Wednesday, 12 June 2024

Tata Consultancy Services Ltd v Disclosure and Barring Service

[2024] EWHC 1185 (TCC)

In part of a lengthy decision about an IT modernisation project, both parties suggested that to recover either compensation for delays or delay damages, the other party had to comply with certain conditions precedent. Having reviewed a number of authorities, Mr Justice Constable, whilst stressing that the overriding principle was that every contract must be construed according to its own particular terms, set out a list of the relevant matters that need to be considered when considering whether or not a clause is a condition precedent: 

“(2) there is nothing as a matter of principle which prevents parties freely agreeing that the exercise of a particular right to payment or relief is dependent on compliance with a stated procedure, but parties will not be taken to have done so without having expressed that intention clearly;

(3) the language of obligation in relation to procedure to be complied with (e.g. ‘shall’) is necessary, but not sufficient;

(4) the absence of the phrase ‘condition precedent’ or an explicit warning as to the consequence of non-compliance is not determinative against construing the regime as one of condition precedent;  

(5) however, the absence of any language which expresses a clear intention that the right in question is conditional upon compliance with a particular requirement is likely to be, at the very least, a powerful indicator that the parties did not intend the clause to operate as a condition precedent;

(6) the requisite ‘conditionality’ may be achieved in a number of different ways using different words and phrases when construed in their ordinary and natural meaning;

(7) the clearer the articulation, purpose and feasibility of the requirement to be complied with (in terms of substance and/or timing), the more consistent it will be with the conclusion that, depending on the rest of the language used, the requirement forms part of a condition precedent regime.”

Here, Clause 5.6 provided in “plain language” that DBS “shall not be liable to compensate [TCS] for Delays to which Clauses 7 or 8 apply unless [TCS] has fulfilled its obligations set out in, and in accordance with, Clauses 5.1, 5.2 and 5.3”. This wording had the effect of making compliance with Clauses 5.1 to 5.3 a condition precedent to any entitlement to compensation under Clauses 7 or 8.

However, this condition precedent regime applied only to DBS’s liability to compensate TCS for “Delays”, a defined term. This meant that a failure to comply with the condition precedent would not impact upon TCS’s entitlement to relief as described in other clauses, here the “authority” clause. As a result, non-compliance would not prevent TCS from defending itself from DBS’s claims, whether for Delay Payments or for damages for breach of contract provided it established that the failure to achieve a completion date was the result of such an “authority” clause.   

This left the question of whether TCS’s own claims for damages, as opposed to contractual compensation, would be caught by Clause 5.6. DBS argued that the objective intention of the parties cannot have been that (having expressly agreed that the payment of delay compensation in certain circumstances was subject to a condition precedent) TCS could circumvent that regime by claiming damages for breaches of other terms of the Agreement.

The judge agreed. TCS’s potential entitlement to claim both loss and expense pursuant to Clause 7.4 and general damages at common law for Delays (as defined) were subject to compliance with the regime at Clauses 5.1 to 5.3. The ordinary meaning of the language used in Clause 5.6 (“liable to compensate [TCS] for Delays”) was wide enough to cover both claims brought under, and for, breach of contract. Finally, the judge noted that:

“the purpose of a notice regime is to give an employer the opportunity to engage in the mitigation of delay, particularly delay which it knows is going to be claimed has been caused by a matter for which the employer is to blame. In this context, a construction which requires a contractor to notify the employer only for the purposes of a contractual right to compensation, but allows the same claim on the same facts to be advanced at common law without having given notice is uncommercial. It also runs contrary to the risk and reward allocation set out expressly.”

When it came to delay damages, where a milestone was not achieved due to issues with testing, by Sub-clause 6.1, DBS was required (“shall”) to “promptly issue a Non-conformance Report”. Clause 6.1 concluded, “The AUTHORITY will then have the options set out in Clause 6.2”. No non-conformance reports were issued. 

The judge considered that, when looking at ordinary language of the clause, the word “then” in the last sentence of Clause 6.1 made clear, at the very least, that the entitlements in Clause 6.2 happened after the matters dealt with in the preceding words of Clause 6.1 had been engaged. The entitlements in Clause 6.2 were clearly linked to Clause 6.1, through the conditional phrasing of “If … then …” The judge noted that: 

“the rationale for the imposition of a notice regime as a condition precedent is to know where a party stands contemporaneously, and to allow the defaulting party to rectify its default.”  

Further, the use of the word “promptly”, rather than a specified number of days, did not preclude the condition-precedent nature of compliance. Whether a report had been given “promptly” was a question of fact and is sufficiently certain in meaning to be given effect to. 

That, however, was not the end of the story. Clause 5.2 required TCS to submit a draft Exception Report to TCS: “not later that five (5) Working Days … after the initial notification”. TCS said that it had assumed that DBS would not rely on Clauses 5.1 to 5.3 as a condition precedent. The judge agreed with that for a number of reasons, including: 

  • DBS did not, in discussions and negotiations: “articulate any reliance upon the provisions at the time”. The: “condition precedent was simply not a live point.”  
  • There was an assumption by TCS that, whilst it was still necessary to produce an Exception Report, no technical point on 5 Working Days was being taken against it and that any entitlement would be determined in light of the substantive merits.
  • DBS did not take any point that TCS were not entitled to bring a claim because no Exception Report had been served within 5 Working Days. One witness gave evidence that the first time they could remember seeing the 5 Working Days point being taken by DBS was in the pleadings.  

This was not a case of acquiescence by nothing more than silence. DBS had not reserved their position. It was clear, on DBS’s own evidence, that it also considered that the 5 Working Day requirement had “fallen by the wayside”.  It would have been obvious to DBS that TCS was engaging in the project in a way, to DBS’s benefit, that it may not have done faced with a denial of entitlement to compensation based on the 5 Working Day point. 

As a result, DBS was now estopped from arguing that TCS had no entitlement to compensation for delay on account of its failure to comply with Clause 5.3.

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