Notices of claim and time bars: don’t be another “sympathy” statistic
By Robbie McCrea Senior Associate, Fenwick Elliott
Notices are a huge source of contention in construction disputes. All claims begin by serving notice on the other party, and many claims are lost entirely by failing to do so properly.
In construction contracts around the world there are often, and increasingly, strict requirements for how and when notices of claim are to be issued, and serious consequences for failing to comply. In this article I briefly explain the notice issue, recent trends in the main forms of construction contracts, how the issue is being dealt with in practice, and provide some practical advice for avoiding notice pitfalls.
The notice issue
The principal reason notices are so contentious is time bars. Time bars are where a contract provides a time limit to fulfil a mandatory requirement (for instance to issue a notice), failing which a certain right (for instance to make a claim) will be lost. Time bars are common place in the major forms of contract, for instance:
- The FIDIC contracts (1999 and 2017 editions) provide that if the claiming party1 does not give a notice of claim within 28 days of becoming aware of the event or circumstances giving rise to the claim…; and
- The NEC contracts (2013 [NEC3] and 2017 [NEC4] editions) provide that if the contractor does not give a notice of claim within eight weeks of becoming aware of the event…
…they shall lose all entitlement (and relief) in respect of that claim.
Given the serious consequences of these time bars, an issue frequently arises over whether a valid notice of claim has been served on time, that is, “the notice issue”.
The notice issue has been particularly prevalent under the 1999 FIDIC contracts.2 Under these contracts, sub-clause 20.1 provides that claims must:
- be notified within 28 days of the event or circumstance giving rise to it;
- describe the event or circumstance; and
- be issued to the Engineer.
However, these contracts do not provide any definition of “notice”, nor other specification as to the form or content required.
The question of how the notice issue should be dealt with in these circumstances was addressed in the UK Technology and Construction Court in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar,3 where Mr Justice Akenhead found:
- “no reason why this clause [20.1] 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”; and
- although sub-clause 20.1 did not require a notice of claim to be in any particular form, it “must [nonetheless] be recognisable as a ‘claim’” under the contract.
Mr Justice Akenhead’s finding provides, as a matter of common sense, a useful further requirement that notices of claim be identifiable as such. However, it also leaves the door open, and perhaps even encourages, argument as to what exactly might be accepted as a notice.4
In the UK and around the world we have seen a leniency from courts and tribunals, and perhaps a tendency to complacency by contractors, as to how the FIDIC sub-clause 20.1 notice requirements are complied with. We have seen all kinds of arguments run, and won, on the grounds that notices of claim were issued through progress reports, project correspondence, meeting minutes, informal agreements, or a combination of them all.
These types of arguments will not work in the new generation of contracts.
Recent developments: “Notice” with a capital N
The main forms of contract have taken steps to remove ambiguity over notices of claim, and notices are now defined and subject to a much more prescriptive set of requirements as to form and content.
The 2017 FIDIC contracts require notices of claim to describe the event or circumstances giving rise to the claim in the same way as under the 1999 Conditions, but further provide that:
- “Notices” must be in writing, signed by the authorised representative of the party named in the contract, identified as a Notice, and delivered to the address stated in the Contract Data (formerly the Particular Conditions);5 and
- nothing stated in any progress report, programme, or supporting report shall constitute a Notice or relieve the Contractor of any obligation to give a Notice.6
The NEC4 contract has taken a similar direction, and now requires notices of claim to be “communicated separately from other communications”.7
The message for users of these new contracts is clear; when it comes to making claims, it is no longer good enough to say that the other party knew about the event or claim, or was alerted to it. A distinct, compliant Notice of claim is required.
The issue in practice
The notices issue has been dealt with recently in a series of separate judgments, in several jurisdictions, with courts increasingly showing a desire to enforce time bars against a claiming party where clear notice requirements have not been strictly met.
The High Court of Justice of Northern Ireland recently considered this issue in Glen Water Ltd v Northern Ireland Water Ltd.8That case involved a PFI project to upgrade sludge treatment services, and the contract required claims for compensation to be submitted by the contractor within 21 days of the occurrence of an event that had caused or was likely to cause delay and additional cost. There was no dispute that the relevant clause was a time bar.
In that case, Glen Water initially issued a letter to Northern Ireland Water (“NIW”) in 2009 alleging that it was not properly maintaining the facility. Subsequently, in 2014, Glen Water commenced an adjudication claiming that NIW had failed to properly maintain a pressure steam system within the facility. It was determined that the events giving rise to the claim had occurred in 2009, and so the issue arose as to whether Glen Water had issued a notice of claim within the 21 days required by the contract.
Glen Water claimed that its 2009 letter was a valid notice. It argued that the 2009 letter could have been clearer, but that when viewed in all the circumstances and background, it was sufficient to satisfy the contractual notice requirement. Glen Water’s counsel submitted that in accordance with Obrascon the background must be taken into account.
The court rejected this argument and held that Glen Water’s claim was time-barred. Justice Keegan, for the court, noted that while she had some sympathy for Glen Water’s position, the 2009 letter was not marked to be a claim, and although she accepted that there were discussions between the parties about the issue subject to the claim during the relevant time period, and internal correspondence that showed a general awareness of the risks, none of this equated to contractual notice of the specific compensation event. Justice Keegan concluded that:
“The contractual terms are clear and commercial certainty is an overarching consideration. The evidence as to the commercial context and surrounding circumstances has not remedied the defect in the letter. It seems to me likely that the notification requirement was overlooked amid a mass of claims and in the midst of an ongoing process of discussions …
… A notification should be clear and unambiguous.”
Notably, Justice Keegan did not consider that the facts warranted a broad interpretation as set out in Obrascon, but preferred instead a more strict approach to give effect to the terms of the parties’ agreement.9
In the case Maeda Corporation & China State v Bauer Hong Kong,10 the Hong Kong High Court faced a similar issue and delivered its judgment in April this year.
The case involved a construction contract with a time bar on similar terms to the 2017 FIDIC contracts, whereby any notice of claim must be issued within 28 days of the event, and the notice must include “the contractual basis together with full and detailed particulars”.
The project involved the construction of tunnels for the Hong Kong to Guangzhou Express Rail Link. Maeda Corporation (in a JV with China State) was the main contractor, and they employed Bauer as subcontractor to carry out the diaphragm wall works. During the works, Bauer submitted a notice of claim seeking additional costs arising from the discovery of unforeseen ground conditions, and it stated the contractual basis to be a Variation.
The problem for Bauer was that it was later decided that this claim should not have been made as a Variation, because the contractual entitlement actually arose under a specific provision for unforeseen ground conditions. Bauer subsequently pursued this claim in arbitration under both the Variation and unforeseen ground condition provisions.
The arbitrator decided that the notice of claim was valid and, in particular, held that the notice given at the time for a Variation was also equally valid to cover the revised claim under the ground condition provision. This discrete issue was appealed to the Hong Kong High Court, who took a different view.
Justice Mimmie Chan on behalf of the High Court, as with Glen Water, expressed sympathy with Bauer’s position, but concluded that no valid notice had been issued for a claim of unforeseen ground conditions, and therefore that claim was time-barred. She reasoned:
“In any event, however much sympathy the contractor may deserve, Clause 21 employs clear and mandatory language for the service and contents of the notices to be served, with no qualifying language such as ‘if practicable’, or ‘in so far as the sub-contractor is able’ …
there can be no dispute, and no ambiguity, from the plain and clear language used in Clause 21, that the service of notices of claim in writing referred to in Clauses 21.1 and 21.2 are conditions precedent, must be ‘strictly’ complied with, and failure to comply with these conditions will have the effect that the Defendant will have ‘no entitlement’ and ‘no right’ to any additional or extra payment, loss and expense.”
This might be viewed as a harsh finding. Bauer had a valid contractual entitlement to be paid for the additional work, and it identified the issue and served a notice on time. However, the notice was not compliant in one clear and important respect, and this was strictly applied by the court.
In line with the more broad interpretation set down in Obrascon, the English courts have recently applied the test of the “reasonable recipient” when assessing whether a valid notice of claim was issued. Under this test some leniency can be given in assessing compliance with strict contractual requirements.
In the case Grove Developments Ltd v S&T (UK) Ltd,11 the TCC was asked to consider a dispute concerning the construction of a hotel. The contract was the JCT Design and Build Contract 2011, which required that a pay less notice must specify how the proposed reduced sum had been calculated and be provided within 18 days12 of receipt of the contractor’s interim payment application.
In fact, the employer submitted a pay less notice that did not include a calculation of the reduced sum, but instead referred to a separate document that it had issued five days earlier, and which provided this calculation.
The court found that the notice was valid, reasoning that:
“A pay less notice will be construed by reference to its background, in order to see how a reasonable recipient would have understood it. The court will be unimpressed by nice points of textual analysis, or arguments which seek to condemn the notice on an artificial or contrived basis. One way of testing to see whether the contents of the notice are adequate is to see if the notice provides an adequate agenda for a dispute about valuation and/or any cross-claims available to the employer.”
While this approach might allow some leniency with notices, the limits of the reasonable recipient test are shown in a judgment issued in the TCC one year earlier, in Systems Pipework Ltd v Rotary Building Services Ltd.13
In Systems Pipework a contractor purported to issue a pay less notice to a subcontractor, which in fact did not comply with the contract requirements because, first, it did not expressly state the amount said to be due for payment (rather it included an “assessed amount”), and secondly, it did not state that it was a notice under the relevant clause.
Mr Justice Coulson found that:
- A reasonable recipient would not have regarded the documents as notification of the sum due as there was no reference to the clause, nor was the actual sum due referred to.
- The fact that the recipient might have been able to work the sum out has no relevance to the matter, as that was the purpose of clause 28.6.
- Consequently, the employer’s pay less notice was held to be invalid, resulting in the contractor’s payment application amount becoming binding upon it.
On its face, the broad approach taken by the English courts’ “reasonable recipient” authorities and in Obrascon is at odds with the strict approach of the Hong Kong High Court in Maeda Corp, and the line of UK authority preferred in Glen Water. In practice, the difference is unlikely to be significant in anything but the marginal cases. In Maeda Corp and Glen Water the judges both remarked that they had sympathy for the claimant, but had no choice but to find against them where clear contract terms had not been complied with. The reasonable recipient test provides that when assessing compliance, a common sense perspective should be preferred to an overly technical or artificial one; however, it does not permit the assessor to validate a clear failure to comply, as shown in Systems Pipework.
Conclusions and takeaways
How the notice issue is dealt with will depend on the facts and the jurisdiction governing the contract, and, as shown by the UK authorities, the judge. However, generally, where a contract includes clear, mandatory requirements, these should be expected to be applied strictly. Reasonableness14 and good faith15 should not be relied on to cure a failure to comply.
In light of the increasingly prescriptive notice requirements in construction contracts, and courts’ willingness to apply those terms strictly, parties should be taking proactive steps to ensure they understand what has been agreed and that they can comply.
At the outset of any project parties would do well to consider the following:
- When is a notice of claim required? Review and document all condition precedents / time-barring clauses at the outset of a project.
- Have template notices ready:
a) Who has to give notices?
b) To whom should notice be given (and check the correct method of service and address)?
c) In what form must the notice be given?
d) Make the notice clear: quote the contract and relevant clause as closely as possible.
- What information must be provided with the notice?
- What are the response times?
- Are there any continuing notice obligations?
- Is there an agreement in place not to serve notices? Be careful of “gentlemen’s agreements” not to serve, particularly oral agreements.
- What happens if you fail to serve a notice?
- 1. Under the 1999 Conditions the time bar applied only to the contractor; under the 2017 Conditions it applies to both contractor and employer.
- 2. The predominant form of contract for international construction projects, namely the Red and Yellow Books.
- 3.  EWCA Civ 712.
- 4. Mr Justice Akenhead’s finding in Obrascon was consistent with his view in the case Walter Lilly & Company Ltd v Mackay and Another  EWHC 1773 (TCC).
- 5. Sub-clause 1.3.
- 6. Sub-clauses 4.20 and 8.3.
- 7. Sub-clause 13.7.
- 8.  NIQB 20.
- 9. In doing so, Justice Keegan endorsed the position in Education 4 Ayrshire v South Ayrshire Council  CSOH 146: “Where parties have laid down in clear terms what has to be done by one of them if he is to claim certain relief, the court should be slow to seek to relieve that party from the consequence of failure.”
- 10.  HKCFI 918.
- 11.  EWHC 123 (TCC).
- 12. Up from the default 10 day period provided in the Housing Grants, Construction and Regeneration Act 1996.
- 13.  EWHC 3235 (TCC).
- 14. Namely the broad interpretation preferred in Obrascon.
- 15. Namely the implied duty of good faith in civil law countries.