By Mike R. Stewart and Camilla A. de Moraes, K&L Gates, London
Case law on the FIDIC form of contract has to-date been scarce, particularly in respect of Sub-Clause 20.1.
The recent case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar  EWHC 1028 (TCC) gives an interesting judicial insight into the interpretation of Sub-Clause 20.1 as well as Sub-Clauses 4.12 (Unforeseeable Physical Conditions) and 15 (Termination).
The case was brought by the Contractor, Obrascon Huarte Lain (OHL), who was engaged to undertake the design and construction of a road and tunnel under the runway of Gibraltar airport. Subject to some minor amendments, the contract was based on the FIDIC Yellow Book.
The main issue for the court to determine related to the validity of the termination of the contract by the Employer, the Government of Gibraltar. The court also considered the Contractor’s compliance with Sub-Clause 20.1 in respect of extension of time claims brought for the discovery of rock and exceptionally adverse weather (pursuant to Sub-Clause 4.12).
Sub-Clause 20.1 must be complied with where 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 requirement is that the Contractor must notify the engineer, describing the event or circumstance giving rise to the claim “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.” [emphasis added]
If the Contractor fails to give notice of a claim within the 28-day period, he shall not be entitled to an EOT or any additional payment and the Employer shall have no liability in respect of such claim.
The 28-day period referred to within Sub-Clause 20.1 does not run from the occurrence of the event or circumstance giving rise to the claim. Instead, it runs from when the Contractor “became aware, or should have become aware, of the event or circumstance” giving rise to the claim.
Less clear is whether the 28-day period starts running when the Contractor is aware (or is deemed to be aware) of (i) the event or circumstance or (ii) the fact that the event or circumstance is to have time and/or cost consequences such that he is entitled to an EOT or additional payment.
In his judgement, Mr Justice Akenhead saw no reason why Clause 20.1 should be construed strictly against the Contractor, especially given the serious consequences of such an approach, namely that the Contractor would lose entitlement to what otherwise might be a good claim against the Employer.
Mr Justice Akenhead, in reaching his decision, made reference to Sub-Clause 8.4 of the FIDIC conditions, which sets out the circumstances in which the Contractor is entitled to an extension of time. Sub-Clause 8.4 states that:
“The Contractor shall be entitled subject to Sub-Clause 20.1…to an extension of the Time for Completion if and to the extent that the completion for the purposes of Sub-Clause 10.1…is or will be delayed by any of the following causes…” [emphasis added]
The judge placed particular emphasis on the words identified in bold in the paragraph above. He stated that the entitlement to an extension clearly arises either when it is clear that there will be a delay (a prospective delay) or when the delay has at least started to be incurred (a retrospective delay). From this, he concluded that notice does not have to be given until there actually is a delay.
Whilst of course the Contractor can give notice when it reasonably believes that it will be delayed, it is not required to do so. Sub-Clause 8.4 grants the Contractor the choice by virtue of the word “or” between “is” and “will be.” If the Contractor was required to give notice on the earlier date, the wording of Sub-Clause 8.4 would have read “is or will be delayed whichever is the earliest” [emphasis added].
Further, the judge held that whilst there is no particular form of notice required pursuant to Sub-Clause 20.1, it must be recognisable as a “claim”. In this case, OHL had tried to rely on a monthly progress report which stated that “The adverse weather condition (rain) have [sic] affected the works” to constitute the requisite notice for an extension of time. In the judge’s view, this was “clearly nowhere near a notice under Clause 20.1.”
Mr Justice Akenhead confirmed that the onus is on the Employer to establish that a notice is not given in time. In any event, in this particular case, OHL failed to give notice of the exceptionally adverse weather within the 28-day period and, therefore, was only entitled to a one-day extension to the Time for Completion.
Sub-Clause 4.12 (Unforeseeable Physical Conditions)
The court, in determining whether OHL had encountered unforeseeable physical conditions, was required to consider the ground conditions that were reasonably foreseeable by an experienced Contractor at the date of the submission of the tender. OHL had been provided with site data, and had been told to allow for a substantial volume of contaminated material, but had not done so.
The court held that OHL should have carried out “some intelligent assessment and analysis” of why the site was contaminated and what the real risk was of encountering more contaminated material than had been envisaged at the tender stage. OHL had failed to do so and, therefore, its claims were rejected.
Sub-Clause 15 (Termination)
The court also had to consider whether the Employer had lawfully terminated the contract with OHL. Sub-Clause 15 provides that the Employer is entitled to terminate the contract if the Contractor (having been given notice) does not rectify a failure to carry out any obligation under the contract. The court held that Sub-Clause 15 is generally to be construed as permitting termination for significant or substantial breaches, rather than trivial or insignificant ones, but rejected OHL’s argument that the breach relied upon must be equivalent to a repudiatory breach of contract.
The court ultimately found in the Employer’s favour with regards to the lawfulness of the termination. Amongst other things, this was on the basis that OHL failed to progress the Works with due expedition, thereby breaching Clause 8.1 of the Contract. This allowed the Employer to terminate under 15.2(c) and recover all costs associated with the termination and completion costs, insofar as the same exceeded OHL’s original contract price. The award is likely to be the largest ever awarded to the Government of Gibraltar and will, therefore, have significant economic consequences, not least that it should be able to finalise the works commenced by OHL and have a working tunnel under the runway.
This recent case provides welcome clarity with respect to a number of matters.
Most importantly it highlights that, under Sub-Clause 20.1 of the FIDIC conditions, the clock does not start running for the Contractor until the date on which he is aware (or should have been aware) of the delay resulting from a particular event or circumstance. Although the court only considered Sub-Clause 20.1 in respect of an extension of time, the same principle is expected to apply to claims for additional payment made pursuant to this provision.
Claims made pursuant to Sub-Clause 20.1 must be identifiable as claims, with a description of the event or circumstance relied on, and must state that the notice is intended to notify a claim for an extension of time or additional payment under the contract. A passing reference to a particular event will not, on its own, be sufficient. However, it is important to note that whilst this judgment is likely to be viewed as positive for Contractors, it is certainly not carte blanche for the Contractor to disregard the notice provisions all together. He still has to comply with the 28-day period; it simply starts a little later.