Tag:delays

By Jafar S. Khan, K&L Gates, Doha and Inga K. Hall, K&L Gates, London

The consequences for a contractor who delays in submitting an application for an extension of time, or who gets his payment application in late, can differ dramatically depending on the contract terms and also the governing law of the contract.

In order to ensure contractors submit their claims as they arise (rather than ‘roll them over’ to the end of a project) and to assist in efficient cash-flow management, it is common practice for both bespoke and standard form contracts to include express procedures for submitting claims for time, money or other relief. Provisions dealing with claims for an extension of time for example will frequently stipulate time limits for each of the following:

• the initial notification of the events giving rise to the claim,
• submission of particulars,
• a response/request for further particulars on behalf of the employer, and
• an assessment of what if any extension should be awarded.

What happens though if one of the parties does not complete the relevant action or step forming part of the procedure within the stipulated time?

This will depend first on what the contract says the consequences are to be. The usual practice in the standard forms mentioned above is to expressly provide that a failure to (say) submit the particulars of the claim strictly in accordance with the time period prescribed will invalidate the claim i.e the claim becomes “time barred”. Looked at in another way, such express provisions are seeking to make timely submission of the required particulars a condition precedent to recovery.

This raises the interesting question of whether such time bars are enforceable. On the one hand it would seem disproportionate to bar a substantial claim if a contractor was only one day late in filing its claim, but on the other hand, an employer might have made certain assessments as to liability and closed its position with respect to issues in relation to the events surrounding the claim. It would arguably be unfair to ignore the terms of the contract and permit the employer to continue to be exposed to claims.

The issue of enforceability will depend to a significant extent on the law of the contract. In common law systems such as the United Kingdom for example, clearly drafted time bars (such as those found in FIDIC sub-clause 20.1 and NEC3 clause 61.3) have in the past generally been enforced.

An issue which is however currently generating debate in the UK is how to properly assess the time period for first notifying an event. NEC3 clause 61.3 states that if the contractor does not notify a compensation event (i.e a variation) “within 8 weeks of becoming aware of the event, he is not entitled to a change in the Prices [or] the Completion Date”. FIDIC sub-clause 20.1 requires the contractor to give notice “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 [giving rise to the claim]”. Although both clearly state the condition precedent aspect of the timely giving of notice, the more difficult issue is when does that time start running?

There is frequently a delay between the time an event occurs, and when the effect of that event as giving rise to a claim is identified. Equally, for an ongoing event which spans several days or weeks (such as a prolonged period of bad weather), should notice be given on day one (on a ‘just in case’ basis even though the duration and effect of the event are unknown) or at the end of the event (which the effect is known but with the risk the employer will say you have given notice too late?). These were the type of issues considered by the UK courts in the 2014 case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar[1] where the court said the notice provisions should be construed broadly, meaning the time should be calculated from when the contractor became aware (or should have become aware) of the delay, rather than from the date of the event itself.

Across the common law jurisdictions, the hardest line against time bars is taken in Australia, with the 2012 decision in Andrews v Australia and New Zealand Banking Group Ltd[2] that such time bars can be unenforceable as penalties.

The approach in civil code jurisdictions such as the GCC generally take the middle ground.

The UAE Civil Code neither expressly prohibits time bars nor enforces them.

Instead, prescribed time periods need to be read in the context of certain provisions of the UAE Civil Code including:

• Article 106 – prohibiting the exercise of rights if the desired interest or result is disproportionate to the harm that will be suffered by the other party;
• Article 246 – requiring the parties to act in good faith; and
• Article 249 – prohibiting a party from exercising its rights in a manner that is oppressive or abusive

These provisions, read together, have the effect of meaning that time bars are neither expressly permitted nor expressly prohibited under UAE law. Instead, consideration will be given to matters which under common law are considered as being “equitable principles” such as whether the parties were acting in good faith, whether the actions are oppressive or unconscionable, and whether the benefit enjoyed by one party will be disproportionate to the harm suffered by the other party. Although such an approach is to be commended, since it ensures that a party is prevented from unnecessarily abusing its position under the contract, it does mean that the terms of the contract may be ignored in some instances. It is not clear as to the frequency at which courts in the UAE are willing to intervene and override the express terms of the contract, and this is an area we are continuing to monitor with interest.

Of course, a different scenario arises if a clause is silent on the consequences of a failure to submit a claim strictly in accordance with the time period prescribed by the construction contract. The question then becomes whether a time bar is implied when the prescribed steps to making a claim are not followed. One of the leading authorities on time-bars is Brember Handels GmbH v Vanden Avenne Izegem PVBA[3], HL which is authority for the proposition that, for a notice requirement clause to be a condition precedent, the clause must state the precise time for service and make it plain by express language that unless the notice is served within that time, the party required to give notice will lose its rights under that clause. Hence the conclusion should be that time bars will never be implied. However notably Jackson J in Multiplex Construction (UK) Ltd v Honeywell Control Systems[4] permitted a time bar to be implied despite the contract being silent on the matter. Some commentators however have suggested that a clear intention for a condition precedent is required, and that the decision in Multiplex can be distinguished on the basis of the Prevention Principle. Although there is no clear guidance in the UAE on whether a UAE court would be willing to view notice requirements as a condition precedent without clear words to that effect, in our view the UAE courts do not follow the principles which are equivalent to those in Brembar but instead weigh up the circumstances of each case and determine the fairest approach.

[1] [2014] EWHC 1028 (TCC)

[2] (2012) 290 ALR 595

[3] [1978] 2 Lloyd’s Rep 109

[4] [2007] EWHC 477 (TCC)