In a recent article in Building (13.9.19), a recent case in the High Court in Hong Kong highlighted how important it is to comply with any conditions precedent to making a claim. These are often found in construction contracts, and make certain rights conditional upon their satisfaction. These are typically giving formal notice – not verbally or by an email, but via a contractual letter – within a certain timescale, and usually following up with the particulars of the claim so many days thereafter. Whilst these requirements are not specifically highlighted as ‘conditions precedent’, the courts have interpreted them as such, especially where the consequences of failing to comply are clearly set out in the contract. If we look at FIDIC Clause 20.1, this provides that the contractor must give notice to the engineer for any claim that is related to any extension of the time for completion and/or any additional payment “as soon as practicable”, and within a time limit of 28 days after the date on which the contractor “became aware, or should have become aware, of the relevant event or circumstances”. If he fails to give notice within this period, the FIDIC contract states that the contractor will not be entitled to any extension of time or additional payment, and the employer will be discharged from any liability in relation with the said claim. Now this might not be new to many, and indeed is now quite commonplace, but nevertheless it is surprising how often these essential notices are overlooked.
The angle that the recent case of Maeda Corporation & China State Construction Engineering vs Bauer Hong Kong 2019 raised was to consider what the condition precedent requires of the contractor, rather than whether it actually was one. In this subcontract, two notices of claim for extra time and money were required to be served by the subcontractor – a notice of intention to claim, followed within 28 days by details including the contractual basis. Bauer, who was the diaphragm walling subcontractor for this tunnelling project, submitted a claim in compliance with this, but also submitted an alternative claim which had not been trailed in its notices. This is common when we are trying to work out what is the best strategy to secure additional time or money, and where there are a number possible routes under the contract. This was all referred to an arbitrator, who rejected the initial basis of the claim, but then went on to consider the alternative claim. The arbitrator decided that the contractual basis of this claim did not need to be the same as trailed in the notice, as it would have been unrealistic for the subcontractor to have fully thought this through when the second notice was written. This went to appeal, where the judge disagreed and concluded that the arbitrator has failed to take into account the express terms in the contract which needed to be strictly complied with, including the contractual basis. This means that a contractor needs to have fully particularised the claim, evaluated its impact, and explained its contractual basis, all within a maximum of 28 days of flagging this claim to its employer – a tough ask for many substantial variations or claims. It seems that this is an evolving area of case law, as an earlier case in 2014 had concluded the opposite. Either way, it is an area that all parties should be wary of when signing or delivering construction projects.
Karen Cherrill – Director Kingsfield Consulting