Conditions Precedent: Will they bite?

Conditions precedent (which include time bar provisions) are important

contractual devices, serving as either gateways or barriers to contractual
relief. Their identification and enforcement, however, is not always
straightforward. In some cases, a clause may not appear to be a condition
precedent but will still operate as one and, in other cases, a clause may
appear to be a condition precedent on the surface but is incapable of being
enforced as one.
In this Insight we examine when a provision is, or is not, a condition
precedent by reference to recent case law. We then examine where in the
standard forms of construction contract they are often encountered before
analysing what parties need to have in mind when determining if a provision
is in fact a condition precedent and, further, whether it can be enforced.
What is a condition precedent?
A condition precedent is a contractual stipulation that must be satisfied
before a right or an obligation comes into existence.1 These are particularly
common in construction contracts for provisions concerning payment,
claims for extension of time, claims for compensation or adjustment of the
construction price, application of liquidated damages, and dispute resolution,
amongst others.
Conditions Precedent are often used as management tools for construction
projects allowing claims or issues to be identified as soon as possible and
dealt with. Contractors may also impose conditions precedents on their
subcontractors in order to ensure they have time to feed the claim up the
contractual chain. As such they are recognised as a necessary and helpful
management tool by the Courts who will implement them, if they are
sufficiently clear, even in circumstances where the consequences of doing so
appear to be harsh.2
What is needed for a condition precedent to be upheld?
In order for a condition precedent to be upheld it needs to be clear that the
relief or obligation that is the subject of the condition precedent is
contingent on the performance of certain obligations, creating a “conditional
link”.3 So long as this is clear, there are no specific words that need to be
used. In particular, the words “condition precedent” are not required,4 though
they are often used.
It could, however, be argued that the express intention to create a
conditional link will not exist in a clause where the words “condition”
or “precedent” have not been used, if they have been used elsewhere in the
contract to create a condition precedent. This is because the identification of
conditions precedent relies heavily on the application of general principles
of contractual interpretation, particularly the natural, ordinary meaning of
the words in the context of the contract as a whole.5 Further, the words
“subject to” may in some cases denote a condition precedent provision.
However, whether they do in the contract you are examining will depend on
how those words are used elsewhere in the contract and how the contract as
a whole should be interpreted.6
If the intended effect of the condition precedent is to extinguish a right to
relief (such as notice provisions for claims), then there needs to be express
wording reflective of this intention for it to be enforced as a condition
precedent.7 In addition, such clauses are treated as operating in the nature
of limitation clauses and are therefore subject to the usual rules governing
such clauses8 and also interpreted strictly.
As stated in Keating on Construction Contracts:
“Many contracts provide that the contractor’s entitlement to an extension of
time is dependent upon, amongst other things, the service of a notice within
a stipulated time of an event causing delay. Courts are normally reluctant to
construe the requirements as to the form and content of the notice required
under such clauses too strictly and are unlikely to treat them as condition
precedent to the making of any claim (as opposed to procedural
requirements) absent clear language to this effect.”9
Even if the wording of the clause demonstrates an express intention that the
performance be contingent on an event, this may not be enough to result in
the clause being considered a condition precedent; the wording needs to be
interpreted in the context of the contract as a whole, and the clause needs to
provide sufficient detail of both the conditions and the effect of the clause
for it to satisfy the requirements of contractual certainty. If there is no
express intention and/or no contractual certainty, the event is not a
condition; it is an option.
In relation to notice provisions in particular, the key House of Lords case
held that these will be considered to be conditions precedent and will be
binding only if:10

1. the clause states the precise time within which the notice is to be
served; and
2. it makes plain by express language that, unless the notice is served
within that time, the party making the claim will lose its rights under
the clause.
What should you consider when drafting a Condition Precedent
provision?
Ingredients that therefore need to be considered when drafting your
conditions precedent in order to have a sufficient level of contractual
certainty include, but are not limited to:

1. Deadline for fulfilment: ideally a clear deadline for fulfilment should

be set or a period time set within which notification should be
given.11
2. Consequences of non-fulfilment: what happens if a condition
precedent is not fulfilled? This needs to be spelled out clearly.
Depending on the wording it may be possible to argue that a claim
for damages arising out of the owner’s breach of contract has not
been barred even if another form of claim has.12
3. Steps to fulfil the condition: what exactly does the condition require?
Is there clarity as to the steps that the party must take, the form of
any agreement the party is expected to enter into or test that needs to
be undertaken? Does the fulfilment of the condition need to be
procured in its entirety, or just to the extent that a party can establish
that reasonable endeavours have been made?
4. Determining fulfilment: is one party required to approve whether
the condition has been fulfilled?13
If a condition precedent does not include sufficient detail in relation to the
elements outlined above, it may be that the clause cannot operate as a
condition precedent and, instead, non-fulfilment of the condition will
amount to an ordinary breach of contractual obligations for which the other
party can claim damages, rather than the lapsing of the clause or the
contract.
Where do we encounter them?
While conditions precedent in bespoke and amended standard form
contracts will need to be identified through the means set out above, there
are conditions precedent in the standard form contracts that it is useful to
be aware of.
FIDIC
The FIDIC Suite is known for having particularly stringent notice
provisions that serve as conditions precedent with the ability to extinguish a
party’s ability to bring a claim if they are not complied with. But is it always
the case that non-compliance with one of FIDIC’s notice provisions will
prevent a claim from proceeding?
When one thinks of conditions precedent and FIDIC, sub-clauses 20.1 and
20.2 of the FIDIC form naturally come to mind. These sub-clauses require
either party to give notice of any claims within 28 days of the date on which
the party became aware, or ought to have become aware, of the event or
circumstance giving rise to the claim. Failure to comply with this time limit
extinguishes any right to the claim. Sub-clause 20.2 provides a prescriptive
procedure that it stipulates must also be complied with in order to proceed
with any claim.
These clauses are strictly worded and do not appear to provide any reprieve
for late notice save for in sub-clause 20.2.5, which provides the engineer
with discretion to treat late notice as valid in light of the circumstances
(examples of such potentially relevant circumstances being set out in the
sub-clause). Despite this apparent silver bullet to the condition precedent at
sub-clause 20.1, it is not clear whether this additional discretion will provide
much practical benefit for the parties or the engineer; given the clarity of the
time bar for notice, the circumstances in which late notice is likely to be
reasonable are limited.
There are no other mechanisms within the contract that soften the notice
provision at sub-clauses 20.1 and 20.2. However, the law governing the
contract may offer reprieve for the claiming party, including waiver and
estoppel under common law jurisdictions, and the principle of good faith in
civil law jurisdictions.14 Under English law there may also be a possibility
that the notice provisions have been waived if there has been some form of
gentleman’s agreement (i.e. don’t worry about this now, we can sort it out
later).
NEC
Clause 61.3 of NEC3 contains a similar notice provision for claims made
under that contract, but with an 8-week time frame rather than 28 days.
Again, this is similarly strictly enforced as binding. There are, however, a few
exceptions and/or legal arguments around this which may assist.
Possible ways around this include:
1. Under clause 61.3 the time bar does not apply if it arises out of an
instruction, a certificate, changing an earlier decision or correcting an
instruction. What is an “instruction” sometimes itself becomes the subject
of a dispute, with parties seeking to widen this exception as far as they
can.15
2. Arguing that the awareness of the event must be by someone of the
requisite seniority and hence the time bar does not bite until later on
(conveniently after the notice was given).
3. Arguing perhaps that it was only when it became obvious the event would
have a time impact that it became necessary to notify it (although this would
not assist for scope changes).
4. Arguing that the right to insist on this provision has been waived either
specifically in relation to that particular Compensation Event or, as we see
far too often, as a result of an informal gentleman’s agreement that the
Project Manager will of course do the right thing in due course.
JCT
Whether there are condition precedents within the JCT forms (both the
2011 and 2016 editions16), which are often regarded as more contractor
friendly than other forms, is sometimes disputed. For example, “loss and
expense claims” require that notice is given “within a reasonable time” or
“as soon as possible” after the event.17 Such disputes take place
notwithstanding the fact that the drafting team for the 2016 edition did
NOT intend the provision to be a condition precedent. A member of the
JCT Drafting Committee in fact blogged as follows:
“JCT has not adopted the approach of some bespoke amendments whereby
notification by the Contractor in accordance with a time limit is a condition
precedent to entitlement to loss and expense, which means that in principle
noncompliance avoids the claim.”18
However, it should be noted that, in any event, bespoke amendments are
often made to the JCT forms to add in clearer time bars and, as such, parties
need to ensure they review the specific clauses they are signing up to in
detail.
Will they bite you?
In England and Wales, Scotland and Ireland, conditions precedent are
generally enforced as binding, particularly notice provisions, and ought to be
treated with caution. If the condition precedent is clear in its terms, it is
likely that the benefiting party will be able to rely on it. Therefore, for the
party seeking to rely on conditions precedent (often the Employer), it is
necessary to ensure at the outset that the drafting of the contract is clear and
that the conditions precedent achieve contractual certainty if amending a
standard form or drafting a bespoke contract.
If the benefiting party intends to rely on the condition precedent, then it
needs to be strictly enforced. Any reluctance to enforce the provision could
amount to a waiver of the party’s intention to rely on it. In the event that a
party does waive their right to rely on a condition precedent but wishes to
reserve its right to rely on it in future, then this needs to be made clear and,
where necessary, amendments made. For example, if the waiver concerns a
notice provision, the waiver ought to include a new reasonable deadline for
fulfilment that the party can rely on at a later date if the expected progress is
not made.
If there is any dispute as to the requirements of a condition precedent,
particularly what the deadline for fulfilment is or what actions are actually
required to fulfil the conditions in terms of substance or form, then it may
be that the condition precedent will not be binding for lack of contractual
certainty, or at least that the operation of the clause could be interpreted in
the otherwise barred party’s favour rather than strictly against them in light
of the impact it may have on otherwise good claims to enforce the condition
precedent.19
The other main situation in which a party may be able to avoid the
operation of a condition precedent is where the benefiting party waives its
right to rely on it. Obviously, you do not want to be the party seeking to
establish a waiver on the basis of a gentleman’s agreement which is, with the
benefit of hindsight, not as clear as you would like it to be or, indeed, in
writing.
The golden rule therefore remains notify, notify, notify and do it on time (or
early).