REUTERS | David Mdzinarishvili

Conditions precedent – a glimmer of hope for contractors?

After seeing that Akenhead J’s judgment in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar was published recently, I thought it was about time I sat down and read it. However, I had second thoughts when I saw that it stretched to 170 pages and wondered what interesting bits I could skip to.

Akenhead J often makes some interesting comments about experts, and this case is no exception. He described one of the health and safety experts as “eccentric” and said that “on occasions it felt as if one were in a university tutorial group as he gave evidence”. I can only imagine the excitement of a tutorial on health and safety matters, but rather than skipping to this part of the judgment, I decided instead to concentrate on Akenhead J’s comments on the conditions precedent requirements for giving notice of claims for time and money.

Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar

Obrascon Huarte Lain (OHL), a Spanish civil engineering contractor, had been appointed by the Government of Gibraltar to design and construct a tunnel under the runaway of Gibraltar airport under the FIDIC Yellow Book. The works were delayed for a variety of reasons and Gibraltar terminated the contract. Akenhead J had to consider whether it was entitled to do so.

Conditions precedent – FIDIC

I have to say that conditions precedent issues are present in the vast majority of cases I adjudicate where a party is claiming an extension of time and/or loss and expense. Most of the main contractors include such provisions in their sub-contracts and, may be it’s just me, but they seem to be getting more onerous. For example, I recently saw a clause providing for a three-day notification period.

OHL v Gibraltar is no exception. Akenhead J had to consider the provisions of clause 20.1 which stated that, in the event OHL wanted to claim an extension of time and/or any additional payment, it had to:

“…give notice to the Engineer, 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 [OHL] became aware, or should have become aware, of the event or circumstance.”

Clause 20.1 went on to state that, if such a notice was not given, OHL would not be entitled to an extension of time or additional payment. For obvious reasons, the parties agreed that this constituted a condition precedent.

At first glance, clause 20.1 appears to say that the 28 days commenced when OHL became aware, or should have become aware, of the event or circumstance (like a variation giving rise to a delay). However, Akenhead J said that, “given its serious effect on what could otherwise be good claims for instance for breach of contract by [Gibraltar]”, clause 20.1 should be construed broadly, and that account had to be taken of clause 8.4 when considering extensions of time:

“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.”

Akenhead J made the point that an extension of time entitlement arises if and to the extent that completion is or will be delayed. Therefore a claim can be made either when it is clear that there will be delay (a prospective delay) or when the delay has actually started to be incurred (a retrospective delay). So, taking our variation example above, OHL could either give its notice within 28 days from:

  • The variation that OHL was aware, or should have been aware, would give rise to a delay; or
  • When the delay resulting from the variation actually occurred.

The latter is clearly advantageous for contractors operating under FIDIC contracts, and will no doubt be welcomed by them.

Other contracts

Some of you may remember that Akenhead J made a similar point in Walter Lilly v Mackay when referring to the loss and expense provisions of the JCT Standard Form of Building Contract. Clause 26.1 of the 1998 version of that contract referred to Walter Lilly making its application when it had either incurred or was likely to incur loss and expense, and Akenhead J said (at paragraph 463) that an application:

“…can therefore be prospective (before the loss or expense has been incurred) or retrospective (after it has been incurred). Thus, for time related preliminary costs, the Contractor can wait until it is clear that the loss or expense has been incurred; thus, if the delay has not actually happened, the extended preliminary costs will (often) not have been incurred and the Contractor can therefore wait before serving its application until it has actually been incurred.”

The current 2011 version of the JCT contract has similar wording and therefore Akenhead J’s earlier findings are also relevant to the current version.

However, what about the Marmite of standard form contracts, NEC3?

The compensation event mechanism is quite clearly prospective, and does not envisage a retrospective assessment. Does this mean that the eight-week period referred to in clause 61.3 starts from when the event itself arose, rather than the delay resulting from that event, as would be the case under FIDIC and JCT?

Notices, notices, notices

Max Abrahamson famously wrote that:

“A party to a dispute, particularly if there is arbitration, will learn three lessons (often too late): the importance of records, the importance of records and the importance of records.”

While OHL v Gibraltar gives contractors a glimmer of hope when it comes to conditions precedent, given their frequency and the consequences of not complying with them, I think we should add to Max’s famous quote:

“…and not forgetting the importance of notices, the importance of notices and the importance of notices.”

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