A Scottish appeal court recently confirmed in the FES Ltd v HFD Construction Group Ltd case that the requirement in a contract for the contractor to give notice, if it wants to claim loss and expense, is a condition precedent to the right to receive payment. The decision highlights the importance of giving timely notices. The consequence of not doing so may be draconian as the right to make an otherwise valid claim is lost.
In the FES Ltd v HFD Construction Group Ltd case , the contractor claimed loss and expense for delay and disruption during the works, but failed to follow the contract requirements for giving notice of that claim. The contract included the JCT Standard Building Contract with Quantities for use in Scotland (2016 edition). The key wording in that contract also appears in other JCT standard forms, such as JCT Design and Build 2016 and 2024 used in England and Wales.
The Scottish appeal court agreed with a lower court and the adjudicator, and said that as no notice had been given in accordance with the contract terms, the contractor had no right to claim compensation for the loss and expense it had incurred due to delay and disruption during the course of the works. This may seem a harsh result where the cause of the delay and disruption are the fault and risk of the employer.
The approach of the Scottish court is not dissimilar with the position taken in the English courts. Where the contract clearly and expressly requires the giving of notices before the right to claim arises, the courts will frequently find a condition precedent.
In Walter Lilly v Mackay, the home owner argued that his contractors were not entitled to loss and expense because it had not given notice as required by the contract. The parties and the judge agreed that a clause requiring a timely written application of a claim for loss and expense was a condition precedent to the contractor’s entitlement to recover loss and expense, it was a ‘no notice no claim’ clause. In that case, the judge was satisfied that the contractor had in fact given sufficient notice, so the claim succeeded.
A total failure to give the required notice will usually bar the right to claim loss and expense. The courts are generally more flexible where the notice has been given but there is a question about the adequacy of the content.
A number of standard form contracts also require the contractor to give advance notice of a claim for an extension of time. That raises the question as to whether a failure to give notice also bars the right to an extension of time. It has been argued that the condition requiring a notice to be given before the contractor is entitled to claim an extension of time is not a condition precedent. This is because, where the works are delayed for reasons that are the fault or at the risk of the employer, that amounts to an act of prevention, and if there is no provision for an extension of time in such circumstances, this will put time for completion of the works at large. That argument has not found favour with the English courts.
There seems no reason in principle why the prevention principle should defeat the parties’ clear contract agreement that the grant of an extension of time is conditional upon the giving of timely notice. Indeed, this is precisely how the NEC contracts operate and which remain unchallenged. Even though the outcome leads to a windfall for the employer by way of liquidated damages, as the Supreme Court has made clear, an outcome unfavourable to one party is no basis to reject the natural meaning of the words used in the contract.
Whilst this case is not binding in England, it is persuasive. Contractors and subcontractors should bear in mind the Scottish interpretation of the JCT wording which is highly likely to be interpreted as a condition precedent in the English courts also.
The giving of detailed particulars can follow, but giving timely notices of delay and loss and expense is crucial to maintaining your entitlement to such claims. In other forms of construction contracts, this case is another reminder that the words 'condition precedent' are not required. Provided there is a clear link between a notice and the entitlement arising, the relevant clause will be held to be a condition precedent.
For further information, please contact our construction team.
