Navigating Time Bars in International Legal Contexts: Challenges and Strategies

In most formal contracts, the contractor must give notice of various matters before being eligible for extensions of time and compensation for loss. As Jeremy Glover discusses, depending on its terms, such a provision may be considered a condition precedent. If not adhered to, this could result in the loss of your right to make a claim.

Increasingly, it can be observed that clauses are being articulated as prerequisites. Put simply, a failure to adhere to the stipulations of the clause will lead to a party being barred from asserting a claim that would otherwise be valid.

The traditional view at common law

Generally, in the UK the courts will take the view that timescales in construction contracts are directory rather than mandatory,[1] unless that is, the contract clause in question clearly states that the party with a claim will lose the right to bring that claim if it fails to comply with the required timescale. In the case of Bremer Handelgesellschaft mbH v Vanden Avenne Izegem nv the House of Lords held that a notice provision should be construed as a condition precedent, and so would be binding if:

(i) it states the precise time within which the notice is to be served; and

(ii) it makes plain by express language that unless the notice is served within that time the party making the claim will lose its rights under the clause.

Here, sub-clause 20.1 expressly makes it clear that:

“If the contractor fails to give notice of a claim within such period of 28 days, 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 in connection with the claim.”

Further the English courts have confirmed their approval for conditions precedent, provided they fulfil the conditions laid out in the Bremer case. For example, in the case of Multiplex Construction v Honeywell Control Systems, Mr Justice Jackson (as he then was) held that:

“Contractual terms requiring a contractor to give prompt notice of delay serve a valuable purpose; such notice enables matters to be investigated while they are still current. Furthermore, such notice sometimes gives the employer the opportunity to withdraw instructions when the financial consequences become apparent.”

The civil law approach

The position of time bars in construction contracts in civil law countries is different. Unlike common law, where non-adherence to a time bar provision may render a contractor’s claim invalid, many, but not all, civil codes may, take a more lenient approach.

Primarily, parties are to perform their obligations under the contract. To take the example of the UAE, Article 243 (2) of the UAE Civil Code states:

“With regard to the rights (obligations) arising out of the contract, each of the contracting parties must perform that which the contract obliges him to do.”

Further Article 265 (1) of the UAE Civil Code deals with contract interpretation and states:

“If the wording of a contract is clear, it may not be departed from by way of interpretation to ascertain the intention of the parties.”

From the above and in the absence of any other circumstances, the contractor may be required to conform with any time bars in the construction contract. However, in circumstances where it appears that the strict interpretation and imposition of the time bars would seriously prejudice the contractor, the contractor may rely on certain provisions of the UAE Civil Code to argue a more lenient approach be adopted. These include:

Good faith obligation

Article 246 (1) states, “The contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith.”

So for example, if an employer was made aware of the contractor’s intention to claim in such manner, the employer could be seen as acting in bad faith if he later argues that the contractor did not meet the contractual timeframe. Alternatively, a time bar provision may not be relied upon by an employer in circumstances where he is in breach and was fully aware that his breach would cause delay to the project.

Unlawful exercise of rights

Article 106 provides that the exercise of a right shall be unlawful if it is disproportionate to the harm suffered by the other party. In particular, Article 106 (1) states:

“A person shall be held liable for an unlawful exercise of his rights.”

Further Article 106 (2) (c) provides:

“The exercise of a right shall be unlawful: (c) if the interests desired are disproportionate to the harm that will be suffered by others.”

In view of the above and subject to the circumstances of the particular case, it may be unlawful for the contractor’s otherwise meritorious claim to be disallowed on the basis of a purely technical breach. Therefore, the employer's reliance on the technical breach may be seen as an unlawful exercise of his rights.

Unjust enrichment

Articles 318 and 319 provide that unjust enrichment is unlawful. Particularly, Article 318 of the UAE Civil Code states:

“Any person who acquires the property of other person without any disposition vesting ownership must return it if that property still exists, or its like or the value thereof if it no longer exists, unless the law otherwise provides.”

Therefore, an employer may be prevented from relying on a time bar provision to avoid payment to the contractor for works performed and for works from which the employer has benefitted particularly if the only reason for withholding payment is the lateness of the contractor’s claim.

However, as with the common law, everything depends on the circumstances of the case. That said, courts in the UAE would be reluctant to uphold strict terms of the contract where it can be seen that either the requirement for a notice was complied with in a different form or that strict imposition of the time bar would be an unlawful exercise of the employer’s rights or cause unjust enrichment.

As noted above, the position can vary from code to code. To take another example: article 2 of the Turkish Civil Code imposes an obligation of good faith, and Article 77 provides that unjust enrichment is unlawful. However, the Turkish Courts tend to take a strict view on time bars by virtue of Article 193 of the of Civil Code,[4] which provides that a party may not initiate a claim in a manner which is not set down in the contact or which is against the manner set out in the contract.

Are there ways round the condition precedent?

Is there the possibility that a DAB or arbitral tribunal might decline to construe the time bar as a condition precedent, having regard to the particular circumstances of the matter before it and the impact of the applicable Law?[5] On the strict wording of the Contract, the answer is no and contractors should always try and work on this basis.

That said, it is often suggested that in civil code jurisdictions it can be possible to raise a successful challenge to time bars under the mandatory laws of that country on the basis of the time bar being contrary to the notion of good faith[6] or some other similar legal principle. For example, it has been suggested that a German court might interpret the contractor’s duty to give notice not as a condition precedent to give notice but an obligation (“obliegenheit”) of the contractor. This would mean that the contractor does not lose the right to make a claim but that the contractor must prove that his claims are valid and are not affected by his failure to meet his notice obligation in time.[7]

The general point being that it is wrong that a party who has genuinely suffered a loss might be prevented from bringing a claim in respect of that loss for a technical procedural breach. Remember Article 246(1) of the UAE Civil Code says that:

“The contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith.”

Indeed most civil codes contain a provision confirming the importance of what has actually been agreed between the parties.

The Scottish case of City Inn Ltd v Shepherd Construction Ltd For More related content suggests that there may well be certain ways round the condition precedent. The core element of the dispute was whether or not the contractor was entitled to an extension of time of 11 weeks and consequently whether or not the employer was entitled to deduct LADs. Clause 13.8 (of the JCT form of Contract) contained a time bar clause, requiring the contractor to provide details of the estimated effect of an instruction within ten days.

However, the Scottish courts noted that the Architect and employer had the power, to waive or otherwise dispense with any procedural requirements. This was what happened here. Whilst the employer (in discussions with the contractor) and the Architect (by issuing delay notices) both made it clear that the contractor was not entitled to an extension of time, neither gave the failure to operate the condition precedent at clause 13.8 as a reason.

The point made by the Judge is that whilst clause 13.8 provided immunity, that immunity must be invoked or referred to. At a meeting between contractor and employer, the EOT claim was discussed at length. Given that the purpose of clause 13.8 was to ensure that any potential delay or cost consequences arising from an instruction was dealt with immediately, the Judge felt that it would be surprising if no mention was made of the clause unless the employer, or Architect, had decided not to invoke it. Significantly, the Judge held that both employer and Architect should be aware of all of the terms of the contract. Employers and certifiers alike should certainly therefore pay close attention to their conduct in administering contracts in order to avoid the potential consequences of this decision.

The Inner House agreed with Lord Osbourne saying:

“silence in relation to a point that might be taken may give rise to the inference of waiver of that point. In my view, that equitable principle can and should operate in the circumstances of this case.”

A new approach under common law?

In April 2014 Mr Justice Akenhead had to consider a case arising from disputes relating to a project to build a tunnel at Gibraltar airport. The case, Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar, was unusual because the contract in question was in the FIDIC Form. Usually disputes under the FIDIC Form are heard in private, in arbitration proceedings. Needless to say the case raised a number of interesting issues, not least about the sub-clause 20.1 condition precedent.

Amongst a number of claims, OHL sought an extension of time of 474 days. The Judge decided that the contractor, OHL was entitled to no more than seven days extension of time (rock and weather). However, this was subject to compliance with sub-clause 20. It was accepted by OHL that sub-clause 20.1 imposed a condition precedent on the contractor to give notice of any claim. The Judge held that properly construed and in practice, the “event or circumstance giving rise to the claim” for extension must occur first and there must have been either awareness by the contractor or the means of knowledge or awareness of that event or circumstance before the condition precedent bites. Importantly Mr Justice Akenhead said that he could 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 for instance for breach of contract by the Employer.”

Conclusion

There are a number of steps parties can take to avoid the adverse effects of time bars. They include the following:

(i)?? Parties should take care when concluding contracts to check any time bar clauses governing claims they might make;

(ii)? Parties should appreciate the risks they then run of not making a claim (even if to maintain goodwill) unless the other party agrees to relax the requirements or clearly waives them. This is perhaps especially the case where time bar clauses, if cautiously operated, may generate a proliferation of claims;

(iii)? Remember that the courts see the benefits of time bar provisions and support their operation. A tribunal might bar an entire claim for what seems like a technical reason by which time it will usually be too late to make a new, compliant claim; and

(iv)? Indeed even where the contract contains a clause such as sub-clause 20.1(a) of the FIDIC Gold Book 2008, potential claimants should not necessarily rely upon the other party already having the information they are required to provide.

Equally those considering making claims, should consider the following:

(i)??? When is notice required?

(ii)?? Who has to give notices?

(iii)? To whom should notice be given?

(iv)? In what form must the notice be given?

(v)?? What information must be provided with the notice?

(vi)? What are the response times?

(vii)? Are there any continuing notice obligations?

(viii) Is there an agreement in place not to serve notices?

(ix)?? What happens if you fail to serve a notice?

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The information provided herein is for general informational purposes only and does not constitute legal advice. While we strive to keep the content accurate and up-to-date, it may not reflect the most recent legal developments or specific circumstances. Always consult with a qualified legal professional before making any decisions based on the information provided.