FIDIC’s Second Edition contracts set out more detailed requirements for the service of notices which deserve close consideration by any party contemplating the giving of a termination. Adrian Bell of CMS considers the requirements and what they mean.
Some recent English cases have also considered wording with similarities to the FIDIC Second Edition clauses on these points and which may therefore throw light on the English law approach to be taken to these clauses.
Revised notice provisions under the FIDIC Second Edition
In tandem with the updated grounds for termination, the notification provisions of the Second Edition have been strengthened. There is a new definition of “Notice” as “a written communication identified as a Notice and issued in accordance with Sub-Clause 1.3 [Notices and Other Communications].” Clause 1.3 has also been expanded to give rise to five new requirements for the giving of a notice.
These new requirements raise the very real prospect that a Notice to Correct or subsequent Notice of termination may not be served correctly. This may in turn call into question the validity of the termination and lead to counterclaims for wrongful termination.
Where and how should termination notices be served?
In the 2022 English case of Thomas Barnes & Sons Plc v Blackburn with Darwen BC the court found that nothing less than strict compliance with the requirements of the service of notice provision would suffice for the purposes of a termination notice. Despite the clause not having been expressly drafted as a condition precedent, the court emphasised the contractual intention for more specific requirements to apply to such notices.
Where FIDIC’s Second Edition sits in reference to this is a difficult question. Although the requirements of clause 1.3 have been enlarged, the operative language is still that a Notice “shall” comply with the requirements of the clause. Language expressly imposing a condition precedent is therefore lacking.
On the other hand, the introduction of a definition of “Notice” might be said to have this effect. As quoted above, the definition states that a “Notice” as defined is only one which is “issued in accordance with Sub-Clause 1.3”. The termination rights provided by the Second Edition books can only be exercised by the giving of a “Notice”. If the purported notice which is sent does not comply with clause 1.3, it may be argued that it is not a “Notice” as defined and that any right of termination has not been validly exercised.
Who should serve the notice?
Clause 1.3 now also stipulates certain persons who are required to sign or, for electronic transmission, send Notices under the Contract. If these requirements are conditions precedent for the reasons stated in the previous section, the signing or sending of a termination notice by other persons on behalf of the employer may not be valid.
In addition to this requirement, the Second Edition Yellow and Red Books state specifically that the engineer is to give the Notice to Correct under clause 15.1. Similarly drafted termination provisions were considered by the English court in Struthers v Davies. The contract in that case required a “Contract Administrator” to serve an initial notice of default, which if not remedied could lead to a notice of termination served by the employer.
The court found that termination clauses should be construed strictly and that whilst the language surrounding who serves the notice was not cast in mandatory terms or expressed as a condition precedent, there were “sound reasons for requiring the initial notice to come from the Contract Administrator rather than the client.” As the initial notice had instead come from the employer directly, both it and the subsequent attempt to terminate in reliance on the initial notice were invalid.
When should the required notices be served?
Also of importance is the new wording in clause 1.3 as to the time at which notices are to take effect. This is deemed to be the following day for electronic transmissions and the time of actual receipt for other modes of delivery. Where a notice of termination is being served, it is important that no action be taken in reliance on the notice (such as removing the contractor from the site) until it has taken effect.
The contract considered in the Thomas Barnes case had similar provisions which deemed service on the second business day after posting. In addition to delivering the notice by hand to the contractor on site, the employer in that case sent a copy of the notice by email and by post. The employer then removed the contractor from site on the same day the notices were sent.
Having determined that service by hand was ineffective, the court also found that the email notice was ineffective (email not being an effective method of service). The notice sent by post was found to be effective but, in accordance with the deemed service provisions in clause 1.7.4, only took effect two business days after posting, being two business days after the employer had in fact removed the contractor from site.
Conclusions and implications
The English cases reported above highlight the care which is needed when seeking to administer the process of terminating a construction contract, particularly where more than one notice is required. The contractual process must be adhered to for each of the notices required, ensuring that service requirements, timings and the required notifying entity are all complied with. The consequences of failing to meet these requirements can be uncertain at best and nothing short of disastrous at worst.
Such cautionary tales are particularly apt to the revised notice and termination provisions of the FIDIC Second Edition contracts. No less than five new requirements for the giving of notices have been introduced into clause 1.3. The introduction of a new definition of “Notice” may also have the effect of making these requirements conditions precedent to a valid Notice – with the attendant risk of undermining any termination notice given in breach of the new requirements.
Adrian Bell is the co-head of the infrastructure, construction and energy disputes group and joint managing director for Asia and the Middle East at CMS.
