Mangled by the machinery: notice provisions

How many contractors would be happy to sign up to a contract that required them to pay liquidated damages to the employer, even though that employer caused the delay to which they related?

Yes, that’s pretty much my thought. But that’s exactly what the result would be if the notice provisions in many standard form contracts were strictly enforced.

These provisions typically require the contractor to give notice of its intention to claim an extension of time within a specified period. If it fails to do so, and the provision is found to be an enforceable “condition precedent”, the claim will fail.

This means that, if the employer causes delay by failing to provide access and the contractor does not put its claim in on time, so that no extension of time is awarded, the contractor may end up paying liquidated damages for delays that the employer caused.

Is that fair? What really caused the delay? Was it the employer’s breach or was it the contractor’s failure to operate the contractual machinery when trying to bring a claim? Did the parties really intend this outcome when drafting the notice provisions?

There is also the tension between notice provisions and the “prevention principle”. This is the ancient rule that a party cannot insist on the performance of a contractual obligation when that party is the cause of the non performance. Yet, here, this is what the employer is doing.

One way of dealing with this tension is for courts or tribunals to find a way around the strict enforcement of notice provisions. This may explain why there are not many cases where a contractor is deprived of its ability to claim an extension of time solely on the basis of non-compliance with a notice provision.

So is the debate an academic one? If it is, there is good news for academics (and bad news for contractors) in the recent Scottish case of Education 4 Ayrshire vs South Ayrshire council. Here the contractor tried to claim an extension of time owing to the discovery of asbestos and the court was “minded to dismiss” the claim. (Instead of being actually dismissed, the case was “put out by order”, a Scottish procedure whereby the case is “returned” to the parties for further consideration.)

The court did this because the contractor got into a bit of a muddle with its notices. Notice was given under clause 17.1 of the relevant contract, when it should perhaps have been given under clause 17.6.1 as well. Also, the contractor said, “we will submit our full claim in accordance with clause 17.6 of the project agreement”, instead of saying something like “we hereby give notice of our claim”.

It was accepted that compliance with the notice requirements was a condition precedent to the right to bring a claim. The bad news for contractors is that the judge held that this condition precedent had not been complied with, despite the plain intention of the contractor’s letter.

Most articles on this point make the usual mutterings about getting notices right. This one is no exception. In Education 4 Ayrshire, the employer accepted that it was fully aware of the position regarding the asbestos, having received a report and attended a meeting about it. The employer also knew that a subcontractor had claimed an extension of time against the contractor as a result of the same event. Yet the judge still held the contractor to the letter of the contract regarding the provision of notices.

This was despite the fact that the basic commercial intention of the notice provisions had been satisfied. The employer suffered no prejudice as result of any muddle which the contractor may have got into.

Contractors should certainly be worried if decisions like this start to be handed down regularly by courts or tribunals that deal with construction matters. As for the prevention principle, had the case arisen from a delay caused by the employer’s own breach or act of prevention, as opposed to a neutral event, it would be turning in its ancient grave. For now, it can continue to rest in peace.