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In a warning for contractors, a Scottish Court has ruled that a standard form notification clause was a condition precedent to recovering time-related costs (TRCs) (FES Ltd v HFD Construction Group Ltd [2024] CSOH 20). The decision highlights the potential interpretation risks with notice provisions in construction contracts – even standard form contracts. It also shows that courts may be prepared – as they were here – to go against the views of the standard form drafting committee.
Background
FES v HFC concerned the fit-out of an office building. The contract adopted the JCT Standard Building Contract with Quantities for Scotland (SBC/Q/Scot 2016) with special conditions. The special conditions are not relevant, however, as the decision turned on unamended standard form clauses 4.20.1 and 4.21.1:
- Clause 4.20.1 entitled the Contractor to TRCs subject to compliance with notification obligations in clause 4.21.1:
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 part of it under clause 2.5 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. [Emphasis added].
b. Clause 4.21.1 required the Contractor to notify likely delays:
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. [Emphasis added]
The Contractor suffered delays and associated costs, which it sought to recover.
When the principal rejected its claim, the Contractor adjudicated. The adjudicator concluded that, whatever the merits of the underlying claim, the Contractor had failed to give notice under clause 4.21.1 and this was a condition precedent to recovering TRCs. It seems the Contractor had inadvertently given notice late, which is an all-too-common story.
Given the seemingly disproportionate consequences, the contractor challenged the adjudicator’s interpretation of clause 2.20.1 and, in particular, whether the words “[…] he shall, subject to […] compliance with the provisions of clause 4.21 be entitled to reimbursement of [TRCs]” created a condition precedent to its entitlement. The Scottish Court affirmed it did.
Notification was a condition precedent
The decision turned squarely on the contract drafting. The Court said the wording “subject to … compliance with clause 4.21 [the notification clause]” was sufficient to establish a condition precedent. It described this as “clear and straightforward” language, which it considered could not be construed as creating anything except a condition precedent.
The Court was unpersuaded by arguments of disproportionality or that these were standard form clauses in which more balanced obligations would be expected. Further, the fact that the clause did not spell out the consequences of non-compliance or that other standard form clauses in the JCT contract expressly used the words “condition precedent” did not alter the Court’s conclusion.
What was even more notable, if not surprising, was that the Court was prepared to adopt a different interpretation to that expressed in an article by a member of the JCT drafting committee published on the JCT website. The article said 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” (emphasis added). The Court simply disagreed and otherwise suggested (somewhat unconvincingly) that the article be read more narrowly as relating to the absence of hard time limits in clause 4.21.1.
Our comments
This decision serves as a caution to contractors – not only about the importance of adhering to notice obligations but also the potential for such clauses to be construed as condition precedents. Failing to meet strict notification requirements can have severe consequences, as this case illustrates, and contracting parties should ask themselves at the outset whether that is the intended risk allocation. If it is, then increased contract administration resourcing and attendant pricing allowances will likely be required to allow for this. If it is not, then the drafting ought to reflect this.
As a comparison, NZS3910 (2013 and 2023) includes advance notification obligations (clause 5.21 in the 2013 edition and clause 6.10 in the 2023 edition). However, unlike clause 4.21.1 in SBC/Q/Scot 2016, those provisions spell out the consequences of non-compliance (namely, a reduction in the value of any resulting Variation had notification be properly given), which may be a sufficient point of difference. Nevertheless, contracting parties should bear in mind that additional or stricter notification obligations are commonly introduced to NZS3910 in special conditions, in respect of which similar considerations to those arising in FES v HFC might apply.
Whether or not the same conclusion would be reached in New Zealand, FES v HFC underscores the importance generally of taking care to ensure the drafting of notification clauses clearly and accurately reflects the intention of the parties. Otherwise, they may find that a condition precedent arises where potentially none was expected.
If you have any questions about this case, please get in touch with our Construction Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
