All standard form construction contracts require contractors to submit a notice of any event which they anticipate will impact completion of the works, and for which they want to claim an extension of time or additional costs. If the employer disagrees with the notice, or the claim, many construction contracts provide for a tiered dispute resolution process, comprising a number of mandatory steps, such as management meetings, mediation, adjudication, DAB, etc., before the dispute can be finally resolved by proceeding to court or arbitration.
The initial notice is often quite limited, for a number of reasons: contracts are increasingly calling for the notice to be submitted within a very short period after the event occurs; the impact of the relevant event may not yet be known at that time or may change as the works progress; and/or, even if the impact is known, the contractor’s assessment of it, including its delay analysis, may not be complete at the time the notice must be issued.
The notice is therefore usually followed by a more complete substantiation of the claim, and the claim is often later revised and updated by the contractor with further supporting particulars and documents. In fact, some contracts require the contractor to submit an update to its claims at specific intervals. As the parties then progress through the tiered dispute resolution process, contractors will typically further refine and develop their claims, and the evidence supporting the same, to maximise the prospect of securing a favourable outcome at the next stage of the disputes process.
In these circumstances, it is not uncommon for the employer to challenge the contractor’s claim on the basis of jurisdiction, arguing that the update or revision has changed the claim so much that it is in fact a new claim and:
- since the employer has not yet had a chance to respond to that claim, there can be no dispute; and/or
- since the new claim has not yet been through all the tiers of the agreed dispute resolution process (perhaps because the update came during or after the first mandatory step), the whole process must re-start.
The English case of MW High Tech Projects UK Limited v. Balfour Beatty Kilpatrick Limited1 touches on both these issues.
MW High Tech Projects UK Limited v. Balfour Beatty Kilpatrick Limited
The facts of the case can be briefly summarised as follows:
- MW High Tech Projects UK Limited (MW) engaged Balfour Beatty Kilpatrick Limited (BBK) to carry out mechanical and electrical services in relation to the construction of a new laboratory in the UK. The parties entered into a JCT Design and Build Sub-Contract 2011 with bespoke amendments.
- The contract required BBK to notify MW if it became apparent that progress or completion of the services was likely to be delayed. Such notice was to contain particulars of the expected effects of the relevant event, including the extent of the delay. If the expected effects materially changed, BBK was required to promptly notify and update MW.
- During the course of the services, BBK notified MW of a delay caused by late completion of the preceding works that were being carried out by MW. BBK subsequently issued a number of notices (and particulars) revising the length of delay claimed. MW did not respond to any of the notices, even though it was required to do so under the contract within 16 weeks of receiving particulars of the claim.
- BBK then issued a delay expert report that set out a critical path analysis and slightly extended the length of delay and extension of time claimed. BBK informed MW that it would start an adjudication if it did not receive a response within seven days.
- MW again did not respond and BBK therefore proceeded to an adjudication where it was successful in obtaining the full extension of time claimed. MW then referred the case to the courts, arguing that the expert report amounted to a new claim, which meant that a dispute had not yet crystallised (since the 16-week period for its response had not passed) and the adjudicator therefore had no jurisdiction.
The court held that the expert report did not amount to a fresh claim, because it was not materially different to the previous notices issued by BBK. While it did contain a detailed critical path analysis and a marginally longer extension of time (neither of which MW had seen before), the cause of delay and relevant event (i.e., preceding works by MW) remained the same. The report was simply evidence by way of expert analysis in respect of an extension of time claim that had previously been notified and in respect of which a dispute had already crystallised. This was because MW failed to respond to the earlier notices which had been issued by BBK, within the 16-week period, and it could be inferred from its silence that the extension of time was disputed.
While the decision on the dispute between MW and BBK primarily turned on the facts, it is of relevance to all contractors and employers because it dealt with two issues that regularly arise on construction projects – crystallisation of a dispute and evolution of a claim throughout the claim and dispute resolution processes.
Implications – when does a claim become a dispute?
Most construction contracts do not contain a definition of ‘dispute’. The 2017 editions of the FIDIC contracts do, but neither the previous FIDIC forms nor the current NEC or JCT forms do. However, all of the standard forms specify that only a dispute can be referred to an adjudication, a DAB, mediation, the court, etc.
This raises a question – when does a claim become a dispute? The MW v. BBK case helpfully summarises the current English law position on this question, as follows:
- The word ‘dispute’ should be given its normal meaning.
- The mere fact that one party notifies the other of a claim does not automatically and immediately give rise to a dispute. The dispute does not arise unless and until the claim is not admitted.
- The claim may either be not admitted expressly, or it can be objectively inferred from the circumstances that it is not admitted (for example, when the other party remains silent for a period of time).
- The period of time for which a party may remain silent before it is inferred that the claim is not admitted, and before it becomes a dispute, depends on the facts and contractual structure. For example, if an agent appointed by the employer has to assess a claim independently and give a considered response, then a longer period will be allowed than if the claim is to be considered by the employer, who already knows all the details.
- If the claiming party imposes a deadline for a response, this may be a relevant factor to consider when assessing whether a reasonable time has passed and a dispute has crystallised.
- If the claim is so ill defined that no sensible response is possible, then silence (or even an express non-admission) is unlikely to give rise to a dispute.
Once the claim turns into a dispute, the use of any tiered resolution procedure to pursue relief and resolve the dispute needs to be considered carefully. Many contracts make the initial step(s) in the process compulsory and do not allow the parties to proceed to court or arbitration unless and until the dispute has already been through the prescribed preceding steps, e.g., negotiation, mediation and/or adjudication. For example, clause W1.4 of the NEC4 Engineering and Construction Contract states that a party cannot refer any dispute to the court or an arbitral tribunal unless it has first been referred to adjudication.
So what happens if, after the initial step in the dispute resolution process, the contractor presents new information and evidence? Is that a new claim that has to first crystallise as a dispute and go through the steps of negotiation, mediation or adjudication again?
Implications – when is an updated or revised claim a new dispute?
It is common to see a natural evolution and development of a claim, as the contractor pursues relief through the disputes process. In the later stages of that process, the contractor will inevitably (as a result of its further investigation and advice received) refer to and rely upon additional facts and documents, new legal arguments (including alternative grounds for the claim), new technical and expert assessments, etc. – all in the hope of maximising the prospect of securing a favourable outcome.
This often leads to arguments that the adjudicator, court or arbitral tribunal has no jurisdiction because the claim or dispute which is before it has not yet been through the preceding mandatory stages of the dispute resolution process. Helpfully, the judgment in the MW v. BBK case, as well as previous English case law, provides guidance on the extent to which a dispute can change and evolve during the dispute resolution process:
- It is necessary to determine, in broad terms, what the dispute is. But the dispute is not necessarily defined or limited by the evidence or arguments submitted by one party to the other before the referral to adjudication, court or arbitration.
- The parties are not limited to the arguments, contentions or evidence they have put forward before the dispute crystallised.
- This means that the ambit of the adjudication, court or arbitration proceedings may unavoidably be wider than the initial arguments and evidence exchanged by the parties.
The natural evolution of a claim is also expressly recognised by most standard forms of construction contract. For example, clause 21.6 of FIDIC 2017 Red Book provides that neither party is limited in arbitration to the evidence or arguments previously put before the DAAB. Clause 20.6 of FIDIC 1999 Red Book and clause W1.4 (4) of NEC4 Engineering and Construction Contract include similar provisions.
Key takeaways
There are a number of key points that parties to construction contracts should take away from the case of MW v. BBK, including:
- When drafting the section of the contract concerning notices of a claim, notices of a dispute, definition of a dispute or the dispute resolution process, the parties should ensure that the drafting is clear and logical (e.g., leaving no gaps and ensuring it is at each stage clear what the status of the claim and next steps are, in particular where one party has failed to comply with its obligations as part of the process). The parties are also encouraged to take pause and consider what is realistic, practical and constructive, both for the project and to promote the prospect of claims and disputes being assessed, and resolved, at an early stage.
- Contractors should give careful thought to the contents of the initial claim notification or the first substantiation they provide to the employer – a balance is required between the contents being too broad (which could result in not complying with the contract and/or not allowing the employer to make any assessment at all) and too narrow (which could risk that subsequent updates are considered materially different and amount to a new claim).
- Employers should carefully consider the time limits (whether contractual or imposed by the contractor) for responding to a claim and/or requesting additional information. Silence is a risk, as it can enable a dispute to crystallise.
- Both parties should assess any new information or update that will be, or has been, submitted with a claim, to determine whether it could amount to a new claim.
- The parties should also be aware that if the update is materially different to the previously notified claim, it could amount to a new claim, and, if so, the dispute resolution process will have to re-start. This may create difficulties with contractual time limits for submitting a claim as well as statutory limitation.
- However, contractors may also wish to consider whether this can be used to their advantage. Where a contractor has limited its presentation of the claim to a certain set of facts, legal basis and analysis – and has been unsuccessful – then other facts, legal bases, arguments and analysis that might be available could potentially (and subject to contractual time limits) be used to recast and re-start the claim, giving the contractor a further opportunity to seek recovery.
- [2020] EWHC 1413 (TCC).
Client Alert 2020-450
