by Chris Larkin
Many construction contracts require the contractor to give notice to the employer if it wishes to claim additional costs or extensions of time. Some contracts make the provision of these notices a condition precedent to the contractor’s entitlement.
The aims of such a clause are to promote proper management of the event by both parties and enable the employer to make informed decisions to avoid or mitigate the effects. Even on well-managed projects, however, such notice requirements are not always met. A failure to comply with a condition precedent notice provision can have serious consequences for the contractor. It can also leave the employer with a dilemma as to how to deal with a claim in the absence of a properly submitted notice.
A number of the FIDIC forms of contracts, which are used for many projects in the region, contain such a condition precedent notice provision. Clause 20.1 of FIDIC’s design and build contract, the Yellow Book, states: “If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment … the Contractor shall give notice to the Engineer. 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 … 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.”
FIDIC’s Silver Book, for turnkey contracts, and its 1999 version of the Red Book, contain almost identical provisions. At first sight, the words of this clause might appear clear with little room for argument if the notice is late or if no notice is given. Think again.
First, let’s consider the 28-day period. There are two methods of determining when the clock starts ticking. The first is an objective test of when “the Contractor became aware … of the event”. This should not provide too much difficulty as the precise date should be easily identified from site records, diary notes and correspondence. The second method presents more of a problem since it requires a subjective assessment of when the “Contractor … should have become aware of the event”. This will no doubt lead to an argument if the contractor’s entitlement turns upon the date that the employer considers the contractor should have become aware of an event.
You might think that if the contractor fails to give a notice at all then that is the end of the matter and there is no entitlement. Well, maybe not. Article 287 of the UAE Civil Code says: “If a person proves that the loss arose out of an extraneous cause in which he played no part, such as a natural disaster, unavoidable accident, force majeure, act of a third party, or act of the person suffering the loss, he shall not be bound to make it good in the absence of a legal provision or agreement to the contrary.”
A contractor might seek to rely upon this provision despite not submitting a notice and in some circumstances it might succeed. Consider this situation: the employer delays the contractor but the contractor fails to issue a notice and so is unable to obtain an extension of time. The employer would then apparently be entitled to recover delay damages in respect of the delay it had caused. Article 287 could be interpreted to give the contractor a defence in such circumstances.
This type of situation has been considered in cases outside of the UAE. Whilst such decisions will have little bearing on disputes under UAE law, they illustrate that courts and arbitrators will seek to overcome a potential unfairness to the contractor.
In the Australian case of Gaymark Investments v Walter Construction Group (1999) NTSC 143, the court upheld the arbitrator’s decision that the contractor should not be liable for damages as a result of delays caused by the employer, despite not issuing a mandatory notice. In this case, the arbitrator considered that the contract made no provision for instances where the employer caused the delay and the contractor gave no notice. The arbitrator considered that in the absence of such a provision the employer could not recover liquidated damages for any period of delay which was caused by the employer. This situation would not arise if the engineer or employer’s representative had the power to award extensions of time in the absence of a notice from a contractor. Some standard forms that did not give such a power have been amended to do so, but not the FIDIC forms.
The US courts have taken a number of different approaches to tackle this situation. If the employer has actual knowledge of the event and that it would cause additional cost and/or delay then the courts might deem a notice as unnecessary. Even in the absence of a notice and actual knowledge, the courts might consider a notice as redundant if the employer was not prejudiced by the contractor’s failure to issue a notice. Another approach the US courts have taken to overcome this difficulty is by determining that the employer has waived the notice requirement.
The situation could be somewhat different where the event causing the additional cost or delay is beyond the control of either party but, under the contract, is allocated as an employer’s risk.
It could be argued that the contractor’s failure to give a notice transfers the responsibility for the risk from the employer to the contractor. This approach would not necessarily lead to any unfairness to the contractor and could leave the contractor without an Article 287 defence.
Contractors should assume that the notice requirements will be enforced against them and should aim to comply strictly with notice requirements. Despite this, employers should be cautious of dismissing contractor’s claims solely on the basis that the contractor failed to satisfy the notice requirements.
Source: Construction Week