黑洞社区

The judgment in Obrascon Huarte Lain SA vs Her Majesty鈥檚 Attorney General for Gibraltar  was given by Mr Justice Akenhead on 16 April 2014. Among many matters it related to a Spanish contractor鈥檚 claims for further time and money arising from a contract to design and build a road and tunnel at Gibraltar airport. After two and a half years on the two year project little more than a quarter of the work had been done when the employer terminated the contract. The court had to deal with the contractor鈥檚 claims and any liabilities flowing from the termination of the agreement.

Subject to some minor changes the general conditions of contract were those of the FIDIC Yellow Book 1st edition 1999. The court considered the contract鈥檚 extension of time and notice provisions. Clause 8.4 [the extension of time provision] sets out the circumstances under which a contractor would be entitled to an extension of time.  It states 鈥渢he Contractor shall be entitled subject to Sub-clause 20.1 鈥� to an extension of the Time for Completion if and to the extent that the completion 鈥� is or will be delayed by any of the following causes鈥︹��.  The judge in particular noted that the wording of the clause was not 鈥渋s or will be delayed, whichever is the earliest鈥�.      

Clause 20.1 [the notice provision] imposed a condition precedent upon the contractor to provide a notice describing the 鈥渆vent or circumstance鈥� giving rise to an extension of time.  This notice was to be given 鈥渁s soon as practicable, and not later than 28 days after the contractor became aware, or should have become aware鈥︹��.  A failure by the contractor to give notice of the claim within this timescale meant that any right to an extension of time  together with any prolongation costs was time-barred.

An undesirable result of the strictest interpretation of becoming 鈥榓ware of the event鈥� could mean the contractor being time-barred before he 鈥榖elieves鈥� an event is a compensation event

The court rejected the contractor鈥檚 claims and found, with one exception, that it had failed to comply with the notice requirements. However, Mr Justice Akenhead did provide some useful insight into how the court might construe the meaning of such clauses in the future. Of particular note was his comment that he could 鈥渟ee no reason why this clause should be construed strictly against the contractor鈥� and could 鈥渟ee reason why it should be construed reasonably broadly, given its serious effect on what could otherwise be good claims鈥︹��.  So when does the 28 day period start? 

There are certain similarities between FIDIC鈥檚 Clauses 8.4 and 20.1 and Clause 61.3 of the latest edition of NEC 3, published in April 2013. There is similarity between FIDIC鈥檚 鈥渋s or will be delayed鈥� and NEC3鈥檚 鈥渉as happened or which he expects to happen鈥�, noting the NEC3 clause also does not say 鈥溾��whichever is the earliest鈥�.

We identified the potential implications of the NEC3 wording in our previous article 鈥淐ompensation culture鈥� (page 48, 28 February 2014). The Obrascon judgment noted that becoming 鈥渁ware鈥� of an 鈥渆vent or circumstance鈥� introduced a subjective element into the test noting the NEC3 provides further subjectivity in its use of the words 鈥渆xpects鈥� and 鈥渂elieves鈥�.  We concluded that without judicial clarification of its meaning, and irrespective of any parallel rights to claim damages or indemnities that exist, contractors were well advised to notify all facts, past, present or future, which could conceivably be regarded as a compensation event.  

An undesirable result of the strictest interpretation of becoming 鈥渁ware of the event鈥� in NEC3 could mean the contractor being time-barred before he 鈥渆xpects鈥� and/or 鈥渂elieves鈥� an event is a compensation event and perhaps even before the 鈥渆vent鈥� itself has even occurred.
Clause 61.3 similarly seeks to impose strict time limits upon the contractor although it refers to notice of an 鈥渆vent鈥� only as opposed to 鈥渆vent or circumstance鈥�. Should the contractor fail to notify an 鈥渆vent鈥� as a 鈥渃ompensation event within eight weeks of becoming aware of the event鈥� he forfeits any claims to a change 鈥渋n the Prices, the Completion Date or a Key Date鈥� except where the project manager is duty bound to notify. The judge鈥檚 willingness not to apply a strict interpretation of Clause 20.1, in the judgment, might well assist contractors when using NEC3.

We concluded however that the most likely interpretation of the date of the 鈥渆vent鈥� in NEC3 was that it should be construed as the date when the contractor 鈥渂elieves鈥� the event was or could be a compensation event, thus applying a subjective test. The Obrascon judgment supports our view. The contractor鈥檚 awareness of an 鈥渆vent鈥� must also extend to its anticipated consequences from which it seeks relief.

Jeffrey Brown is a partner in the London office of Veale Wasbrough Vizards. Steve Goodwin is a director of GVE Commercial Solutions