FIDIC’s clause 20 a common law view Andrew Tweeddale Corbett & Co, London “No one can obtain an advantage by his own wrong." However, clause 20.1 of the FIDIC forms of contract appears to permit an employer to ‘obtain an advantage where it has caused a delay and where the contractor has failed to give a notice in the 28 days specified. In such circumstance should a court or arbitrator uphold the notice provisions in the FIDIC contracts? Tris aris consiers what happens when a contractor fails to give a clause 20.1 notice with the result that the employer takes advantage of his or her own default. Clause 20.1 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, describing the event or circumstance 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. Otherwise, the following provisions of this Sub-Clause shall apply... Under the FIDIC forms of contract, a contractor that wishes to make a claim for either time or additional money must give a notice in accordance with clause 20.1, Historically, courts and arbitrators in common law countries would hold the parties, to their bargains however difficult or unconscionable the result might be. In recent years this position appears to be changing. The legislation in many common Jaw countries imposes terms in contracts to protect consumers. In some jurisdictions, contracts may also be interpreted to avoid commercial absurdity, and in other (CONSTRUCTION LAW INTERNATIONAL Volume I No 2 June 2006, jurisdictions the courts will strike down unconscionable bargains. There is also a doctrine, which is applied in many jurisdictions, that: ‘No one can obtain an advantage by his own wrong’ (De Zotell v Mutual Life Ins. Co. of New York, 60 SD 532, 245, NW58, 59). It is sometimes described as a ‘principle of equity’ and expressed in the ‘maxims: ‘ex injuria non oritur jus’ or ‘the clean hands theory’ Condi ns precedent ‘Acclause 20.1 notice isa condition precedent to the right to recover either time or money, Under English law, the mere fact that the words ‘condition precedent’ are not used is immaterial. Courts and arbitrators should Jook at the intent of the wording. There is authority that: ‘itis not essential that the very words “condition precedent” be used Other words can be used, if they are clear’ (Eagle Star Insurance Company Lid v Cresswell & Ors [2004] EWCA Giv 602). Furthermore, a party relying upon that condition precedent does not need to show that it has been prejudiced by the breach (Pioneer Concrete (UR) Ltd v National Employers Mutual General Insurance Association Ltd [1985] 1 Lloyds Rep 274) The prevention principle ‘The so-called ‘prevention principle’ hasbeen stated in many forms over more than 150 years. A recent conception of it was in Alghussein Establishment 9 Eton College {1988} 1 WLR 587, where it was said that a party 0FEATURE ARTICLES should not benefit from its own breach of contract. This principle was most famously applied to construction contracts by the English Courtof Appealin Peak Construction (Liverpoo) Lid » McKinney Foundations Ltd (1970) 1 BLR 111. It was held that a delay caused by an employer could render time ‘at large” (and therefore no liquidated damages could be recovered) if either there was no provision within the contract to award the contractor an extension of time, or such a provision had not operated in the circumstances s0 a8 to expunge the delay effect of the prevention. Scope of the prevention principle An employer has numerous obligations towards the contractor under FIDIC’s Red. Book, including, for example, an obligation to give to the contractor ‘a right of access to, and possession of, all parts of the Site within the time (or times) stated in the Appendix to Tender’, In the event that this obligation is breached and the contractor is delayed and suffers loss, he or she may be entitled to claim. time and cost. In such circumstances will the employer be relieved from paying the contractor its losses ~ and will the employer retain its entitlement to deduct liquidated damages ~ if the contractor fails to give a clause 20.1 notice? Australia In the Australian case of Turner Corp Ltd (Receiver and Manager Appointed) v Austotel Ply Lud (1997] 13 BCL.378, the court held that a failure by the contractor to give the required notice disqualified the contractor from taking advantage of the prevention principle so as to render time at large. Rather, as Cole J stated, ‘party to a contract cannot rely upon preventing conduct of the other party where it failed to exercise a contractual right which would have negated the effect of that preventing conduct’ Hong Kong This decision was followed in the Hong Kong case of Dragages et Travaux Publics v Hong Kong Chinese Insurance Co Ltd (unreported ~ case referred to in the HKIS Newsletter 7(3), March 1998). As a result of the indications given by the courts that they would uphold notice provisions in contracts, the FIDIC forms of contract were amended to make the giving of notice a condition precedent to the award of an extension of time and money. 28 ‘An employer should not assume that simply because a contractor has failed to give a clause 20.1 notice it will be entitled to deduct liquidated damages if the delaying event was caused by his. or her own fault. Scotland In the recent Scottish case of City Inn Lid v Shepherd Construction Ltd [2003] ScotC 146, the same issues arose. The contract was amended by the parties so that the giving of a notice of claim was a condition precedent toadaim foreitheradditional time or money. The court upheld the amenclmentandl stated that the contractor had elected not to give the notice and was therefore not entitled to either time or money. Different considerations may apply where there isalso an obligation on the architect or contract administrator to consider extension of time claims independently: see, for ‘example, Peninsula Balmain Pty Lid v Abigroup Contractors Pty Lid (2002] 18 BCL 322 However, an examination of this issue falls outside the scope of this article On the other hand, there are other cases that, while not engaging directly with the previous authorities, reinvigorate the Peak conception of the prevention principle and its potential to deprive the employer of any right to liquidated damages. In Gaymark Investments Pry Lid v Walter Construction Group [2000] 16 BCL 449, the arbitrator held that delays to completion were due to acts of prevention caused by the employer. The arbitrator further held that the contractor had failed to give the requisite notices for an extension of time and concluded that the “acts of prevention’ by the employer rendered time at large. Having arrived at this conclusion, the arbitrator then went on to conclude that the contractor had in fact completed within a reasonable time having regard to the acts of prevention. Bailey J in the Supreme Court of the Northern Territory upheld the decision of, the arbitrator. He concluded that the decision in Turner Conp v Austotel was distinguishable because in that case it was not the employer or contract administrator that was responsible for the delay. Bailey J appeared to distinguish between fault-based delay and non-fautt- based delay, He further held that to allow the employer to claim liquidated damages where it was the cause of the delay would be ‘CONSTRUCTION LAW INTERNATIONAL Velume | No 2 June 2006completely unmeritorious, The Gaymark decision hias, however, been criticised: see, for example, 1 N Duncan Wallace, Liquidated Damages ‘Down Under’: Prevention by Whom? [2002] 7 Construction and Bingineering Lae, issue 2, 23, Avoiding the condition precedent Av first sight, i would appear that the above ‘cases are muually incompatible, However, it is possible co make a distinction between the Gaymarkcase and the other cases on the basis of fauit and non-fault delays, In the Gayman case, the delay was caused by the fault of the employer whereas in the other cases it was caused by neutral events, such as bad weather, or instructions. There is, 1 believe, a distinction beween “an act of prevention’ and an ‘insuction’ by the employe, An instruction is the exercise of a right that the parties have conferred upon the employer or its agent. [tshowk! not be categorised as the employer taking advantage ofits own wrong. However, although creating a distinetion beuween fault and non-fault cases would be attractive, it could in practice cause unfairness. [i may be inequitable if a contractor could strike down a liquidated damages clause, and make time at large, simply by not giving a clause 20.1 notice after some minor employer delay. Itisalso difficult to make a distinction between an act of prevention and an instruction. Why should a contractor be liable to pay liquidated damages where delays have been caused by an cemployerissted instruction but not where he or she has been delayed by an act of prevention? There may, of course, be other ways (© circumvent the effects of the condition precedent in clause 20,J of the FIDIC conditions. In each case, the parties will have to consider the substantive law of the contract. In the United States case of ‘Alexander 0 Anthony International (19 August 2003, IADR, Federal Court of Appeals), for example, it was held that a 30-day time-bar provision was unconscionable and that the court would enforce only the part of the contract without the unconscionable terms. In other countries, it may be argued dhata time-bar provision applies only to technical issues and not legal issues. It has also been successfully argued that the time-bar provision should not apply until the full extent of the costs, loss, damages or delay has ‘CONSTRUCTION LAW INTERNATIONAL Yolume | Ne 2 june 2006 materialised: Order of the Sisters of Mercy v Wormald [1989] & BCL 77. Alternatively, court may find that a condition precedent that has the effect of prohibiting a contractor claiming for a breach of contract by the employer is conteary to the obligation of good. faith, Conclusion ‘An employer should not assume that simply because a contractor has failed to give a: 20.1 notice, it will be entitled t deduct liquidated damages ifthe delaying event was caused by his or her own fault The correct approach is, T would suggest, that where a contractor fails to give a clause 20.1 notice, i1 should be prohibited from claiming time or money. However, where the cause of the delay was due to an act of prevention by the employer, the employer should be precluded from claiming liquidated damages. ‘The rationale for this approach is found in the definition of the prevention principle. ‘The principle is that no one should benefit fiom his own wrong. Where the employer has caused delay, then its benefit is its clain for liquidated damages (or in cases where there is no liquidated damages clause, general damages). The employer obtains no additional benefit simply because the contractor fails to claim time or money. There is therefore nothing inherently wrong with clause 20.1 where it prevents the contractor claiming additional monies if no notice is given ‘The real difficulty is, however, what should happen to the time for completion? In Peck and Gaymark, the court held that the answer was to make time at large. This has the attraction of simplicity, although it could result in an wnmeritorious situation ~ which the Turner cases sought to forestall ~ where the contractor avoids the liquidated damages provisions by his or her own failure to give a notice. ‘The better answer is simply to prohibit the employer claiming liquidated damages for that period of delay that fs due to its fault However, to do this would involve rewriting or at least manipulating the contract, and in common law systems, the courts and arbitrators have shied away Irom doing this. What remains are contlicting viewsas (o the effect of clause 20.1 where there has been an employer-caused delay. One English lawyer's »FEATURE ARTICLES view was that a ‘contractor should not be allowed to submit a claim for an EOT at a Jate stage, and should remain liable for LADS’ (Dr Hamish Lal, Extensions of Time: The Conflict Between the ‘Prevention Principle’ and Notice Requirements as a Condition Precedent (SCL April 20 lawyer's view is that: ‘the claims notification provisions should not apply to breaches of contract’ (Robert Knutson, FIDIC: An Analysis of International Construction Contracts (Kluwer Law International, 2005, p 74)) In any event, what is clear is that: * the courts approach to this problem; « iis an issue that is ikely to have significant financial consequences to a party; and Another common k wwe yet to adopt a consistent www.powerdoc.co.uk * iC is an issue that is now being raised in numerous FIDIC adjudications and arbitrations. In light of the above, clause 20.1 is a clause that sooner or later FIDIC might wish to consider amending Andrew Tweeddale is a senior assistant solicitor at Corbett & Co, Internationa Construction Lawyers, London, Many thanks are due to Matthew Bell (Co-Editor of Clint) for his suggestions and assistance on the Australian cases mentioned and for his advice generally on this article. Cea ue tel Pere eKe esi on Mil nial manage and ac Nog act documentation eeaactnees cc} four desktop