Privy Council sets aside £1.5m appeal ruling over FIDIC contract clause

Privy Council judgment (PDF, 33pages/338KB) sets aside a previous award by the Court of Appeal of TT$13.9 million (£1.49m) to Uniform Building Contractors against Trinidad and Tobago’s water and sewerage authority (WASA) over disputes around termination notices on a pipelaying contract.

The case dates back to 2007, when UBC were contracted to fit 28km of pipes.  However, the water authority cancelled the contract in 2009, with the contractor bringing proceedings in 2013 over additional payments for variations to the project.

It had claimed that four items of work were variations on the original agreement and sought payment for them – specifically, cutting and excavating asphalt roadway rather than trenching in verges, removing excavated material deemed unsuitable for backfill, importing suitable backfill, and a need for night work.

The High Court had dismissed the contractor’s claims but an appeal hearing reversed this, before WASA’s appeal to the Privy Council, who decided the Court of Appeal had erred in their approach,

The council said none of the four disputed items were variations from the agreement.  Excavation through asphalt, and subsequent reinstatement, were required in the contract and disposal and importing of backfill was covered by several sub-clauses – which UBC had priced.

The night work, it ruled, was not additional, with the requirements of the project providing for working hours extending into night, subject to noise limits.

Originally the Court of Appeal had ruled in favour of UBC on grounds of perceived “fairness”, claiming that WASA – through the project engineer – had waived the procedural requirements. But because the arguments UBC made had not been pleaded before the trial judge, nor were supported by evidence – and WASA’s project engineer had no authority to waive or vary obligations – the Court of Appeal’s ruling was overturned.

It was also noted by the Privy Council board that UBC had failed to correctly take account of Sub-Clause 20.1 of the FIDIC Yellow Book (1999).

The sub-clause requires that notice of a claim be given ‘as soon as practicable’ and must be within 28 days of the contractor becoming aware of what has triggered the clause – with failure to comply meaning no entitlement to extra time or payment, and the employer freed from any liability for the claim.

And the council found that UBC had failed to give notice of increased costs around the four disputed issues and had not made a claim within the 28-day limit, with the disputed works known by late 2007 and contract termination in 2009.

Nicholas Brown, a FIDIC expert with Pinsent Masons, said the clause was designed as a safeguard for when earlier contractual protections have failed to be triggered.

“The principal reason for the decision is that the four disputed work items were not variations, but were part of the Contractor's original obligations under a lump‑sum design‑and‑build contract based on the FIDIC Yellow Book (First Edition, 1999),” he explained.

“The other rulings in the case concerning the notice procedures were unnecessary to its outcome and so not fully developed. From this, one might infer more broadly that under conventional design‑and‑build contracts, contractors will face challenges when seeking to recharacterize inherent scope obligations as variations.”

“This is merely a new cautionary tale: In several respects the case bears a resemblance to the basic facts and rulings of the High Court of Jammu & Kashmir and Ladakh nearly three years earlier in Union Territory of J&K v M/S S. P. Singla Constructions Pvt. Ltd. In that case, the court held that claims for steel quantity increases, cavity removal, bridge length adjustments, and extra excavation were not in the nature of variations under a contract based on - what, by repeated reference to “turnkey” - appears to have been the FIDIC Silver Book (First Edition 1999).”