No Notice, No Claim: Failure to notify an event may prevent a claim in relation to that event

In the recent case of FES Ltd v HFD Construction Group Ltd [2024] CSIH 37, the Scottish appeal court has affirmed the decision of the lower court and ruled that the notification of claim for loss and expense is a condition precedent under the SBCC (and JCT) contracts. This decision reiterates the importance of the contractor issuing timely notices, as a failure to do so might result in the contractor losing the right to recover loss and expense.

Background

FES was engaged by HFD to perform fit out works to an office building in Glasgow. The contract was based on the Standard Building Contract with Quantities for use in Scotland (SBC/Q/Scot) (2016 edition), which is, in turn, based on the JCT Standard Building Contract 2016. A dispute arose around FES’s entitlement to its claim for extension of time and associated loss and expense. HFD argued that FES had no right to an additional payment under the contract because it had failed to serve a required notice.

Relevant clauses

Clause 4.20.1 of the contract (standard clause) was as follows:

“If in the execution of this Contract the Contractor incurs or is likely to incur any direct loss and/or expense as a result of any deferment of giving possession of the site…or because regular progress of the Works or any part of them has been or is likely to be materially affected by any Relevant Matter, he shall, subject to clause 4.20.2 and compliance with the provisions of clause 4.21 be entitled to reimbursement of that loss and/or expense.”

Further, clause 4.21.1 of the contract stated:

“The Contractor shall notify the Architect/Contract Administrator as soon as the likely effect of a Relevant Matter on regular progress or the likely nature and extent of any loss and/or expense arising from a deferment of possession becomes (or should become) reasonably apparent to him.”

Facts

The dispute was referred to adjudication. One of the issues in dispute was whether giving a notice in terms of clause 4.21 was a condition precedent for the recovery of loss and expense under clause 4.20.

The adjudicator found that clause 4.21 was a condition precedent and that FES was not entitled to loss and expense under clause 4.20 of the contract.

FES sought a declaration from the Outer House of the Court of Session (the Court) that the notice provisions in clause 4.21 of the contract were not a condition precedent to any entitlement for direct loss and expense.

At first instance, the Court disagreed with FES: it concluded that serving a notice in accordance with Clause 4.21 was a condition precedent to entitlement under Clause 4.20. The Court reasoned that clause 4.20.1 was drafted by skilled professionals and the same wording was also found in clause 4.20.1 of the JCT standard form contract. The Court found that the language used in clause 4.20.1 was straightforward – it was clear that the contractor’s entitlement to reimbursement was subject to compliance with clause 4.21.

FES appealed to the Inner House, Court of Session (the Inner House). FES argued that the Court had erred by failing to consider the whole of the contract and the general legal and commercial context in which it was drafted. As per FES, clear words were needed if a term was to be classified as a condition precedent, including express words about the “perils of non-compliance“. There was no commercial or practical sense if a breach of the notice requirement in clause 4.21 would result in no entitlement to recover loss and expense. The consequence of the Court’s approach was illogical and oppressive. Instead, the requirement to give notice was a mere procedural requirement.

In response, HFD argued that clauses 4.20 and 4.21 were to be interpreted in accordance with the well-established principles and that the Court had correctly interpreted them. The words in clause 4.20.1 were unambiguous and the natural and ordinary meaning was that the entitlement to reimbursement was subject to a condition – giving notice in accordance with clause 4.21. There was no need to apply interpretive tools such as commercial common sense to these clauses.

The decision

The Inner House dismissed FES’s appeal. It held that the contract was prepared by skilled professionals and the clauses should be appropriately interpreted by textual analysis. There was no reason to accept FES’s argument. To accept FES’s argument, the Inner House would have to ignore the words “subject to … compliance with the provisions of clause 4.21″.

The Inner House accepted certain parts of clause 4.21 were less clear, such as the time limit for serving the notice and noted that if that was the question it was faced with it could have afforded some leeway to FES. However, here, there was no notice at all.

Further, the Inner House agreed with HFD that there was no need to analyse what may be regarded as commercial common sense. There was no nonsensical or absurd result arising from giving the words in clauses 4.20 and 4.21 their ordinary or plain meaning in the context of the contract. The Court concluded this was a “retrospective invocation of business common sense“.  That is, an attempt by one party to depart from the natural language because the arrangement has worked out badly for them.

Comment

This judgment provides clarity and certainty and establishes the need for the contractor to adhere strictly to the notice requirements as otherwise it could lose its entitlement to loss and expense. Although, this was a Scottish case, the wording in the JCT Design and Build Contract 2016 is the same in relation to the loss and expense claim, and it is possible that the English Courts would come to the same conclusion.

The HFW team often advises clients making or responding to claims under construction contracts where ‘notice’ arguments are raised. A failure to give a required notice at all may provide a straightforward route for a decision maker to reject a claim. Here, the lack of a notice meant the Inner House could throw out a claim for nearly £2 million without considering the substance of that claim.