Conditions precedent in building contracts

There was a time when conditions precedent featured in very few building contracts. Now they can be found in almost every building contract in relation to parties’ rights to claim additional time and money. 

Before reviewing a recent judgment on conditions precedent from the High Court of Hong Kong, Maeda Corporation & China State Construction Engineering vs Bauer Hong Kong [2019] HKCFI 916, it is useful to recap on what is a condition precedent and its effect.

The arbitrator concluded that the contractual basis advanced in the arbitration did not need to be the same as that contained in the notice

Conditions precedent can be of different types. There can be a condition precedent to an agreement coming into effect – so there is no agreement until that condition is satisfied or waived. If work has been done in the meantime there may be restitutionary remedies such as quantum meruit, but these would be outside the contract itself.

There are also those conditions precedent that do not prevent a contract coming into effect but make certain rights conditional  upon their satisfaction. It is this type that is the most prevalent in the construction industry. 

In the past few years the main focus for conditions precedent has been on a contractor’s claim for extensions of time and additional money. This is the clause in the contract which provides that the contractor must give a particular form of notice within a stipulated time frame and, if it fails to do so, the contractor will have no contractual right to an extension of time and/or more money. The issuing of such a compliant notice is therefore a condition precedent to the right to time and/or money. 

Many court decisions have considered when the wording of a particular clause makes it a condition precedent. They have become the norm and enforceable where they clearly stipulate the consequences of a failure to comply.

On appeal the judge disagreed and found that the arbitrator had been wrong to allow the defendant’s alternative claim into the arbitration

Waiver and estoppel due to previous conduct or dealings continue to be potential defences to the enforcement of these conditions. However, waiver/estoppel is often the last ground of defence once the interpretation or scope of the condition precedent has been dealt with. 

As conditions precedent have become the norm, the focus has shifted to what the condition precedent requires of a party, rather than whether it is a condition precedent in the first place. 

This was the focus in the recent Maeda vs Bauer case. This was an appeal against an arbitrator’s award, claiming that the arbitrator was wrong in law in his findings as to whether there had been compliance with conditions precedent regarding notices of claim. 

The case concerned tunnels being constructed for the Hong Kong to Guangzhou Express Rail Link. Bauer was the diaphragm walling subcontractor. The subcontract required, as do many contract forms, two notices of claim: the first one was a “notice of intention” to claim for extra money or time within 14 days of the relevant event; the second was to be given within 28 days of the first notice and provide the “contractual basis together with full and detailed particulars and evaluation of the claim”.

Bauer had given notice of a variation arising from a change in quantity and quality of rock excavation, which was then referred to arbitration. In the arbitration Bauer also advanced an alternative claim, under the unforeseen physical conditions clause, which had not been trailed in its notices. The arbitrator rejected the variation claim and then proceeded to determine the alternative claim on a different legal basis to that set out in its notices. 

The second notice of claim was required to contain “the contractual basis together with full and detailed particulars and the evaluation of the claim”. The arbitrator concluded that the contractual basis advanced in the arbitration did not need to be the same as that contained in the notice, as to expect a party to finalise its legal basis for a claim at that stage was unrealistic. 

On appeal the judge disagreed and found that the arbitrator had “failed to pay heed to the express terms which included a statement that the provisions had to be strictly complied with”. On that basis she found that the arbitrator had been wrong to allow the defendant’s alternative claim into the arbitration. 

A different approach was taken in Obrascon Huarte Lain SA vs Her Majesty’s Attorney General for Gibraltar [2014], where Mr Justice Akenhead found with reference to a FIDIC (First Edition) Clause 20.1 condition precedent: “I see no reason why this clause should be construed strictly against the contractor and can see reason why it should be construed reasonably broadly given its serious effect on what could otherwise be good claims.” There the notice requirement was to give “full supporting particulars of the basis of the claim”. It is notable that the 2017 FIDIC form has tightened the wording such that the second notice of claim must now contain “a statement of the contractual or other legal basis for the claim”. Given the effect of such clauses, Maeda is unlikely to be the last word on the matter.

Lindy Patterson QC is a barrister, arbitrator and adjudicator at 39 Essex Chambers