FIDIC Contracts: Time Bars Limitation And Good Faith

• Law Firm: Fenwick Elliott LLP
• Subject Matter: Government, Public Sector, Litigation, Mediation & Arbitration, Real Estate and Construction, Government Contracts, Procurement & PPP, Trials & Appeals & Compensation, Construction & Planning
• Author: Ms Sana Mahmud and Gilbert Hakim
• Published date: 24 July 2023

Panther Real Estate Development LLC v Modern Executive Systems Contracting LLC [2022] DIFC CA 016

The Dubai International Finance Centre ("DIFC") Court of Appeal has recently handed down a judgment in which it considered issues such as notices as conditions precedent, limitation and good faith in the context of FIDIC Sub-Clauses 20.1 and 3.5. We summarise the case and review its potential implications below.

The Facts

On 11 July 2017, the Employer, Panther Real Estate Development LLC ("Panther"), entered into a contract (the "Contract") with Modern Executive Systems Contracting LLC ("MESC"), the Main Contractor, for the construction and completion of a residential tower building in Dubai. The Contract was based on the FIDIC Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (First Edition, 1999), as amended by the Particular Conditions and other detailed provisions. The governing law of the contract was DIFC law and disputes were subject to the exclusive jurisdiction of the DIFC Courts.

The project experienced delays and MESC made three applications for an extension of time pursuant to Sub-Clause 8.4 of the Contract, all of which were rejected by the Engineer. MESC also eventually made a fourth EOT application for the period after termination.

Pursuant to Sub-Clause 8.7 of the Contract, if MESC failed to comply with Sub-Clause 8.2 [Time for Completion], MESC was liable for delay damages calculated at a daily rate of AED 42,500, capped at 10% of the contract price. The parties were unable to resolve their issues and Panther liquidated the Performance Guarantee and the Advance Payment Guarantee on 28 October 2019. The Contract was subsequently terminated by Panther with immediate effect on 6 November 2019.

The Issues

In the claim, at first instance, Panther sought liquidated delay damages, other delay damages, damages for the cost of completion and damages for the loss of the opportunity to rent or sell the residential units within the period of 16 December 2018 to 1 May 2020. In addition, Panther sought a declaration that it was entitled to encash the guarantees and retain the proceeds.

MESC denied liability primarily on the basis that it was entitled to an extension of time for a period of 292 days, which would deprive Panther of its alleged right to terminate because it had exhausted the maximum amount of delay damages under the Contract.

In response to MESC's claims for an extension of time, Panther argued that MESC had failed to comply with the conditions precedent in Sub-Clauses 20.1 and 3.5 of the Contract, and was, therefore, not entitled to an extension of time.

The judge, at first instance, found that the project was delayed by 325 days, only 19 of which MESC was responsible for. However, he held that:

1. Compliance with the provision in Sub-Clause 20.1 that requires the Contractor to give notice to the Engineer of their claim to an extension of time, with reference to the event or circumstance giving rise to the claim, not later than 28 days after they became aware or should have become aware of the event or circumstance (the "28-day notice requirement") is a condition precedent to the Contractor's entitlement to an extension of time.
2. Compliance with the requirement in the fifth paragraph of Sub-Clause 20.1 that the Contractor must, within 42 days after it became or ought to have become aware of the event or circumstances giving rise to the claim, send to the Engineer a fully detailed claim with supporting particulars of the basis of the claim and the extension of time and/or the additional payment claimed (the "42-day detailed claim requirement") was also a condition precedent to the Contractor's entitlement to an extension of time.
3. Sub-Clause 3.5 amounted to a promise not to challenge an adverse determination (by the Engineer) if that determination...