Over recent weeks, both Jonathan Cope and David Robertson have written about Akenhead J’s judgment in Obrascon v AG of Gibraltar. While they both looked at the condition precedent issues related to clause 20.1 of the FIDIC Conditions of Contract (in that case, the Yellow Book), Jonathan also considered the judgment’s potential impact on other standard form contracts (such as JCT and NEC3) and David highlighted some drafting points for both contractors and owners.
What neither considered (presumably because it did not arise in Obrascon, at least not in the judgment), is the possible impact that arguments related to waiver and estoppel may have on a condition precedent clause to rebut its finality.
As both Jonathan and David explained, a condition precedent clause like FIDIC’s clause 20.1 means that the contractor’s failure to give the required notice results in it losing its entitlement to an extension of time and/or additional payment. It doesn’t matter whether the contractor has a valid claim, that is just the way the English courts interpret a condition precedent. If you do not comply with the condition, tough. Some may argue that this approach is harsh, but it is fair, as the parties know what they are signing up for at the outset.
So, if certainty is the underlying issue for the parties (especially for the employer), the condition precedent clause should provide the desired degree of certainty. However, what happens when the contractor argues that despite its failure to comply with the condition precedent, the employer has either waived its right to rely on the clause or is otherwise estopped from relying on it?
You may say that waiver and estoppel have no place when it comes to interpreting a condition precedent clause, but is that right?
Waiver and estoppel
In a recent adjudication regarding an engineering dispute, I was asked to grant declaratory relief in circumstances where the parties’ sub-contract required the sub-contractor to give notice of an extension of time and/or claim for additional payment within seven days after it “became aware, or should have become aware” of the event giving rise to the claim. (This provision excluded variations, which were provided for elsewhere in the contract.)
The contractor’s argument went along the lines that, as with many condition precedent clauses, as the sub-contractor failed to give notice of its claim within that period (under clause 20.1), time should not be extended and additional payment would not be forthcoming (under clause 20.2).
I’m sure you will agree that this all seems fairly routine (although seven days is arguably very tight for the sub-contractor). However, where this case differed from many of the other condition precedent cases that have been referred to me over the years is in the sub-contractor’s arguments to say that it should still get more time and more money. Among other things, that the contractor:
- Was estopped from relying on the condition precedent clause on the basis of promissory estoppel (it agreed to adjust the contract price regardless of the provisions in clause 20.1).
- Had waived the notice requirements under clause 20.1 or waived its right to invoke clause 20.2 (there had been an election not to rely on those provisions).
Both of these arguments were fact-specific, as were the conclusions I reached. On the specific facts, at least one of the arguments was successful – I’ll let you speculate which one!
While my example demonstrates that there may be occasional circumstances when a party may find a “way-around” a condition precedent clause, the overwhelming message must still be that contractors and sub-contractors have to give the correct notices at the appropriate time. Even if it is possible to rely on established equitable means to overcome non-compliance with a condition precedent, making out such a case is far from easy and, I would suggest, potentially an expensive exercise, especially when compared with a situation where correct notices were given in the first place.
Akenhead J’s judgment in Obrascon may suggest that the courts are willing to soften their approach to what is otherwise the harsh reality of a condition precedent clause, but I wouldn’t put money on there being many circumstances when a waiver or estoppel argument succeeds.