Conditions Precedent to loss and expense claims
MJD Solicitors often negotiate amendments where employers seek to impose Conditions Precedent to loss and expense claims under construction contracts within the construction industry.
MJD Solicitors frequently assist with claims for additional payment in construction contracts that require specific conditions to be fulfilled. These conditions must be met in order for the claim to be valid. Clients often seek the help of MJD Solicitors in navigating these complex contract requirements.
Should contractors be concerned about Conditions Precedent to loss and or expense claims under construction contracts? Matthew Dillon of the Construction Law firm MJD Solicitors, gives his opinion on this important matter.
Conditions Precedent to Loss & Expense Claims
A Condition Precedent is a contractual obligation that must be satisfied before an entitlement or obligation comes into existence. Not making a claim in line with a Condition Precedent could lead to losing entitlement permanently.
Construction contracts often require parties to notify claims within prescribed periods. To be eligible for relief, you must make a claim within the contract’s time limits.
If the Condition Precedent is not satisfied, then the entitlements subject to that Condition Precedent are lost.
Contracts often provide that entitlement to loss & expense is dependent upon service of a notice within a given time of the event causing delay.
Generally, the courts are reluctant to treat clauses as Conditions Precedent to the making of a claim unless there is very clear language to such an effect. Conversely, where the language of a clause is clear, the courts are likely to require strict compliance with its terms, particularly if the provision is construed as a Condition Precedent.
It is important to carefully review the contract terms and conditions to understand the requirements for making a claim for relief. Failure to meet these requirements could result in the loss of entitlement to compensation for loss and expense incurred due to delays or other issues. It is advisable to seek legal advice if there is any uncertainty about the interpretation of contract clauses related to claims for relief. Strict compliance with the contract terms is crucial to ensure that any claims for relief are valid and enforceable. Remember, timely and accurate communication is key when it comes to making claims for relief under a contract.
Claims made by subcontractor for loss & expense
We were recently instructed to pursue a claim for a groundwork subcontractor where the subcontractor had failed to discharge the Condition Precedent to claiming loss & expense under the construction subcontract.
The right to claim contractual loss and expense had been lost.
It is essential for subcontractors to carefully review and understand the terms and conditions of their contracts, especially when it comes to claiming loss and expense. Failure to comply with the specific requirements outlined in the contract could result in the loss of the right to make a claim.
Seeking legal advice in such situations can help subcontractors navigate the complexities of contract interpretation and ensure that they are able to make valid and enforceable claims for relief. Effective communication with all parties involved in the contract is also crucial to avoid misunderstandings and potential disputes.
Remember, it is always better to be proactive and seek clarification on contract terms rather than risk losing the opportunity to claim relief.
In our above example our client was still able to proceed with a claim under common law damages because the subcontract had not made notification of the damages claim a Condition Precedent. The right to claim for common law damages had not been excluded by making loss and expense an exclusive remedy.
If there had been bespoke amendments to JCT Contracts that prevented common law loss and expense claims, which are not untypical with a bespoke amendment subjecting entitlement to loss and expense claims to conditions precedent , then the outcome for our client would have been different.
However, a claim for damages is often more complex than a claim for contractual loss & expense. There must be a breach of contract to claim damages. Claiming loss & expense, where the contract permits the same, is not dependent upon proving a breach of contract.
Defending subcontractor claims for loss & expense
We recently acted for a main contractor in defending substantial claims made for loss & expense within adjudication. The adjudicator accepted our defence that no entitlement to loss & expense existed because the Conditions Precedent had not been discharged.
The subcontractor was unable to make a claim for common law damages because there was no breach of contract. In any event the subcontract, that MJD Solicitors had previously drafted, precluded a claim for common law damages in the given circumstances.
Potentially Significant Losses
It will be noted that the potential for substantial losses where Conditions Precedent are not satisfied are real. A contractor who fails to serve a proper claim notice in accordance with the contract may very well lose its entitlement to claim additional payment in accordance with the contract.
An often referred to case is WW Gear Construction Limited v McGhee Group Limited [2010] EWHC 1460 (TCC) where WW Gear lost a claim for £1,555,919.89 because it failed to submit a fully documented and costed claim as required by the contract (the contract incorporated the JCT Trade Contract Terms (TC/C) 2002, with bespoke amendments).
In WW Gear, if the contractor wished to make a monetary claim, it was required to submit a documented and costed claim within two months or becoming reasonably apparent of such an entitlement.
The wording made it clear that the requirement was a Condition Precedent to additional payment. The Judge concluded Clause 4.21.1of the contract was a Condition Precedent to an entitlement to loss & expense and that the Condition Precedent had not been complied with.
Negotiating and drafting contractual clauses for Conditions Precedent to Loss & Expense
When MJD Solicitors negotiate main contracts, we seek to remove burdensome Conditions Precedent to claiming loss & expense.
In circumstances where the employer is adamant that such protections must remain, we generally seek to extend the notification periods; notification within 60 days from the event is far more realistic than a requirement to notify within 7 days.
We would also seek to agree wording to dilute the consequences of not complying with the Condition Precedent.
When a main contractor is negotiating the terms of Conditions Precedent to loss & expense claims under construction contracts, it is critical to consider the supply chain. The main contractor needs to ensure that its supply chain can comply with any main contract Conditions Precedent to loss & expense claims under construction contracts.
The main contractor needs to be alert to a situation where it has lost its entitlement to claim loss & expense from the employer because it has failed to comply with the Conditions Precedent (as with WW Gear) but is exposed to claims from the subcontractor because it did not replicate the Conditions Precedent in the subcontract.
When we are instructed by main contractors to draft subcontract terms and conditions, we always seek to incorporate Conditions Precedent to the subcontractor claiming loss & expense.
The purpose of such provisions are not to penalise the subcontractor. These clauses are needed to ensure that the main contractor is aware of potential subcontractor claims; is able to pass such claims onto the employer; is able to satisfy any Conditions Precedent in the main contract.
When acting for subcontractors, we would seek to dilute the effects of any Conditions Precedent in a similar manner to that which we would for main contractors. The position of the main contractor in such circumstances my depends upon what Conditions Precedent it has agreed within its main contract with the employer.
What does the JCT DB 2016 contract say about conditions precedent and loss & expense?
4.20.1 The Contractor shall notify the employer as soon as the likely effect of a Relevant Matter on regular progress or the likely nature and extent of any loss and/or expense arising from a deferment of possession becomes (or should have become) reasonably apparent to him.
4.20.2 The notification shall be accompanied or, as soon as reasonably practicable, followed by the contractor’s initial assessment of the loss and/or expense incurred and any further amounts likely to be incurred, together with such information as is reasonably necessary to enable the employer to ascertain the loss and/or expense incurred.
4.20.3 The Contractor shall thereafter, in such form and manner as the Employer may reasonably require, update that assessment and information at monthly intervals until all information reasonably necessary to allow ascertainment of the total amount of such loss and expense has been supplied.
4.20.4 Within 28 days of receipt of the initial assessment and information and 14 days of each subsequent update of them the Employer shall notify the Contractor of the ascertained amount of the loss and/or expense incurred, each ascertainment being made by reference to the information supplied by the Contractor and in sufficient detail to enable the Contractor to identify differences between it and the Contractor’s assessment.
It will be noted that the 2016 version of the JCT contracts use the word “shall notify” as opposed to the 2011 version that said, “may notify”.
Does the word “shall” create a Condition Precedent”?
It is our understanding that the joint contracts tribunal drafting committee did not consider that the change from “may” to “shall” was a Condition Precedent. The guidance notes in this respect refer. However, in FES Limited v HFD Construction Group Limited 2024 where the court found that the the JCT wording did create a condition precedent. See our blog on this here.
The use of the wording “as soon as” creates uncertainty as to what is required. Bespoke amendments frequently amend these provisions to make it clear that notification within a given time is a Condition Precedent. We suggest it is these amendments that require careful consideration.
What do the NEC 4 contracts say about conditions precedent and loss & expense?
The position that the JCT take on Conditions Precedent to Loss & Expense claims can be contrasted to the position that exists within the NEC 4 Contracts where it is expressly stated that unless the contractor notifies of a compensation event within a specified given time of the event, the Contractor is not entitled to a change in the Prices or Completion Date.
In our experience many bespoke forms of main contract seek to follow the approach taken in the NEC suite of contracts as opposed to that in the JCT contracts. We do not consider this is necessarily a problem so long as the contractor is alert to the requirement of the Conditions Precedent to loss & expense claims under Construction Contracts.
Conclusion
The purpose of this note was to consider the issue of Conditions Precedent to loss & expense claims under construction contracts. The potential liability for sub-contractors and main contractors to lose their ability to claim loss & expense is significant where conditions precedent have not been complied with.
To discuss contractual provisions and claims where conditions precedent to loss and expense claims under construction contracts exist, then contact with Matthew Dillon of MJD Solicitors, Brentwood, Essex on a no obligation basis.
Matthew Dillon LLB, Solicitor, MCIArb
MJD Solicitors
6 September 2023
This article is for information purposes, does not constitute legal advice and should not be relied upon. For terms and conditions of this article please read here
