Notification of Claims under FIDIC Contracts – Yigal Gabriel and Khyati Rathod

New Delhi, August 23, 2016

Introduction

This article attempts to shed some light on contractual provisions with respect to notification of claims under Fédération Internationale Des Ingénieurs- Conseils, FIDIC standard form of contracts. This article deal with most common forms of FIDIC contracts being Red, Yellow and Silver Books (collectively “Books”).Contractor’s and Employer’s claims are governed by sub clause 20.1 and 2.5, respectively in the Books.

FIDIC published its first edition of standard form of contract called “Red Book” in 1957 and updated its existing main standard form of contracts in 1999.

In 2008, FIDIC published new form of Contract for Design, Build and Operate Projects (the “Gold Book”).

Contractor’s Claims under FIDIC:

Contractor’s claims are governed by sub clause 20.1 in Red, Yellow and Silver Book and it specifies the procedure to be followed for the contractor to make claim as follows:

“If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer (or to the Employer under the Silver book ), 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 circumstances.

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. Otherwise, the following provisions of this Sub-Clause shall apply…..”

The essence of sub clause 20.1 is that the contractor must give notice for any claim not later than 28 days after he becomes aware or should have become aware of event or circumstances giving rise to claim to be entitled for extension or any additional payment.

The new FIDIC Gold Book contains slight modification to sub-clause 20.1.The sub-clause 20.1(a) of Gold Book provides that in the event the contractor fails to provide notice of its claim within a time limit of 28 days but has justifiable reason for the same, then the contractor can submit its claim to the Dispute Adjudication Board (the “DAB”) along with a justification for late submission.The DAB on receipt of such justification has the authority to condone the delay. Therefore, sub-clause 20.1(a) provides a remedy to a time barred contractor by allowing the contractor to request DAB to rule whether the event or circumstances justify the delay of notice.

Whether notice under sub-clause 20.1 is a condition precedent?

When is the requirement to give notice triggered? In a recent decision, Obrascon Huarte Lain (OHL) SA v Attorney General of Gibraltar ([2014] EWHC 1028 (TCC)) (“OHL Case”),the Court had to consider a case arising from a dispute (under FIDIC Yellow Book),relating to construction of a road and tunnel at Gibraltar Airport.

The brief facts of the case were that the works commenced in December 2008 and completion was set for December 2010. However, the works got delayed and OHL sought to claim an extension of time from the employer. Due to various reasons, the employer served a notice to OHL terminating its employment. The case raised a number of other issues but this article will focus on the Court’s interpretation of sub-clause 20.1.

Mr Justice Aken head while analysing the sub-clause 20.1 also referred to clause 8.4 (Extension of Time for Completion) which identifies circumstances in which an extension can be granted. It was held that OHL was in principle entitled to an extension of time, but that the availability of the claim for an extension of time was subject to OHL first complying with sub-clause 20.1, which imposed a condition precedent on OHL to give written notice of any claim.In reaching its decision, the Justice found that the “notice” provision should be read broadly. The “event or circumstance” that triggered the requirement to serve notice could either be when there will be a delay (prospective delay) or when the delay has been atleast started to be incurred (retrospective delay).

Thus, it was interpreted in the OHL Case that sub-clause 20.1 imposes a condition precedent on the contractor.

Employer’s claims

Sub-clause 2.5 of FIDIC provides as follows:

“If the Employer considers himself to be entitled to any payment under any clause of these Conditions or otherwise in connection with the Contract, and / or to any extension of the Defects Notification Period, the Employer or the Engineer shall give notice and particulars to the Contractor…….

The particulars shall specify the Clause or other basis of the claim, and shall include substantiation of the amount and / or extension to which the Employer considers himself to be entitled in connection with the Contract.….”

Notice procedure

In the matter of NH International (Caribbean) Limited v National Insurance Property Development Company Limited (Trinidad and Tobago)((2015)WL 4635342),consideration of two appeals on points of law from two of five arbitration awards were made in relation to the construction of a hospital in Trinidad and Tobago.The 2 issues were (a) whether NHIC was entitled to terminate the Agreement and (b)NIPDC’s set-offs and claims.

Lord Neuberger upheld the arbitrator’s decision that employer did not submit financial information sought by contractor under sub-clause 2.4 [Employer’s Financial Arrangements], and that the contractor was subsequently entitled to have suspended work under sub-clause 16.1 and validly terminated the contract in accordance with sub-clause 16.2 [Termination by Contractor].

The arbitrator also addressed the issue of counter claims made by the employer with respect to the contract that was terminated.The contractor alleged that the employer could not do this, as the claims had not been notified in accordance with sub-clause 2.5. The Privy Council agreed with the contractor and said that the purpose of sub-clause 2.5 “is to ensure that claims which an Employer wishes to raise, whether or not they are intended to be relied on as set-offs or cross-claims, should not be allowed unless they have been the subject of a notice, which must have been given ‘as soon as practicable…..”.

Therefore, if the employer fails to comply with the notification requirements as set out in sub-clause 2.5, the Privy Council found that “the back door to raising the claim at a later stage is firmly shut”. The employer’s counterclaims, raised by way of set-off, were disallowed as the clause makes it clear that if employer wishes to raise a claim, the same should be done as soon as practicable and in a particular form.

Conclusion

Clauses pertaining to time barred claims will continue to feature in for most of the EPC projects.

While provisions regarding time limit under the contract may vary, it appears that both employers as well as contractors ought to give notice of their claims for giving rise to any claim.

Nevertheless, one needs to bear in mind that every case is different and every case requires evaluation of facts to come to a conclusion.

Corporate Comm India(CCI Newswire)