Construction contracts often require contractors to give notice as part of the procedure for claiming additional time or money where they have been delayed in carrying out works. It is important for the parties to understand whether or not compliance with such a requirement is a condition precedent to entitlement. In other words, they need to understand whether or not, if the contractor fails to comply with those requirements, the contractor will lose their entitlement.
Does the Joint Contracts Tribunal (JCT) loss and expense wording contain a condition precedent?
The Scottish case of Fes v HFD from earlier this year has put back into the spotlight the question of whether or not the loss and expense wording contained in much of the JCT suite, a suite of standard form construction contracts which is commonly used for building projects in the UK, constitutes a condition precedent.
An example of the kind of wording considered in the case can be found at clause 4.19.1 of the JCT Design and Build Contract 2016 which provides that “If in the execution of this Contract the Contractor incurs or is likely to incur any direct loss and/or expense … 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 … compliance with the provisions of clause 4.20 be entitled to reimbursement of that loss and/or expense.” Clause 4.20 then goes on to set out various obligations on the contractor in relation to the initial notification and provision of follow-up information.
Earlier editions of the JCT used slightly different wording. So, for example, in the JCT Design and Build Contract 2011, the entitlement to loss and expense is followed by the wording: “provided always that the Contractor shall…make his application as soon as it has become, or should reasonably have become, apparent to him that the regular progress has been or is likely to be affected”. It was generally thought that this wording constituted a condition precedent. For example, in the case of Walter Lilly v Mackay [2012] EWHC 1773, both parties had accepted that similar wording constituted a condition precedent.
However, there was greater uncertainty over the new wording in the 2016 edition of the JCT, particularly given comments from Suzanne Reeves, a member of the JCT drafting sub-committee, suggesting that the new wording was not intended to create a condition precedent. She states that “JCT has not adopted the approach of some bespoke amendments whereby notification by the Contractor in accordance with a time limit is a condition precedent to entitlement to loss and expense, which means that in principle noncompliance avoids the claim”.
Did the Scottish Court in Fes v HFD agree?
In Fes v HFD, Lord Richardson took a different view to that of Ms Reeves. In a very common sense, but perhaps surprising decision, Lord Richardson determined that the JCT 2016 wording did constitute a condition precedent. To me, this is correct as the ordinary meaning of “subject to … compliance with” is one of conditionality, meaning that the entitlement to reimbursement of direct loss and expense only arises where there has been compliance with the notification requirement.
Lord Richardson explains that he had applied a purely textual analysis focusing on the ordinary meaning of the relevant words in coming to this conclusion. Although, he goes on to explain that if he had needed to go on and consider business common sense, that condition precedent wording in this context would have served an intelligible purpose, namely to encourage prompt notification, thereby permitting “contemporaneous investigation and the early ascertainment of the Relevant Matter … and its effect”.
Did Lord Richardson consider Ms Reeves’ article?
Ms Reeves’ article is brought to the judge’s attention by counsel for the contractor. Lord Richardson’s view on it is that “if the author is to be understood to be saying that [this] clause … of the 2016 Edition does not create a condition precedent, I respectfully disagree ... However, I do wonder if, in fact, the thrust of Ms Reeves' point concerned highlighting that the drafting of clause 4.21 does not include specific time limits in which notification is to be made by the contractor”.
This alternative possible interpretation of Ms Reeves’ words seems very strained. It seems clear to me that the focus of her statement is on whether or not “noncompliance avoids the claim” and therefore whether or not the wording creates a condition precedent, as opposed to whether the time limit is spelt out in terms of a specific number of days.
Is an English court likely to interpret the JCT in the same way?
Although Fes v HFD is a Scottish case concerning one of the JCT contracts designed for use in Scotland, the relevant wording in the JCT Design and Build Contract 2016 (and in some of the other contracts within the suite) is equivalent and there is no particular reason to think that an English court would take a different approach.
At one point under English law, in order to constitute a condition precedent, it was thought that wording needed “to state the precise time within which the notice was to be served, and to have made plain by express language that unless the notice was served within that time, the … rights under the clause” would be lost (Bremer Handels GmbH v Vanden-Avenne Izegem PVBA [1978] 2 Lloyd's Rep. 109). Now clearly, the wording in the JCT Design and Build Contract 2016 satisfies neither of these conditions.
However, more recent English case law has taken a more flexible approach. For example, in Steria Ltd v Sigma Wireless Communications Ltd [2007] EWHC 3454, the wording “provided the Sub-Contractor shall have given within a reasonable period written notice to the Contractor of the circumstances giving rise to the delay” was found to be a condition precedent even though it met neither of the requirements set out in the Bremer case. Similarly, in WW Gear Construction Ltd v McGee Group Ltd [2010] EWHC 1460, Akenhead J described the wording “provided always that” as “often the strongest sign that the parties intend there to be a condition precedent”.
Very recently, in Tata Consultancy Services Limited v Disclosure and Barring Service [2024] EWHC 1185, the Technology and Construction Court has set out some guiding principles distilled from previous authorities relevant to how English courts should approach the question of whether particular wording constitutes a condition precedent, whilst making clear that whether particular wording will constitute a condition precedent “will ultimately turn on the precise words used, set within their contractual context”.
The principles laid out include that:
- “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”;
- “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”; and
- “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.”
Based on an application of these principles, it seems likely that an English court would come to the same conclusion as the Scottish court on this point.
Are there any adjustments to the loss and expense wording in JCT 2024?
There have been no amendments to the relevant wording in the 2024 edition of the JCT Design and Build Contract. This feels like a missed opportunity. Standard forms should be designed for clarity rather than to test the limits of case law. Where the JCT intends to create a condition precedent, it would be clearer if it expressly spelt out the consequences of non-compliance. Even if this is not strictly required, as stated in Tata above, it would certainly be likely to put the matter beyond doubt. Where the JCT does not intend to create a condition precedent, then any language which might suggest otherwise, such as “subject to … compliance …” should be removed.
What is the impact of this case for the construction industry?
Moving forwards, contractors operating under JCT contracts containing wording equivalent to that considered in the Fes v HFD case will need to ensure that they comply strictly with the notice requirements in the loss and expense clause as otherwise there is a serious risk that they will lose their entitlement.
For example, let’s say that the employer prevents the contractor from accessing the site during part of the construction period on a project where the building contract contains similar wording to that considered in Fes v HFD. This will probably cause the contractor to incur additional costs due to the delay, such as the costs of having to have labour and plant available for longer. It seems likely from Fes v HFD that, in order to recover these costs, it is critical for the contractor to notify the employer as soon as the likely effect of the prevention on the regular progress of the works is reasonably apparent to them. Otherwise, there is a risk that they will lose their entitlement to recover such costs under the contract’s loss and expense provisions.