TIME BARS RE-VISITED

November 2014: TIME BARS RE-VISITED

 

I have, on a number of occasions in this magazine, written articles in regard to the draconian effect on a Contractor of failing to comply with the notice provisions in claims clauses where such notice provisions constitute what the legal profession would refer to as “conditions precedent” but which would be best understood to the lay person as time bars.  Examples of these time bars are now to be found in all the CIDB approved forms of contracts in common use in South Africa.  Furthermore, I have also referred to the Constitutional Court judgment previously, Barkhuizen v Napier[1] in terms of which the Constitutional Court considered whether, in South African law, there was any impediment to the enforcement of such a condition precedent and came to the conclusion that where the parties had freely entered into a contract containing a time bar and providing the notice period was both clear and of reasonable duration, such time bars would be upheld.

 

Having just completed a two week arbitration where I represented the Building Contractor in a dispute arising out of a R65 million contract which had overrun the contract completion date by almost a year, and numerous claims for extensions of time had proceeded to arbitration, the Contractor was once again faced with a defence that some of its claims had become time barred by virtue of the Contractor’s failure to comply with the notice provisions (in this case the old 2004 form of JBCC Building Contract) which has prompted me to once again re-visit this topic.  In addition, recently, a very useful judgment has been handed down in the United Kingdom Technology and Construction Court which gives guidance on a number of the provisions in the standard FIDIC forms of contract which will undoubtedly be of some assistance to contractors using this form of contract in South Africa.  It must of course be remembered that English law is only persuasive in South Africa but since very few construction contracts end up in the South African courts we do not often have the benefit of a South African judicial interpretation on standard forms of contract since most disputes are resolved by adjudication or arbitration which are of course private forms of dispute resolution and even if the outcome were to become public knowledge would not give rise to any form of legal precedence.

 

The 16th April 2014 decision of Judge Akenhead in the Obrascon case considered a number of aspects, in addition to time bars, which will be of interest to contractors in Africa using these forms of FIDIC contract.[2]

 

The court proceedings were brought by a substantial Spanish civil engineering contractor against the government of Gibraltar in relation to a contract for the design and construction of a road and tunnel under the eastern end of the runway of Gibraltar Airport.  Unfortunately, after more than 2½ years of work on the 2 year project and when little more that 25% of the work had been done, the contract was terminated by the Employer.  Some of the issues considered by the court in relation to the interpretation of the Yellow Book FIDIC Design and Build Contract were as follows:

 

  1. FIDIC’s standard clause 8.4 (Extension of Time Clause) entitles the Contractor to claim an extension of time if it “is or will be delayed …” and the clause then sets out 5 substantial sub-categories of qualifying causes. Whilst clause 8.4 does not, in itself, contain a time bar, any claim arising under one of the 5 separate causes must be notified in terms of clause 20.1 [Contractor’s Claims] which does indeed contain a very strong time bar in the second paragraph of 20.1.

The use of the wording in clause 8.4 “is or will be delayed”, according to the Court gives rise to an entitlement to claim at two distinct points in time.  The first entitlement would arise when it became clear to the Contractor that there may be a delay.  This was termed by the Court as a “prospective delay”.  The Court however found that on a proper interpretation of the above words a second entitlement to claim would arise when the delay actually starts to impact the activity.  This was termed by the Court as “retrospective delay”.  For example if a variation were to be instructed by the Engineer which would cause critical delay in the future, the entitlement to claim the extension of time would arise when the variation is first instructed (the prospective delay) but would also arise when the works which are the subject of the variation begin to impact upon the programme (the retrospective delay).

This is of course very significant since the prospective delay may arise several months before the retrospective delay.  The question that the Court was faced with was whether or not a failure by the Contractor to notify at the time when the prospective delay occurred where the Contractor had only notified when the retrospective delay occurred, could lead to the time bar being applied.

The Court found that the standard notification provisions in clause 20.1 were to be read in light of the provisions of clause 8.4.  This, said the Court, meant that the Contractor was entitled to notify its claim for an extension of time within 28 days from the occurrence of either of the two trigger points mentioned above, i.e. at the prospective delay or retrospective delay point in time.  The effect of this would mean that requests for extensions of time would not necessarily need to be submitted within 28 days of the Contractor first becoming aware of the need for an extension of time.  Contractors may now be able to wait until the impacts of any given event upon the programme are known before serving notice under clause 20.1.  This may well be of significant assistance to contractors who have missed the first trigger point but where the retrospective delay point has not yet been reached.  Under these circumstances the Contractor would probably be able to escape the consequences of the strict application of a time bar within 28 days of the prospective delay point in time.

 

  1. The Court also considered the requirements for the actual claim notification itself. For example a statement made in a progress report that adverse weather had “affected the works” would be insufficient and could not be relied upon as a compliant notice.  Communications however stating that certain events would “entitle us to an extension of time” were found to be sufficient, even if they did not make mention of clause 20.1.

Clause 20.1 of the Yellow Book provides:

“If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment … the Contractor shall give notice to the Engineer, describing the event or circumstances giving rise to the claim.  The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance”.

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 doubt that this second paragraph is a very strongly worded time bar and following the doctrine in the Barkhuizen judgment would be enforced.  However the interpretation given by Judge Akenhead in Obrascon, based upon the two trigger points discussed above, will be of considerable benefit to contractors who may have missed the first trigger point.

 

  1. Termination

The Court also applied its mind to the provisions of clause 15 which, in 15.1 permits a Notice to Correct to be served in respect of failure to carry out “any obligation under the Contract”.  Failure to comply with such notice could trigger termination under clause 15.2.  The Court found however that the breach in respect of which a Notice to Correct can be given need not be especially serious or “repudiatory” for it to provide the Employer with the right to terminate under clause 15.2, it was, however required to be more than a trivial breach.

In this regard the Court distinguished previous Court of Appeal authority[3] which had interpreted a right to terminate for “a breach of any … obligation” as  requiring a significant or “repudiatory” breach before a right to terminate would arise.

Whilst, as I have pointed out above, the Court found that there were no particular formalities called for in clause 20.1 for the notice itself, save that the notice should be in writing, and describe the event or circumstance relied on, the Court found that the onus of proof was on the Employer to establish that the notice was given too late.  This is not however the position in South African law where it has been held that there is no basis for the argument that the onus is on the Employer to prove non-compliance with the clause[4].  It would be up to the Contractor to establish, in any dispute proceedings, that it had indeed complied.

 

It may well be that following from the Obrascon decision users of the FIDIC Forms of Contract may well need to apply their minds to the wording in clause 8.4.  Employers wishing to avoid notification at the time of a retrospective delay event occurring would need to amend the wording in clause 8.4.  Contractors, on the other hand, may well be able to escape the consequences of a time bar in clause 20.1 providing they give notice within 28 days of the retrospective delay point in time.

 

 

 

 

Chris Binnington

Managing Director

Binnington Copeland and Associates (Pty) Ltd

A Hill International Group Company.

 

[1] Barkhuizen v Napier 2007 (5) SA 323 (CC)

[2] Obrascon Huarte Lain S A v Attorney General for Gibraltar [2014] EWHC 1028 (TCC)

[3] Rice (t/a The Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1

[4] Edward L Bateman Ltd v C A Brand Projects (Pty) Ltd 1995 (4) SA 128 (T)