A Strict Approach To Notices As A Condition Precedent To Entitlement: The Impact For Contract Drafters And International Construction Arbitration

• Published date: 19 November 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Contracts and Commercial Law, Arbitration & Dispute Resolution, Construction & Planning
• Law Firm: Akin Gump Strauss Hauer & Feld LLP
• Author: Mr Hamish Lal, Josephine Kaiding and Léa Defranchi

Maeda Corporation and China State Construction Engineering (Hong Kong) Limited v Bauer Hong Kong Limited¹ handed down in the Hong Kong Court of Appeal has significantly elevated the fundamental importance of so-called 'time-bar' clauses (commonly seen in engineering, procurement and construction (EPC) contracts, International Federation of Consulting Engineers (FIDIC) forms of contract (e.g., Clause 20.2.4 of the Second Edition of the FIDIC Silver Book²) and many forms of international sub-contracts). The Judgement is important: It held that the sub-contractor could not pursue a claim in the arbitration where it had not raised the specific contractual basis of such claim in its 'time-bar' notice as required by the terms of the subcontract. Courts in common law jurisdictions will now be pushed to apply the 'pro-employer' jurisprudence in Maeda Corporation and arbitrators sitting in international construction arbitrations will be under tangible pressure to apply all 'time-bar' clauses strictly (even if there are draconian consequences for the 'non-compliant' contractor or sub-contractor).

Maeda Corporation considered a condition precedent clause that required the sub-contractor to state the contractual basis (together with full and detailed particulars and the evaluation) of its claim within 28 days after giving of its initial notice. The sub-contractor had not stated the same contractual basis of its claim as that advanced in arbitration. The question was whether the contractual basis of the claim made under the 'time-bar' clause had to be the same as the contractual basis of the claim made in the arbitration. The arbitrator decided that it did not placing significance on the commercial purpose of the condition precedent clause.

• The Court at First Instance held that it did and made clear "there can be no dispute, and no ambiguity, from the plain and clear language used in Clause 21, that the service of notices of claim in writing referred to in Clause 21.1 and 21.2 are conditions precedent, must be 'strictly' complied with, and failure to comply with these conditions will have the effect that the Defendant will have 'no entitlement' and 'no right' to any additional or extra payment, loss and expense."
• The Court of Appeal agreed with the Court at First Instance stating "Within the stipulated time, the Sub-Contractor is required to give notice of the contractual basis, not any possible contractual basis which may turn out not to be the correct basis The reference to 'the contractual basis' would not preclude identifying more than one basis in the alternative or stating more than one basis in the notice or serving more than one notice each stating a contractual basis."
• Maeda Corporation will increase the number of condition precedent clauses that require the contractor or sub-contractor to also state the contractual basis of its claim increase the focus on strict compliance with 'time-bar' clauses more generally; increase claims of waiver or estoppel made as a result of the way in which the parties had conducted themselves in relation to a claim notified under the 'time-bar' clause; and increase the use of 'in the alternative' notices issued by contractors or sub-contractors.
• Parties seeking to circumvent Maeda Corporation may be tempted to argue that the words "strict compliance" are essential before its jurisprudence is applied. Parties seeking to rely on Maeda Corporation may be tempted to argue that the strict adherence to 'time-bar' comes from plain wording of such clauses such that there is no need to look at the commercial purpose.³

The 'Time-Bar' Clause

Put simply, the JV Plaintiffs (Maeda Corporation and China State Construction Engineering) were the main contractors under the Main Contracts with the Mass Transit Railway Corporation (MTRC or the "Employer") for the construction of tunnels for the Hong Kong to...