What is the purpose of notice and time bar provisions?


For an employer, it is a means of being notified of any incidents which may result in the works being delayed and/or any increase in costs. It also allows an employer to manage its budget, mitigate any delays and manage the project effectively.

For a contractor, it is a notice to be provided for claims for extensions of time and/or the payment of additional costs. Such notice is required to be served within a specified period. Any failure by the contractor to provide the notice within the specified period may result in a contactor's claim being time barred. If a contractor is time barred from submitting its claim, it may lose its entitlement to have the time for completion extended and/or additional cost.

Essentially, the purpose of these clauses is to impose discipline on a contractor, to submit claims in a timely manner, so that they can be dealt with efficiently and to allow the employer to manage the project. If a contractor leaves all its claims for additional payment and/or extension of time to a very late stage of the project, self-evidently the engineer will find it much harder to verify them and to make a decision. In addition, the employer may lose the ability to manage the project in order to minimise its cost exposure and delays. Timely and regular claims also benefit the engineer in making the job of contract administration easier. Further, notice and time bar provisions can serve to avoid disputes arising at the end of the project.

The employer and the contractor should, in theory, both benefit from well drafted and administered notice and time bar provisions in a contract.

Whilst this article uses the term "employer" and "contractor", the points made in relation to contractors equally apply to sub-contractors and consultants who have notice and time bar provisions in their contracts and appointments. In such cases references to employer mean the party with which the sub-contractor and/or consultant have contracted.

Sample Clauses from the Main Forms of Contract

FIDIC Clause 20.1 (1999 Suite)

There is an obligation on the contractor to submit a notice within 28 days. The consequence of failing to adhere to that timescale is; "If the Contractor fails to give notice of a claim within such a period of 28 days, 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."

NEC3, Engineering and Construction Contract, Clause 61.3:

The contractor is to notify the employer and; "If the Contractor does not notify a compensation event within 8 weeks of becoming aware of the event, he is not entitled to a change in the Prices, the Completion Date or a Key Date…"

Drafting Notice and Time Bar Provisions

When drafting a notice and time bar clause for a contract, there are a number of issues the draftsman should bear in mind.

(i) Form of the Clause

There are key elements to such a clause, namely the time scale for service of the notice and that failure to serve within that time scale will either mean that the right to claim never arises or that the right to claim is lost. Regarding the rights, it is important to use clear wording. What the right is, when the right accrues and, if necessary, how it will be lost, must be clearly explained.

(ii) How soon is notice to be given?

Ultimately, this will depend on the bargaining power between the parties. The FIIDIC 1999 Red Book prescribes 28 days and NEC3 Contract prescribes 8 weeks as the applicable time scale for serving a notice but these provisions are frequently amended by the parties.

(iii) Giving and receiving notices

What are the requirements when serving or being served with a notice? Is the notice to be in writing? Must the notice be delivered to a particular address? What information or evidence is to be provided with the notice? Do all aspects of the notice need to be served within the time specified? Is there a continuing obligation to provide further notices and/or particulars? These are important issues to consider when drafting the contract and when giving and receiving notices to determine if the notice is valid under the contract.

Common Law Jurisdictions

Clauses providing notice provisions as a condition precedent to claims are generally accepted in common law jurisdictions. However, there are certain requirements that must be fulfilled for the clause to be deemed effective. The clause must set out the time for service and make it clear that any failure to serve the notice within the prescribed time period will result in a loss of right under the contract. This position was noted in the case of Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyds ep 109.

In the Bremer case the House of Lords held that a notice provision should be construed as a condition precedent, and would be binding, if (i) it states the precise time within which the notice is to be served, and (ii) it makes plain by express language that unless the notice is served within that time, the party making the claim will lose its right under the clause.

The position in Bremer on condition precedents was echoed in the case of Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 236 (TCC) which again showed that the English Courts will approve a condition precedent, provided is fulfils the requirements laid out in the Bremer case.

Civil Law Jurisdictions

The position regarding notice and time bar provisions in construction contracts in civil law countries is arguably somewhat different. Unlike common law jurisdictions, where non-adherence to a time bar provision may render a contractor's claim invalid, civil codes may take a more lenient approach.

The Approach in the UAE

In the UAE, the basic principles of contractual interpretation in UAE Federal Law No. 5 of 1985 (UAE Civil Code) stipulates that express contractual terms will be enforced. This is shown in Article 243(2) of the UAE Civil Code, which states:

"With regard to the rights (obligations) arising out of the Contract, each of the contracting parties must perform that which that which the contract obliges him to."

Articles 257 and 126 of the UAE Civil Code provide that parties are generally free to enter into contracts, and the terms of those contracts will be binding on the parties subject to anything that is contrary to public policy.

"257. The basic principle in contracts is the consent of the contracting parties and that which they have obligated themselves to contract"

"126. The following may be the subject matter of a contract: …

(d) any other thing which is not prohibited by a provision of the law and is not contrary to public order or morals."

Further, Article 265(1) of the UAE Civil Code deals with contract interpretation and states:

"If the wording of a contract is clear, it may not be departed from by way of interpretation to ascertain the intention of the parties".

From the above and in the absence of any other circumstances, the contractor may be required to conform with any time bar provisions in the construction contract. However, in circumstances where it appears that the strict interpretation and imposition of the time bars would seriously prejudice the contractor, the contractor may rely on certain provisions of the UAE Civil Code to argue that a more lenient approach be adopted.

There is an overarching principle of good faith in the UAE Civil Code. Article 246(1) of the UAE Civil Code states "The contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith." By way of example, this provision could be relied upon by a contractor in a situation where an employer was made aware of the contractor's intention to make a claim but this was not notified in accordance with the contract and the employer later seeks to use a time bar argument to defeat that claim. Alternatively, a contractor could argue that a time bar provision may not be relied upon by an employer in circumstances where the employer is in breach or otherwise caused the delay and was fully aware that its actions would cause delay to the project.

Article 106 of the UAE Civil Code addresses the unlawful exercise of rights and may be of assistance to a contractor facing a time bar argument. This article provides that the exercise of a contractual right shall be unlawful if it is disproportionate to the harm suffered by the other party. In particular, Article 106(1) states "A person shall be held liable for an unlawful exercise of his rights." Further, Article 106(2) provides "The exercise of a right shall be unlawful if the interests desired are disproportionate to the harm that will be suffered by others." This provision is often pleaded along with Article 246 (good faith) and Article 318 (unjust enrichment) to argue that barring the contractor's claim for a failure to provide a notice would be disproportionate and would unjustly enrich the employer.

Unjust enrichment, under the UAE Civil Code, is unlawful. Article 318 provides that:

"No person may take the property of another without lawful cause, and if he takes it he must return it."

In addition, Article 319(1) of the UAE Civil Code states that:

"Any person who acquires the property of other person without any disposition vesting ownership must return it if that property still exists, or is like or the value thereof if it no longer exists, unless the law otherwise provides."

A further provision of the UAE Civil Code which may provide the contractor who has failed to comply with its notice obligations with relief is Article 487(1) of the UAE Civil Code. This Article provides:

"It shall not be permissible to waive a time bar defence prior to the establishment of the right to raise such defence, nor shall it be permissible to agree that a claim may not be brought after a period differing from the period laid down by law.

The second part of Article 487(1) is very important and means that a contract term which seeks to limit the right to bring a claim to a time limit other than that stipulated by law is not permissible and, therefore, void. Further, it is important to note that Article 487 is a mandatory provision of UAE law and, therefore, cannot be contracted out of.

Article 95 of UAE Federal Law No. 18 of 1993 ("UAE Commercial Transactions Law") stipulates that in commercial agreements, the limitation period for bringing a claim is 10 years from the date of performance of the relevant obligation. With regard to civil transactions, Article 473 of the UAE Civil Code provides that "A right shall not expire by the passage of time but no claim shall be heard if denied after the lapse of fifteen years without lawful excuse, but having regard to any provisions relating thereto."

As a result, where a clause stipulates that a notice (or subsequent particulars of claim) must be served within a stipulated period which is less than 10 years for commercial transactions or 15 years for civil transactions, failing which a right to claim additional payment and/or an extension of time will be lost, it is arguable that the clause is in breach of a mandatory provision of UAE Law and is therefore void.

The final provision which may be of assistance to a contractor is Article 488(2) of the UAE Civil Code, which provides that:

"The [time bar] defence may be raised at any stage of the proceedings unless it appears that the person having the right has waived it expressly or impliedly"

Accordingly, where there is evidence that the employer has waived its right to rely on the time bar provisions in the contract, the contractor may be able to rely on Article 488 of the UAE Civil Code to argue that the employer has waived its rights.

While much will turn on the circumstances of a particular case, the Courts of the UAE may be reluctant to uphold strict contract terms where it can be seen that the requirement for a notice was complied with in a different form, that the employer waived its right to rely on a time bar provision, or that strict imposition of the time bar would:

  1. be a breach of Article 487(1) of the UAE Civil Code,
  2. be an unlawful exercise of the employer's rights, or
  3. cause unjust enrichment.

In light of Articles 106, 246, 318, 319, 487(1) and 488(2) of the UAE Civil Code, and subject to the circumstances of a given situation, the contractor has several arguments available to it to seek to overcome the impact of a notice and time bar provision, but the best line of defence remains to comply with the provisions of the contract.

The Approach in Qatar

As with the UAE, under Qatari law, parties to a contract are free to agree their contract terms. In Qatar, this is subject to the proviso set out in Article 154 of the Qatar Civil Code [1] which provides that such terms may not be "prohibited by law or contrary to public policy or morals". Statutory limitation periods are prescribed as a matter of Qatari law and therefore parties should treat them as principles of public policy that cannot be varied by contract.

The Qatari Civil Code contains provisions that are relevant to notice and time bar issues that are similar to the provisions found in the UAE Civil Code, such as good faith, unjust enrichment and the parties having freedom of contract. Support for a time bar defence can be found in Article 418 of the Qatari Civil Code which stipulates that "it shall not be possible to agree on limitation for a period other than those specified by the law". This provisions mirrors Article 487(1) of the UAE Civil Code.

Trigger for the Notice Period: The Event

When looking at the issue of notice and time bar provisions, it is important to consider the actual event which triggers the need for a party to serve a notice in accordance with the contract terms.

Under the FIDIC contract, a notice is to be served "not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstances". This issue was addressed by the Technology and Construction Court in London, England in the case of Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar [2014] EWHC 1028 (TCC).

In the Obrascon case, the English Court considered a condition precedent clause and its effect on claims for additional time and money under a FIDIC contract. On consideration of the wording of the clause, the Court found that a claim for an extension of time can be made either when it is clear that there has been a delay (a prospective delay), or when the delay has started to be incurred (a retrospective delay). In the absence of clear language requiring notice to be given on the earlier of the two dates, the onus of proof is on the employer to establish that the notice was given late. The case of Obrascon serves as an indicator as to how the English Courts will approach the interpretation of FIDIC standard terms, but may also provide insight into how arbitrators with a common law background may approach these issues.

Conclusion

Notice provisions are intended to provide certainty to both parties and to preserve the contractual arrangement if the works are delayed or additional costs are incurred.

The basic requirement for notice and time bar provisions is that they:

  • identify the time for service of the notice; and
  • state explicitly that the contractor will lose rights under the contract if notice is not given in time.

Regarding notice provisions and time bars in construction and engineering contracts, best practice, and the best defence to negate any argument regarding notice and time bars, is to serve the notice as soon as an event is known and is considered likely to cause delay or additional cost in the form stipulated in the contract.
It is very important that the form and content of the notice complies with the requirements of the contract.

Notwithstanding the above, in the event that a contractor fails to comply with a contractual notice requirement, this may not mean the claim is barred and legal advice should be sought.

[1] Qatar Law No. 22/2004, Promulgating the Qatari Civil Code

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