REUTERS | Neil Hall

Conditions precedent and the potential application of UCTA

The dust has had a bit of time to settle since Edwards-Stuart J’s decision in Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd, which was handed down in January.

Since then, the sub-contractor has been refused permission to appeal, and the litigation has now been settled. Despite this, the decision does raise some important points of principle for parties to contracts in our field of construction, but also in related commercial fields where claims control type provisions are prevalent, and specifically in relation to the potential application of UCTA.

Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd

The dispute in CMI v Mitchell concerned the incorporation, operation and effect of the following clause:

“All claims under or in connection with this Contract must in order to be considered as valid be notified to us in writing within 28 days of the appearance of any alleged defect or of the occurrence (or non occurrence as the case may be) of the event complained of and shall in any event be deemed to be waived and absolutely barred unless so notified within one calendar year of the date of completion of the works.”

Similar provisions are, of course, familiar to practitioners. See, for example, clause 20.1 of the FIDIC Red Book:

“If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall 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 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 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.”

Such provisions are not uncontroversial, and this FIDIC clause is often criticised because of the lack of reciprocity towards employer’s claims. But, broadly speaking, the court will uphold the debarring machinery provided that the consequences of non-notification are clearly spelt out (see Bremer Handelgesellschaft mbH v Vanden Avenne Izegem nv [1978] 2 Lloyd’s Rep 109). In the relatively recent case of Obrascon v Gibraltar, the contractor did not even attempt to argue that the clause did not amount to a condition precedent to recovery.

However, in contrast to FIDIC clause 20.1, the clause in CMI v Mitchell triggered the claims notification requirement not from a particular date following knowledge of the claim event or when knowledge ought to have arisen, but from the date of the occurrence of the event complained of, coupled with a one-year long stop.

On any analysis, the clause is harsh towards the contractor and is presumably designed to protect the sub-contractor from liability by effluxion of time alone. In the context of a groundworks sub-contract, where the manifestations of the defect in question might not actually make themselves known until many months or even years later, in practice it is impossible (or near impossible) to comply with. It was on this basis that Edwards-Stuart J ultimately struck the clause down as being unreasonable (albeit his comments are strictly speaking obiter, as he had found that the clause in question was not in fact incorporated into the parties’ sub-contract).

Potential ramifications of the decision

As intimated above, the ramifications of the judgment may yet find themselves felt across a considerable breadth of commercial contracts. It is not unusual, particularly in infrastructure projects, to heavily amend claims control clauses such as clause 20.1 of FIDIC so that (for example) the 28-day requirement becomes 14 days, 7 days or even less (I have seen 24 hours).

While such time limits often remain to be triggered by knowledge as opposed to the mere passage of the time limit, they nevertheless place a difficult practical burden on the contractor, particularly when the project in question is ongoing.

It might well be possible to rely on the provisions of UCTA to come to the rescue where the clause in question imports true or near impossibility in terms of compliance.

Of course, the statute will only apply where a (non-consumer) party deals on the other’s written standard terms of business, and this definition has been left by Parliament to the courts to explain. CMI provides some guidance on the relevant authorities (citing in particular Pegler Ltd v Wang (UK) Ltd).

The interesting repercussion of the judgment (and the take home point) is that it would appear to be possible to deal on written standard terms of business for the purposes of engaging UCTA, even if only one of the terms in the contract in question emanates from those standard terms of business. As contracts are frequently negotiated on a bespoke basis with various different “source” documents, perhaps UCTA will play a more prominent role going forward where parties are faced with particularly gruelling clauses.

Keating Chambers Calum Lamont

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