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Notice provisions – don’t get caught out…

Clauses requiring a party to give notice are commonly used in construction contracts and yet these provisions continue to catch parties out.

Notice provisions are often drafted as conditions precedent meaning that a failure by a party to follow the contractual notice provisions may result in that party losing its right to pursue a claim.

For example, the NEC4 contract requires compensation events to be notified to the project manager by the contractor within a specified timescale. Clause 60.1 of the NEC4 contract contains a list of compensation events and under clause 61.3, the contractor must give notice of a compensation event “which has happened or which is expected to happen”. Where the contractor is required to serve a notice under clause 61.3, it is crucial that this is served within the time period specified. Failure to do so may result in the contractor losing its right to claim any additional payments and/or an extension of time. The eight-week time period for notifying the project manager under clause 61.3 commences when a contractor becomes “aware that the event has happened”. However, ascertaining exactly when a party becomes aware of an issue can be difficult to prove and disputes can arise over when the time limit for serving a notice actually commences.

Sitol UK Ltd v Finegold and another

This was illustrated in the recent case of Sitol UK Ltd v Finegold and another [2018] EWHC 3969 (TCC). The case involved an application by Sitol to enforce an adjudication decision against the Finegolds. The claim by Sitol arose from a refurbishment and building project which was taking place at the Finegolds’ house. One of the grounds upon which the Finegolds resisted summary judgment was that Sitol was out of time for referring the dispute to adjudication by reference to the specific notification provisions in the contract. The NEC3 contract stated at clause 93.3 “A party may refer a dispute to the adjudicator if the party notified the other party of the dispute within four weeks of becoming aware of it”. This case involved residential occupiers so the contract fell outside of the definition of a “construction contract” in the Housing Grants, Construction and Regeneration Act 1996, therefore, the right to refer a matter to adjudication “at any time” did not apply.

Evidence of when the dispute arose between the parties was key to determining whether the notice had been served in time. On 19 February, the Finegolds’ solicitors wrote to Sitol saying that there was no contract between the Finegolds and Sitol. The judge held that the dispute had crystallised once the Finegolds’ solicitors had written this letter. If Sitol was “aware” of the dispute on 19 February then Sitol was out of time when the notice of adjudication was served on 25 April. The judge briefly considered the concept of awareness. The judge held that a party was aware of a dispute when it had objectively been brought to that party’s attention. If the test was “wholly subjective” then a party could argue time had not started to run simply because it had failed to open an envelope containing a letter indicating that there was a dispute. After reviewing the facts the judge held that the dispute had been objectively brought to Sitol’s attention when the Finegolds’ solicitors wrote to Sitol rejecting the claim. Sitol had failed to refer the dispute to adjudication or otherwise provide the Finegolds with notification of the dispute within four weeks of Sitol becoming aware of it. As a result, the decision of the adjudicator was not enforced. The judge stated “It may be regarded as a technical point, but I have to apply the law, I am afraid.

Key points

  • The case illustrates the importance of complying with notice provisions and the harsh consequences of failing to do so.
  • It is important that notice provisions are carefully drafted to avoid ambiguity and, in particular, arguments as to whether the notice requirements have in fact been met.
  • Parties should identify and manage the risk of notice provisions from the outset of a contract and, when serving a notice, the precise provisions of the contract should be complied with.
  • While the judge in Sitol appeared to reach his decision with some reluctance, the case illustrates the willingness of the court to enforce a party’s agreement to onerous time bar provisions contained within the NEC.

Consequently, parties should seek to manage the risks that these clauses pose or potentially face the harsh consequences of getting notice provisions wrong.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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