NH International (Caribbean) v National Insurance Property Development Company

[2015] UKPC 37

Under sub-clause 2.5 of the standard FIDIC form, an Employer who “considers itself to be entitled to any payment under any” clause of this contract should, subject to certain specified exceptions (such as cost of electricity), “give notice and particulars to the Contractor ... as practicable after the Employer became aware of the event or circumstances giving rise to the claim”. The sub-clause ends by noting that the Employer should only be entitled “to set off against or make any deduction from an amount certified in a Payment Certificate, or to otherwise claim against the Contractor, in accordance with this sub-clause”. Here the Privy Council had to consider an arbitrator’s decision where the arbitrator had allowed certain counterclaims which were put forward as “common law rights of set-off and/or abatement of legitimate cross-claims”. NHIC had said that they were barred by virtue of not having been made in accordance with sub-clause 2.5.

The Privy Council said that the purpose of sub-clause 2.5:

“is to ensure that claims which an Employer wishes to raise, whether or not they are intended to be relied on as set-offs or cross-claims, should not be allowed unless they have been the subject of a notice, which must have been given ‘as soon as practicable’. If the Employer could rely on claims which were first notified well after that, it is hard to see what the point of the first two parts of clause 2.5 was meant to be. Further, if an Employer’s claim is allowed to be made late, there would not appear to be any method by which it could be determined, as the Engineer’s function is linked to the particulars, which in turn must be contained in a notice, which in turn has to be served ‘as soon as practicable’.

Whilst no definition of “as soon as practicable” was given, the Privy Council stressed that the structure of sub-clause 2.5 was such that it applied to any claims which the Employer wished to raise. The clause made it clear that, if the Employer wished to raise such a claim, it must do so promptly and in a particularised form. Where the Employer has failed to raise a claim as required by the earlier part of the clause: “the back door of set-off or cross-claims is as firmly shut to it as the front door of an originating claim”.

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