CONSTRUCTION Alert: Out of time, out of luck: harsh time bars defeat EOT claim

Jan 20 2016

Publications

A recent decision serves as a reminder that a contractor’s first step should always be to comply with time bars and other notice requirements wherever possible as failing to do so can lead to the loss of important contractual rights.

In CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC 217, the Supreme Court of Western Australia disallowed otherwise valid and valuable claims for extensions of time (EOT) on the basis of non-compliance with strict notice requirements (time bars) despite accepting that doing so was “harsh”.

Time bars generally

“Time bars” are commonplace in construction contracts and it is difficult to conceive of a party who would not have, at one time or another, felt their effects. Typically, they require a party to serve notice on the contractual counterparty within a specified period after the occurrence of an event as a precondition to claiming time or cost for that event. 

The purpose of such a clause is to enable the recipient to investigate the event and consider what steps it should take to deal with its effects as soon as possible after it has occurred. As a result of the prevalence of these clauses, and their effect on otherwise valid claims, a number of avenues have arisen for parties to challenge their application, which depend on the particular circumstances at hand. 

Background

John Holland Pty Ltd (John Holland) had been contracted by BHP to upgrade and extend a wharf at Finucane Island on the western side of the Port Hedland harbour. As part of those works, John Holland subcontracted CMA Assets Pty Ltd (CMA) to, amongst other things, demolish a shipping berth and several underwater “dolphins” (structures for the mooring or berthing of ships).

In the course of undertaking that demolition work, CMA claimed that it was delayed by:

  • additional demolition work caused by reinforcement of the berthing dolphins which had not been contemplated by the contract (for which CMA successfully claimed a variation);
  • John Holland’s delay in moving a shiploader located on the wharf to allow for the demolition of that part of the wharf; and
  • delays in allowing CMA access to certain structures which it was required to demolish.

At clauses 10.11 and 10.12, the contract contained detailed notice requirements for the making of EOT claims by CMA. Specifically, those clauses required CMA to serve on John Holland:

  • written notice of the likelihood of a delay occurring immediately upon becoming aware of the likelihood of that delay;
  • written notice that it intended to claim an EOT for the delay within 7 days after the occurrence of the cause of the delay;
  • a detailed written claim for an EOT within 14 days after the commencement of the delay; and
  • further detailed written claims for EOTs every 5 days after the first occurrence of the delay until the delay ceases.

These notice requirements were expressly said to be “condition precedents” to CMA being able to claim an EOT with any noncompliance disentitling CMA from claiming an EOT. 

Decision

While the decision also dealt with CMA’s success in claiming a variation for the berthing dolphins and John Holland’s counterclaims against CMA, this update is concerned with the EOTs claimed by CMA and the impact of the contractual time bars on those claims.  On that issue, the questions for the court to determine were:

  • whether CMA had complied with the contract’s notice provisions; and
  • if CMA had not complied, whether that prevented it from claiming EOTs.

Did CMA comply?

After examining the evidence, His Honour held that CMA had not complied with the notice requirements, either in terms of the required timing or content of the notices. In relation to the relocation of the shiploader, CMA had belatedly complied by serving notice three weeks after the shiploader was scheduled to be moved (and some four months after becoming aware of the delay). In relation to the remaining delays, there was no evidence that CMA had, in fact, ever complied with the requirements.

Were the time bars enforceable?

After having failed to show compliance, CMA then advanced a number of arguments in support of its claim that the notice requirements did not apply, which were each rejected by Allanson J. We have examined each of CMA’s arguments below.

No requirement for notice

CMA argued that the condition precedent in clause 10.12 was not the formal giving of notice, but rather that John Holland was informed of the delay. Because John Holland was at all times aware of the relevant facts, and that there was a likelihood of delay, there was no additional requirement for CMA to provide written notice. 

His Honour agreed that John Holland was aware of the delay, but held that the relevant clauses required strict compliance with the stipulated form of the notice which had not occurred.  Specifically, CMA was required to give detailed information including an estimate of the length of the delay, the steps it would take to minimise the delay, the length of the EOT claimed, and the ultimate effect on the construction programme. Even if John Holland was aware of the cause of the delay, it could not be held to have been aware of those remaining matters and therefore CMA was required to serve notice.

Length of delays unknowable 

CMA argued that their obligation to give notice under the contract did not arise because neither they nor John Holland knew (and could not know) the likely length of the delay. This was rejected by His Honour, who held that there was no requirement that CMA know the length of delays as it was simply required to given an “estimate” of that length.

Only defeats pre-notice claims

CMA also argued that the giving of late notice did not disentitle it to all of its claimed EOTs, but only to the extent the EOTs related to the pre-notice period. This was rejected by Allanson J who held it was inconsistent with the language of the relevant clauses and the successive and continuing obligations imposed upon CMA by those clauses.

Absurdity

Where enforcement of a clause in accordance with its clear words leads to an absurd outcome, the court can interpret it in a manner so as to achieve a different result.  CMA argued that interpreting the notice requirements strictly would lead to absurdity as CMA would be denied its claim despite the circumstances being wholly within John Holland’s knowledge at all times. This argument was rejected by Allanson J, who held that, while there was no doubt that a strict application of the clause was “harsh”, he was “not satisfied that it is without purpose and absurd, so that an alternative construction must be given, notwithstanding the apparently clear words.”

Estoppel

Finally, CMA argued that John Holland ought to be estopped (i.e. restrained by the court) from insisting upon strict compliance with the time bars. This is because it argued, in short, the parties had adopted a course of conduct that did not require such strict compliance and it would now be unfair for CMA to suffer detriment due to its reliance on that course of conduct. Allanson J held that the evidence did not support CMA’s claims and refused to grant the estoppel.

What does this mean for me?

This decision highlights the need for contractors to, as a first step, seek to comply with time bars wherever possible. This can be achieved through diligent contract administration including by, as an example, providing flow charts and pro forma notices for project managers to use upon the occurrence of specified events. In many cases, a simple email describing the event and stating that an EOT will be claimed will be sufficient to satisfy contractual notice requirements. 

However, if a delay or variation has occurred and a time bar has not been complied with, there are avenues available for challenging the validity of the time bar. In those cases, it is important that parties keep detailed records of, for example, previous instances where the counterparty has not insisted upon compliance with the clause as this evidence will be vital for defeating the application of the clause.   

Ultimately, the requirements of contractual time bars and other notice requirements turn on the particular language used in the contract. Contractors should therefore ensure they have a full understanding of the requirements being imposed upon them prior to execution of the contract to ensure valuable rights aren’t lost.

Written by:

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au
Andrew Mackintosh | Senior Associate | +61 7 3338 7551 | amackintosh@tglaw.com.au
Joshua White | Graduate Lawyer | +61 7 3338 7939 | jpwhite@tglaw.com.au