New judicial guidance as to the FIDIC suite of contracts

The decision of Mr Justice Akenhead in Obrascon Huarte Lain v Gibraltar has provided valuable guidance as to how the English courts will interpret certain standard provisions of the FIDIC suite of contracts.

The contract between the parties in question was the FIDIC Conditions of Contract for Plant and Design-Build, also known as “the Yellow Book”. In proceedings before the Technology and Construction Court, Mr Justice Akenhead was asked to consider whether Gibraltar’s termination of the contract was effective, set against a complex factual background. In deciding that Gibraltar had effectively terminated the contract, Mr Justice Akenhead commented on a number of standard provisions contained within the FIDIC suite of contracts. We summarise below five of the court’s key findings in this regard.

Entitlements to extension of time – clause 8.4

FIDIC’s standard clause 8.4 entitles the Contractor to claim an extension of time if it “is or will be delayed” by a number of causes. The court found that this wording gives rise to an entitlement to claim at two distinct points in time. The entitlement will first arise when it becomes clear that there will be a delay (termed by the court as “prospective delay”) but a second entitlement to claim will arise when the delay begins to be incurred (termed by the court as “retrospective delay”). For example, if a variation is instructed by the Owner which will cause critical delay in the future, an entitlement will arise when the variation is first instructed (i.e. prospective delay) and also when works the subject of the variation begin to impact upon the programme (i.e. retrospective delay).

Notifying a claim for an extension of time – clause 20.1

The court also found that the standard notification provisions in FIDIC’s clause 20.1 were to be read in light of clause 8.4, meaning the Contractor is entitled to notify a claim for an extension of time within 28 days from the occurrence of either of the two trigger points mentioned above (i.e. prospective delay or retrospective delay). This will be of considerable comfort to Contractors, as requests for extensions of time will now not necessarily need to be submitted within 28 days of the Contractor first becoming aware of the need for an extension of time. Contractors will in many cases now be able to wait until the impacts of any given event upon the programme are known before serving notice under clause 20.1.

Formalities of a notice of claim – clause 20.1

The standard clause 20.1 does not call for any particular form of notice to be given by the Contractor. The court found, however, that the notice must be recognisable as a “claim”. Accordingly, a simple statement made in a progress report that adverse weather had “affected the works” was not sufficient. On the other hand, letters stating that certain events would “entitle us to an extension of time” were found to be sufficient.

In contrast to the court’s relatively broad approach to the formalities required for a notice under the FIDIC terms, the failure of the progress report referred to above to amount to a claim under clause 20.1 was found by the court to debar the Contractor’s claim for the extension of time concerned. This illustrates the relatively robust approach taken by English law to contractual time periods for the giving of notices.

Termination – clause 15

The standard clause 15.1 permits a Notice to Correct to be served in respect of a failure to carry out “any obligation under the Contract”. Failure to comply with such a notice is a ground of termination under clause 15.2. The court found that the breach in respect of which a Notice to Correct can be given need not be especially serious or “repudiatory” for it to provide the Employer with a right to terminate under clause 15.2, but it was required to be more than a trivial breach.

The court distinguished previous Court of Appeal authority (Rice v Great Yarmouth BC) which had interpreted a right to terminate for “a breach of any … obligation” as requiring an especially serious or “repudiatory” breach before a right to terminate would arise.

Communications – clause 1.3

The standard clause 1.3 requires notices under the FIDIC terms to be delivered to a specified address. The court found that a failure to deliver a notice (a termination notice in this case) to the specified address did not render the notice ineffective where it could be shown that the notice had actually been served on sufficiently senior people within the relevant organisation. This position may be contrasted with the NEC terms of contract, where compliance with notice provisions (clause 13.2 in particular) has been held by the TCC to constitute a condition precedent to the effectiveness of the notice (Anglian Water Services v Laing O'Rourke Utilities).

Conclusion

This decision provides helpful guidance as to a number of key provisions in the standard FIDIC suite of contracts. Mr Justice Akenhead’s views are likely to be welcomed by Contractors in particular, given the relatively broad interpretation given to the extension of time and notice provisions. Owners and Employers who are negotiating contracts based on the FIDIC terms and under English law should pay careful attention to the decision to make sure that the interpretation of the various standard clauses set out above meets their expectations.

References: Rice (t/a The Garden Guardian) v Great Yarmouth Borough Council [2003] TCLR 1; Anglian Water Services Ltd v Laing O'Rourke Utilities Ltd [2010] EWHC 1529; Obrascon Huarte Lain SA v Attorney General for Gibraltar [2014] EWHC 1028 (TCC)