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26 November 2014
   
 
 
 
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Introduction

The first paragraph of sub-clause 20.1 (contractor’s claims) under FIDIC addresses two things: firstly, it obliges the contractor to give notice to the engineer of an event or circumstances which may entitle it to any extension of time for completion and/or additional payment and secondly, it determines the time period within which this notice should be given. This time period directs that the contractor give notice of these events or circumstances not later than 28 days “...after the Contractor became aware, or should have become aware, of the event or circumstance.” (Own emphasis). This goes hand in hand with the second paragraph which deals with the failure of the contractor to give this notice within this period of time – being that the contractor shall not be entitled to an extension to the time for completion and/or additional payment, and that the employer is discharged of all liability in connection with the claim

How does this clause work?

At first glance it seems that this notice provision follows a rigid and linear process which has a definite start and end date. The start date being the date on which the event or circumstance arises which may entitle the contractor to an extension of time for completion and/or additional payment (the first paragraph in sub-clause 20.1), and the end date being exactly 28 days after these circumstances or events arose before the contractor is time-barred and the employer is discharged from liability in connection with the claim (the second paragraph in sub-clause 20.1), however.

The wording “after the Contractor became aware, or should have become aware, of the event or circumstance” derails the seemingly linear process described above. The following questions in broad terms come to mind when one interprets this clause which are:

• Who is the contractor?
• What role does the contractor’s representative have in bringing this knowledge to the contractor’s attention?
• When should the contractor have become aware?

Who is the contractor?

The contractor is defined in sub-clause 1.1.2.3 as “...the person named as contractor in the Letter of Tender accepted by the Employer and the legal successors in title to this person(s).” The ‘contracting entity’ is easily identifiable and a simple page through the letter of tender will show who this is. However, the contractor may be a legal entity. A legal entity exists separately from the persons working for it. The contractor may even be a joint venture consisting of several partner companies, and it is easy to see that the answer to the question becomes increasingly difficult to find, the reason being that companies cannot act on their own but through their authorised agents acting on their behalf. Who are these people, will it be the board of directors of the company or the board of each joint venture partner?

What role does the contractor’s representative have in bringing this knowledge to the contractor’s attention?

Sub-clause 20.1 is clear that the onus is on the contractor to provide this notice within 28 days of it becoming aware of the event or circumstances. However, sub-clause 4.3 obliges the contractor to appoint a representative and “...shall give him all authority necessary to act on the Contractor’s behalf under the Contract.” Does it mean that once the event or circumstance giving rise to a potential claim comes to the attention of the contractor’s representative that the contractor has become aware and that the 28-day time period starts ticking away? This question ties in with the question we posed above where companies are represented by agents but the clause states that the events or circumstances must come to the knowledge of the contractor. One thing is certain and that is that the representative will be obliged to disclose these events to his employer, being the contractor.

So who then within the company must be “aware” for the purposes of clause 20.1?
Generally, directors and the company secretary have, therefore, authority to bind the company. If a person represents that he has authority, which he does not possess, but in any event induces another to enter into a contract that is void for want of authority, then that person will be able to sue for breach of want of authority. However, these propositions relate to the formation of contracts, rather than the conduct of the contract and in particular the identification of who within the company needs to have the knowledge required in order to make a decision whether a notice should be served. While then an agent of a company can bind a company, that agent must still act within the scope of their authority when taking actions under a contract.

Identifying the “directing mind” within a company is the key to ascertaining who within a company has the necessary quality to be “aware”, as explained by Denning LJ in HL Bolton (Engineering) Co Ltd v TG Graham & Sons Ltd :

‘Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company.’

The intention of the company is therefore to be derived from the directors and the managers, rather than those that might be carrying out the work. The company’s intention will, therefore, depend upon:

• the nature of the matter that is being considered;
• the position of the director or manager; and
• other relevant facts of the particular case.

This principle has been affirmed in subsequent cases, in particular by Lord Reid in Tesco Supermarkets Ltd v Nattrass  in the House of Lords:

‘Normally the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company. Their subordinates do not. They carry out orders from above and it can make no difference that they are given some measure of discretion. But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them. I see no difficulty in holding that they have thereby put such a delegate in their place so that within the scope of the delegation, he can act as the company. It may not always be easy to draw the line but there are cases in which the line must be drawn.’

Lord Reid confirms the approach of Denning LJ, but notes that it may be possible for the directors or senior managers to delegate, in this instance, fundamental decision-making processes required during the course of the running of a construction contract. In the absence of such delegation, it is arguable that those who must be “aware” are the directors and managers who constitute the “directing mind” of the company.

Conclusion

By raising these questions cannot help but notice that the notification process is not as rigid and as linear as one may have initially thought. However, these questions and arguments will prove valuable when a contractor has to argue against a time bar argument raised by an employer. One must bear in mind that the notice provision in the contract does not require a strict formal process for compliance except that it must be in writing. Accordingly, the contractor’s representative should not have to conduct a full scale legal analysis as eluded to above before sending out a sub-clause 20.1 notice. The representative should send the notice if he considers the contractor to be entitled to an extension of time for completion and/or additional payment.

Written by Niel Coertse, Associate at MDA Consulting

Notes:

1 [1957] 1 QB 159.  Referred to in a number of South African judgments.
2 [1972] AC 153 (HL).  This case has been referred to in a number of South African judgments.

Disclaimer: The content of this newsletter does not constitute legal advice. If you have a specific problem please contact MDA on 011 648 9500, at our Durban office on 031 764 0811 or by email on ncoertse@mdaconsulting.co.za

Edited by: Creamer Media Reporter
 
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