12 June 2019

Construction contracts: Courts uphold killer time limits for notices

Since the introduction of NEC contracts, we have seen a rise in the popularity of clauses referred to by lawyers as a “condition precedent”. Basically, this is a clause requiring (in most cases) a contractor or sub-contractor to notify a claim, along with its contractual basis and particulars, within a specific time limit. If they fail to comply, they will not be entitled to any remedy but will be required to carry out any additional work.

This issue was addressed by the Hong Kong High Court in Maeda and China State v Bauer in April 2019.

In that case, the sub-contractor, Bauer, notified a variation (typically additional work). However, the contract also provided:

“21.2 If the Sub-Contractor wishes to maintain its right to pursue a claim for additional payment or loss and expense under Clause 21.1 the Sub-Contractor shall as a condition precedent to any entitlement, within twenty-eight (28) Days after giving of notice under Clause 21.1, submit in writing to the Contractor;

21.2.1 the contractual basis together with full and detailed particulars and the evaluation of the claim…”

The issue here related to the words “the contractual basis” at 21.2.1. 

Having notified the variation, the matter proceeded to arbitration and Bauer submitted an additional claim under Clause 21.2 to cover its loss and expense (the variation claim only covering its additional cost in relation to the additional work). 

The issue was whether the notification of the variation was sufficient to comply with 21.2. 

The matter went first to arbitration. The Arbitrator clearly had some sympathy with Bauer’s position and found that notification had been given; it was not critical that the full legal basis of the claim had not been set out.

The matter was appealed and the Court disagreed with the Arbitrator’s finding. In particular, the Court was of the view that Clause 21.2.1 required a claimant to give details of the contractual basis of the claim and this had not been provided in relation to loss and expense when Bauer notified the variation.

This is a harsh decision for contractors and sub-contractors, as it seems that now not only must claims be notified within strict time limits, but the legal basis of the claim must also be notified - a tall order for the site team. 

For more information and advice on construction contracts, please do not hesitate to contact Sarah Wilson on +44 (0)113 831 392 or email sawilson@shulmans.co.uk.