Management

Richard Hildrick's Case notes

14 September 2010

Richard Hildrick

Case notes

Case: WW Gear Construction v McGee Group

Technology and Construction Court June 2010

WW Gear was the developer and employer for the Westminster Plaza Hotel in London. McGee won the excavation and groundworks package under a construction management arrangement; the contract between it and Gear incorporated the JCT Trade Contract terms, 2003 version, with Gear’s own amendments.

During the course of the project and following completion, McGee submitted loss and expense claims amounting to more than £1.5m. Gear then took the unusual step of itself instigating an adjudication, seeking declarations that certain contract clauses on extension of time and loss and expense impacted upon McGee’s entitlement. The adjudicator did not agree with Gear, so the TCC was asked to give its declaration.

The matter revolved around clause 4.21 of the JCT Trade Contract terms, which had two specific amendments. The first required the trade contractor — McGee — to make any application regarding loss and expense no later than two months after it became apparent that progress had been affected. The second stated it was a “condition precedent” to McGee’s entitlement that it had not only met the two-month deadline, but had also provided a fully documented and costed application to Gear.

Gear contended that where McGee had not submitted its applications within the two months, and/or had not complied with the requirements on the detail, it had no entitlement to recover associated loss and expense under the contract.

The court had to decide if these contentions were correct, even though the clause 4.21 amendments contained two clear drafting errors, and the condition precedent wording was cross-referenced incorrectly to another sub-clause. McGee argued for
a strict interpretation of the condition precedent wording, which would have supported the adjudicator’s decision, ie that the clause as drafted was meaningless and the condition precedent was ineffective.

Considering clause 4.21, the judge held that while the courts will not readily accept that mistakes have been made in contracts, once it is clear that something has gone wrong with the language used, the court will seek to determine what the parties really meant. The judge decided that the drafting and cross-referencing errors did not undermine the clear intent of the clause, which imposed specific obligations upon the contractor on the timing and content of applications for loss and expense.

Richard Hildrick’s analysis

This decision emphasises the importance of giving timely notices and making timely applications. Even if there is a justifiable case for loss and expense, failure to comply with such a “condition precedent” within the contract terms will leave the contractor without entitlement to recover additional payment.

The use of conditions precedent is common. However, the express terminology “condition precedent” does not need to be used, so careful understanding of notification obligations and particularly time-bar requirements is essential. In the Gear case, the wording which the court ultimately focused upon simply stated that the “Trade Contractor’s application shall be made… not later than two months after...” Failure to meet this two-month deadline was fatal to the contractor’s loss and expense payment entitlement.

The decision also emphasised that any minor drafting errors within such a clause cannot necessarily be relied upon to overcome failure to meet the specified requirements.

Time-bar clauses are not just a feature of contract amendments or bespoke terms. For example, the NEC3 requires the contractor to notify a compensation event within eight weeks of becoming aware of the event. If they don’t do so then they are not entitled to a change in the prices or an extension to the completion date. Under the associated NEC3 subcontract, this period is reduced to just seven weeks.

Such clauses are designed to ensure that the parties deal with compensation events and delays as they arise, rather than the “wait till the end” approach.

Richard Hildrick MCIOB is a quantity surveyor, contracts consultant and adjudicator. Tel: 01347 811155, email: richard@rjhconsulting.co.uk

 

Comments

Richard Hildrick's case study is very informative and points out the legal facts of a potential claim for loss and/or expenses.

S.Ranganathan, 22 September 2010

It is appreciated that the JCT and NEC forms and FIDIC all include in one description or another a time barring clause. Surely whilst it is appreciated that the client has the right t be advised of potential additional expense at the soonest date and also a ball park figure of the likely cost, the relevant clauses if this work is not carried out are tantamount to penalties. If the contractor is unable to assess the possible value or the extension of time that will be occur; within a time set by the contract, he loses all rights to a claim and the compensaton that would be attached to it. This is not an equitable way to deal with the matter, surely this is a clause that requires further thought and becomes two tier, an estimate in general terms so that the client can decided if it wants to proceed, and a final account when the actual cost is known and the extension of time has taken place.

Michael Matthews, 10 March 2011

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