The continued rise of time bars?

We have highlighted previously, 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 valid. Here, Igor Bichenkov revisits this topic by reference to a number of recent court decisions.

Two of the best known examples of contracts which include time bars are the NEC3 and FIDIC forms. The NEC3 form is particularly important in the UK as it forms the basis of the London 2012 construction contracts and is being taken up on major projects more and more, whilst the FIDIC form, outside of the UK and USA, has a widespread application.

WW Gear Construction Ltd v McGee Group Ltd 1

This was a case before Mr Justice Akenhead. The dispute arose from the construction of the Westminster Plaza Hotel, as part of which Gear engaged McGee as groundworks contractor. The contract incorporated the JCT Trade Contract Terms (TC/C) 2002 edition with Amendment No.1: 2003, together with further bespoke amendments. The contracted works commenced in late 2007 and were completed in May 2009. McGee made applications for payment, broadly on a monthly basis. The applications included requests or claims for payment for extended preliminary costs associated with delays to the works. In Application No. 18, which was said to summarise the position up to 29 March 2009, McGee referred in its summary to a “Loss & Expense Claim” being “As Attached”. In relation to such applications, Clause 4.21 of the contract provided as follows:

“If the Trade Contractor makes written application to the Construction Manager that he has incurred or is likely to incur direct loss and/or expense … then the Construction Manager ... shall ascertain the amount of such loss and/or expense … provided always that:

.1 the Trade Contractor’s application shall be made as soon as and in any event not later than two months after it had become, or should reasonably have become apparent to him that the regular progress of the Works or any part thereof has been or was likely to be affected as aforesaid, and such application shall be formally made in writing and fully documented and costed in detail, and it shall be a condition precedent under this clause 4.21.1 … that the Trade Contractor has complied fully with all requirements of this clauses [sic] including, for the accordance [sic] of doubt, the said time period of two months.”

Following an adjudication decision, Gear issued proceedings under Part 8 seeking a declaration that, on its true construction, McGee was required to comply with the provisions of Clause 4.21.1 as a condition precedent to its entitlement to make an application for payment. Mr Justice Akenhead noted that firstly, in order to claim loss and expense under Clause 4.21, McGee had to submit an application to the construction manager. To this end, McGee’s application had to state that the regular progress of the works had been affected. Akenhead J further noted that Clause 4.21 contained the wording “provided that”, which was “often the strongest sign that the parties intend that there was to be a condition precedent”.

As to the requirements of Sub-Clause 4.21.1, Akenhead J considered that there was nothing particularly difficult or onerous in McGee making its application within either the general or specific timetables. Akenhead J also found that the requirement that McGee’s applications should be made formally and fully documented added little to the general requirement that such applications be made in writing.

Accordingly, Akenhead J ruled that the requirement to make a timely application in writing was an effective precondition to the recovery of loss and/or expense under Clause 4.21. As such, McGee simply had no entitlement to recover such loss or expense unless and until it had made the requisite application. It was clear that the parties had intended for McGee’s entitlement to operate in this way.

Education 4 Ayrshire Ltd v South Ayrshire Council2

The strictness of the courts’ approach to the enforcement of conditions precedent is illustrated further in this Scottish case. The dispute related to a project agreement by which the contractor had agreed to design and construct six schools for the Council. One such school was the Prestwick Academy, the completion of which had to achieve “Service Availability” on or before the “Target Service Availability Date” (“TSAD”). Clause 17.1 of the project agreement specified that upon becoming aware of a delay to the achievement of TSAD, the contractor was obliged to give written notice to the Council, setting out the reasons for the delay and its likely effect. In turn, Clause 17.6 of the project agreement specified the procedure by which the contractor could claim an extension of time and compensation if the delay constituted a “Works Compensation Event” under the contract.

Following the occurrence of a Works Compensation Event, the contractor issued a notice to the Council. The notice set out the nature of the delay and stated that it had been issued pursuant to Clause 17.1. The notice also informed the Council that the contractor would be submitting a claim for an extension of time and compensation in accordance with Clause 17.6 of the project agreement. The contractor did not, however, serve any further notices, in the absence of which a dispute arose as to whether the contractor was entitled to an extension of time and compensation. The Council argued that by failing to serve a notice in accordance with Clause 17.6, the contractor was not entitled to compensation and an extension of time. The contractor, however, sought to put the initial notice and the requirements of Clause 17 in context. Firstly, the project agreement provided for the sharing of information between the parties and imparted on the Council certain rights of inspection. Secondly, the Council had been fully informed of developments concerning the Works Compensation Event, as it had received the relevant survey report and had been informed in writing of the likelihood of delay.

Lord Glennie preferred the submissions of the Council. In circumstances where both parties accepted that compliance with Clause 17.6 was a condition precedent to the contractor’s entitlement to relief under the contract, the Judge held that the sole question to answer was: “what does the clause require?”3 Lord Glennie found that the contractor’s entitlement to relief was subject to requirements of strict compliance, none of which were onerous. As such, the Judge reached the conclusion that where parties have laid down in clear terms what has to be done by one of them if he is to claim certain relief, the court should be slow to seek to relieve that party from the consequence of failure.”

The contractor’s failure to comply with Clause 17.6 invalidated its claim for compensation and an extension of time. It is also worth noting that Lord Glennie was unsympathetic to the argument that allowance should be made for the fact that the requisite notices would be drafted by businessmen, as opposed to lawyers:4

“It is within judicial knowledge that parties to contracts containing formal notice provisions turn immediately to their lawyers whenever there is a requirement to give notice in accordance with those provisions. But even if that were not the case, there is nothing in clause 17.6.1 that would not readily be understood by a businessman unversed in the law”.

City Inn Ltd v Shepherd Construction Ltd 5

This was another Scottish case. At its core, the dispute concerned the question of whether, by operation of Clause 13.8 of the contract, City Inn was entitled to deduct liquidated damages for delay to completion. Clause 13.8 contained a bespoke time bar provision, requiring Shepherd to provide details of the estimated effect of an architect’s instruction within ten days. Lord Drummond Young found that although failure to comply with Clause 13.8 could debar Shepherd from claiming an extension of time, City Inn nonetheless had the power to waive or dispense with applicable procedural requirements. This was the case here, as during its discussions with Shepherd, City Inn never cited Shepherd’s failure to comply with Clause 13.8 as the reason for refusing to grant an extension of time. City Inn subsequently appealed to the Inner House. In giving the leading judgement of the Inner House, Lord Osborne held that:6

“…the contractual provisions in [Clause 13.8], conceived in the interests of the employer, are contractual conditions capable of being waived.”

Having confirmed that provisions of Clause 13.8 were capable of waiver, the Inner House had to consider whether they had in fact been waived by City Inn. Lord Osborne noted that the parties had attended a meeting during which they discussed Shepherd’s extension of time claim in considerable detail. During that meeting, however, nothing was said about the invocation of Clause 13.8. Thus, in circumstances where it would generally be presumed that City Inn were aware of the terms of their own contract, Lord Osborne agreed that:7

“silence in relation to a point that might be taken may give rise to the inference of waiver of that point. In my view, that equitable principle can and should operate in the circumstances of this case.”

Finally, the Inner House observed that the waiver applied to all other elements of Shepherd’s claims for extensions of time, and not just the gas venting instruction (with which the case was primarily concerned). Lord Osborne explained his reason thus:8

“The position in relation to those other elements was that instructions were issued from time to time, works instructed were carried out by [Shepherd] over a period of time, without [Shepherd] seeking to operate the provisions of clause 13.8 and, thereafter an extension of time application was made by them upon the basis of the provisions of clause 25 of the Standard Form conditions. Those sequences of events are plainly inconsistent with the invocation of the provisions of clause 13.8. At no point in this sequence of events did [City Inn], or the architect, take a stand upon the basis that clause 13.8 had not been complied with and that therefore the provisions of clause 13.8.5 eliminated the possibility of any extension of time. Furthermore, clause 13.8 was not invoked, or even referred to, in any contemporaneous correspondence relating to the project involving [City Inn], or the architect. That course of action was wholly inconsistent with any insistence upon the operation of clause 13.8 … In my view these circumstances clearly demonstrate that [City Inn] had altogether departed from and abandoned their contractual right to insist upon the observance of clause 13.8.”

Conclusion

The decisions in Gear and Education 4 Ayrshire demonstrate that conditions precedent continue to be held effective, so as to preclude a claimant from bringing an otherwise valid claim. In particular, the decisions demonstrate the courts’ continuing tendency to enforce conditions precedent (and time bars specified therein) strictly. This includes instances where a condition precedent contains typographical errors (albeit ones that are superfluous to the contractual drafting in question), or where the employer is aware of the circumstances behind the contractor’s claim for relief. Accordingly, to preserve the validity of its claims under a contract, the contractor must remain mindful of all applicable preconditions.

However, the decision in City Inn demonstrates that a contractor may be able to preserve the validity of its claims by arguing that applicable preconditions had been waived by the employer. The success of such an assertion would, however, depend on the actual circumstances of the case and, in particular, the conduct of the parties. In this respect, it is worth noting that, coupled with the parties’ conduct, waiver can take effect through a party’s silence in relation to a particular precondition. In this respect, an employer would be well advised to ensure that it does not inadvertently waive a contractor’s compliance with relevant preconditions. As far as contractors are concerned, City Inn should not be regarded as providing a sound alternative to strict compliance with contractual requirements. Placing sole reliance on the argument that certain preconditions have been waived would constitute an unacceptable risk, as there is no guarantee that such an assertion will succeed following a court’s examination of the particular facts of the case.

In short, knowing the terms and requirements of your contract and ensuring that they are strictly followed remains best practice.

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• 1. [2010] EWHC 1460 (TCC).
• 2. [2009] ScotCS CSOH 146.
• 3. [2009] ScotCS CSOH 146, paragraph 17.
• 4. [2009] ScotCS CSOH 146, paragraph 19.
• 5. [2010] ScotCS CSIH 68.
• 6. See [2010] ScotCS CSIH 68 at paragraph 75.
• 7. See [2010] ScotsCS CSIH 68 at paragraph 86.
• 8. See [2010] ScotCS CSIH 68 at paragraph 95.