Lessons from recent case law in England
Construction and engineering contracts typically contain clauses known as "time bars". These are clauses which set a time limit by which claims must be notified.
Time bars historically applied to claims by contractors for extensions of time or additional payment, requiring them to give notice of a claim within a set time period (usually measured in days, rather than months) after they become aware, or should have become aware, of the event or occurrence giving rise to the claim. Time bars have more recently been applied in respect of claims by employers – Clause 20 in the FIDIC Red / Yellow Book 2017, for example, contains a time bar which applies to both contractor and employer claims.
Authors: Jessica Tresham and Mike Stewart, Partners, Gowling WLG (UK) LLP
Why use time bars?
Time bars facilitate efficient contract and claims management by ensuring that early warning is given of issues that may affect completion dates.
They incentivise parties to investigate and consider claims when they arise, rather than when works are complete, thus avoiding costly and lengthy disputes at the end of projects.
In Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd, [1] Jackson J (as he then was) summarised the proposition as follows:
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.
Time bars: condition precedent (or not)?
A question which often arises is whether a time bar amounts to a "condition precedent". If it is, it will exclude entitlement if a claim is not notified within the relevant timeframe, irrespective of the merits of that claim.
The effect of a failure to comply with a time bar – if it constitutes a condition precedent – may prove significant and result in otherwise valid claims being barred. It is therefore vital to be aware of their effects and how to operate them properly.
Conditions precedent under English law – a recent reminder
The English Technology and Construction Court (TCC) has issued a recent reminder of the rigorous standards that will be applied under English law to conditions precedent in Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] [2].
The dispute arose out of an IT modernisation project which DBS engaged TCS to complete in 2012. The project was beset by delays from an early stage. TCS claimed around £110 million in delay damages, and DBS counterclaimed for delay as well as claims arising out of the quality of the software.
One of the issues addressed in the wide-ranging judgment was responsibility for delay. TCS contended that the main causes of critical delay were the lack of availability of technical infrastructure, and mismanagement of DBS'
IT hosting provider. DBS argued that the cause of delay was TCS' delayed development and testing of the software.
The relevant delay / notice provisions
The contract entitled TCS to relief from delay damages (and to recover its own losses) where delay was due to an "Authority Cause", provided it served:
- a notification of delay "as soon as reasonably practicable" if it became aware that it would not (or was unlikely to) achieve a milestone date.
- an "Exception Report" within 5 working days of its delay notification.
DBS argued that that this constituted a condition precedent, and failure to comply meant that TCS would not be entitled to compensation for delays attributable to an "Authority Cause".
Conversely, where delay to a milestone was due to "Contractor default", TCS became liable to pay delay liquidated damages. In such a scenario, the Authority was required to "promptly" issue a Non-conformance Report. The clause provided that the Authority "will then have" the option to claim delay liquidated damages.
TCS argued that this meant that DBS' entitlement to recover liquidated damages was also conditional upon compliance with this clause.
TCC decision
Constable J comprehensively reviewed the English authorities on conditions precedent, helpfully distilling the authorities into the following key points:
- The overriding principle remains that every contract must be construed according to its own particular terms. [3]
- There is nothing as a matter of principle to prevent parties freely agreeing to a condition precedent, but parties will not be taken to have agreed that the exercise of a particular right to payment or relief is subject to a condition precedent absent clear wording to that effect.
- English law will uphold conditions precedent provided that they (a) specify a precise time limit for serving notice; and (b) expressly provide that the right to claim will be lost if the notice is not served within that time limit. [4]
- The use of language of obligation (e.g. "shall") is necessary, but will not on its own be sufficient to render a provision a condition precedent.
- The absence of the words "condition precedent", is not "determinative against construing the regime as one of condition precedent".
- The absence of any language expressing a clear intention that the particular right is conditional upon compliance with a particular requirement is, however, likely to be 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 wording of the requirement to be complied with (in terms of substance and / or timing), the more consistent it will be with the conclusion that the clause forms part of a condition precedent regime.
In this case, the “plain language” of the relevant clause made compliance with the notice regime a condition precedent to TCS's entitlement to compensation for delays which were due in whole or in part to an "Authority Cause". However, the condition precedent applied only to the contractor's entitlement to compensation for such delays. Failure to comply with the condition precedent regime did not impact upon its entitlement to other forms of "relief" including an extension of time and relief from liability for both general and delay damages.
In relation to DBS's entitlement to claim delay liquidated damages, Constable J also found that the claim was barred by reason of DBS's failure to serve Non-conformance reports. The wording of the relevant clause was "very clear…DBS is required (‘shall’) to ‘promptly issue a Non-conformance Report’." It concluded that: “The AUTHORITY will then have the options set out in Clause 6.2”. The entitlement was found to be "clearly linked" to the service of a Non- conformance report, through the conditional phrasing of ‘If….then….’".
On the facts of this case, DBS was still able to advance a claim for unliquidated or general delay damages for the delays exceeding 6 months. However, this turned on the wording of the applicable delay provisions – in different circumstances, all entitlement might have been lost.
Key takeaways and application of time bars internationally
Time bars are typically found within international construction and engineering contracts.
Irrespective of the governing law of those contracts, the guidance contained in the TCS v DBS decision will be highly relevant to the practical application of those clauses, although the "good faith" provisions of some Civil Code jurisdictions may dilute the otherwise strict effect of conditions precedent.
This article was written for issue 27 of the Diales Digest. To view the publication, please visit: www.diales.com/diales-digest-issue-27
1. Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC)
2. https://www.bailii.org/ew/cases/EWHC/TCC/2024/1185. html#_Toc165305378
3. Scottish Power UK PLC v BP Exploration Operating Com- pany Ltd [2016] All ER 536
4. Bremer Handelsgesellschaft mbH v Vanden-Avenne Izegem PVBA [1978] 2 Lloyd’s Rep 109