Waiver and estoppel defences to claims notification provisions
Claims notification provisions are often included in construction contracts and other commercial agreements. Where they are found to be conditions precedent to entitlement, a failure to notify can provide a complete defence to a claim. However, such clauses may not be operated during the course of the contract. Late claims may be submitted, negotiated and agreed without any objection being taken. In this Law-Now we provide a detailed overview of English law’s approach to waiver in such circumstances, including a recent case upholding a waiver argument based on events post-dating non-compliance with a notification clause.
Claims notification provisions in construction contracts
Claims notification provisions are commonly included in construction contracts. Claims by contractors for extensions of time or additional payment may be required to be notified within a certain period of time and similar provisions are sometimes applied to employers.
Whether non-compliance with such provisions will bar the recovery of claims will depend heavily on the words used. At one end of the spectrum, a clause may state expressly that compliance is a condition precedent to entitlement. An example is clause 20.1 of the FIDIC 1st edition contracts, which state expressly that “the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim” where a timely notice of claim is not given. A recent example of the FIDIC 1st edition time-bar being enforced is Panther Real Estate Development LLC v Modern Executive Systems Contracting LLC (see our Law-Now on that case here).
Where express condition precedent wording is not present, the English courts have looked to other indications in the wording of the clause to ascertain whether a condition precedent was intended. Clauses merely using obligatory language, such as “shall”, to require notification but without specifying consequences for non-compliance are usually not treated as conditions precedent. See for example, Scottish Power UK plc v BP Exploration Operating Co Ltd, where the English Commercial Court found such wording created a contractual duty but did not bar substantive claims.
Other clauses, whilst not stating expressly that they are conditions precedent, may nevertheless use conditional language. For example, the “provided that” wording used in the loss and expense provisions of the older JCT forms was held to be a condition precedent in WW Gear Construction Ltd v McGee Group Ltd (for our Law-Now on that case, please click here). The JCT has recently replaced the words “provided that” with “subject to”, but this wording was also found to create a condition precedent in FES Ltd v HFD Construction Group Ltd (see our Law-Now here).
For our Law-Now on a recent Court of Appeal decision considering the use of “if … then” wording in claims notification clauses, please click here.
Waiver and estoppel under English law
Proving that a claims notification provision is a condition precedent may not provide an employer with a final answer to contractor claims. Such clauses may be overlooked until a dispute escalates and legal advice is sought. The contractor may then claim that the condition precedent has been waived by the employer.
Under English law, the concept of waiver can arise in a number of different ways. It can be used to refer to a waiver by agreement, where the parties by words or conduct are taken to have amended their contract. It can also refer to the doctrine of election, where a party is forced to choose between two inconsistent legal remedies (such as termination and affirmation where a contract has been repudiated). The election of one remedy is sometimes said to have waived the alternative remedy. In the context of claims notification provisions, however, waiver usually refers to the English law doctrine of estoppel which prevents parties from denying a certain state of affairs which their words or conduct have led the other party to rely on and which it would be inequitable for them to deny.
The most relevant forms of estoppel in this context are promissory estoppel and estoppel by convention. Broadly speaking the requirements of promissory estoppel are as follows (see, for example, Ministry of Defence v Scott Wilson Kirkpatrick & Partners):
- There is a clear and unambiguous promise or representation, whether by words or conduct, that a party would not enforce its strict legal rights e.g. that an employer would not rely on a breach of a claims notification clause to defeat a contractor’s claim.
- The circumstances were such that the contractor, in this example, would naturally and did in fact rely on or conduct its affairs on the basis of such promise or representation.
- It would be inequitable or unconscionable for the employer to go back on the promise or representation.
Estoppel by convention is similar, but instead of a clear and unambiguous promise or representation, a common assumption or understanding is relied upon.
Whichever form of estoppel is advanced, it is important to distinguish between situations where the employer’s words or conduct have preceded, and are said to have caused, the contractor’s non-compliance with the claims notification clause, from those situations where the employer’s words or conduct follows the non-compliance. Where the employer’s words or conduct precede the non-compliance, reliance and unconscionability are more likely to present. It will often be unconscionable for an employer to rely on non-compliance with a claims notification clause as providing a defence to a contractor claim where the employer’s own words or conduct encouraged the non-compliance.
The causative impact of the employer’s words or conduct remains important in such cases, however. In Scandinavian Trading Tanker Co v Flota Petrolera Ecuatoriana, a charterparty permitted the owners the right to withdraw the subject vessel immediately if payment of the monthly hire was not made on time. Over the course of two years payments were made without any consistent pattern, sometimes paid on time and sometimes paid one to three days late. When a subsequent payment was not made on time, the owners immediately served notice withdrawing the vessel. The charterers claimed that the owners were estopped from doing so due to their previous conduct in accepting late payments over the past two years. The court rejected the estoppel on the grounds that the owner’s conduct had not unequivocally represented that the right of withdrawal would not be exercised, but also because the evidence showed that the owner’s previous acceptance of late payment had played no part in the charterer’s failure to pay on time. The real reason was that the person responsible for payment within the charterer was under the misapprehension that the owner could not exercise its right to withdraw until at least 10 days after the payment became overdue.
Cases where the employer’s words or conduct follow the contractor’s non-compliance raise more difficult questions of reliance and unconscionability. As the employer’s words or conduct cannot be said to have caused the non-compliance, the question of why it is inequitable for the employer to rely on the contractor’s non-compliance becomes more difficult to answer. An interesting example is The Post Chaser. That case concerned a sale of goods contract which required the sellers to give a declaration of shipment to the buyers as soon as possible after the sailing of the vessel on which the goods were to be carried. The sellers did not give such a declaration for more than a month after the ship had sailed. The buyers did not immediately challenge the late declaration or reserve their rights, but instead requested shipping documents. Their sub-buyers rejected the documents two days later, prompting the buyers also to reject the documents and cancel the sale.
The court found that the failure to make a declaration as soon as possible entitled the buyers to cancel. The sellers claimed that the buyers’ conduct in requesting documents amounted to a waiver of this right. The court agreed that such action was a sufficiently unequivocal representation that the buyers did not intend to exercise their right of cancellation. The court also agreed that, although the sellers had not acted to their detriment in reliance on this representation, the sellers had conducted their affairs on the basis of the representation by sending the documents to the buyers. However, in the court’s judgment, an estoppel was not established due to the absence of any injustice to the sellers. In those circumstances, “a necessary element for the application of the doctrine of equitable estoppel is lacking …”.
To similar effect is Ministry of Defence v Scott Wilson Kirkpatrick & Partners. In that case, a contractor who had refurbished a dockyard roof was sued when part of the roof blew off in high winds. The parties agreed that the 4 inch nail fixings for the roof did not meet the contractual requirements, but the contractor claimed that the clerk of works appointed by the employer had agreed to the fixings. The employer was therefore said to have waived the contractual requirements. The English Court of Appeal found that the evidence did not support a sufficiently unequivocal representation by the clerk of works and, in any event, there was no reliance by the contractor, who had intended to use 4 inch nails all along. However, even if these difficulties could be surmounted, the Court noted that it would not have been inequitable for the employer to rely on the original contractual requirements. To treat informal conversations as effectively transferring responsibility for the work to the employer would involve “too facile and ready an abrogation of [the contractor’s] duties.”
Disclosure and Barring Service v Tata Consultancy Services Ltd
A recent decision of the Technology and Construction Court provides an interesting and rare example of a waiver argument being upheld due to events post-dating non-compliance.
The Disclosure and Barring Service (“DBS”) engaged Tata Consultancy Services Ltd (“Tata”) to build a digital platform to streamline DBS's criminal record checks process. Various delays arose which Tata claimed to be DBS’ responsibility and for which it sought compensation. Arguments arose as to whether Tata had properly notified the delays under clause 5 of the contract, which provided relevantly as follows:
“5. IMPLEMENTATION DELAYS - GENERAL PROVISIONS
5.1 If, at any time, the CONTRACTOR becomes aware that it will not (or is unlikely to) Achieve any Milestone by the relevant Milestone Date it shall as soon as reasonably practicable notify the AUTHORITY of the fact of the Delay or potential Delay and summarise the reasons for it.
5.2 The CONTRACTOR shall then submit a draft Exception Report to the AUTHORITY for its approval not later than five (5) Working Days (or such other period as the AUTHORITY may permit and notify to the CONTRACTOR in writing) after the initial notification under clause 5.1.
5.3 The draft Exception Report shall give the AUTHORITY full details in writing of:
5.3.1 the reasons for the Delay;
5.3.2 the actions being taken to avoid or mitigate the Delay;
5.3.3 the consequences of the Delay;
5.3.4 if the CONTRACTOR claims that the Delay is due to an AUTHORITY Cause, the reason for making that claim.
…
5.6 Where the CONTRACTOR considers that a Delay is being caused or contributed to by an AUTHORITY Cause the AUTHORITY shall not be liable to compensate the CONTRACTOR for Delays to which clauses 7 or 8 apply unless the CONTRACTOR has fulfilled its obligations set out in, and in accordance with, clauses 5.1, 5.2 and 5.3.”
The court found that clause 5.6 was a condition precedent to Tata’s claims for compensation for delay, whether under the express terms of contract or at common law for damages. As Tata had not submitted any draft Exception Report in accordance with clauses 5.2 and 5.3, its claim for compensation would fail unless the need for a report had been waived by DBS.
Delays were initially notified by Tata in a letter dated 25 July 2016. This notification was given expressly under clause 5.1 and noted that Tata was then unable to determine the detailed consequences of the delay and that accordingly: “TCS is unable to provide a draft Exception Report within the stated 5 Working Days from the date of this letter and requests DBS’ permission for an extension.”
DBS’ response to this notification was sent on 2 August 2016, which was already beyond the 5 working day period stipulated by clause 5.2. The response did not address the extension request but merely responded to Tata’s request for further information to allow Tata to re-programme the works.
Thereafter, a period of discussion and negotiation took place culminating in the submission of a draft Exception Report by Tata in March 2017. The draft Exception Report noted that DBS had “never formally responded to our request in that letter for an extension within which to submit an Exception Report”.
The discussions and negotiations during this period fell into two categories. The first was a joint exercise in re-programming of the works to account for the delays. This was necessary for the submission of a draft Exception Report and also to inform commercial discussions over cost and responsibility for the delays, which was the second category of discussions.
The court rejected an initial submission by Tata that the DBS response of 2 August 2016 was an express agreement to Tata’s request for an extension of time in its 25 July 2016 letter. The response was too ambiguous to amount to an agreed extension of the 5 working day period.
However, the court found that the discussions and negotiations which followed these letters up until the submission of the draft Exception Report in March 2017 were sufficient to give rise to an estoppel by convention waiving the time-bar. In the court’s judgment, these discussions and negotiations had proceeded on the basis that the 5 working day period was not applicable and that Tata’s ability to claim remained unaffected.
Somewhat surprisingly, there is no mention of unconscionability in the court’s reasoning or whether it would be inequitable for DBS to rely on the condition precedent in clause 5.6. One may, however, find reasons which might have justified such a conclusion in the court’s description of Tata’s reliance on the common assumption:
“In reliance on DBS’s conduct, TCS expended resources, committed to negotiating a commercial deal, and acted to its detriment further in that, as TCS submits, it was denied the opportunity to decide how it might respond faced with continuing and accruing costs that, contrary to its belief, DBS had no intention of paying because of a technical notice point.”
The court therefore appears to have been sympathetic to the time and cost incurred by Tata in reliance on the common assumption that the 5 working day time period did not apply. Tata’s costs in this regard were not identified, but can be expected to be much less than the £2.4m it was ultimately awarded in delay costs (of a total of £32.4m claimed for). A question therefore arises as to the equity and proportionality of depriving DBS of a defence worth approximately £2.4m as a response to detrimental reliance by Tata which seems unlikely to have exceeded a tenth of that amount.
The “minimum equity” to do justice
This raises an active and unsettled aspect of the English law as to estoppel. Whilst it is clear that the estoppels are intended to protect against injustice and unconscionability, and are not intended to be a substitute for contractual obligations, the extent to which an estoppel will protect an expectation interest, rather than mere reliance loss, remains uncertain.
One formulation which has often been quoted is that the court must decide upon the “minimum equity to do justice” between the parties (Crabb v Arun District Council). However, in Guest v Guest the Supreme Court (the UK’s highest court) recently clarified that in cases of proprietary estoppel this formulation should not be taken as requiring the detriment to valued and paid to the exclusion of ordering the transfer of the expected proprietary rights. Whilst the overriding principle remained justice and equity, this could not be reduced – in cases of proprietary estoppel – to the mere compensation of detriment. Instead, enforcement of the promised rights would be the ordinary remedy, save where such rights were out of all proportion to the detriment incurred.
Whether such an approach is to be applied in commercial cases involving other forms of estoppel is an open question. As noted in the Supreme Court’s decision, proprietary estoppel claims are usually deeply personal, involving promises of land in return for many years of personal service and investment. It is not difficult to see why considerations of equity and unconscionability go beyond a simple valuation of detriment in such cases. In arms-length commercial cases, however, such elements are lacking and financial considerations may be the sum total of the equities to be weighed.
One example not dissimilar to the facts in Tata is McGoldrick v Gilmore. In that case, the claimant was injured on a building site and wished to claim against the owners. The claimant had been employed by the contractor, with whom he was on friendly terms. The claimant’s solicitors wrote to the contractor indicating that the claimant did not intend to claim against the contractor in relation to the accident and, in view of that confirmation, requested the contractor to provide a witness statement. A witness statement was subsequently provided by the contractor. The claimant later had a change of heart and claimed against the contractor.
The contractor claimed that the claimant was estopped from claiming against him due to his initial assurances that the contractor would not be sued, which the contractor had relied on by providing a witness statement. The claimed estoppel was rejected by the Northern Irish Court of Appeal on the basis that “it would not be inequitable to allow the action to proceed against [the contractor], subject to the terms … that the plaintiff is not to be entitled to make any use of the statement made by the [contractor] or the attendance notes made by his solicitors on the [contractor’s] visit to their offices.”
In a similar way, it may have been open to the court in Tata to allow DBS to rely on the condition precedent in clause 5.6, subject to terms that it compensate Tata for the time and cost incurred in the discussions and negotiations leading to the submission of the draft Exception Report in March 2017. Given that the conduct of DBS relied upon had no part in causing Tata not to comply with the original 5 working day deadline, it might be said that the “minimum equity to do justice” between the parties did not extend to reviving the whole of Tata’s claims which had already become barred prior to the common assumption relied upon.
Conclusions and implications
The present case bears resemblance to a Scottish decision from 2010 in which a claims notification time-bar had been held to have been waived after non-compliance had taken place (City Inn Ltd v Shepherd Comstruction Ltd). This again was based on subsequent discussions and negotiations in which the time-bar was not mentioned by the employer or its agent. No consideration was given as to whether it would be inequitable or unconscionable for the employer to rely on the time-bar, although Scots law differs from English law in this respect in that whilst a requirement for unconscionability applies to personal bar (the rough equivalent of the English concept of estoppel), there is no such requirement for waiver (see James Howden & Co Ltd v Taylor Woodrow Property Co Ltd).
The conclusion reached in Tata poses significant risks to employers in that valuable time-bar defences may be lost if the project team do not raise the application of the time-bar and instead proceed to discuss and negotiate a contractor’s claim on the merits. Whilst some detriment to the contractor is likely to be required in such cases, English law is presently unclear as to the extent of detriment which is needed before an employer will be deprived of its ability to rely on a time-bar. It may be the case, as appears to have been the position in Tata, that the time and cost incurred in discussing and negotiating the claim with the project team is sufficient.
Employers wishing to avoid this risk can take a number of precautions. Firstly, the project team should make a practice of including an express reservation of rights in its response to any claim notification which falls outside the contractual time period. The project team may then seek to discuss and negotiate the claim as normal subject to this reservation of rights. Secondly, the employer can include a “no-waiver” clause in its construction contracts, which are now strictly enforced by the English courts since the Supreme Court’s decision in Rock Advertising.
References:
Crabb v Arun District Council [1976] Ch 179
Scandinavian Trading Tanker Co v Flota Petrolera Ecuatoriana [1980] QB 529
Société Italo-Belge pour le Commerce et l'Industrie SA v Palm and Vegetable Oils (Malaysia) Sdn Bhd (The Post Chaser) [1982] 1 All ER 19
James Howden & Co Ltd v Taylor Woodrow Property Co Ltd [1998] SC 853
Ministry of Defence v Scott Wilson Kirkpatrick & Partners [2000] BLR 20
McGoldrick v Gilmore [2001] NICA 53
City Inn Ltd v Shepherd Comstruction Ltd [2010] CSIH 68
WW Gear Construction Ltd v McGee Group Ltd [2010] EWHC 1460 (TCC)
Scottish Power UK Plc v BP Exploration Operating Company Ltd [2015] EWHC 2658 (Comm)
Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24
Yuanda (UK) Company Ltd v Multiplex Construction Europe Ltd [2020] EWHC 468 (TCC)
Panther Real Estate Development LLC v Modern Executive Systems Contracting LLC [2022] DIFC CA 016
Tata Consultancy Services Ltd v Disclosure and Barring Service [2024] EWHC 1185 (TCC)
