Search
Close this search box.
MJD Solicitors

JCT & Conditions Precedent – Fes Limited v HFD Construction

Home » JCT & Conditions Precedent – Fes Limited v HFD Construction
Conditions precedent to loss & expense in JCT 2016 forms according to judgment

JCT clause found to be Condition Precedent to Loss and Expense

In the Scottish case of FES Limited v HFD Construction Group Limited 2024, the judge held that clause 4.20.1 of the Scottish version of the JCT Standard Building Contract was a Condition Precedent to loss & expense.  

The judge concluded that the language was “clear and straightforward” and said that it was “difficult to construe the language other than it creates a Condition Precedent ”.

The Scottish forms of the JCT Construction Contracts are almost identical to the English versions. Certainly, the clauses concerning loss & expense and extension of time are. The decision of the Judge is therefore of some interest.

The decision of the Judge in the Outer House of the Court of Session is not binding on the English Courts. But the Judge in reaching his decision did make reference to English cases, including Walter Lily v Mackay 2012 (which concerned a 1998 version of the JCT). Because of the lack of English cases dealing with the very same issue, it is considered that the case of FES Limited v HFD Construction Group Limited 2024 is of relevance to cases in England.

Whereas previously the thinking may have been the notice provisions in the JCT concerning loss & expense were not conditions precedent, prudence would suggest the opposite.

If a contractor suffers loss & expense or is likely to suffer loss & expense, it is vital that the contractor complies with the notice provisions of the JCT otherwise it may find it is debarred from claiming loss & expense.

Conditions Precedent to Loss & Expense Claims

MJD Solicitors did blog recently on the issue of Conditions Precedent to loss & expense claims under JCT Contracts which can be read here, and Conditions Precedent to extensions of time and liquidated damages (LAD’s) under construction contracts that can be read here. The comments we made previously should now be updated in view of the decision in FES.

The date of the judgment in FES is 27 February 2024. But the decision relates to an Adjudication decision of 10 March 2023.  The Adjudication itself related to an adjudication commenced in October 2022. It is unclear why a process which is supposed to be completed in 6 weeks (adjudication) took 5 months, but the parties would have consented to that. The whole point of adjudication is to have a summary procedure that is temporarily binding and secured at a cost that is not disproportionate, taking into account the no-cost rules in adjudication. For a discussion on the benefits of a quick adjudication see here.  

The case of FES Limited appears to have been concerned with a simple point as to whether the Adjudicator was correct in determining notice under the JCT Standard Form of Contract was a Condition Precedent to securing loss & expense. A declaration from the court had been sought that it was not a Condition Precedent.  The judge refused the declaration. The Judge said it was a Condition Precedent. Failure to comply with the clause therefore means that the Contractor had lost its entitlement to claim loss & expense.

The relevant JCT Clauses said to be Conditions Precedent

4.20.1 If in the execution of this Contract the Contractor incurs or is likely to incur any direct loss and/or expense as a result of any deferment of giving possession of the site or part of it under clause 2.5 or because regular progress of the Works or any part of them has been or is likely to be materially affected by any Relevant Matter, he shall, subject to clause 4.20.2 and compliance with the provisions of clause 4.21 be entitled to reimbursement of that loss and/or expense.

 

4.21.1 The Contractor shall notify the Architect/Contract Administrator 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.

 

4.21.2 That notification shall be accompanied by 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 Architect/Contract Administrator or Quantity Surveyor to ascertain the loss and/or expense incurred.

 

4.21.3 The Contractor shall thereafter, in such form and manner as the Architect/Contract Administrator 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 & expense has been supplied.

 

4.21.5 have made reasonable and proper efforts to avoid or reduce such loss and expense; and

 

4.21.6 not be entitled to any loss and/or expense to the extent that the delay to the regular progress of the Works or of any part thereof or of any matter is attributable to the negligence, omission, default, breach of contract or breach of statutory duty of the Contractor or those for whom the Contractor is responsible;

 

4.21.7 any delay in the regular progress of the Works or any part thereof is caused by a matter or matters referred to in Clause 4.22 which is concurrent with another delay for which the Contractor is responsible such delay shall only give rise to an entitlement or director loss and/or expense (subject to the other terms of this Contract) if the delay is the dominant cause of the delay to completion. Where there is no dominant cause that delay shall not give rise to an entitlement to any loss and/or expense and the Architect/Contract Administrator is not entitled to apportion that delay between such causes in forming his opinion on the cause or effect of the

delay.”

 

The arguments against the clauses being conditions precedent.

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. However, the JCT Contract in WW Gear was an earlier version of the JCT contract and subject to bespoke amendments; also the wording had been amended in the 2016 version.

In WW Gear the contract wording did not read “he shall, subject to clause 4.20.2” as is the case in FES and the 2016 version of JCT but instead said  “ provided always that”.  In WW Gear it was said that introductory words such as “Provided always that” were often the strongest sign that the parties intended there to be a Condition Precedent (as in the 2011 JCT Forms of Contract). Also,  in WW Gear the fact it was a Condition Precedent was spelt out.   But the wording in the 2016 JCT Contract was quite different to WW Gear and quite different to the 2011 JCT Contracts.

Not only has the wording in the 2016 JCT contracts changed, but guidance written by the JCT stated that it was not intended for the clause to be Condition Precedent. It is our understanding that the JCT drafting committee did not consider that the clause to be Condition Precedent. In FES the Judge said:

“senior counsel drew my attention to an article published by Suzanne Reeves, an English solicitor who sits on the JCT drafting committee, on the JCT website. In commenting on the JCT Standard Building Contract 2016 (on which the Scottish Standard Building Contract is based) she said: “JCT has not adopted the approach of some bespoke amendments whereby notification by the Contractor in accordance with a time limit is a Condition Precedent to entitlement to loss and expense, which means that in principle non compliance avoids the claim”

 

Perhaps surprisingly the Judge was not persuaded by this argument. The fact that the Scottish JCT Guidance did not include such commentary was possibly persuasive. Possibly this would convince a Judge in England to take a different stance.

Neither was the Judge in FES persuaded by arguments that the JCT wording was uncertain, failed to set out the consequences of non-compliance, and was disproportionate.

It is widely considered the wording in the JCT concerning loss & expense lacks precision. The NEC 3 &  NEC 4 contracts make it clear that the provisions were Conditions Precedent (as in WW Gear)  but the same cannot be said for JCT. The Judge was not impressed with these arguments.

The courts are reluctant to treat clauses as Conditions Precedent to 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. Again, this is not an argument that gained any traction with the Judge. The Judge though the 2016 JCT wording to be clear.

The arguments for the clauses being Conditions Precedent to loss and expense.

From the judgment it is unclear what the contractor did and did not do in terms of complying with clause 4.20 and 4.21 of the JCT. Was any notice given?

Common law claims are preserved by the standard JCT wording. Failure to comply with the Condition Precedent wording would not normally prevent a common-law claim for damages. The problem however occurs where Employers seek to make loss & expense the sole and exclusive remedy, something we have previously cautioned against here.

We understand in FES that there was a bespoke amendment precluding common law claims for damages. This meant the failure to comply with the loss & expense Conditions Precedent were fatal. Possibly the contractor was not concerned with the exclusion of common law claims because it thought, as the JCT guidance notes suggested, the clauses did not create a condition precedent. The decision by the Adjudicator and subsequently Judge no doubt came as an unwelcome shock to the contractor.

 The following points are what led the Judge to conclude that the standard unamended wording was a Condition Precedent to loss & expense within the JCT Contracts:

  • The clause was one which had been negotiated and drafted by skilled professionals.
  • The wording came straight out of the JCT, unamended.
  • The judge said the language used was clear and straightforward.
  • The contractor should have known that compliance was necessary to secure loss & expense. The Judge said “subject to compliance” meant that it could only be Condition Precedent.
  • The wording created a workable mechanism. Compliance with the clause was not unduly onerous and both parties stood to benefit from the timely notification of loss & expense claims.
  •  

In our previous blog post, we did say that compliance with the clause was necessary to trigger an entitlement to loss & expense, although we doubted it was a condition precedent. Without notice the mechanism for an award obviously could not commence. In that respect we must say that the decision in FES would seem to be correct.

However, bearing in mind (a) the wording was straight out of the JCT and there has been some disagreement between legal commentators  as to whether the wording was a Condition Precedent or not; and (b) the JCT Guidance, doubtless relied upon by the parties, said it was not a Condition Precedent, it is understandable why the Contractor was aggrieved by the decision of the Adjudicator.

 

Conclusion and What Next – Conditions Precedent and Loss & Expense

We do not know whether this decision would be supported in England. There are no similar cases dealing with the 2016 JCT Contract Forms.

In view of the fact that JCT will soon be releasing their 2024 suite of Construction Contracts, there may never be a case. Possibly the JCT 2024 contracts will be amended to clarify this important issue.

Notwithstanding the uncertainty as to whether the decision in FES is correct or indeed whether it would be followed in England, it is important that Contractors exercise caution.

We frequently act in cases where the Contractor has failed to comply with the JCT notice requirements in terms of loss & expense and extensions of time. It can now be taken as a certainty that in the future such non-compliance will be met with a defence as in FES Limited v HFD Construction Group Limited 2024.

 

Without a decision in England countering FES, we believe it will be an uphill struggle to convince an adjudicator that failure to comply with the notice provisions of clause 4.20 and 4.21 of the JCT does not dis-entitle a claim for loss & expense.

 Where common law rights to claim damages for breach of contract survive bespoke amendments to the JCT, then the failure to give notice pursuant to the JCT may not be fatal to an entitlement to loss & expense.

But the lesson from the case of Fes Limited is that if a Contractor wishes to claim loss & expense then it must ensure that it has complied with the notice provisions in the JCT.

Matthew Dillon LLB,  Solicitor, MCIArb

MJD Solicitors

7 April 2024

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

Share:

MJD Solicitors | Matthew Dillon

Matthew Dillon

Send Us A Message

More Posts

Payment Notices

Employer Payment Notices in Construction Contracts Payment Notices are required to notify the sum to be paid under the Construction Contract The Housing Grants Construction