1, the “event or circumstance” can mean either the incident itself or the delay (or cost) which results from the event in question, is one which will be referred to in many future claims, especially where the delay or cost effect of an event is not felt until some time after the actual event itself.
Contractors too will take some further comfort in the Judge’s comments that, in unamended FIDIC forms at least, there was no special form that the claims’ notice should have, save that it must be in writing and should be in the form of a claim. That comfort though must be tempered by considering the Judge’s overall conclusions on the facts and his opinion that OHL had failed to comply with Sub-Clause 20.1.