Contractual time bar provisions – are they enforceable?

It is common for construction contracts to contain provisions specifying that entitlements to, for example, extensions of time and/or additional payment will be lost unless intimated within a specified period of time. But what happens if, for any reason and by any margin, the deadline is not complied with? Are ‘time bar’ provisions of this type necessarily enforceable? If so, clearly, the consequences could be devastating for what may, on the merits, be a valid claim. Here, we briefly address (and contrast) the position in both civil law (UAE and Oman) and common law (English) jurisdictions.

FIDIC (Fédération Internationale des Ingénieurs-Conseils)

Clause 20.1 of the 1999 FIDIC suite of contracts (in widespread use on construction projects in the UAE, and to a lesser extent in Oman) represents a prime example of a time bar provision. It states that a contractor who considers himself entitled to compensation by way of additional time and/or money (whether under the contract “or otherwise” in connection with it) shall give notice describing the event or circumstance giving rise to the alleged entitlement, and do so “not later than 28 days after the contractor became aware or should have become aware” of it. There is no definition of ‘notice’, leading to arguments that ‘notices’ are deemed to have been provided in minutes of meeting, project reports, etc. The clause goes on to provide that, if the contractor fails to provide the requisite notice on time:

the Time for Completion shall not be extended, the contractor shall not be entitled to additional payment, and the employer shall be discharged from all liability in connection with the claim.

Interestingly, under the 2017 edition of FIDIC, the stricture of the notice requirement in (now) Clause 20.2 is somewhat ‘neutralised’ by making it applicable to claims by either party (not just the contractor). Moreover, a ‘failure’ to comply with the specified notice period is no longer to be regarded in such absolute terms. If the engineer considers that the claiming party has failed to comply with the 28 day notice period, he is required to give a notice to that effect, failing which the Notice of Claim is deemed valid (though this is subject to the ability of the other party to issue a yet further notice, disagreeing with “such deemed valid Notice”!). On the other hand, the requirement is rendered more strict in the sense that ‘notices’ are now defined. They must be in writing, signed by an authorised representative, identified as such and expressly do not include notations in progress reports, etc.

The contractor will more usually be the claiming party. But whether the claim is by the contractor (under the 1999 FIDIC suite) or by either party (under the 2017 suite), in civil law jurisdictions, such as the UAE and Oman, the treatment of such provisions may be different (and perhaps more favourable to the claimant – whoever it may be) than in common law jurisdictions, such as England.

Common law

Under, for example, English law, a notice provision will be regarded as a condition precedent and enforced as such if it clearly sets out the time limits for service of the claim and makes it clear that failure to do so within that time would result in a loss of the entitlement. The Clause 20 time bar provision certainly seems to meet those criteria and, indeed, in the case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar [2014], the contractor accepted (and so the judge did not need to decide) that Clause 20.1 did amount to a condition precedent.

There may be some ‘wiggle room’ for, say, a contractor in relation to claimed entitlements arising from breach of contract by the employer. After all, it would be manifestly unjust for an employer to escape liability by reason of the contractor having failed to observe the formality of informing the employer what he already knows. In the Obrascon case, Mr Justice Akenhead said that he could see “no reason why this clause should be construed strictly against the contractor and [could] see reason why it should be construed reasonably broadly, given its serious effect on what could otherwise be good claims for instance for breach of contract by the employer”. Nevertheless, a contractor who fails to comply with the requirements of the provision, or of any established or agreed condition precedent runs the risk of losing all rights in intended claims irrespective of their basis (be it breach of contract, or what may be termed ‘neutral’ events, or as a function of the agreed allocation of risk).

Civil law – UAE and Oman

The ‘default’ position under, for example UAE law, may be regarded as not much different. Article 243(2) of the UAE Civil Code (Federal Law No. 5 of 1985) provides that:

As regards the contract's rights (obligations), each of the contracting parties shall fulfil what the contract has bound him to do”.

The position is the same in the Sultanate of Oman. Article 155 of Sultani Decree 29 of 2013 issuing the Civil Transactions and Procedures Law (Oman Civil Code) contains the following:

Each contracting party must fulfil its obligations as specified by the contract.

There are further provisions in both the UAE Civil Code and the Oman Civil Code to the effect that the clear terms of a contract will be binding on the parties. These provisions lend themselves to the view that a claimant party should be required to comply with, for example, the requirements of a freely agreed time bar clause.

However, there are various provisions of both codes that may support attempts by a claimant to circumvent the harshness of a notice provision that is subject to a time bar. They include the following:

1. Unlawful exercise of rights

Article 106 of the UAE Civil Code provides that “A person shall be held liable for an unlawful exercise of his rights”, and that the exercise of a right is unlawful when (amongst other things) “the interests desired are disproportionate to the harm that will be suffered by others”. The Omani Civil Code deals with the similar concept of abuse of rights at Article 59.

So, for example, reliance on a technical, or brief (say, one day), failure to comply with a notice provision may be regarded as ‘disproportionate’ and therefore an unlawful exercise of rights.

2. Good faith

Article 246(1) of the UAE Civil Code provides that “The contract shall be implemented, according to the provisions contained therein and in a manner consistent with the requirements of good faith.” Even though the Oman Civil Code does not contain an equivalent provision (but see Article 156: “…what is just to the nature of the disposition”), it is generally accepted that the doctrine applies as a pervasive duty requiring the parties to act in such a manner when exercising their rights and obligations under the contract.

Arguably, it would be inconsistent with the requirement of good faith for, say, an employer to seek to rely on a time bar provision in circumstances where the claim relates to the employer’s own breach of contract, or even where the employer is already fully aware of the circumstances giving rise to the claim, and of the contractor’s intention to pursue it. However, there would be obvious danger in seeking to rely purely on a good faith argument in an attempt to overcome the clear terms of a contract.

3. Unjust enrichment

Article 318 of the UAE Civil Code provides that “No person may take the property of another without lawful cause, and if he takes it he must return it." Article 202(1) of the Oman Civil Code contains similar wording.

So, for example, a contractor may not be precluded from claiming compensation for work properly carried out in accordance with the contract, and which provides a benefit to the employer, simply because the related claim may have been submitted late. But again, there would be obvious danger in alleging that benefit from reliance on express contractual rights is somehow ‘unjust’.

4. Void clause

With particular relevance to time bar provisions, Article 487(1) of the UAE Civil Code provides that “it shall not be permissible to waive a time-bar defense prior to the establishment of the right to raise such defense, nor shall it be permissible to agree that a claim may not be brought after a period differing from the period laid down by law”. The Oman Civil Code does not have such an express provision but, given that limitation provisions are considered to be matters of ‘public order’, they are considered mandatory and will override contrary contractual terms.

For commercial agreements (generally considered to include construction contracts), the statutory limitation period is 10 years from the date for performance of the obligation and for civil transactions, 15 years after the accrual of the ‘right’ (cause of action). Arguably, therefore, a clause which requires a claim to be brought within any lesser period breaches a mandatory provision of both UAE and Oman law and accordingly may be considered void.

Comment

Time bar provisions encourage efficient contract administration, which is in the interest of both parties. Obviously, best practice for contractors (to avoid potential barring of an otherwise valid claim, or even damages as a result of breach of contract) is to comply with such provisions by serving notice of a claim as soon as an event is known and is considered likely to give rise to delay and/or additional cost.

The notice should be served in the form, with the content and within the time specified in the contract. Ultimately, each case will be assessed on its own merits. However, the courts in civil law jurisdictions (at least under UAE and Oman law, based on one or more of the provisions referred to above) may be more likely than their common law counterparts to excuse a claimant for failing to do so.