| Date | 30 April 2008 |
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| Judgment | Various |
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| The Issue | Whether a notice requirement under a contract will be treated as a condition precedent to the contractor’s entitlement. |
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| Implication | There is an increasing use of condition precedent clauses which serve a purpose to the employer to give proper notice of matters which might delay or give rise to additional cost in the construction of the works. Where such provisions are properly drafted they are likely to be enforceable. |
print| A condition precedent clause, sometimes called a ‘time bar’ clause, is a provision of a construction contract which requires the giving of a notice by the contractor, usually within a specified period of time, for any matter that may give rise to a claim for additional time or money. The intention of such clauses is that a failure to issue the required notice will have the effect that the contractor’s rights in respect of that matter will be lost. Although condition precedent clauses have not generally been a feature of standard form construction contracts, it is very common to amend standard forms to introduce such provisions. The increasing use of condition precedent clauses has however filtered through to standard form drafting. For example, clause 61.3 of NEC3 deals with the contractor’s obligation to notify compensation events and states; “if the Contractor does not notify a Compensation Event within 8 weeks of becoming aware of the event he is not entitled to a change in the Price, the Completion Date or a Key Date unless the Project Manager should have notified the event to the Contractor but did not”. Similarly, clause 28.1 of the FIDIC form of contract for Construction and Engineering Works 1999 requires the contractor to give notice to the engineer of any event which may give rise to an extension of time or additional payment. The clause states “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”. In the 1978 case of Bremer v Vanden the House of Lords said that a notice provision was unlikely to be a condition precedent unless it stated a specific time for delivery of the notice and said clearly that the rights would be lost in the event that notice was not given. The NEC and FIDIC clauses quoted above clearly meet this criteria. In City Inn v Shepherd Construction in May 2003 the Inner House of the Court in Session in Scotland confirmed that a properly drafted condition precedent clause would be enforceable. Shepherd complained that the clause imposed a penalty upon them, because an extension of time to which they were otherwise entitled had not been granted, and delay damages deducted, merely because they had failed to give a notice, rather than as a consequence of any failure on their part to progress the works. The court rejected that argument commenting that the loss suffered by the employer was not converted into a penalty by the fact that the contractor might have avoided the liability by taking certain steps which the contract entitled it to take. Where a contractor’s claim is rejected on the grounds that it has failed to serve appropriate notices, the contractor will often argue that the employer’s position is contrary to the “prevention principle”. Put simply, the prevention principle is based upon the established rule in common law jurisdictions that no person can take advantage of the non-fulfilment of a condition, the performance of which has been hindered by himself. In the 2007 case of Multiplex Construction v Honeywell Control Systems the court noted that “one consequence of the prevention principle is that the employer cannot hold the contractor to a specified completion date if the employer has by act or omission prevented the contractor from completing by that date. Instead time becomes at large and the obligation to complete by this specified date is replaced by an implied obligation to complete within a reasonable time”. Whether the prevention principle will defeat a properly drafted condition precedent clause has been examined in a number of cases. The Australian case of Gaymark Investments v Walter Construction is often cited as an example where the court held that the prevention principle presented a ‘formidable barrier’ to an employer’s claim for delay damages, where events which might have given rise to an entitlement to an extension of time were ignored as a consequence of the contractor’s failure to issue timely notices. In the UK such an approach has been questioned by the courts. In the Multiplex case previously mentioned the Judge said “I have considerable doubt that Gaymark represents the law of England. 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 the instructions when the financial consequences become apparent”. The court rejected the contractor’s ‘prevention principle’ defence on the basis that it was always in the hands of the contractor to protect its interests by giving the relevant notices of delay. It seems that condition precedent clauses will continue in prevalence, and it is clear that faced with properly drafted clauses of this type contractors must be prudent to put in place sufficient commercial management resources to ensure they do not fall foul of these provisions, irrespective of the merits of their case, for want of following the procedure. Contract administrators, adjudicators, arbitrators and the courts are unlikely to show much sympathy.
CJ-0817
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