Contractor’s Notices and Claims for Time and Additional Payment Submitted under FIDIC 1999 edition: Clause 20.1
Recent decisions of the DIFC Court have provided invaluable guidance on the interpretation and application of the notice requirements of sub-clause 20.1 of the FIDIC General Conditions of Contract1999 Edition.
Brief Summary of the Relevant Provisions
Clause 20.1 of the FIDIC 1999 General Conditions sets up a two-stage process for the submission of claims by Contractors for extensions of time and/or additional payment.
- The first stage is a notice from the Contractor that describes the matter or circumstance that has arisen (“Notice”).
- The second stage is the Contractor’s submission of the fully detailed claim (“Claim”).
The Notice and Claim are to be submitted 28 days and 42 days, respectively, from the date the Contractor became aware (or should have become aware) of the event or circumstance giving rise to the Claim.
FIVE Real Estate Development LLC v Reem Emirates Aluminium
In the matter of FIVE Real Estate Development LLC v Reem Emirates Aluminium[1], the defendant (“Contractor”) claimed (by way of its counterclaim) that it was entitled to an extension of time for a period of 663 days, and prolongation costs for the whole of that period.
Whilst the Claimant (“Employer”) accepted liability for part of the delay, it argued that the Contractor had not complied with sub-clause 20.1 of the FIDIC General Conditions of Contract for Construction, for building works designed by the Employer, 1999 edition, known as the FIDIC Red Book (“FIDIC Contract”), thus being time barred from any entitlement to additional time and payment.
Whilst the court found that the Employer was responsible for the whole of the delay, it acknowledged that the Employer would not be liable where the Contractor had not complied with the notice requirements of the FIDIC Contract. The judge, Glennie LJ, noted that pursuant to sub-clause 20.1, where the Contractor fails to give the Notice within the prescribed period of 28 days after the Contractor became aware of the relevant circumstances, the Time for Completion:
“shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim.”[2]
This consideration followed the Employer’s submissions that the UAE law adopts the maxim of ‘pacta sunt servanda’[3] and insists that the parties are to be held to their bargain. The court did not disagree with that submission and, coupled with the argument that the Contractor had not complied with clauses 8.4 and 20.1 , referred to it as “potentially at least, a powerful submission”.
In his analysis, Glennie LJ emphasised the importance of a contractor serving notices pursuant to clause 20.1, and at paragraph 58 of his judgement, stated as follows:
“Clause 20.1 of the FIDIC General Conditions simply requires the Contractor, within 28 days of becoming aware of the circumstances giving rise to the claim, to give notice to the engineer “describing the event or circumstances giving rise to the claim”. This is clearly important. Prompt notice allows both parties and the Engineer the opportunity to investigate what has happened. But no level of detail is specified. Nor does the notice at that stage have to quantify the amount of any extension of time claimed by the Contractor. This makes sense because the quantification of any relevant delay may take time to work out.”
It was established that the Contractor had consistently and repeatedly served delay notices to the Engineer[4]. However, despite serving the notices on time, the Defendant did not follow through with second stage of the process required by 20.1, with the submission of a Claim within 42 days. In fact, the Defendant submitted its Claims several years after they due pursuant to sub-clause 20.1.
The court however noted that “the last paragraph within clause 20.1 simply provides that if the Contractor fails to comply with such requirements (i.e. the various requirements to submit a detailed claim for an extension) any extension of time shall take account of the extent to which that failure has prevented or prejudiced proper investigation.”
As such, the court was clear that where a Notice is served on time, but the Claim is late (even significantly late), the Claim can continue. It will only be discounted where such late submission has prejudiced a proper investigation of the Claim.
There was no evidence in this case of any prejudice having been caused, and the Contractor succeeded on the entirety of its counterclaim.
Panther Real Estate Development LLC v Modern Executive Systems Contracting LLC
The decision in FIVE v Reem was handed down on 3 March 2023, and would no doubt have been read with delight by counsel for Modern Executive Systems Contracting LLC, the Appellant in Panther Real Estate Development LLC v Modern Executive Systems Contracting LLC[5]. This is because on 2 March 2023, the hearing of this appeal concluded, with the parties addressing the very same issue with regards to the interpretation of clause 20.1 (again the FIDIC Red Book 1999 edition). Furthermore, the court included Glennie LJ.
In this case, the situation was reversed. Unlike Reem, Panther Real Estate Development LLC had failed to submit the required Notices and the court did not shy away from applying the clear words of clause 20.1 of the contract.
At paragraph 37 of the joint judgement of Zaki Azmi CJ, Al Madhani J and Glennie LJ, the Court of Appeal stated that there “is no doubt that the 28-day notice requirement in Sub-Clause 20.1 is a condition precedent to the Contractor’s entitlement to obtain an extension of time, however strong his claim to an extension of time might be otherwise”, noting that the language “could not be clearer”.
The court, reversing the court of first instance’s decision on the point, was also clear that the purpose of the two notices is quite different and that the wording at the end of sub-clause 20.1 “draws a clear distinction between the draconian regime introduced in the second paragraph of Sub-Clause 20.1, referrable only to the 28 day notice requirement, and the remainder of Sub-Clause 20.1 which is not subject to that regime.”
Interestingly, the Contractor argued that it was unconscionable for the Employer to claim liquidated damages for a period of delay for which he was largely responsible, referring to the implied obligations of good faith, fair dealing, reasonableness and cooperation, as set out in Articles 57 and 58 of the DIFC Contract Law.
The court rejected this argument, noting that “the Contractor was a willing party to a contract which included the 28-day notice requirement in Sub-Clause 20.1” and noted that such provision was so clear it left no room for “the postulated implied term or obligation of good faith”.
Conclusion
The importance of timely delay and disruption notices cannot be overstated.
The abovementioned cases applied a consistent interpretation and application of FIDIC clause 20.1. The outcome however for the two contractors was starkly different, based purely on the fact that one of those contractors (Reem Emirates Aluminium LLC) consistently and persistently sent delay notices.
The Court of Appeal’s decision is abundantly clear on the consequences of failing to serve a Notice within 28 days, and further dismisses the idea that implied obligations of good faith can overcome such oversights.
In both matters, the court noted that there is no prescribed form of the notice, stating in Panther that it in fact can be “short and to the point”[6]. In many cases such notices would not need to be much more than an email of a few lines.
The outcomes in these two cases should prompt all contractors to review their notice protocol, to ensure such procedures are not overlooked.
It is worth mentioning that the outcome of these cases may well have been very different if the Parties had instead contracted under the 2017 edition of the FIDIC general conditions, rather than the 1999 edition.
The 2017 edition introduces an entirely different regime that involves numerous additional requirements on both the contractor and the engineer. Therefore, it is critical that contractors review each and every contract for each and every project, in order to establish a protocol around notices and claims, that meets the specific requirements of the contract.
Additional Note
Thanos Karvelis (Partner) and Glenn Bull (Senior Associate) of Charles Russell Speechlys were delighted to act for Reem Emirates Aluminium LLC in the matter of FIVE v Reem. The dispute related to the FIVE JVC project.
The matter was conducted over the course of a five day trial in the DIFC Court, following which FIVE’s claims against Reem were dismissed, and Reem succeeded on the entirety of its counterclaim.
The diligent conduct of Reem’s project manager, Mr Saliem Almahdi, was the key to Reem’s success, having sent over 200 delay notices during the course of the project.
Footnotes
[1] FIVE Real Estate Development LLC v Reem Emirates Aluminium [2020] TCD-009-2020 (Judgement dated 3 March 2023).
[2] Glennie LJ chose to underline these parts of the clause in his judgement, pointing towards the clear language and consequences of the term.
[3] Such submission was supported by reference to Articles 124(1), 243(2) and 246(1) of the UAE Civil Code.
[4] The Defendant supplied evidence of 212 delay notices having been served over the course of the project.
[5] Panther Real Estate Development LLC v Modern Executive Systems Contracting LLC [2022] CA 016/2022 (Judgement dated 12 May 2023) (“Panther”);
[6] At para. 39 of Panther.
