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03/06/24

The big cat that got the cream!

The big cat that got the cream!

In the recent case of Panther Real Estate Development LLC v Modern Executive Systems Contracting LLC,[1] the Dubai International Financial Centre (“DIFC”) Court of Appeal revisited the question as to when a Sub-Clause 20.1 notice should be served under FIDIC 1999 editions.


Author: Carl Simms, Associate Director, Blackburn, UK


A detailed analysis regarding the appropriate timing for issuing a Sub-Clause 20.1 notice had previously been examined by Mr Justice Akenhead in Obrascon Huarte Lain SA v Attorney General for Gibraltar.[2] Briefly, in that case, Mr. Justice Akenhead did not interpret Sub-Clause 20.1 strictly to the detriment of the Contractor. He believed that Sub-Clause 20.1 should be interpreted in a reasonably broad manner, considering its significant impact on potentially valid claims, such as those for breach of contract by the Employer. It would be fair to say that many commentators were surprised by the approach taken by Mr. Justice Akenhead regarding actual delay. However, his rationale was evident: Sub-Clause 20.1 deserves a reasonably broad interpretation due to its impact.

In Panther, the Contractor (Modern) argued that it did not have to give 28-days' notice until the critical delay had started, relying on the interpretation of Sub-Clause 20.1 by Mr Justice Akenhead in Obrascon.[3] Regarding the 28-day notice stipulation, the Court of First Instance determined that the timeframe commenced from the moment the Contractor became aware, or reasonably should have become aware, of an event or circumstance potentially leading to an extension of time claim. This was irrespective of whether any actual delay had occurred by that point. In adopting this perspective, the judge, Sir Richard Field, acknowledged the possibility of diverging from the interpretation of Sub-Clause 20.1 as articulated by Mr. Justice Akenhead in Obrascon. The DIFC Court of Appeal affirmed that the 28-day notice prerequisite is triggered when the Contractor becomes aware (or should reasonably have become aware) not of the delay or anticipated delay, but rather of the event or circumstance prompting the claim for an extension of the Time for Completion.

The decision is a brutal one for contractors who fail to keep up with the contractual administration burden of notices. Yet, there is light, and in the third paragraph of Sub-Clause 20.2.2 of the FIDIC 2017 editions, allowances may be made where there are circumstances which justify the late submission of the notice, recognising the injustice of striking out claims due to late notice served with reference to Sub-Clause 20.1 of the FIDIC 1999 editions.

Whilst The FIDIC Contracts Guide (First Edition, 2000) does not comment directly on the effect that such wording may have on the Contractor, the FIDIC 2017 Contracts Guide (Second Edition 2022) does. It states:

Although the sanction for failing to comply with the 28-day time limit may seem disproportionately harsh, and perhaps unfair to the claiming Party, it has been drafted by FIDIC to ensure that the claiming Party is incentivised to give a Notice of Claim as soon as possible after the event/circumstance has occurred. This is in order that the Engineer under the RB2017/YB2017 … has the maximum opportunity to investigate the event/circumstance and, most importantly, the effects of the event/circumstance on the Works and/or on the claiming Party at the time that the event/circumstance happened, or as soon as possible thereafter; and in the context of both Parties' performance of their rights and obligations under the Contract at that particular time….[4]

In the FIDIC 2017 editions this is tempered by the possibility of waiver of the time-bar if late submission is justified.[5]

However, the advice remains the same, if in doubt: Send a notice. Contractors must recognise the importance of notices, and their timing, from the beginning of the project. Under the FIDIC 2017 Contract Guide,[6] both parties are advised:

… not to regard the claiming Party's Notice of Claim as an aggressive act which must be rebutted, but merely as an act which enables him/her to be aware of the claiming Party's intention to claim more time and/or money. Although the recipient of a Notice of Claim should draw attention to any factual errors in the Notice of Claim, the absence of any rebuttal should not be taken as any indication of agreement.


What is a notice? And why are they so important?

Notices are a requirement in many contracts and specific clauses are drafted where the parties to a contract are obligated to notify one another in certain circumstances. These clauses are very important, although they are often not properly appreciated.

According to Christopher R Seppälä, the main purpose of a notice of claim is to alert the Engineer and the Employer that a claim exists that may result in an additional payment or an extension of time.[7] It can also be said that notices also serve a softer purpose – they encourage effective communication between parties. They provide the parties a chance to raise issues formally and elicit a response that would otherwise have been avoided or overlooked by the other party.[8]

Issuing your Notice

Before a notice can be issued, it is important to review the contract and determine which clause(s) relate to the matter at hand and whether there is a prerequisite to an entitlement to time, money, or both (Sub-Clause 20 [Employer’s and Contractor’s Claims] and Sub-Clause 20.1 [Claims]).

Under FIDIC 2017, Sub-Clause 20.2.1 [Notice of Claim] stipulates that the party making a claim must provide a notice of the claim to the Engineer. This notice, referred to as the 'Notice of Claim’ and it is required to be submitted as soon as it is practical and no later than 28 days after the claiming party became aware, or should have become aware, of the event or circumstance.

What is a good notice?

Sub-Clause 20.2.1 [Notice of Claim] stipulates that the 'Notice of Claim,' should describe the event or circumstance that led to the claim. The content of the Notice of Claim does not necessitate specifying the legal or contractual foundation of the claim at this juncture. Such details, including the contract Sub-Clause under which the claim is asserted, should be integrated into the comprehensive claim as per Sub-Clause 20.2.4 [Fully detailed Claim].

Notices of Claim under Sub-Clause 20.2.1 must adhere to the stipulations outlined for any notice in Sub-Clause 1.3 [Notices and Other Communications]. Apart from being in written form and meeting other formalities specified in that Sub-Clause, the Notice of Claim must clearly indicate itself as a formal notice and be delivered using one of the prescribed methods.

Even a trivial mistake when submitting a notice can cause problems later for the claiming party. Therefore, it is vitally important that when serving a notice, the relevant contractual requirements are met. Whilst there is no particular form called for, a notice must be must be in writing [Sub-Clause 1.3], describe the event or circumstance [Sub-Clause 20.2.1], and be intended to notify a claim for extension of time and/or additional payment under or in connection with the Contract [Sub-Clause 20.2.1].[9] The description should provide sufficient detail for both the Engineer and the Employer to grasp the fundamental aspects of the issue and take appropriate measures to address it or anticipate any potential time and/or financial implications.[10]

Whilst a Contractor may not be able to identify specific impacts at the time of drafting a notice, by issuing one a Contractor protects its position. This may entitle it to relief, should a delay flow from the notified event. A Contractor will not automatically be entitled to any relief if an event that is likely to cause delay or increase the Contract Price is not notified.

Be aware of condition precedent provisions

In contract law a condition precedent is a legal term to describe when a condition(s) must be satisfied before another part of the contract can take effect.

Sub-Clause 20.2.1 states that:

The claiming Party shall give a Notice to the Engineer, describing the event or circumstance giving rise to the cost, loss, delay or extension of DNP for which the Claim… .

Under FIDIC 2017, the submission of a valid Notice of Claim is a condition precedent for making a claim. A failure to give such a notice will result in a loss of entitlement to make a claim.

Notice periods

If a time period is prescribed and is written in conjunction with a sanction (as is the case under Sub-Clause 20.2.1), such as a waiver of right to claim time or money, they are referred to as a ‘time bar’ clause.

Sub-Clause 20.2.1 states that:

The claiming Party shall give a Notice to the Engineer, […] as soon as practicable, and no later than 28 days after the claiming Party became aware, or should have become aware, of the event or circumstance […].

If the claiming Party fails to give a Notice of Claim within this period of 28 days, […] the other Party shall be discharged from any liability in connection with the event or circumstance giving rise to the Claim.

The result, in practice, means that if a notice is not sent within the timescale prescribed, the claiming party will not have fulfilled a condition precedent to claim. Therefore, a Contractor may lose their rights to claim time, money or both for that event.[11]

Why are time bar clauses used?

The intention of a time bar clause(s) is to improve the administration and management of contracts. Setting a notice deadline for the claimant ensures that the other party is notified at an early stage. This gives the party time to evaluate the issue and take steps to mitigate any potential impacts on the project.

Time bar clauses are also designed to prevent a build-up of claims during a project, the cumulative effect of which can result in a costly legal battle towards the end of a project. These clauses encourage the contracting parties to co-operate and act in a timely and transparent manner, addressing issues as soon as one party becomes aware of them.[12]

A failure to serve a required notice within the specified period will, in theory, time bar the claimant from claiming any extension of time or additional payment.[13]

However, all may not be lost, the FIDIC 2017 Contracts Guide (Second Edition 2022) states that:

It is important to note that, even if a Notice is given under this Sub-Clause by the Engineer [to notify the party making the claim that the claim is time-barred] […] the claiming Party is entitled to continue to pursue his/her Claim, even if he/she disagrees with such Notice or if he/she 'considers there are circumstances which justify late submission of the Notice of Claim' […] In that case, the last paragraph of [Sub-Clause 20.2.2.] entitles the claiming Party to proceed by submitting his/her 'fully detailed Claim' […] but requires him/her to include with that submission the 'details of such disagreement or why such disagreement or why such late submission is justified (as the case may be)'. This means that any challenge by the claiming Party to the time-barring of his/her Claim by the Engineer/other Party, must be taken into consideration when the Claim is being agreed/determined under Sub-Clause 20.2.5 […] which also includes three types of circumstances which may be taken into account […].[14]

In such instances, Panther’s bite would be somewhat softened, and Contractor’s could potentially avoid the brutality of the decision.


Conclusion

Review the contract and identify the Sub-Clause(s) which you want to rely on for an extension of time and/or additional payment (strictly speaking there is no requirement to reference any Sub-Clause in a Notice of Claim, but it is good practise to at least understand your basis of entitlement under the provisions of the contract).

Draft the notice in accordance with what is prescribed by the contract and ensure it contains the relevant detail that you wish to rely on later when submitting a claim under Sub-Clause 20.2.4 [Fully detailed Claim].

Submit the notice within the timescales prescribed in the contract [Sub-Clause 20.2.1].

If an event evolves, update the notice when more information becomes available. Alternatively, issue a new Notice of Claim. If a claim has a continuing effect this should be dealt with as part of the claim submission under Sub-Clause 20.2.4 [Fully detailed Claim] and Sub-Clause 20.2.6 [Claims of continuing effect].

If an event impacts the project, following these key steps above should ensure you have implemented the right measures to pre-empt challenges. This will protect your rights, and if established in a transparent manner, this approach should facilitate a collaborative resolution.

Should you require any further information, or if you have any comments or concerns that you would like to discuss, then please contact Carl at carl.simms@diales.com.


[1] [2022] DIFC CA 016.

[2] [2014] EWHC 1028 (TCC).

[3] Obrascon Huarte Lain SA v Attorney General for Gibraltar at [313-315].

[4] FIDIC 2017 Contracts Guide (Second Edition 2022), page 504.

[5] FIDIC 2017 Contracts Guide (Second Edition 2022), page 506.

[6] FIDIC 2017 Contracts Guide (Second Edition 2022), page .506

[7] Contractor’s Claims Under the FIDIC Contracts for Major Works’, (2005) 21(4) Construction Law Journal 278, p 287

[8] Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No. 2) [2007] EWHC 447 (TCC) at [103]

[9] Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC) at [313 and 315 (a)]

[10] Adapted from Gabriel Mulero Clas, ‘Clause 20 Employer’s and Contractor’s Claims’, FIDIC 2017 A Practical Legal Guide (2020), page 491–92.

[11] Bremer Handelgesellschaft mbH v Vanden Avenne Izegem NV [1978] 2 Lloyd’s Rep 109.

[12] Adapted from Hamish Lal, ‘The Rise and Rise of Time-Bar Clauses for Contractors’ Claims: Issues for Construction Arbitrators’, Society of Construction Law Paper 142 (September 2007), p 4.

[13] Multiplex Construction v Honeywell Control Systems [2007] EWHC 447 (TCC); WW Gear Construction Ltd v McGee Group Ltd [2010] EWHC 1460; Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014] EWHC 1028 (TCC).

[14] FIDIC 2017 Contracts Guide (Second Edition 2022), page 507.

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