Waiver of time bar clause upheld: City Inn revisited (again) (Part 2 of 2)
The decision of the Inner House in City Inn v Shepherd Construction delivered on 22 July is important for its treatment not only of the extension of time clause in JCT style contracts but also of a time bar clause (for our Law-Now on the former: click here. For our Law-Now on the decision of the Outer House delivered in 2007 in relation to the time bar clause, click here.
The decision in the Outer House concerning the time bar clause may be summarised thus. Clause 13 in the contract between the parties required Shepherd as contractor within ten days of receiving an instruction to give the Architect details of its estimated effect, failing which Shepherd would lose any entitlement to extend the completion date for the works. If Shepherd’s entitlements arising from the instruction were not agreed within five days the Architect might withdraw the instruction or require Shepherd to proceed anyway. Shepherd gave a timely but non-compliant notice. The judge decided this did not defeat Shepherd’s extension of time (EoT) claim because the Architect had waived the notice requirements and bound City Inn, the employer, in so doing.
City Inn brought an appeal against this decision. The Inner House made the following decisions as part of its judgment, the overall effect of which was that the time bar clause had been waived by City Inn by conduct and consequently it did not defeat Shepherd’s EoT claim:
(1) the contractual conditions contained in the time bar clause were capable of being waived;
(2) contrary to the decision of the Outer House, the provisions of the time bar clause affected City Inn’s substantive rights under the contract, not just procedural rights, and the Architect had no implied authority to waive, on behalf of the Employer, substantive rights on the basis of his conduct.
(3) an architect must generally be presumed to know the terms of the contract for the operation of which he was responsible, particularly a part of it the operation of which must necessarily involve him directly.
(4) when considering whether discussions at a certain meeting attended by representatives of City Inn (who were presumed to be aware of the terms of their own contract) amounted as a matter of fact to a waiver of the time bar clause, the court noted that silence in relation to a point that might be taken may give the inference of waiver of that point.
(5) Shepherd acted in reliance on the waiver simply by conducting its affairs on the assumption that it was waived; there was no necessity for Shepherd to show that it suffered prejudice by reason of its reliance.
Recent developments that have shown that the courts are favourably disposed towards enforcing time bar clauses - see for example our Law-Now last week on WW Gear Construction v McGee Group. However, where the particular facts of a case indicate that the provisions of the clause were ignored by all parties during the course of the works, and EoT awarded without reference to the contractor’s claims being made in breach of the clause, it is not surprising that the court will look favourably on the defence of waiver to protect the contractor from retrospective enforcement of the strictures of the clause.
Employers may consider inserting a clause into their contracts preventing or limiting waiver of its requirements to address the sorts of issues arising in this case. Architects will no doubt be relieved by the court’s decision as regards their inability to waive time bar clauses by conduct. In any event, it is clearly beneficial for the parties to make themselves aware of their contractual rights and obligations before rather than after the contract has been performed!
