Are Notice Clauses Always Fair And Reasonable?

As we have discussed in previous issues of IQ and our Annual Review, under the FIDIC form there is a requirement on both the Contractor1 and Employer2 to submit notices about claims and that if they do not do so within the timescales set out in the contract there is a real chance that they will lose the right to make such a claim.

This issue came up in the recent English case of Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd & Anr.3 In April 2002 Regorco had entered into a subcontract with Mitchell to carry out certain ground treatment (or vibro-compaction) works at a site on which a warehouse was to be built. By a separate subcontract Regorco also agreed to carry out the piling at the site. The vibro-compaction works were carried out at the end of March 2002, and the piling was installed a month or two later. Practical completion of the building was achieved on 19 December 2002. However, some nine years later, in November 2011, the sub-tenant in occupation of the warehouse complained of settlement of the slab beneath the production area.

Regorco's standard terms and conditions had provided at clause 12(d) that:

"all claims under ... this Contract must, in order to be considered valid, be notified to us in writing within 28 days of the appearance of any alleged defect ... and shall in any event be deemed to be waived and absolutely barred unless so notified within one calendar year of the date of completion of the works".

Regorco said that the limitation of liability clause, clause 12(d), meant that the claim could not be brought. The claim had not been notified within 28 days of the appearance of the defect or within a year of the completion of the works. The first question that the Judge, Mr Justice Edwards-Stuart, had to consider was whether and to what extent Regorco's standard terms applied. He held that they did not. However, the Judge went on to comment on whether or not clause 12(d) would have prevented the claim from being brought, had he decided otherwise.4

The Unfair Contract Terms Act

The Judge did this by reference to the English Unfair Contract Terms Act 1977 ("UCTA"), which applies where one or other party puts forward its standard conditions. Section 1 of UCTA provides that, apart from cases of personal injury or death, a person cannot restrict his liability for negligence:

"except in so far as the term or notice satisfies the requirement of reasonableness".

Section 11 of UCTA further provides:

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