May 12, 2023 Court of Appeal - Judgments
Claim No. CA 016/2022
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai
IN THE COURT OF APPEAL
BEFORE: CHIEF JUSTICE TUN ZAKI AZMI, H.E DEPUTY CHIEF JUSTICE ALI AL MADHANI, JUSTICE LORD ANGUS GLENNIE
PANTHER REAL ESTATE DEVELOPMENT LLC
MODERN EXECUTIVE SYSTEMS CONTRACTING LLC
|1 and 2 March 2023
Mr. Alexander Burrell instructed by MRP Advisory FZ LLC for the Defendant /Appellant
Mr. Justin Mort KC instructed by Al Tamimi & Company for the Claimant/Respondent/Cross-Appellant
|12 May 2023
JUDGMENT OF THE COURT OF APPEAL
UPON the Judgment of Justice Sir Richard Field dated 26 September 2022 in TCD-003-2019 (the “Judgment”)
AND UPON the Defendant’s Appeal Notice dated 17 October 2022 (the “Appeal” or “MESC’s Appeal”) and the Claimant’s Appeal Notice dated 8 November 2022 (the “Cross Appeal” or “Panther’s Cross Appeal”) seeking permission to appeal against the Judgment (together the “Permission Applications”)
AND UPON the Orders of Justice Sir Richard Field dated 20 December 2022 granting the Permission Applications
AND UPON the Appellant’s Application No. CA-016-2022/1 dated 16 February 2023 seeking permission to rely upon a supplementary skeleton argument dated 15 February 2023 and to amend its Appeal Notice (the “Appellant’s Application”)
AND UPON hearing counsel for the Appellant and counsel for the Respondent at an appeal hearing held on 1 and 2 March 2023 (the “Hearing”)
AND UPON reviewing the relevant submissions made in the case file
IT IS HEREBY ORDERED THAT:
1. The Appellant’s Application is granted.
2. The Appeal is dismissed.
3. The Cross Appeal is allowed in part, to the extent indicated in para. 73 of this Judgment.
4. The case is remitted to the trial judge to make all relevant findings of fact in relation to the matter identified in that paragraph.
5. The Appellants shall pay the Respondent’s costs of this Appeal and Cross Appeal, to be assessed by the Registrar on the standard basis, if not agreed.
Date of issue: 12 May 2023
SCHEDULE OF REASONS
Introduction – the parties and the Contract
1. This is an appeal against the Judgment of Justice Sir Richard Field issued on 26 September 2022. The Appellant is Modern Executive Systems Contracting LLC (“MESC” or “the Contractor”). The Respondent and Cross-Appellant is Panther Real Estate Development LLC (“Panther” or the “Employer”), a developer of residential property in the United Arab Emirates.
2. On 11 July 2017, Panther entered into a contract (the “Contract”) with MESC for the construction and completion of the East 40 Building in Al Furjan, Dubai (the “Works”), a residential tower building consisting of 112 residential units (the “Project”). In terms of the Contract, Panther was the Employer and MESC was the Main Contractor. The contract price payable to MESC for completion of the works was agreed to be AED 40,331,550.
3. The Contract included Part 1 – General Conditions of Contract, which comprised the FIDIC Conditions of Contract for Construction for Building and Engineering works Designed by the Employer (First Edition, 1999) (the “FIDIC Conditions”) as supplemented and amended by Particular Conditions and other detailed provisions set out at Parts II and III of the Conditions of Contract. The governing law of the contract was DIFC law and disputes thereunder were agreed to be subject to the exclusive jurisdiction of the DIFC Courts.
4. The circumstances giving rise to the dispute are fully set out in the Judgment of Justice Sir Richard Field. We summarise below those matters which are relevant to this Appeal. In this summary reference is made to various provisions of the Contract. The relevant provisions will be set out more fully later in this judgment.
5. The Commencement Date specified in the Contract was 11 July 2017 and the time for completion was 16 months, giving rise to a Completion Date of 10 November 2018. However, the Approved Baseline Programme Completion Date was 16 December 2018 and parties were agreed that this became the Completion Date under the Contract.
6. Under Sub-Clause 8.7 of the Contract, in the event that MESC failed to comply with Sub-Clause 8.2 (Time for Completion), MESC was liable to pay delay damages calculated at a daily rate of AED 42,500, with a cap on the liquidated sum equal to the value of 10% of the contract price.
7. Panther appointed NAGA Architects, Designers and Planners (“NAGA”) as the Engineer for the Project. References below to “the Engineer” are references to NAGA in that capacity.
8. Pursuant to Sub-Clause 4.2 of the Contract, MESC provided a performance security consisting of an unconditional on-demand guarantee in the amount of AED 4,033,155.00, equivalent to 10% of the Contract Price, issued by Emirates NBD and dated 24 May 2018 (the “Performance Guarantee”), which the Claimant was entitled to encash whenever it considered that it had suffered loss arising out of the MESC’s breach of contract or if it considered that sums were due from MESC to it in relation to the Contract. In addition, pursuant to Sub-Clause 14.2 of the Contract, MESC provided an advance payment guarantee (the “‘Advance Payment Guarantee”) in the like amount on which the Claimant was entitled at any time to call in whole or in part if it considered that MESC was in breach of contract or if any sums were due from MESC to it under the Contract. The Performance Guarantee and the Advance Payment Guarantee are hereafter referred collectively as (the “Security Guarantees”).
9. MESC commenced work on the Project in July 2017. By early July 2019 the delays in achieving completion of the Works were such that the agreed Completion Date of 16 December 2018 had been overshot by about six and a half months. By this date, MESC had made three Extension of Time Applications (“EOTs”) under Sub-Clause 8.4 of the Contract. All three of those EOTs were rejected by the Engineer, the third on 22 July 2019.
10. Since the timing and rejection of MESC’s EOTs featured prominently in the arguments in this Appeal, it is useful to summarise them in the manner set out by the judge below.
11. EOT No 1 was dated 18 February 2018. It cited five delay events, namely: Event No. 1 - late receipt of the Civil IFC Drawings (Structural and Architectural) for which an extension of 62 days was claimed; Event No. 2 - delay due to Etisalat/Du Cable inside the Plot Limit (claiming 31 days); Event No. 3 – delay due to late issuance of Authority Approved Post Tension Drawings for Podium (28 days); Event No. 4 – Changing Passenger Lift Supplier; and Event No. 5 – delay in receipt of MEP IFC Drawings (70 days).
12. EOT No. 2 was dated 27 June 2018. This cited the Delay Events relied on in EOT No. 1, save that: the two IFC Drawing delays were combined into one Delay Event; and Event No. 4 – delay due to Changing Passenger Lift Supplier -- was deleted and replaced with a new Delay Event No. 4 – late issuance of Post Tension Drawings for Typical Floor Slab (7 days).
13. EOT No. 3 was also dated 27 June 2019. This cited 11 Delay Events, namely: Event No. 1 - delay in receipt of Civil IFC drawings (76 days); Event No.2 - delay due to Etisalat/Du cable (107 days); Event No.3 - delay due to late issuance of Post Tension Drawings for Podium Slab (125 days); Event No. 4 - delay due to late issuance of post tension drawings for Typical Floor Slab (132 days); Event No. 5 - delay due to issuance of revised Kitchen Layout drawings (139 days); Event No. 6 - delay in finalisation of 12th floor Structural Design (100 days); Event No. 7 - delay in finalisation of 12th floor Architectural Design (120 days); Event No. 8 - delay in finalisation of 12th floor Pool Deck and Finishes Layout (161 days); Event No.9 – delay in approval of Full Ceiling Design (100 days); Event No.10 – delay in Final Architectural and Structural Layout for roof (115 days); and Event No. 11 – delay in receipt of Gym Design (298 days).
14. This Appeal primarily concerns disputes about extension of time and liquidated damages for delay. However, it is worth noting, in outline at least, how the disputes developed and the Contract was brought to an end. This again is taken from the Judgment. On 6 July 2019, in response to (a) the Engineer’s refusal to approve claims for an extension of time and (b) his delay in instructing payment, MESC sent a letter to the Engineer serving a notice of slowdown of the Works. Panther responded (through its lawyers) on 9 July 2019 stating that both it and the Engineer had been entitled under the Contract to take the actions complained about and warning MESC that it would be a serious breach of contract to slow down the works. This led to a top level management meeting on 15 July 2019 at which the status of the Works was discussed and MESC undertook to provide a realistic completion program. At Progress Meeting 104 held on 31 July, MESC’s Head of Projects gave a commitment to increase manpower and supervision to comply with a newly proposed Completion Date. There was also reference at this meeting to a proposal by MESC for there to be a Memorandum of Understanding (“MoU”) to be agreed to by all parties. By letter dated 8 August 2019, the Engineer instructed MESC to produce a realistic program for the completion of the Contract; and he stated that MESC had no entitlement to any extension of time. Sometime in August/September 2019 MESC submitted its proposed MoU, which included a condition that the completion date for the Works would be revised to 31 December 2019 and that any delay damages to date would be waived. At the Management Meeting held on 27 October 2019 to try to reach agreement as to handing over the Project by 31 December 2019 and to discuss the MoU, MESC gave a commitment that it would complete handing over the Project by that date and use maximum endeavours to meet this milestone subject, however, to all parties agreeing and signing the MoU. MESC said that if the MoU was not signed this would lead to more delays, the Project would be open-ended and MESC would not be committed to any completion date. Panther expressed dissatisfaction with the MoU and proposed further discussion on the proposed waiver of its rights. On 28 October 2019, MESC sent the Engineer a copy of the proposed MoU, signed on behalf of MESC, requesting that the document be forwarded to Panther for final endorsement. On the same date Panther liquidated the Security Guarantees provided by MESC pursuant to sub-clause 4.2 of the Contract, receiving AED 4,033,155.00 under the Performance Guarantee and AED 1,000,304.67 under the Advance Payment Guarantee. In a letter dated 3 November 2019 to Panther, headed “Slow Down the Rate of Work”, MESC protested at the encashment of the Security Guarantees at a time when the parties had come to a mutual agreement for the way forward. The letter stated that in view of this development, MESC had no option other than to reduce the amount of work. On the same day, Panther, through its lawyers, wrote to MESC describing the MoU as a crude and baseless attempt to deprive Panther of its clear and legitimate entitlements: MESC was seeking to use its own failures to perform under the Contract as leverage to absolve itself from liability for its breaches. Panther said that it would not be executing the MoU under any circumstances. Also on the same day, 3 November 2019, the Engineer confirmed that the Works had been suspended by MESC, which had blocked all entrances to the Site and shut down the electric power and instructed its subcontractors not to attend at the Site.
15. On 6 November 2019, by which time the Project had been delayed by 365 days according to the Engineer and Panther, Panther sent a letter (the “Termination Letter”) to MESC, terminating the Contract with immediate effect under Sub-Clause 15.2 (which provided that Panther was entitled to terminate the Contract with immediate effect if, amongst other things, the maximum amount of delay damages was exhausted, as they said it was). A week later, MESC personnel tried to enter the Site. Violence ensued and order was only restored once the police had been called in. Panther moved rapidly to conclude a contract with another contractor, obtaining a building permit on 28 November 2019 and completing the Works on 1 May 2020.
16. On 30 January 2020, MESC submitted a fourth EOT claim (EOT No.4) to the Engineer contending that it was entitled to an extension to the end of February 2020 by reason of late finalisation by the Engineer of the Balcony Glass Balustrade Design; this happened in late August 2019, whereas MESC’s approved baseline programme showed that the submission of the balcony design should have been completed no later than 22 April 2018. The Engineer rejected this claim, noting that MESC had failed to submit the drawings and calculations and to execute the mock-up and get approval for submission from the Engineer to comply with the Project specifications and safety requirements which were MESC’s responsibility. Further, the subcontractor (Petra) was not a nominated subcontractor and MESC were liable to manage the subcontractor’s works. MESC was fully responsible for: (i) the balustrade works delay as it was their scope of works; and (ii) the delay of the subcontractor.
The main issues before the judge
17. In its claim at first instance, Panther sought liquidated delay damages, other delay damages, damages for the cost of completion (including the cost of remedying defective works) 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 (the “Takeover Completion Period”) which, it was said, had resulted in lost proceeds from the potential sale of residential units or lost rent and charges from the potential rental of the units. Panther also sought a declaration that it was entitled to encash the Security Guarantees, as it had done, and was entitled to retain the proceeds thereof.
18. MESC denied that it was liable to Panther as alleged or at all. MESC pleaded that it was entitled to an extension of time, in total, of 292 days, which would deprive Panther of its claimed right to terminate by reason of the exhaustion of the maximum amount of delay damages. MESC’s expert witness on delay expressed a slightly different figure – in his view there were 325 days of critical delay down to 6 November 2019, of which 306 days were to be attributed to Panther and 19 days attributed to MESC – but the difference is not material for present purposes. In advancing its pleaded case on delay, MESC relied on 14 pleaded delay events, identified as DE01 – DE14 (MESC’s delay expert sought to rely upon a further 9 delay events but these were not pleaded and can be disregarded).
19. In light of the above, MESC submitted that it was entitled to an extension of time of 306 (or 292) days, with the result that the primary ground for immediate termination stated in the Termination Letter – the exhaustion of the cap on delay damages – was an ineffective ground for termination. MESC also contended that the other contractual grounds for immediate termination stated in that letter – abandonment of the Works and/or a repeated and plainly demonstrated intention not to continue performance under the Contract – were not good grounds for immediate termination (on the basis that termination on these grounds had to be on 14 days’ notice) and that it was not open to Panther to rely on the rights conferred by Articles 86 and 88 of the Contract Law to terminate on the grounds of repudiatory and anticipatory breach because Panther’s Termination Letter did not make it sufficiently clear that the termination was based both on the terms of the Contract and on the general law of contract. On that basis MESC contended that it was Panther that was in fundamental breach of contract and was liable to compensate MESC, inter alia, for prolongation costs, the value of the work done as at the date of termination of the Contract, insofar as remaining unpaid, and the cost of the liquidation of the Security Guarantees.
20. It was Panther’s case that, in the circumstances which occurred, the Engineer’s negative determinations of MESC’s four EOT claims was fatal to MESC’s claim in these proceedings. In developing this case Panther contended that all of the Defendant’s 14 delay events, except for DE-3 and D-4, were: (a) not notified to the Engineer within 28 days of the time when MESC became aware or should have become aware of the event or circumstance relied on for the claimed EOT; and/or (b) not made the subject of a detailed claim within 42 days of giving notice of the event as required by Sub-Clause 20.1. Panther contended that all the conditions set out in Sub-Clause 20.1 were in the nature of conditions precedent to MESC being entitled to an EOT. It followed that MESC was not entitled to an extension of time in respect of DE-1 and DE-2 and DE-5 – DE-14; and in consequence MESC was barred by Sub-Clause 20.1 from raising these alleged delay events as a defence or in support of its counterclaim in the proceedings. Panther also relied upon the requirement in Sub-Clause 3.5 that the Contractor and the Employer, as the case might be, must give effect to a determination by the Engineer unless, within 14 days of receiving that determination, it notifies the other party of its dissatisfaction with it, in which case either party may refer the dispute to be settled in accordance with Sub-Clause 20. It was submitted that MESC had not given timeous notices in accordance with that Sub-Clause.
The judge’s decision on these points
21. The judge found on the facts (see Conclusions para. 7) that completion of the Project was delayed by 325 days, of which only 19 days were due to failings on the part of MESC, the balance of 306 days being attributable to the actions of Panther. He went on (Conclusions para. 8) to say that: “If it be held on appeal that MESC is not debarred from seeking an EOT of 306 days by reason of a failure to comply with the time requirements under Sub-Clause 20.1 ... MESC will be entitled to prolongation damages in the sum of AED 1,741,313.42.” It would also follow that Panther would not be entitled to liquidated delay damages in the amount awarded by the judge, or possibly at all. The critical issues relevant to this part of the case are therefore those relating to the proper interpretation of Sub-Clause 20.1 (and possibly Sub-Clause 3.5).
22. The judge accepted the submission made on behalf of Panther that the requirement in the first paragraph of Sub-Clause 20.1 for the Contractor to give notice to the Engineer of his claim to an extension of time, with reference to the event or circumstance giving rise to the claim, not later than 28 days after he became aware or should have become aware of the event or circumstance (the “28-day notice requirement”), was a condition precedent to the Contractor’s entitlement to be granted an EOT. Such a finding was not difficult; and, in any event, as the judge pointed out (in para. 42 of his Judgment), that construction had in fact been conceded by MESC, no doubt because of the plain language of the second paragraph of Sub-Clause 20.1.
23. However, the judge went on to make three further findings which, taken in combination, meant that MESC’s claim for an extension of time of failed.
24. First, he held (Judgment paras. 42-48) that 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.
25. Second, he held (Judgment para. 49) that Sub-Clause 3.5 amounted to a promise not to challenge an adverse determination (by the Engineer) if that determination was not challenged within 14 days of its issuance; combined with an agreement that, if a compliant 14 notice is given, then the determination may be challenged but only in accordance with the dispute resolution provisions of Sub-Clause 20.
26. Third, he held (Judgment paras. 50-54) that, in respect of the 28-day notice requirement (and the same construction must inevitably apply also to the case of the 42-day detailed claim requirement), time ran from the date when the Contractor was aware or ought to have been aware of an event or circumstance that could give rise to a claim for an extension of time, regardless of whether there was or had been any actual delay by that time. In coming to this view the judge was aware that he might be differing from the construction placed on Sub-Clause 20.1 by Akenhead J in Obrascon Huarte Lain SA v Attorney General for Gibraltar  EWHC 1028 (TCC) at paras. 312-313.
27. MESC appeals against the judge’s decision of each of these points. It is convenient to deal with this part of the Appeal at this stage. Before doing so we first set out the relevant terms of the Contract, viz. the FIDIC Conditions as supplemented and amended by the Particular Conditions set out at Part II to the Conditions of Contract.
The FIDIC Conditions (as supplemented and amended)
28. The relevant provisions for present purposes are Sub-Clauses 1.9, 3.5, 8.4, 8.7 and 21.1. Parts of those provisions have been amended from the original FIDIC Conditions. We use italics to indicate additions or deletions from the original.
“1.9. Delayed Drawings or Instructions
The Contractor shall give notice to the Engineer whenever the Works are likely to be delayed or disrupted if any necessary drawing or instruction is not issued to the Contractor within a particular time, which shall be reasonable. The notice shall include details of the necessary drawing or instruction, details of why and by when it should be issued, and details of the nature and amount of the delay or disruption likely to be suffered if it is late.
If the Contractor suffers delay and/or incurs Cost as a result of a failure of the Engineer to issue the notified drawing or instruction within a time which is reasonable and is specified in the notice with supporting details, the Contractor shall give a further notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to:
(a) an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and
(b) payment of any such Cost plus reasonable profit, which shall be included in the Contract Price.
After receiving this further notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.
However, if and to the extent that the Engineer's failure was caused by any error or delay by the Contractor, including an error in, or delay in the submission of, any of the Contractor's Documents, the Contractor shall not be entitled to such extension of time, Cost or profit.
Whenever these Conditions provide that the Engineer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Engineer shall consult with each Party in an endeavour to reach agreement. If after 7 days following the commencement of such consultations, agreement is not achieved, the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances.
The Engineer shall give notice to both Parties of each agreement or determination, with supporting particulars. Each Party shall give effect to each agreement or determination unless one Party notifies the other of his dissatisfaction with a determination within 14 days of having received it. Either Party may then refer the dispute to be settled in accordance with Clause 20 [Claims and Disputes].
8.4 Extension of Time for Completion
[...] The Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to an extension of the Time for Completion if and to the extent that despite using its best endeavours to preclude the occurrence of any delay, and to minimise and mitigate the effects of any such delay on the Works completion for the purposes of Sub-Clause 10.1 [Taking Over of the Works and Sections] is or will be delayed by any of the following causes:
If the Contractor considers himself to be entitled to an extension of the Time for Completion, the Contractor shall give notice to the Engineer in accordance with Sub-Clause 20.1 [Contractor’s Claims ] together with appropriate evidence and detailed proposals consistent with the Contract for overcoming such events and minimising any adverse effects on the time for completion and quality of the Works. The Contractor shall implement such proposals unless the Engineer instructs otherwise within 4 Business Days from the date of notification, and the Contractor shall provide such additional information as the Engineer may request. ...
8.7 Delay Damages
If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Contractor shall, subject to Sub-Clause 2.5 [Employer’s Claims), pay delay damages to the Employer for this default. These delay damages shall be the sum stated in the Appendix to Tender, which shall be paid for every day which shall elapse between the relevant Time for Completion and the date stated in the Taking-Over Certificate. However, the total amount due under the Sub-Clause shall not exceed the maximum amount of delay damages (if any) stated in the Appendix to Tender.
[...] These damages shall not relieve the Contractor from his obligation to complete the Works, or from any other duties, obligations or responsibilities, which he may have under the Contract and are strictly without prejudice to the Employer’s other entitlements under the Contract (and shall in no way preclude or restrict the Employer’s ability to bring a general damages claim). In addition to the delay damages, the Contractor shall fully compensate the Employer for any additional fees that the Employer is required to pay to the Engineer or any other third parties arising out of or in connection with the delay.
20.1 Contractor’s Claims
If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance.
If the Contractor fails to give notice of a claim within such period of 28 days, 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. Otherwise, the following provisions of this Sub-Clause shall apply.
The Contractor shall also submit any other notices which are required by the Contract, and supporting particulars for the claim, all as relevant to such event or circumstance.
The Contractor shall keep such contemporary records as may be necessary to substantiate any claim, either on the Site or at another location acceptable to the Engineer. Without admitting the Employer’s liability, the Engineer may, after receiving any notice under this Sub-Clause, monitor the record-keeping and/or instruct the Contractor to keep further contemporary records. The Contractor shall permit the Engineer to inspect all these records, and shall (if instructed) submit copies to the Engineer.
Within 42 days after the Contractor became aware (or should have become aware) of the event or circumstance giving rise to the claim, or within such other period as may be proposed by the Contractor and approved by the Engineer, the Contractor shall send to the Engineer a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed. If the event or circumstance giving rise to the claim has a continuing effect:
(a) this fully detailed claim shall be considered as interim;
(b) the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Engineer may reasonably require; and
(c) the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Engineer.
Within 42 days after receiving a claim or any further particulars supporting a previous claim, or within such other period as may be proposed by the Engineer and approved by the Contractor, the Engineer shall respond with approval, or with disapproval and detailed comments. He may also request any necessary further particulars, but shall nevertheless give his response on the principles of the claim within such time.
Each Payment Certificate shall include such amounts for any claim as have been reasonably substantiated as due under the relevant provision of the Contract. Unless and until the particulars supplied are sufficient to substantiate the whole of the claim, the Contractor shall only be entitled to payment for such part of the claim as he has been able to substantiate.
The Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) the extension (if any) of the Time for Completion (before or after its expiry) in accordance with Sub-Clause 8.4 [Extension of Time for Completion], and/or (ii) the additional payment (if any) to which the Contractor is entitled under the Contract.
The requirements of this Sub-Clause are in addition to those of any other Sub-Clause which may apply to a claim. If the Contractor fails to comply with this or another Sub-Clause in relation to any claim, any extension of time and/or additional payment shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim, unless the claim is excluded under the second paragraph of this Sub-Clause. ...”
[Sub-Clauses 20.2 to 20.8 of the FIDIC Standard Form Conditions were deleted and replaced by a short provision requiring parties to seek to resolve amicably any dispute or difference arising between them, failing which either party could refer the dispute(s) to the competent court of the DIFC for final resolution.]
29. As noted in para. 27 above, MESC challenges the judge’s interpretation of the contractual provisions, viz.: the 42-day detailed notice requirement (Ground 1); the Sub-Clause 3.5 14-day notice requirement (Ground 2); the interpretation of the provisions of Sub-Clause 20.1 relative to determining when the 28-day notice had to be given (Ground 4); and his rejection of MESC’s argument concerning the “prevention principle” (Grounds 5 and 6). Ground 3 related to a procedural matter and does not arise for decision.
Extension of time and additional payment – overview
30. It is convenient to start with an overview of the contractual provisions governing time for completion, extensions of time and liquidated damages for delay.
31. The Commencement Date under the Contract was 11 July 2017: see Sub-Clause 8.1 and Part III Appendix to Tender. Time for Completion, nominally 16 months from the Commencement Date (see Part III Appendix to Tender), was in fact agreed by the parties to be 16 December 2018 (see para. 5 above). “Time for Completion” means, in this case (since the Works were not divided into Sections), the time for Completing the whole of the Works: see Sub-Clauses 220.127.116.11 and 8.2. Sub-Clause 10.1 provided for the taking over of the Works by the Employer when they had been completed in accordance with the Contract. The Contract Price (Sub-Clause 14.1) was AED 40,331,550.
32. The Contract contains a number of provisions dealing with delay suffered by the Contractor as a result of failures on the part of the Employer or the Engineer or by reason of circumstances beyond the control of any of the parties. Sub-Clause 1.9, for example, deals with the case of the Contractor suffering delay because of late issue of drawings and/or instructions by the Engineer. Sub-Clause 2.1 deals similarly with delay caused by the Employer’s failure to give access to or possession of the site by the required time. There are numerous other provisions to like effect. Each of them contains a provision stating that if the Contractor suffers delay or incurs cost as a result of such failure by the Engineer or the Employer, the Contractor shall give notice to the Engineer and shall be entitled, subject to Sub-Clause 20.1, to (a) an extension of time under Sub-Clause 8.4 for any such delay, if completion is or will be delayed, and (b) payment of any such cost plus reasonable profit. The Engineer will then proceed in accordance with Sub-Clause 3.5 to agree or determine those matters.
33. Two points in particular are to be noted. First, the entitlement to an extension of time arises under Sub-Clause 8.4, which makes it clear that it is dealing with “an extension of the Time for Completion if and to the extent that completion for the purposes of Sub-Clause 10.1 [Taking Over of the Works and Sections] is or will be delayed.” In other words, such an entitlement is not triggered simply by showing some actual or anticipated delay to a particular activity – it is only if the delay has or might have the effect of delaying Completion of the Works that the Contractor will be entitled to an extension of time. It follows that in many, perhaps most, cases the claim for an extension of time will be presented on the basis that the event or circumstance relied on will (or might) delay Completion of the Works beyond the Contractual Completion Date, a date which may be months or years down the line. Second, Sub-Clause 8.4 makes it clear that a Contractor claiming to be entitled to an extension of Time for Completion must give notice to the Engineer in accordance with Sub-Clause 20.1, and indeed that any entitlement to an extension is subject to compliance with Sub-Clause 20.1.
34. Clause 20 is headed “Claim, Disputes and Arbitration”. Of the whole clause as it appears in the FIDIC Standard Form, only Sub-Clause 20.1 is relevant here, the remainder of Clause 20 having been deleted by the parties and replaced by a reference to disputes being decided in the courts of the DIFC. The structure of Sub-Clause 20.1 is instructive. If the Contractor considers himself entitled to an extension of the Time for Completion, he must, within 28 days of the time when he became aware or should have become aware of the event or circumstance giving rise to the claim for an extension, give notice to the Engineer describing that event or circumstance (the “28-day notice requirement”). He must then, within 42 days of that same time, follow that up with a detailed claim, supported by such material as is available (the “42-day detailed claim requirement”). There is allowance within Sub-Clause 20.1 for the provision of further information, but within a relatively short period (a further 42 days unless a longer period is agreed) the Engineer must proceed in accordance with Sub-Clause 3.5 to agree or determine the claim for extension of time and any additional payment to which the Contractor may be entitled.
35. Sub-Clause 3.5 has been heavily amended, but in essence it provides for the Engineer, after consulting each party, to endeavour to reach agreement, failing which he is to issue his determination in accordance with the Contract. It goes on to say that each party shall give effect to such determinations unless within 14 days they give notice to the other of their dissatisfaction, in which case the dispute may be settled in accordance with Clause 20.
36. Against this background it is convenient to discuss particular issues arising in this Appeal.
Sub-Clause 20.1 – the 28-day notice requirement
37. There is no doubt that the 28-day notice requirement in Sub-Clause 20.1 is a condition precedent to the Contractor’s entitlement to obtain an extension of time, however strong his claim to an extension of time might be otherwise. Failure to serve that notice in time means that the claim for an extension of time (and/or additional payment) will fail. This is made absolutely clear in the second paragraph of Sub-Clause 20.1: if the Contractor fails to give notice of a claim within the 28-day period, 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 respect of the claim. The language could not be clearer. The judge accepted this and, save for the point about timing, the Contractor did not argue to the contrary.
Sub-Clause 20.1 – the 42-day detailed claim requirement (Ground 1)
38. The position is quite different when it comes to the 42-day detailed claim requirement. The second paragraph of Sub-clause 20.1 sets out the consequences of a failure to give the 28-day notice, but by the word “otherwise” in the last sentence of that paragraph (“Otherwise, the following provisions of this Sub-Clause shall apply”) makes it clear that that draconian regime does not apply to what follows. In fact, specific and very different provision is made for any other relevant failures on the part of the Contractor. The Contractor must keep records necessary to substantiate its claim, it must permit inspection of such records, and it must comply with the 42-day detailed claim requirement. The penalty for failing to do some or all of this is spelled out in the last paragraph of Sub-Clause 20.1: “any extension of time and/or additional payment shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim, unless the claim is excluded under the second paragraph of this Sub-Clause.” Thus, for example, the failure to keep proper records, or to permit inspection, or to send a fully detailed claim may hamper proper investigation of the claim for an extension of time or for additional payment; and if that is the case then the Engineer is given the right to take account of such difficulties created by the Contractor in arriving at his determination. In other words, he could reduce the period of extension of time to take account of the difficulties of investigating the claim caused by the Contractor’s failure to comply with its obligations under this (or any other) Sub-Clause.
39. It must be borne in mind that the purpose of the two notices is quite different, as Sub-Clause 20.1 makes clear. The 28-day notice is designed to give the Employer notice that a claim for an extension (or additional payment) will or may be made and to identify the event or circumstances giving rise to the claim. It can be short and to the point. As Akenhead J pointed out in Obrascon (supra) at para. 313, no precise form is specified for the notice, nor is there any requirement for a massive amount of detail or analysis at that stage. It gives notice to the Employer (through the Engineer) that there will be or may be a claim, with a reference to the relevant circumstances so that it can be investigated. The 42-day detailed claim is quite different and serves a different function. It has to be “fully detailed” with “full supporting particulars”. It is intended to be a claim ready for determination by the Engineer. In the case of an on-going delay, the detailed claim is considered as interim, to be supplemented by further interim claims at monthly intervals ending with a final claim after the effects resulting from the event or circumstances have come to an end. On receipt of the claim (or final claim), the Engineer responds with his determination – approval, disapproval or other comments, including requesting further particulars. It may trigger a dialogue between the Contractor and the Engineer. The amount of information given in the 42-day detailed claim is likely to differ from case to case. The longer the Contractor leaves it, and the sparser the detail given in the claim, the more difficult it may be to prove entitlement to an extension of time or additional payment. So too, the less detail given in the detailed claim, the more difficult it may be for the Contractor to argue that the claim complies with the 42-day detailed claim requirement. But this will often be a matter of degree. It is neither necessary nor appropriate to construe Sub-Clause 20.1 in a way which leaves it open to argue that what was put forward as a 42-day detailed claim did not in fact contain sufficient detail to meet the requirements of the clause, with the result, in an extreme case, that the Contractor could be said not to have sent such a claim and therefore was barred from any relief by way of extension or additional payment. Such a construction would give rise to the risk of satellite litigation and is both undesirable and unnecessary.
40. The wording at the end of Sub-Clause 20.1 (“unless the claim is excluded under the second paragraph of this Sub-Clause”) is also instructive. It draws a clear distinction between the draconian regime introduced in the second paragraph of Sub-Clause 20.1, referable only to the 28-day notice requirement, and the remainder of Sub-Clause 20.1 which is not subject to that regime.
41. The judge took the view (Judgment para. 48) that if the 42-day detailed claim requirement was not a condition precedent it would be merely exhortatory. We disagree. Sub-Clause 20.1 gives teeth to the requirement to serve such a claim and to do so within the required time; any failure or delay in complying with the detailed claim regime can be taken into account by the Engineer in arriving at his determination. So, we differ from the judge on this point. We prefer MESC’s construction of this provision. But success on this point alone does not assist MESC; MESC needs to succeed on other points as well.
Sub-Clause 21.1 – when time begins to run for the purpose of the 28-day notice requirement (Ground 4).
42. We next consider the question of when time begins to run under Sub-Clause 20.1 for the purpose of the 28-day notice requirement (and, as indicated earlier, the 42-day detailed claim requirement). The judge, differing from Akenhead J at paras. 312-313 of his judgment in Obrascon (supra), said this (Judgment para. 53):
“In my opinion, the effect of the first paragraph of Sub-Clause 20.1 is that, if a contractor is aware or ought to have been aware of an event or circumstance that could give rise to an EOT claim, he must give notice of that event or circumstance within 28 days after he became so aware or ought to have been so aware.”
We agree with this analysis for the reasons set out below.
43. Sub-Clause 20.1 is concerned with two things, extension of time and additional payment. Those two things may be inter-related or they may be quite separate. We are here concerned only with a claim for extension of time. In terms of Sub-Clause 8.4 – and other Sub-Clauses similarly link with Sub-Clause 20.1 – the Contractor is entitled, subject to Sub-Clause 20.1, to an extension of time if and to the extent that completion of the Works is or will be delayed by one or more of a number of factors listed therein, such as variations, adverse weather or delays etc caused by the Employer. The relevant delay is not delay to any particular activity but delay to completion. The use of the future tense (see the underlining above) is also instructive; the particular factor relied upon may cause some immediate delay to a particular activity, but whether it will in fact delay completion of the Works will often depend on a whole range of factors. Hence the Contractor is expected to put in a claim for an extension of Time for Completion if he considers that the particular factor or factors relied upon has/ have caused or will cause Completion to be delayed.
44. In Obrascon, Akenhead J referred to Sub-Clause 8.4 which sets out the basis, in that case as in this, for claiming an extension of time. Sub-Clause 1.9 is also relevant – in turn it refers to both Sub-Clauses 8.4 and 20.1. But as those other provisions make clear, the claim for an extension itself is made under Sub-Clause 20.1 – see e.g. the last paragraph of Sub-Clause 8.4. Consistently with Sub-Clause 8.4, the claim is for an extension of the Time for Completion, on the basis that Time for Completion either is or will be delayed by one or more of the events or circumstances giving rise to the claim, i.e. one of the causes listed in Sub-Clause 8.4. Notice of the claim must be given as soon as practicable and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstances relied on as giving rise to the actual or likely delay. The focus is not so much on the delay but on the event or circumstance giving rise to the delay; and the 28 days for giving notice of the claim runs from the time the Contractor becomes aware, or ought reasonably to have become aware, of that event or circumstance and its potential to delay completion.
45. At the beginning of para. 312 of his judgment in Obrascon (supra), Akenhead J says this:
“Properly construed and in practice, the ‘event or circumstance giving rise to the claim’ for extension must first occur and there must have been either awareness by the Contractor or the means of knowledge or awareness of that event or circumstance before the condition precedent bites.”
We have no difficulty with that part of his analysis which correctly focuses on when the Contractor becomes aware (or should have become aware) of the relevant event or circumstance giving rise to the claim so as to start time running. But later in his judgment Akenhead J appears to say that time can start to run from the moment, usually later in time, that delay to completion of the works in fact occurred or started to occur. We see difficulties with this analysis. Delay to the contractual Time for Completion only occurs in fact when the works are not completed by the contractual completion date. The construction advanced by Akenhead J would mean that in, say, a three year project, if an event occurred during the first year which resulted ultimately in the works overrunning by a month or two after the Time for Completion in year three – and there would be no actual delay to the Time for Completion until then – then the 28-day notice under Sub-Clause 20.1 would only have to be given within 28 days of the moment in year three when Time for Completion passed without the works being completed. That would render Sub-Clause 20.1 – which is designed to ensure that claims are notified and dealt with swiftly – entirely ineffective for its purpose.
46. For these reasons, we agree with the judge’s analysis of this part of Sub-Clause 20.1. The 28-day notice requirement is triggered when the Contractor becomes aware (or ought to have become aware) not of the delay or likely delay but of the event or circumstance giving rise to the claim for an extension of the Time for Completion. We would only add this. We were referred in the course of argument to the contra proferentem rule. It was suggested that any ambiguities should be resolved in favour of the Contractor. We need not go into this – in our view there is no ambiguity in the provision and the rule does not come into play. The proper interpretation of that part of the clause is quite clear. We agree with the judge.
Sub-Clause 3.5 (Ground 2)
47. Sub-Clause 3.5 sets out a critical stage of the dispute resolution process. It is referred to in Sub-Clause 8.4, for example, and is applicable to the stage after both the 28-day notice and the 42-day detailed claim have been given in accordance with the notice provisions in Sub-Clause 20.1. If agreement cannot be reached between the parties, then it is for the Engineer to make a “fair determination” of the extension of time (if any) to be granted to the Contractor and of any additional payment to which the Contractor may be entitled. In terms of Sub-Clause 3.5, the engineer is required to give notice of any such determination to the parties, with supporting particulars. Each party is then required to give effect to each determination “unless one Party notifies the other of his dissatisfaction with a determination within 14 days of having received it”. Either Party “may then refer the dispute to be settled in accordance with Clause 20 [Claims and Disputes].” The key to understanding this provision lies in the use of the word “then” underlined in the last sentence quoted from Sub-Clause 3.5. The word has both a sequential and a conditional meaning: sequential in that a party wishing to dispute an Engineer’s determination in accordance with Clause 20 can do so only after one or other party has already expressed his dissatisfaction with the determination within 14 days of having received it; and conditional in that the right to refer the dispute to be resolved in accordance with Clause 20 is conditional upon the 14-day notice provision having been complied with. It follows, on this analysis, that service of the 14-day dissatisfaction notice is a condition precedent to the right to refer any dispute about the Engineer’s determination to the contract’s dispute resolution procedure. Unless the 14-day dissatisfaction notice is given within that 14 days, the Engineer’s determination stands.
48. The judge adopted this construction in his Judgment (at para. 49). In his written Skeleton Argument filed in advance of the hearing of this Appeal, counsel for MESC appeared to accept this construction of the clause, subject to a point to which we shall return shortly. However, in the course of his submissions he sought to resile from this: emboldened by a suggestion from the court, he advanced an argument to the effect that Sub-Clause 3.5 did not present a bar to a claim in the final accounting between the parties but only regulated the immediate consequence of a failure to notify dissatisfaction within a short period of 14 days. Upon reflection we are satisfied that the suggestion was a bad one. The language of Sub-Clause 3.5, in its amended form, does not admit of any qualification or nuance of this sort: it states clearly that unless the dissatisfaction notice is given within 14 days of that determination being communicated then that determination stands and cannot be re-litigated by the dispute procedure stipulated for in Clause 20 (which in the present case, because of amendments to Clause 20, means by litigation in court). We note that in its unamended form Sub-Clause 3.5 does provide for Engineer’s determinations to be given effect during the currency of the Contract under reservation that they can be revised later under the dispute resolution provisions in Clause 20; the introduction by amendment of a 14-day time limit for expressing dissatisfaction with the determination can only have been intended to limit the right of either party to seek to revise the determination later.
49. The main argument advanced on behalf of the Contractor in relation to Sub-Clause 3.5 assumed that it did make the 14-day dissatisfaction notice a condition precedent to being entitled to challenge the determination in court. The argument was that such a provision was invalidated by Article 123(1) of the DIFC Contract Law (DIFC Law No 6 of 2004) which is headed “Limitation” and provides as follows:
(1) An action for breach of any contract must be commenced within six years after the cause of action has accrued or in the case of fraud, when the aggrieved party becomes aware of the fraud. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.”
We are not persuaded that this argument has any merit. Article 123 of the Contract Law deals with limitation in so far as it applies to actions for breach of contract. Sub-Clause 3.5 has nothing to do with actions for breach of contract. It simply limits the time within which a party may challenge an engineer’s determination. In the course of argument, we raised the question why, if this argument was sound, it did not also apply to the 28-day notice provision in Sub-Clause 20; but we received no satisfactory answer. It was, we were told, a policy decision for the court. That is not a proper basis for deciding the point. The short answer to the submission is that Article 123 of the Contract Law has nothing to do with notice provisions such as are found in Sub-Clauses 3.5 and 20.1 of the Contract. Accordingly, this argument is rejected.
The “prevention principle” (Ground 5)
50. The “prevention principle”, as it has come to be known, derives from the basic common law principle that a party should not benefit from his own wrongdoing. This principle has application in the field of construction contracts where the contract usually provides for liquidated damages to be payable by the Contractor in the event that he fails to complete by the contractual completion date. If his failure to complete by that date is caused, even in part, by some action or inaction on the part of the Employer, whether that be legitimate (for example, by instructing a variation which prolongs the work) or illegitimate (for example, by delaying the provision of access necessary for the Contractor to carry on with the work) then the Contractor will no longer be held to his agreement to complete by the contractual completion date and instead will be required to complete within a reasonable time; the liquidated damages clause, which depends for its efficacy upon there being a fixed date for completion, will no longer apply; and damages for failure to complete within a reasonable time will be “at large”. Parties are free to contract out of the prevention principle, but for obvious reasons clear words are needed for this to be effective. In many construction contracts parties will have agreed a clause entitling the Contractor to an extension of time and/or extra money in the event that construction is delayed by such circumstances. This too can be effective to displace the prevention principle since the operation of the extension of time provisions result in a new revised completion date for the purpose of the liquidated damages clause. But such clauses often make compliance with notice requirements a precondition to the grant of an extension of time, as is the case here with the 28-day notice requirement stated in Sub-Clause 20.1 to be a condition precedent to any such relief. What happens when the Contractor fails to give the relevant notices within the required time? That is the question raised in this Appeal. Before the judge, MESC argued that in such a case the extension of time provisions in the contract did not operate so as to exclude the prevention principle. The argument relied on the judgment of Bailey J sitting in the Supreme Court of the Northern Territory of Australia in Gaymark Investments Pty Ltd v Walter Construction Group Ltd  NTSC 143. The judge in this case rejected this argument (see paras. 57-69 and 72 of his judgment). Having failed to give the proper notices within the time permitted by Sub-Clause 20.1 – and the same argument would presumably apply to Sub-clause 3.5 – the Contractor was not entitled to an extension of time; with the result that the original contractual completion date stood, and the Contractor was liable in liquidated damages for the period by which the work continued beyond the contractual completion date.
51. In Gaymark the judge, upholding the Award of the arbitrator, held that, in the absence of strict compliance by the Contractor with the notice requirements in the contract (which were framed as a condition precedent to an extension of time being granted), there was no provision in the contract allowing for an extension of time for completion; and, as a result, the clause failed to preserve the Employer’s right to liquidated damages where it was shown that some or all of the delay was caused by the Employer. This decision has not been greeted with universal approval. The judge in Gaymark did not follow dicta in two earlier Australian decisions, Turner Corporation Ltd (Receiver and Manager Appointed) v Austotel Pty Ltd (2 June 1994) (1997) 13 BCL 378 (Turner No.1) and Turner Corporation Ltd (in Provisional Liquidation) v Co-ordinated Industries Pty Ltd (26 August 1994) (1994) 11 BCL 202 (“Turner No.2”); and his own decision in Gaymark was itself the subject of criticism by the New South Wales Court of Appeal in Peninsular Balmain Pty Ltd v Abigroup Contractors Pty Ltd  NSWCA 211. No authority was cited which supported the decision in Gaymark. In City Inn Ltd v Shepard Construction Ltd  SLT 885 the Inner House of the Court of Session in Scotland confirmed that the Contractor could not obtain an extension of time if it did not comply with the condition precedent notice provisions in the contract, though it appears that the Australian cases were not cited, nor was it argued that in the absence of an extension of time in those circumstances time became “at large”. In Multiplex Constructions (UK) v Honeywell Control Systems  BLR 195, at paras 95-105, Jackson J reviewed the authorities (and an article by Ian Duncan Wallace: “Prevention and Liquidated Damages: a Theory Too Far” (2002) 18 Building and Construction Law 82) and concluded, though he did not ultimately have to decide the point, that he had “considerable doubts” that Gaymark represented the law of England. He concluded, in para. 105, that if it was possible to comply with the notice provisions but the contractor simply failed to do so, then time was not thereby set at large.
52. In renewing his argument for the Contractor on this Appeal, and in addition to relying on Gaymark, counsel for the Contractor referred to an Article by Tony Marshall entitled “The Prevention Principle And Making The Contractor Pay For Employer Delay: Is English Law Departing From Its Roots?”, published in two parts in The International Construction Law Review:  ICLR 325 and  ICLR 88. Mr Marshall’s argument is essentially this. There are only two routes by which the operation of the prevention principal can be excluded. The “first route” is to state in very clear language that the Contractor agrees to complete the work by the agreed date and accepts responsibility for delay to the completion of the works even in cases where the delay is attributable wholly or in part to the actions of the Employer. The “second route” is to include in the contract a provision entitling the Contractor to an extension of time for completion (i.e., a revised completion date) in circumstances where progress on the works is delayed by the actions (legitimate or otherwise) of the Employer. In both cases, the liquidated damages provisions in the contract will continue to apply, except that in the second route they will bite only from the revised completion date if the work is not completed by then. A problem arises, however, where the Employer insists on including a “notice-as-condition-precedent provision” into the contract. If the Contractor fails to operate the extension of time provisions as required by the contract, he is not entitled to an extension of time. This has implications not only for the Contractor’s claim for an extension of time (and corresponding additional payment) but also on his liability under the contract for liquidated damages, which will be based on the original completion date notwithstanding that the delay may have been caused by the Employer; so that he may end up paying damages for delayed completion even where the delay was caused in whole or in part by the actions of the Employer. How can this be justified as a matter of fairness? The solution, in analytical terms, he suggests, is to regard the extension of time mechanism as “disabled” in such circumstances; no extension of time can be achieved by this means; it therefore cannot serve as the second route to overcome the prevention principle and preserve the Employer’s right to liquidated damages; time for completion is abrogated, the Contractor must complete the works within a reasonable time, and damages for delay, if any, are at large. Mr Marshall criticises the decisions referred to above, and others which we have not mentioned, on the ground that they failed properly to observe the distinction between the first and second routes to avoiding the application of the prevention principle; and allowed the first route (very clear wording) to blur the issue when the second route (extension of time provision) was disabled by the contractor’s failure to comply with the notice provisions which operated as a condition precedent to the award of an extension.
53. We are not persuaded by this argument. The judge was right to reject it. We have three main reasons for coming to this view.
54. The first reason relates to the use – we would say misuse – of the word “disabled” in describing the extension of time provision when not operated correctly by the Contractor. It is wrong to say that the extension of time provision is disabled, simply because it has not been operated according to its terms. The meaning and effect of a contractual provision must be capable of being ascertained at the time the contract was entered into. At the time it was entered into, the contract contained a clause entitling the Contractor to an extension of time in certain circumstances if he gives the appropriate notices in accordance with the clause. There is no question here of those circumstances or requirements being unreasonable or incapable of being performed by the Contractor. The clause is therefore effective to extend time for completion in the circumstances described therein and to preserve the Employer’s right to claim liquidated damages for delay after the original or revised completion date. Nothing that happens after the contract is concluded can affect this construction. If the Contractor, whether by design or accident, fails to give notice in accordance with the clause he must take the consequences. The clause is not “disabled” – it simply has not been operated. But it is important to note that the consequence of his failure to operate the clause is that he cannot get an extension of time to cover the delay caused by the Employer’s fault. It is not a case, as it has on occasion been (somewhat unfairly) characterised, of the failure to give notice becoming in some way the cause of the delay (see Professor Doug Jones, “Prevention, Time Bars and Multiplex Constructions ...” in Construction Law, Costs and Contemporary Developments: Drawing the Threads Together”, Julian Bailey (ed), Chapter 19). The cause of the delay remains the act or default of the Employer; the failure to comply with the notice requirement simply (but crucially) means that the Contractor does not avail himself of the contractual remedy for such delay given to him by the contractual terms.
55. Second, the effect of Mr Marshall’s argument would be to enable the Contractor to pick and choose whether or not to invoke the extension of time provision, knowing that if he did not give the proper notices then he would be free of any obligation to complete the works by a specified date and of having to pay liquidated damages for delay. The power to choose would lie entirely in his own hands. As was held in City Inn Ltd v Shepard Construction Ltd (supra), the Contractor is not in breach of contract by not invoking the extension of time provisions. He is therefore left to pick and choose what suits him best. That does not make any commercial sense and is at odds with the carefully formulated structure of the contract.
56. Third, it is in our view wrong to insist on maintaining a clear bright line between first and second routes. The typical “notice-as-condition-precedent provision” makes it crystal clear to the Contractor what he has to do to be awarded an extension of time and thereby reduce or eliminate the liquidated damages payable by him in the event of delay. The clause could equally be written in a way which committed the Contractor to completing the works by the contract completion date come what may, unless he was delayed by certain events and he gave notice that he wanted an extension of time on that account. There is nothing complicated or unclear about that, and it would satisfy the “first route” described by Mr Marshall in his Article. In this respect we respectfully disagree with the observations of Prof Doug Jones (ibid) to the effect that one cannot imagine any commercial party agreeing to such a provision. MESC did so in the instant case, since there is no difference in substance between that formulation and a formulation such as exists in Sub-Clause 20.1 making service of the 28-day notice a condition precedent to the grant of an extension of time.
57. Gaymark stands alone. We were not referred to any authority in which Gaymark has been applied or approved. In our view it does not represent the law as applied in the DIFC.
Principles of good faith (Ground 6)
58. It was argued on behalf of the Contractor that the law required the Employer to act in good faith towards the Contractor. It was unconscionable for the Employer to claim liquidated damages for a period of delay for which he was largely responsible. Reliance was placed on Articles 57 and 58 of the DIFC Contract Law which provide as follows:
“57. Implied obligations
Implied obligations arise from:
(a) the nature and purpose of the contract;
(b) practices established between the parties and usages;
(c) good faith and fair dealing; and
58. Co-operation between the parties
Each party is bound to co-operate with the other party when such co-operation may reasonably be expected for the performance of that party’s obligations.”
It was not clear whether this was a stand-alone submission or intended to bolster the argument on the prevention principle discussed above. But either way we reject this submission for the same reason as given by the judge in para. 71 of his Judgment. The Contractor was a willing party to a contract which included the 28-day notice requirement in Sub-Clause 20.1 and the 14-day notice of dissatisfaction requirement in Sub-Clause 3.5. Those provisions are clear in their words and in their effect. They admit of no scope for the postulated implied term or obligation of good faith. There is no reason why the overriding principle of pacta sunt servanda should be circumscribed in this way.
A reformulated prevention principle
59. In a second supplementary skeleton argument the Contractor advanced what it called a “Reformulated Prevention Principle” argument, whereby in circumstances where the Contractor had not properly served notices in accordance with the terms of Sub-Clauses 20.1 and 3.5 and therefore was not entitled to an extension of time, time for completion would not be extended; but the Employer should nonetheless be debarred from claiming liquidated damages for such part of the delay as was attributable to his own actions. The focus in this argument shifts from the question of whether, having failed to give the proper notices within the required time, the Contractor is entitled to an extension of time – he is not – to one of whether the Employer can (or should be able to) recover liquidated damages for delay beyond the (unrevised) completion date in circumstances where, by his own actions or inaction, he has caused the delay. It was submitted that the principles of good faith mentioned above allow the Court a discretion not to award liquidated damages in circumstances where the Employer was responsible for the delay or to reduce the amount of such liquidated damages if they are grossly excessive to the harm resulting from the non-compliance with the notice provisions in the contract; the two are not the same, the former looking to the cause of the delay, the latter looking to the amount of the loss, but we put that to one side for present purposes. Reliance was placed on Article 122 of the DIFC Contract Law which provides as follows:
(1) Where the contract provides that a party who does not perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party is entitled to that sum irrespective of its actual harm.
(2) However, notwithstanding any agreement to the contrary the specified sum may be reduced to a reasonable amount where it is grossly excessive in relation to the harm resulting from the non-performance and to the other circumstances.”
Support for this approach was to be found in the Articles by Mr Marshall and Prof Jones (supra).
60. This was not a submission made to the judge below, so we have not had the benefit of his views on it. We are, however, prepared to allow the argument to be canvassed on this Appeal – and we formally grant permission to MESC to raise this argument – and we have had the benefit of written submissions on it by both parties. Having considered the matter carefully, we have come to the view that this additional argument must also be rejected. We give our reasons briefly below.
61. The obligation of good faith in Articles 57 and 58 of the DIFC Contract Law is concerned with the implication of terms into a contract and the mode of performance by the contracting parties. Nowhere does it suggest that the contracting parties should not be held to their bargain, as set out in the Contract, or that the courts should get involved in re-writing the Contract for the parties so as to achieve some balancing or re-balancing of equities between them or to redress what one party claims to be an unfair consequence of the terms which have been agreed. The provisions of Sub-Clause 20.1, making the 28-day notice requirement a condition precedent to the grant of an extension of time, are clear. If the Contractor fails to give the appropriate notice within the stipulated time, he cannot get an extension of time. The contractually agreed time for completion remains in place. Sub-clause 8.7 provides for (liquidated) delay damages to be paid by the Contractor in the event that he fails to complete by the (unrevised) time for completion. Those liquidated damages are payable in an agreed amount (AED 42,500) per day, up to a maximum of 10% of the contract price. To accede to the Contractor’s argument that delay damages for such delay should not be payable if and to the extent that the delay or some of it is caused by the Employer’s actions or inaction would mean reaching a decision in flat contradiction to what the parties have agreed. The obligation of good faith neither requires nor permits such a course.
62. So far as concerns Article 122 of the DIFC Contract Law, this begins by emphasising that in general a liquidated damages clause will be enforced “irrespective” of the actual loss suffered by the aggrieved party. It then goes on, in Article 122(2) to provide that the amount of liquidated damages may be reduced to a reasonable amount “where it is grossly excessive in relation to the harm resulting from the non-performance” of the contract. The Contractor’s argument appears to assume that the relevant "non-performance” is its own failure to give the required notices under Sub-Clause 21. If that were the case, there would be a respectable argument for saying that the obligation to pay up to 10% of the contract price as liquidated damages for that failure would be grossly excessive. But this would be to mischaracterise the position. The liquidated damages are payable not for the failure to serve the required notices within the required time but for failing to complete by the contractually agreed completion date. There has been no attack on the amount of liquidated damages payable for that failure, nor could there be without detailed investigation into and evidence of the cost of that delay to the Employer.
63. For these reasons this ground of appeal fails.
Disposal of MESC’s Appeal
64. We have accepted MESC’s argument on the 42-day detailed claim requirement in Sub-Clause 20.1 (Ground 1), but this has no financial consequence on its own. We have rejected the other arguments advanced by MESC in support of his appeal. In those circumstances MESC’s Appeal falls to be dismissed.
Panther’s Cross Appeal
The Grounds of Appeal
65. Panther advances 5 grounds of appeal. These relate to: (a) the way in which the judge dealt with MESC’s failure to disclose programme material relevant to the delay claim (Ground 1); (b) the judge’s refusal of Panther’s claim for general damages for delay despite the clear terms of Sub-Clause 8.7 (Ground 2); (c) the judge’s failure to award Panther the cost of professional fees incurred both prior to and after termination despite the clear terms of Sub-Clause 8.7 (Ground 3); (d) the judge’s failure to award legal costs incurred by Panther as a direct result of MESC’s breach of contract (Ground 4); and (e) error on the part of the judge in assessing the value of the loss of the guarantee or warranty that would have been provided by MESC had it completed the contract but in the event was not provided by MESC as a result of the contract being terminated (Ground 5). Ground 1 was stated to arise only if MESC was successful in its appeal – since MESC has not been successful, we do not need to deal with it.
66. Relevant background to these grounds of appeal is set out in paras. 14-15 above. In addition, the judge found (in para. 73 of his Judgment) that:
“... Panther was entitled: (a) to terminate the Contract without notice pursuant to Sub-Clause 15 (2) (h) as it did on 6 November 2019 on the ground that the maximum amount of delay damages stated in the Appendix to Tender was exhausted”
and also (para. 81) that by its termination letter of 6 November 2019
“Panther lawfully terminated the Contract by reason on MESC’s abandonment of the Works”.
These findings are not challenged and form the basis on which Panther’s claims fall to be considered.
General damages for delay – Sub-Clause 8.7 (Ground 2)
67. As noted above, the judge found that MESC abandoned the Project and that Panther was entitled to terminate the Contract for this reason, in addition to its entitlement to terminate on the ground that the maximum amount of liquidated damages for delay had been exhausted. It is Panther’s case that, as a result of what happened, there was both Contractor’s delay up to the time of termination and some further delay after termination as the Employer completed the project with a number of replacement contractors. MESC is responsible for all delay occurring after and consequent upon termination. The effect of MESC’s Appeal being dismissed is that MESC is also responsible for all delay which occurred before termination.
68. The judge held (para. 210) that Panther was entitled to recover: (i) liquidated delay damages up to the contractual maximum for such damages; (ii) damages for those losses that arose from breaches of the Contract which were not delay related, whether those losses occurred prior to or after termination of the Contract, such as the cost of rectifying defective work and dealing with the failure of MESC to vacate the site in breach of Sub-Clause 15.2 of the Contract; and (iii) damages in respect of the additional cost of completing the Project beyond what it would have cost if the Contract had not been terminated. In para. 5 of his Conclusions, he dismissed Panther’s claim for damages for the lost opportunity to sell or rent the units constructed under the Contract. That was because such damages were, in his view, “delay related”. He construed Sub-Clause 8.7 of the Contract as excluding such recovery in addition to liquidated delay damages. His reasoning appears at paras. 93-98 of his Judgment. In short, he took the view that Sub-Clause 8.7, which was focused on delay, allowed the Employer to claim, in addition to liquidated damages for delay, general damages but excluding any damages resulting from pre-termination delay. The claim for damages for the loss of opportunity to sell or rent units for the period between the contractual completion date and the date when Work was in fact completed all arose from the failure to complete on time, i.e. delay, which was covered by provision for liquidated delay damages and was not saved by the revisions to Sub-Clause 8.7.
69. We have set out above (para. 28) the terms of Sub-Clause 8.7. In its form as incorporated into this Contract the clause is heavily amended from the Sub-Clause as it appears in the FIDIC Conditions. The first sentence of the second paragraph of the FIDIC text (“These delay damages shall be the only damages due from the Contractor for such default ...”, i.e. for failing to complete by the agreed contractual completion date) has been deleted. Instead the parties have added text stating that the delay damages “are strictly without prejudice to the Employer’s other entitlements under the Contract (and shall in no way preclude or restrict the Employer’s ability to bring a general damages claim).” Panther argues that the effect of the deletion and the additional wording is that delay damages are not the only damages recoverable from the Contractor “for such default”, i.e. for delay. MESC, on the other hand, submits that Sub-Clause 8.7, construed in the context of the Contract as a whole, provides for liquidated delay damages to the stated maximum to be the sole remedy for delay down to the date of termination of the Contract; and that the saved entitlement to claim general damages is limited (a) to claims for breaches of contract occurring pre-termination, other than delay and/or (b) to all claims, including claims for delay, occurring post termination.
70. The judge found the construction of Sub-Clause 8.7 to be “a difficult one” but came down in favour of MESC’s construction (see para. 97). We too have found the question difficult. But we have come to the view that the judge was correct in his analysis. As the judge said (para. 97) liquidated damages are designed to avoid what would otherwise be a difficult task of establishing the quantum of loss consequent upon delay. Any pre-estimate of loss likely to be suffered by reason of delay will, at least notionally, take into account a myriad of factors related to the completion date and the consequences of failure to complete by that date. Delays in the sale or rental of units which are to be built as part of the Project will be among such factors. It will be difficult, if not impossible, to separate out the different strands. Why should delay in sale or rental of units be regarded as outwith the ambit of the liquidated damages provision and therefore capable of being presented as a separate delay claim? If this was to be permitted, then an enquiry would be necessary to see whether the total of the liquidated delay damages provided ample compensation for all of the consequences of the delay. One particular feature of the loss suffered by the Employer in consequence of the delay cannot be taken in isolation. The amendments to Sub-Clause 8.7 are not happily worded, but in our view the construction of the Sub-Clause advanced by Panther would cut across the benefits conferred by including a provision for liquidated delay damages. The parties are not to be taken as having deprived themselves in this way of the benefit of a liquidated damages clause.
71. The judge was right to reject this claim.
The cost of professional fees incurred both prior to and after termination (Ground 3)
72. Panther claimed Engineer supervision fees for the entire period of delay and for some months following termination. It relied on Sub-Clause 8.7, particularly the last sentence, brought in by amendment to the standard form FIDIC Condition, that:
“In addition to the delay damages, the Contractor shall fully compensate the Employer for any additional fees that the Employer is required to pay to the Engineer or any other third parties arising out of or in connection with the delay.”
Panther’s case is simple. The Contract specifically provides that it can recover any additional fees incurred “arising out of or in connection with the delay”.
73. The judge appears to have rejected this claim, in part at least because of his construction of Sub-Clause 8.7. In so far as that applied to the claim for additional fees prior to termination, we agree with him, for the reasons set out in relation to Claim 2 (see para. 70 above). But so far as concerns such fees incurred after termination, we consider that the position is covered by the last sentence of the clause quoted above. We would therefore allow the Cross Appeal on this Ground in so far as, and only in so far as, it relates to Engineer supervision fees incurred after termination. The judge made no findings as to quantum of this claim. From para. 263b of his Judgment it appears that the amount claimed under this head for the period after termination is relatively small. Unless parties are able to agree the relevant figure, this part of the claim will have to be remitted to the judge for determination.
Legal costs incurred by Panther as a direct result of MESC’s breach of contract (Ground 4)
74. The background to this claim is that the MESC refused to accept the Panther’s termination of the contract and tried to force its way back onto the site. Panther incurred significant legal costs arising from those events and sought to recover those costs. Those legal costs fell into two categories: (i) obtaining legal advice; and (ii) obtaining relief from the onshore Dubai courts. The judge allowed recovery of the former, i.e. the cost of obtaining legal advice, but refused the latter, i.e. the cost of obtaining relief from the onshore Dubai courts. His reasons for refusing the latter category are set out at paragraph 261 of his Judgment in the following terms:
“Panther ran the risk that it might not succeed in those courts or that the Dubai court in question would be of the opinion that there were other good reasons for not awarding Panther its costs”.
75. Panther says that these are illegitimate reasons. We disagree. There is, of course, no bar in principle to the recovery as damages of legal costs incurred in proceedings in another jurisdiction. But all depends on the circumstances and, in particular, the reasons why costs were not recovered in that other jurisdiction. It is a question of fact, to be determined on the evidence. Questions may arise as to the reason why costs were not awarded: was it a matter of policy in that jurisdiction not to award costs to the successful party – we are aware that in some jurisdictions costs are not awarded – or was it linked in some way to the perceived reasonableness or otherwise of the Employer’s recourse to the courts or the manner in which the litigation was conducted? We have no information as to this. We do not know what evidence, if any, was led on this point. The passage quoted from the Judgment certainly discloses no legal error. The judge did not, for example, hold that such costs can never be recoverable as damages. His reasoning quoted above suggests that the judge, correctly, treated the question he had to decide as one of fact. It is not suggested that the judge ignored relevant evidence or failed to take relevant facts into account. In those circumstances this ground of Cross Appeal must fail.
Loss of the guarantee/warranty that would have been provided by MESC (Ground 5)
76. Panther contends that, but for the matters complained of, it would have had the benefit of a 10-year latent defect guarantee owed to it by MESC. Instead, because of the termination, it had to engage a number of replacement contractors directly to complete the work left undone by the MESC. Those replacement contractors were not under the same warranty or guarantee obligations. If defects start to appear in the Work within the 10-year period, the Panther will not be able to resort to MESC – MESC only guaranteed its own work. Panther claims, therefore, to have suffered a loss which needs to be evaluated.
77. Panther says that the judge accepted all of this. Panther’s expert put forward a valuation – he suggested a figure of 2% of the original contract price. The judge held the element of work that had been carried out by MESC did not give rise to any claim of this kind, because MESC would remain liable for that work, just as it always would have been. Accordingly, the proper claim was limited to the lack of a guarantee or warranty in respect of work carried out by replacement contractors in the period after termination. Panther now accepts that that approach is correct. However, the judge sought to give effect to this by awarding 3% of the figure Panther was going to receive in respect of the “additional completion costs” resulting from termination, i.e. 3% of the additional cost, but not 3% of the value of the work done after termination.
78. Panther contends that this was wrong. The judge clearly understood the point and must have intended to award 3% of the value of the work carried out post-termination.
79. We see the force of that submission but we are not persuaded that the judge fell into error. Assessment of damages is largely a question of fact. It is not a precise science. As the judge observed, the expert for Panther made an assessment based on his own experience and made certain unwarranted assumptions. That expert used a figure of 2% of the original Contract Price. The judge (correctly) did not accept that that percentage was to be applied to the original Contract Price. He may have thought that the base figure for calculating the recoverable claim should be the cost of the work post termination. He in fact awarded a percentage not of this figure but of the additional completion costs. At the same time, however, he chose a higher percentage than suggested by Panther’s expert. He may have done this because the figure for additional completion costs was readily to hand and he may have thought that applying to that figure a higher percentage than suggested by Panther’s expert was a way of arriving at a fair assessment of the damages to which Panther was entitled.
80. In the circumstances we cannot say that the judge was clearly wrong in his approach on this issue. This ground of Cross Appeal fails.
81. For the reasons set out above MESC’s Appeal fails and is dismissed. Panther’s Cross Appeal succeeds only to the extent identified in relation to Ground 3. In that respect, and in that respect only, we shall remit the case to the judge for him to make the necessary findings as to quantum. Parties can, of course, avoid the expense of a remission by reaching an agreement between themselves on quantum.
82. There has been divided success, but the significant issue before this court has been MESC’s Appeal. MESC having failed in that Appeal, we order that MESC shall pay Panther’s costs of the Appeal and Cross Appeal before this court, to be assessed by the Registrar on the standard basis if not agreed.