Conditions precedent in construction contracts – beware the ticking time bomb
22 November 2021
Many of those who administer building contracts on behalf of contractors or ‘subbies’ may be unaware of the effects of conditions precedent, leading to an inability to claim money and time that would otherwise be available with large consequences.
Conditions precedent: what are they?
A condition precedent is a contractual requirement that must be obeyed before a contractual right or obligation arises. If the claiming party does not apply properly or does not do so in the stipulated time, it would be unable to recover money or time. Conditions precedent are typically added by way of a schedule of amendments into a standard form contract. Therefore, in JCT contracts (amongst others) we can expect to see conditions precedent added to the clauses regulating extensions of time and claims for loss and expense.
A typical condition precedent would be one that gives a ‘subby’, say, seven days after an event arising to claim loss and expense, in default of which no time or money would be awarded. It is easy to miss such notice periods, particularly if a subby is working for a contractor that it has a good relationship with, and to be ignorant of the amended terms of the subcontract.
What if things go wrong?
The first thing to do if the worst looks as though it has happened and a notice period missed is to consider if a condition precedent actually exists.
It is not necessarily the case that the words “condition precedent” need be used to establish the principle, but the courts insist that the meaning and intent of the clause is expressed. In a leading case, a condition precedent was not found to be in existence, as the clause contained no fixed time limit. However, the courts will consider the form of the clause and how it relates to the contract as a whole when interpreting conditions precedent. If the meaning of the clause is clear the courts will enforce it, even if the consequence of missing the notice period are not stated, or the requirement is to simply serve notice “promptly”.
Another tactic is to consider if the clause is ‘ambiguous’; the courts are not keen on enforcing them if they are. A good example of a clause that is ambiguous and may not create a condition precedent is NEC Clause 61.3. This provides that a contractor must notify the project manager of the cause of the compensation event within eight weeks of when “the contractor believes” there is a compensation event. There is obvious room to manoeuvre here, with the timing being dependent on a subjective opinion, assuming the facts are favourable.
Trying to rely upon documents as notices that were submitted on site and that were not intended to be a notice of say, a claim for loss and expense, is fraught with hazard, but possible. In Obrascon v HM AG for Gibraltar, although the court found that a claimant could rely upon documents submitted for other purposes as a notice under the contract, on the facts of the case, only one of the claimant’s two claims was successful. Clearly, relying on documents for notices that were never supposed to be such is risky.
By something of a last throw of the dice, a claimant can ask the court to exercise its discretionary powers to deem it in the interest of equity that relief be granted. For example, a court could decide that the actions of the defendant mean that the defendant has waived its right to rely on the condition precedent. To show that the defendant should not be able to reply upon the condition precedent, the claimant would need to demonstrate that there was a promise from the defendant to the effect that it would not rely upon its strict legal rights, and the circumstances make it inequitable now to allow the defendant to enforce its contractual rights.
Parties considering entering into a standard form contract that has been amended, or who are entering into a bespoke or unfamiliar form of contract should have the proposed terms reviewed to highlight any potentially disastrous conditions precedent.
Conditions precedent must be treated with due respect; time limits observed and any proscribed forms of notice and supporting evidence used. There is no substitute for tight project management by staff adequately trained in how to administer the contract.
Whilst it may be possible to wriggle around a condition precedent, doing so is likely to be an uphill task. Prevention is better than cure. In an environment where the courts are seemingly keen to enforce conditions precedent, relying on a currently good working relationship with the employer may serve a contractor well in certain circumstances. However, a change in personnel, or the project going badly, could easily leave a more casual contractor or subby to rue the day that it did not serve its notices on time and by the book!
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at November 2021.