Robert Palmer notes that construction contracts usually contain a number of clauses requiring the parties to give notice of specified events or claims. These notice requirements may apply to both parties and may arise in a variety of situations.

Notification of claims
Notice provisions are most commonly encountered in the context of clauses requiring parties to give due warning of claims as they arise. It is very common for construction contracts to require both parties to give timely notice of any intention to assert claims, or of events that may in due course give rise to claims.

The policy reasons for these provisions are obvious. Parties to construction contracts want to be fully and promptly informed of situations that may lead to claims. They will then be able to assess their options – for example, an employer may decide to cancel an instruction on receiving notice that a contractor intends to claim for additional payment. More generally, long-standing experience shows that potential claims are most effectively resolved if they are tackled quickly, before positions have hardened, and at a time when the relevant facts and circumstances are still fresh in people’s minds.

It is important to bear in mind that these requirements also carry disadvantages. In particular, a requirement for formal notice of claims at an early stage can result in positions becoming entrenched at a time when informal discussions might dispose of the  issue completely. Obviously, this may greatly reduce the chances of an amicable settlement. Further, contractors who properly comply with requirements for prompt notification may find that they are unfairly labelled as claims-oriented or confrontational, a perception that may then affect the employer’s evaluation of claims.

Contractors should also bear in mind that these clauses are often favourable to employers. For example, the FIDIC conditions of contract for construction require employers to give notice of claims “as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim”, whereas contractors are required to give notice of claims “as soon as practicable, and not later than 28 days after the contractor became aware, or should have become aware, of the event or circumstance” (emphasis added). The require-ments for submission of supporting details are similarly less stringent for employers than contractors.

Form
Construction contracts generally require that notice be given in writing and posted or faxed to a given address.

This is to avoid situations where nonreceipt is alleged. It is possible that a failure to comply with these requirements will invalidate a notice (in relation to notices of termination, there is some case law to this effect in England and Australia). However, these requirements are sometimes said to be “directory” rather than “mandatory”, so that noncompliance is not fatal. The wording of the contract and the governing law will be crucial in this regard but, to avoid the issue arising in the first place, parties should aim to ensure that they comply with any contractual requirements for service of notices.

Time Limits and Continuing Losses
Often, construction contracts will require that notice of an intention to claim (sometimes including specified details) be given within a certain number of days of the event giving rise to the claim. This can cause difficulties.
- A party may not even be aware of the events giving rise to a claim until some time after they occur. This can cause problems under contracts such as FIDIC (above), which require notice within a short period after the contractor should have become aware of those events.
- Where an event or delay is continuing, or where the contractually stipulated time period is a short one, it may be very difficult to provide the required level of detail within the prescribed period. For example, it would be difficult at the outset for a contractor to quantify the likely time consequence of a continuing delay by a preceding trade.

There are no easy solutions to these problems. However, experience shows that provided a party has done its utmost to comply with any notice requirements, an arbitral tribunal or court is likely to take a sympathetic approach.

Notices as Conditions Precedent to Claims
If a contract successfully provides for a notice as a condition precedent to an entitlement to claim, a party may lose its entitlement completely if it does not comply with the contract notice requirements. For example, FIDIC conditions provide that if proper notice is not given, “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”. However, failure to comply with notice requirements is not always fatal. For example, ICE conditions provide that in case of failure to give proper notice the contractor is entitled to payment “only to the extent that the Engineer has not been prevented from or substantially prejudiced by such failure in investigating the said claim”.

Disputes Over Proper Compliance
In the midst of lengthy, complex and intensive construction projects, it is easy for contractors to overlook requirements for formal notice or to fail to provide required follow-up particulars. Some contractors also choose not to employ sufficient contract managers to pay full attention to these issues. As a result,  arguments about compliance with notice requirements are an all-too-common feature of construction disputes. It is difficult to generalise about the ways in which these arguments play out in practice. They depend very greatly on the terms of the contract, the governing law and the particular facts of the case.

Nevertheless, it may be said, broadly speaking, that courts and arbitral tribunals in many jurisdictions have often been willing to uphold and apply clauses that make notice requirements a condition precedent to claims. In other words, failure to comply with a notice requirement and time bar may be fatal to a claim. At the same time, however, it is also common to see such clauses being given a restrictive interpretation, so that they only ‘bite’ on cases falling squarely within their terms.

There are a variety of arguments that contractors deploy around the world in an effort to avoid the rigours of these clauses.

This article is not the place to embark on an exhaustive analysis of the options, but it is noted that in common law jurisdictions one often sees arguments based on concepts of express or implied waiver or promissory estoppel, while in civil law countries it may be possible to rely on legal duties of good faith or other relevant civil code principles. These are highly technical matters requiring specialist advice in each case.

Conclusion
Contractual notice clauses are fertile ground for disputes under construction contracts. A great deal of time and money may be needed to deal with the consequences of failure to ensure strict compliance. Yet these clauses are not intrinsically hard to follow, they simply require a competent internal programme of contract management. It is in the interests of all parties that contract notice requirements should be properly observed.

Robert Palmer is an Associate with Herbert Smith in Bangkok (tel: +66 2657 3888, email: robert.palmer@herbertsmith.com)