How do you establish whether a notice provision is really a condition precedent (or time bar)?

In Tata Consultancy Services Ltd v Disclosure and Barring Service,^[1] Mr Justice Constable reviewed the key authorities^[2] on conditions precedent and provided 7 “relevant matters” to consider. In this article we look at how FIDIC’s claims procedures measure up against Constable J.’s 7 points.  Although Tata is an English law case, it could be cited as persuasive authority in any FIDIC condition precedent arguments formed globally.

The case

Tata Consultancy Services Limited (‘TCS’) was a company supplying business process outsourcing and IT services. TCS was retained by Disclosure Barring Service (‘DBS’) to:

• take over the manually intensive business-as-usual DBS processes from the incumbent supplier, Capita (R0), and
• build a new system to modernise DBS’ processes, replacing its previous paper-based processes with digital ones in parallel (R1).

The modernisation project did not go well. TCS blamed DBS (and others) for delay and claimed more than £110m in delay damages. DBS blamed TCS’s software development and testing and counterclaimed £108m (later reduced) in damages for delay and defects. Constable J. rejected most of TCS’s delay claim, awarding it just £2.4m^[3] (later reduced to £1.3m^[4]). DBS was awarded £4.6m^[5] (which had been agreed by the parties in a prior settlement agreement) for TCS risk delays.

TCS’s obligations

In accordance with Clause 5 of the contract, TCS was required to:

• notify DBS “as soon as reasonably practicable” after becoming aware of any delay or potential delay, and
• submit a “draft Exception Report” within 5 working days of such notice, detailing the reasons for the delay, actions being taken to avoid or mitigate the delay, consequences of the delay, and if the delay was caused by DBS why this was so.

The contract expressly stated that DBS would not be liable to compensate TCS for delay unless TCS fulfilled the two obligations. TCS’s notice obligations and entitlement to relief were clearly drafted with conditionality and express wording as to the consequences of not providing a notice and a draft Exception Report. However, Constable J. concluded that both parties were working on the basis that the 5 working day condition precedent had “fallen by the wayside”, and DBS was estopped from arguing that TCS was not entitled to compensation for delay.^[6]

DBS’s obligations

In accordance with Clause 6 of the contract, DBS was required to issue a Non-Conformance Report “if” a milestone was not achieved due to TCS’s default. The contract expressly stated that “then” DBS could require that TCS pay a sum for delay^[7]. Constable J. construed this to be a condition precedent. He recognised that the notice obligation on the employer was worded differently than that on the contractor, in particular it did not include the sentence regarding loss of entitlement if notice was not provided.  He said^[8]:

“It is true that the parties have chosen to express the condition precedent nature of compliance with Clause 5.1 to 5.3 in a different way, in the context of TCS’s entitlement to relief.  This is potentially a factor weighing against construing Clause 6.1 as a condition precedent…However, it could equally be said with justification that when the delay provisions are considered as a whole, the existence of some symmetry in relation to the requirement upon both parties to provide a form of notice/information to the (other) party responsible for the delays as a condition of claiming compensation weighs in favour of TCS’s construction. This is particularly so where 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. Whilst it is right that the parties will know when a Milestone has not been achieved, the Non-conformance Report must, in circumstances where the Milestone has passed but no Testing has been carried out, set out (insofar as within the knowledge of DBS) the non-conformances which have prevented Testing and any other reasons the Milestone has not been achieved…In these circumstances, the conditionality created by the clear ‘If…then’ language attaching to the Non-conformance Report serves a useful purpose.”

The 7 relevant matters for consideration

Constable J. said (with emphasis added)^[9]:

“Any attempt to articulate an exhaustive checklist of factors to consider when considering whether a particular clause in a particular contract is a condition precedent will inevitably be futile.  However, the following can be distilled from the foregoing authorities as obviously relevant matters I should, and do, have well in mind in the present case when considering whether the relevant clauses should be construed as a condition precedent:

• whether it is necessary for a party to comply with one or more stated requirements in order to be entitled to make a claim for money or relief will ultimately turn on the precise words used, set within their contractual context;
• 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;
• the language of obligation in relation to procedure to be complied with (e.g. ‘shall’) is necessary, but not sufficient;
• 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;
• 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;
• 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;
• 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.”

Application to FIDIC

The various FIDIC forms of contract require (i) a notice of claim, (ii) sometimes, within a prescribed period, (iii) sometimes, in a prescribed form, and (iv) sometimes, delivered in a prescribed way.

In the remainer of this article we look at how FIDIC’s claims procedures in each of (i) FIDIC 1999 Sub-Clause 2.5 [Employer’s Claims], (ii) FIDIC 1999 Sub-Clause 20.1 [Contractor’s Claims], and (iii) FIDIC 2022 reprint Sub-Clause 20.2 [Claims for Payment and/or EOT] measure up against to Constable J.’s 7 relevant matters.

FIDIC 1999: Sub-Clause 2.5 [Employer’s Claims]

1. Under the precise words of an unamended Sub-Clause 2.5 (and subject to their contractual context) is it necessary for the Employer to comply with one or more stated requirements in order to be entitled to make a claim for money or relief?

Yes. The entitlement to make a claim arises separately under any Clause or otherwise in connection with the Contract. In the applicable Clauses, entitlement is often expressed to be subject to Sub-Clause 2.5. For example, Sub-Clause 8.7 [Delay Damages] states (with emphasis added):

“If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Contractor shall subject to Sub-Clause 2.5 [Employer’s Claims] pay delay damages to the Employer for this default.”

Sub-Clause 2.5 then explains how to make the claim if so entitled:

“If the Employer considers himself entitled to any payment under any Clause of these Conditions or otherwise in connection with the Contract … the Employer or the Engineer shall give notice…”.

There is no prescribed period to give such notice in the FIDIC Red, Yellow and Silver Books 1999, but there is in the FIDIC Pink Book 2010.

In the Tata case, Constable J. recognised that the notice obligation on the employer was worded differently than that on the contractor: in particular, it did not include the sentence regarding loss of entitlement if notice was not provided (see above).

In the FIDIC 1999 forms of contract, the Employer’s notice obligations are also worded differently to the Contractor’s notice obligations. In the FIDIC 2022 reprints, the Employer and Contractor’s claims (and related notice obligations) are treated together in one clause.

Commentators on the FIDIC 1999 forms of contract construe Sub-Clauses 2.5 and 20.1 separately and generally hold the view that, in principle, the giving of notice under Sub-Clause 2.5 is not a condition precedent under the FIDIC Red, Yellow and Silver Books 1999 or the FIDIC Pink Book 2010, but that it remains good project management to do so.^[10]

2. Is there a clearly expressed intention that the exercise of a particular right to payment or relief is dependent on compliance with a stated procedure?

No.  Unlike Sub-Clause 20.1 no sanction is specified if the Employer or Engineer fails to give notice to the Contractor within a specified time. Even though a fixed period for giving notice is stated in the FIDIC Pink Book it is unlikely to be construed as a condition precedent^[11].

Possibly, there is an exception in relation to set-off, abatement or deductions by the Employer from amounts that the Engineer has already certified, as follows:

“The Employer shall only be entitled to set off against or make any deduction from an amount certified in a Payment Certificate, or otherwise claim against the Contractor, in accordance with this Sub-Clause”.

However, it is more likely that this wording was intended to restrict the Employer from circumventing the contractual mechanism and availing itself of self-help remedies, rather than creating a separate and distinct condition precedent.

The FIDIC Contracts Guide^[12] commentary on Sub-Clause 2.5 says:

“In the case of a payment having been claimed [by the Employer], the Engineer may include it as a deduction in Payment Certificates. Under Sub-Clause 14.7, the Employer is required to pay the amount certified (namely, incorporating this deduction), but is not entitled to make any further deduction. If the Employer considers himself to be entitled to any payment under or in connection with the Contract, he is thus required to follow the procedure prescribed in Sub-Clause 2.5, and is not entitled to withhold payment whilst awaiting the outcome of these procedures”.

3. Is obligatory language used (e.g. shall)?

Yes: “…the Employer or Engineer shall give notice…”, but Constable J. states that this is not sufficient.

4. Is the phrase ‘condition precedent’ used or an explicit warning as to the consequence of non-compliance?

No, the phrase ‘condition precedent’ is not used, but Constable J. states that this is not determinative. Nor is there any explicit warning as to the consequence of non-compliance except (possibly) in relation to set-off, abatement or deductions by the Employer from amounts that the Engineer has already certified. See 2 above.

5. Is there an absence of any language which expresses a clear intention that the right in question is conditional upon compliance with a particular requirement?

Yes, except (possibly) in relation to set-off, abatement or deductions by the Employer from amounts that the Engineer has already certified. See 2 above.

6. ‘conditionality’ may be achieved in a number of different ways using different words and phrases when construed in their ordinary and natural meaning

“if … then …” is the simplest language of conditionality. Synonyms for conditional include contingent, dependent, provisional, subject to, limited, restrictive, qualified, tentative, constrained and hypothetical. No such words are to be found in Sub-Clause 2.5 (although “subject-to” is used in Sub-Clause 8.7 [Delay Damages] and other similar clauses).

7. How clear is the articulation, purpose and feasibility of the requirement to be complied with (in terms of substance and/or timing)?

Sub-Clause 2.5 has often been debated for its lack of clarity. As Sub-Clause 20.1 provides more guidance in respect of Contractor claims (in particular, in relation to time frames and claim particulars), there is an argument that Sub-Clause 2.5 lacks parity and it can be vague in practical application.

FIDIC 1999: Sub-Clause 20.1 [Contractor’s Claims]

1. Under the precise words of an unamended Sub-Clause 20.1 (and subject to their contractual context) is it necessary for the Contractor to comply with one or more stated requirements in order to be entitled to make a claim for money or relief?

Yes. The entitlement to make a claim arises separately under any Clause or otherwise in connection with the Contract. In the Clauses, entitlement is often expressed to be subject to Sub-Clause 20.1. For example, Sub-Clause 1.9 [Delayed Drawings or Instructions] states (with emphasis added):

“If the Contractor suffers delay and/or incurs Cost as a result of a failure of the Engineer to issue the notified drawing or instruction within a time which is reasonable and is specified in the notice with supporting details, the Contractor shall give a further notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:

(a)    an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and

(b)    payment of any such Cost plus reasonable profit, which shall be included in the Contract Price.”

Sub-Clause 20.1 then explains how to make the claim if so entitled:

“If the Contractor considers himself entitled to any extension of the Time for Completion and/or any additional payment under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice…no later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance….”

2. Is there a clearly expressed intention that the exercise of a particular right to payment or relief is dependent on compliance with a stated procedure?

Yes.  Sub-Clause 20.1 states:

“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”.

There is no express wording to allow discretion as to the 28-day period.

Commentators on the FIDIC 1999 forms of contract generally hold the view that, in principle, the giving of notice under Sub-Clause 20.1 is a condition precedent under the FIDIC Red, Yellow and Silver Books 1999 and the FIDIC Pink Book 2010^[13].

3. Is obligatory language used (e.g. shall)?

Yes: “…the notice shall be given …”, but Constable J. states that this is not sufficient.

4. Is the phrase ‘condition precedent’ used or an explicit warning as to the consequence of non-compliance?

No, the phrase ‘condition precedent’ is not used but Constable J. states that this is not determinative. However, there is explicit warning as to the consequence of non-compliance. See 2 above.

5. Is there an absence of any language which expresses a clear intention that the right in question is conditional upon compliance with a particular requirement?

No, there is a clearly expressed intention. See 2 above.

6. ‘conditionality’ may be achieved in a number of different ways using different words and phrases when construed in their ordinary and natural meaning

As above. No such words are to be found in this Sub-Clause (although “subject-to” is used in Sub-Clause 1.9 [Delayed Drawings or Instructions] and other similar clauses).

7. How clear is the articulation, purpose and feasibility of the requirement to be complied with (in terms of substance and/or timing)?

Sub-Clause 20.1 is widely considered to be relatively clear and detailed, especially when compared to the corresponding Employer claims process under Sub-Clause 2.5. Whilst the strict 28-day time frame is clear, in complex projects it can be challenging to identify the exact date that the Contractor became aware or should have become aware of the event or circumstance giving rise to the claim[14].

FIDIC 2022 reprints: Sub-Clause 20.2 [Claims for Payment and/or EOT]

1. Under the precise words of an unamended Sub-Clause 20.2 (and subject to their contractual context) is it necessary for a party to comply with one or more stated requirements in order to be entitled to make a claim for money or relief?

Yes.  In the first paragraph of Sub-Clause 20.2 the entitlement to make a claim arises separately under any Clause or otherwise in connection with the Contract. For example, Sub-Clause 18.4 [Consequence of an Exceptional Event] states (with emphasis added):

“If the Contractor is the affected Party and suffers delay and/or incurs Cost by reason of the Exceptional Event of which he/she gave a Notice under Sub-Clause 18.2 [Notice of an Exceptional Event], the Contractor shall be entitled subject to Sub-Clause 20.2 [Claims For Payment and/or EOT] to:

(a)    EOT; and/or

(b)    if the Exceptional Event is of the kind described in sub-paragraphs (a) to (e) of Sub-Clause 18.1 [Exceptional Events] and, in the case of sub-paragraphs (b) to (e) of that Sub-Clause, occurs in the Country, payment of such Cost.”

Sub-Clause 20.2 then explains how to make the claim if so entitled:

“If either Party considers that he/she is entitled to any additional payment by the other Party …and/or to EOT … or an extension of the DNP … under any Clause of these Conditions or otherwise in connection with the Contract … the following Claim procedure shall apply…”

It continues:

“The claiming Party shall give a Notice to the Engineer … no later than 28 days after the claiming Party became aware, or should have become aware, of the event or circumstance…”

2. Is there a clearly expressed intention that the exercise of a particular right to payment or relief is dependent on compliance with a stated procedure?

This is arguable. Sub-Clause 20.2.1 states:

“If the claiming party fails to give a Notice of Claim within this period of 28 days, the claiming Party shall not be entitled to any additional payment, the Contract Price shall not be reduced… the Time for Completion … or the DNP … shall not be extended, and the other Party shall be discharged from any liability in connection with the event or circumstance giving rise to the Claim.”

But Sub-Clause 20.2.5 obscures the initial clarity with the wording:

“The agreement or determination of the Claim shall include whether or not the Notice of Claim shall be treated as a valid Notice taking account of … why late submission is justified …”

Then setting out the circumstances that the Engineer may take into account in respect of late submission, including to what extent the other Party would be prejudiced by acceptance or a later submission, any evidence of the other Party’s prior knowledge of the event or circumstance giving rise to the Claim, and any evidence of the other Party’s prior knowledge of the contractual and/or other legal basis of the Claim.

Sub-Clause 20.2.7 further clouds the position with the wording (with emphasis added):

“The requirements of this Sub-Clause 20.2 are in addition to those of any other Sub-Clause which may apply to the Claim. If the claiming Party fails to comply with this or any other Sub-Clause in relation to a Claim, any additional payment and/or any EOT…or extension of the DNP…, shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the Claim by the Engineer”.

Sub-Clause 20.2.7 adopts similar wording to Sub-Clause 2.5 of the FIDIC 1999 forms to seek to restrict the Employer from circumventing the contractual mechanism and availing itself of self-help remedies, and states:

“The Employer shall only be entitled to any payment from the Contractor and/or to extend the DNP, or set off against or make any deduction from any amount due to the Contractor, by complying with this Sub-Clause 20.2”.

Commentators on the FIDIC 2022 reprints generally form the view that, in principle, the giving of a Notice of Claim within the prescribed period is a condition precedent which is, essentially, rebuttable in the right circumstances^[15].

3. Is obligatory language used (e.g. shall)?

Yes: “The claiming Party shall give a Notice…”, but Constable J. states that this is not sufficient.

4. Is the phrase ‘condition precedent’ used or an explicit warning as to the consequence of non-compliance?

No, the phrase ‘condition precedent’ is not used but Constable J. states that this is not determinative. Whilst there is explicit warning as to the consequence of non-compliance, this is compromised somewhat by the wording of Sub-Clause 20.2.7. See 2 above.

5. Is there an absence of any language which expresses a clear intention that the right in question is conditional upon compliance with a particular requirement?

This is arguable. See 2 above.

6. ‘conditionality’ may be achieved in a number of different ways using different words and phrases when construed in their ordinary and natural meaning

As above. No such words are to be found in this Sub-Clause (although “subject-to” is used in Sub-Clause 18.4 [Consequence of an Exceptional Event] and other similar clauses).

7. How clear is the articulation, purpose and feasibility of the requirement to be complied with (in terms of substance and/or timing)?

Sub-Clause 20.2 is more detailed than in the earlier FIDIC forms. But in endeavouring to make the notice provisions stricter, has the complexity compromised lucidity and practicality?

Conclusion

The Tata case is unlikely to seismically shift the current views on notice provisions operating as conditions precedent or time bars under the FIDIC forms of contract. Much will continue to depend upon the governing law of the Contract. But it serves as a useful reminder of the matters to contemplate when analysing whether a notice provision operates as a condition precedent (or time bar).

Best practice is to avoid the time and expense of such analysis in the first place, simply by issuing a contractually compliant notice as a matter of good project management.

Please get in touch at victoria.tyson@howardkennedy.com with your thoughts or to discuss any concerns.

[1] Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] EWHC 1185 (TCC) (17 May 2024)

[2] The authorities Mr Justice Constable considered included: Scottish Power UK PLC v BP Exploration Operating Company Ltd [2016] All ER 536; Bremer Handelsgesellscheft Schaft v Vanden-Avenne Izegem PVBA [1978] 2 Lloyd’s Rep 109; London Borough of Merton v Stanley Hugh Leach Ltd (1985) 32 BLR 51; WW Gear Construction Limited v McGee Group Limited [2010] EWHC 1460 (TCC); Steria Limited v Sigma Wireless Communications Limited [2007] EWHC 3454 TCC; Yuanda (UK) Company Limited v Multiplex Construction Europe Limited & Others [2020] EWHC 468 (TCC).

[3] Paragraph 410.

[4] [2024] EWHC 2025 (TCC) (01 August 2024)

[5] Paragraph 412. “The parties are agreed that, pursuant to discussions in 2015 leading to a draft CCN 041, the parties agreed to settle liability at £4,559,439 for the delays up to September 2015 in exchange for revised Go-Live dates, the Milestones were adjusted and the parties in fact worked to the new Milestones. There is no dispute between the parties that that sum is payable by TCS to DBS as part of the overall accounting which will be determined by this litigation.”

[6] Paragraphs 162-163. “Applying these facts to the test of estoppel, it is clear that the parties were subjectively in agreement.  It is objectively obvious that TCS considered that it had had a de facto extension to provide the Exception Report, notwithstanding the absence of a formal response to their request, because of the way DBS was conducting itself in discussions and negotiations.   It is also 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. Insofar as it is necessary for me to do so, I also find in the specific circumstances known to the parties (and in particular as set out in (1) to (4) above), a reasonable person in TCS’s position would have expected DBS acting responsibly would have put TCS on notice that its position was that (without prejudice to the ongoing commercial negotiations) it considered that TCS had entirely forfeited its right to compensation for delay (see Ted Baker Plc v Axa Insurance UK Plc [2017] EWCA Civ 4097).”

[7] Paragraph 94.

[8] Paragraph 92.

[9] Paragraph 74.

[10] This is supported by Ellis Baker, Ben Mellors, Scott Chambers and Anthony Lavers, in FIDIC Contracts: Law and Practice (2009), para 6.296 at page 338.

[11] This is supported by Ellis Baker, Ben Mellors, Scott Chambers and Anthony Lavers, in FIDIC Contracts: Law and Practice (2009), para 6.296 at page 338.

[12] International Federation of Consulting Engineers, The FIDIC Contracts Guide: Conditions of Contract for Construction, Conditions of Contract for Plant and Design-Build, Conditions of Contract for EPC/Turnkey Projects (International Federation of Consulting Engineers 2000).

[13] In Obrascon Huarte Lain SA v Attorney General for Gibraltar [2014] BLR 484, para 311 at page 514, Sub-Clause 20.1 of the FIDIC Yellow Book 1999 was found to be a condition precedent.

[14] There are conflicting views under Obrascon Huarte Lain SA v Attorney General for Gibraltar [2014] BLR 484 and Panther Real Estate Development LLC v Modern Executive Systems Contracting LLC [2022] DIFC CA 016.

[15] This is supported by Christopher R Seppälä, in The FIDIC Red Book Contract: An International Clause-by-Clause Commentary (2023), at pages 1130-1131.