Condition precedent clauses - no notice, no claim?

The Court of Appeal decision of Disclosure and Barring Service v Tata Consultancy Services Ltd  is a useful reminder of the consequences that may flow from not following notice requirements in a contract where the requirement for a notice is the trigger to the right to make a claim.

In this article we provide detail of the case and explore whether Disclosure and Barring Service (DBS) had the right to claim delay damages.

Background of the Disclosure and Barring Service v Tata Consultancy Services Ltd case

Disclosure and Barring Service (DBS) lost its appeal against an earlier Technology and Construction Court decision that a clause in its contract with Tata, a contractor engaged to carry out IT modernising works, required it to serve a non-conformity report before it could recover delay damages. 

Following delays with the project, DBS claimed over £1.5m delay damages from Tata, who contested the claim on the grounds that the contract required DBS to issue a prompt non-conformity report to Tata before the right to claim delay damages arose. The Court of Appeal agreed with Tata’s reading of the clause. As the judge had found that DBS had not served a non-conformity report for the contractor defaults they relied upon for their delay damages claim, it had no right to claim delay damages. 

As the Court of Appeal acknowledged, this was a case which turned on the particular words of a particular contract. Whilst previous judgments might provide useful guidance on the proper approach to take, ultimately the court’s task is to look at the wording used in the context of the contract before it.

Did DBS have the right to claim delay damages?

In this case, the clause under review did not expressly say that service of the non-conformity report was a condition precedent to the right to claim delay damages. Instead, it was a typical two-part ‘if-then’ clause - if the non-conformity report was given promptly following the contractor default, then rights accrued to DBS. DBS had three available outcomes if and only if DBS could show it had completed the steps set out in the ‘if’ part. One of the three outcomes was the right to claim delay damages.  

Lewison LJ pointed out that this type of ‘if-then’ wording is the ‘paradigm of conditionality’, and there are different ways of expressing conditionality. In an ‘if-then’ clause, the ‘if’ part of the sentence sets out the things that have to be done or fulfilled and which form the condition. The ‘then’ part of the clause sets out the consequence that follow from that condition being satisfied. The ‘then’ part of the clause is not reached and does not come into effect until the condition introduced by the ‘if’ part has been satisfied. 

It wasn't necessary for the clause to be expressly defined as a condition precedent for it to be classed as such. The proviso ‘if’ and the list of steps that had to be taken followed by the ‘then’ consequences of compliance clearly point to an objective intention that the listed rights will not arise except upon completion of the listed conditions. The fact that the ‘if’ and ‘then’ parts of the clause were split into two separate sentences, and that all of the ‘if’ conditions applied to whichever of the three ‘then’ consequences DBS selected, this was a clear steer towards reading this clause as a condition precedent. 

The court’s job when looking at if-then conditional clauses is to decide what the conditions are that need to be fulfilled. In this case, it was a requirement to give prompt notice after a contractor default. The factual enquiry is whether that requirement has been satisfied. In this case, DBS had not given the required prompt non-conformity report and as a consequence its right to claim delay damages was lost.

This case demonstrates both the importance of following the procedural notice requirements in contracts, a clause may be held to be a condition precedent to the accrual of rights may arise even where it is not signposted as such. For further information please contact our construction team.