A recent decision from the Scottish Court of Session has found that contractual notification requirements for loss and expense claims is a condition precedent.
A condition precedent is a clause that provides that certain contractual obligations will only have effect if certain conditions are met or satisfied. Here, the condition to a claim for loss and expense is valid notification. Steven Smith, B P Collins’ dispute resolution partner, who specialises in construction disputes, explores why this decision could be hugely significant for building contractors.
Background
In FES Ltd v HFD Construction Group Ltd, the parties entered into a Scottish Standard Building Contract with Quantities for use in Scotland. (SBC/Q/Scot) (2016 edition). A dispute arose over a claim for an extension of time,,and loss and expense.
The relevant clauses in the contract were:
“4.20.1 If in the execution of this Contract the Contractor incurs or is likely to incur any direct loss and/or expense as a result of any deferment of giving possession of the site…or because regular progress of the Works or any part of them has been or is likely to be materially affected by any Relevant Matter, he shall, subject to clause 4.20.2 and compliance with the provisions of clause 4.21 be entitled to reimbursement of that loss and/or expense.”
“4.21.1 The Contractor shall notify the Architect/Contract Administrator as soon as the likely effect of a Relevant Matter on regular progress or the likely nature and extent of any loss and/or expense arising from a deferment of possession becomes (or should have become) reasonably apparent to him.”
The dispute was referred to adjudication and the adjudicator found that FES had failed to give notice under clause 4.21 and therefore was not entitled to be reimbursed its loss and expense.
FES took the matter to court. The court found that the notice requirements under clauses 4.20 and 4.21 were condition precedent to a claim for loss and expense under the contract. The court said that the language of clause 4.20.1 was “clear and straight-forward” and that “it is difficult to construe this language other than that it creates a condition precedent.“
This is a significant decision for contractors for several reasons:
- It is the first case to consider the issue of notification in loss and expense claims under the 2016 JCT form of contracts.
- Clauses 4.20 and 4.21 of the SBC/Q/Scot 2016 contract are identical to the equivalent loss and expense terms in other key JCT contracts, such as the widely used Design and Build Contract, 2016 Edition (DB 2016).
- The case is a salutary reminder for parties to comply strictly with notice requirements – not only of giving notice at all, but also ensuring the form and content of notices are correct. A failure to comply with notice requirements may prevent a contractor from relying on its contractual rights to recover loss and expense.
- If that happens then a contractor may be able to rely on a common law claim for breach of contract, provided those claims have not been excluded.
- This was a case decided by the Scottish courts. It remains to be seen what approach the courts in England and Wales will take but this is a noteworthy judgment which contractors and employers alike should be aware of.
If you need further advice on how to deal with your commercial dispute, please contact Steven Smith at steven.smith@bpcollins.co.uk or call 01753 889995.
www.bpcollins.co.uk
