UK: JCT Contracts: Condition Precedent

Last Updated: 18 August 2010
Article by Christopher Hill, Steve Abraham and Donald Warnock

In the following case the court had to consider the construction of a condition precedent in a standard form JCT trade contract, as amended by the parties.

WW Gear Construction Ltd v McGee Group Ltd [2010] EWHC 1460 (TCC)

The employer entered into a trade contract with a trade contractor to carry out excavation and other ground works in connection with the construction of the Westminster Park Plaza Hotel. The construction manager named in the Contract was GC Project Management Ltd. The contract incorporated the JCT Trade Contract terms (TC/C) 2002 edition with Amendment No 1:2003, as further amended by the parties.

The trade contractor completed its work in about May 2009. Disputes arose between the parties in connection with payment including the trade contractor's claims for loss and expense relating to delay and disruption.

The employer referred a number of issues to adjudication, in particular the proper interpretation and application of the extension of time and loss and expense clause in the contract (clause 4.21). The adjudicator decided against the employer and considered clause 4.21 to be "devoid of meaning" and of no effect.

The employer sought a final determination from the court as to the true meaning and effect of clause 4.21. The employer argued that clause 4.21 required the trade contractor to make a timely and detailed application for loss and expense as a condition precedent to entitlement to such a claim.

The parties' amendments to clause 4.21 are shown in bold below.

Clause 4.21

"If the Trade Contractor makes written application to the Construction Manager stating that he has incurred or is likely to incur direct loss and/or expense ... because the regular progress of the Works ... has been or is likely to be materially affected ...; and if as soon as the Construction Manager is of the opinion...that the regular progress of the Works ... has been or is likely to be so materially affected ... the Construction Manager ... shall ascertain the amount of such loss and/or expense ...; provided always that:
.1 the Trade Contractor's application shall be made as soon as and in any event not later than two months after it has become, or should reasonably have become, apparent to him that the regular progress of the Works ... has been or was likely to be affected ... and such application shall be formally made in writing and fully documented and costed in detail, and it shall be a condition precedent to the Trade Contractor's entitlement under this clause 4.21.1 ... that the Trade Contractor has complied fully with all the requirements of this clauses [sic] including, for the accordance [sic] of doubt, the said time period of two months."

Construing Clause 4.21: the contractor's view

The trade contractor submitted that conditions precedent were to be construed strictly and that the words in clause 4.21 should not be construed as barring the trade contractor from a legitimate claim for loss and expense if its application were not made within the stipulated two month period. Much of the argument between the parties centred around whether the words "Trade Contractor's entitlement under this clause 4.21.1" was meaningless because there was no entitlement under that sub-sub-clause.

Construing Clause 4.21: the principles involved

The court noted the following principles as set out by Lord Hoffman in Chartbrook Ltd and another v Persimmon Homes Ltd and another [2009] UKHL 38:

  • a contract should be interpreted by reference to what a reasonable person having all the relevant background knowledge would have understood the words to mean;
  • the court did not readily accept that contractual parties have made a mistake in their written contracts;
  • if something had gone wrong with the language, the court would not attribute to the parties an intention which a reasonable person would not have understood the words to mean; and
  • a strong case was needed to persuade a court that something had gone wrong with the language.

Once it was clear that something had gone wrong with the language, the court would seek as a matter of construction and interpretation to determine what the parties really meant. In so doing, the court would have regard to the background and context of the contract to see what was intended from the wording of the contract. If it was not possible to determine what was mutually intended from the wording, the background and the context then the court might have to conclude that the parties had produced a meaningless term or contract.

There was no direct authority on this particular JCT form of contract, but the form of wording was similar and comparable to that used in the earlier editions of the JCT contracts. The court noted the dicta of Vinelott J in London Borough of Merton v Stanley Hugh Leach Ltd (1985) where the court held clause 24 (1) of the 1963 edition of the JCT contract (the pre-curser to clause 4.21) to be an "if" clause. By this the judge meant that the provisions of the clause only operated if the contractor invoked them first by making a written application. If the application was made the architect then had to form an opinion whether loss and/or expense was suffered if the written application was made within a reasonable time.

Was clause 4.21 a condition precedent: the court's view

Applying those principles, the court analysed clause 4.21 to show that it was an "if" clause similar to that referred by in the Merton case. As a result the court held that:

  • the requirement to make a timely application in writing was a precondition to the recovery of loss and/or expense under clause 4.21;
  • the trade contractor had no entitlement to recover such loss or expense unless and until it had made such an application because it was the application which triggered the ascertainment process;
  • the parties had agreed through the proviso in clause 4.21.1, as amended, that the application must be made in a timely manner and in any event no more than two months after it has become or should reasonably have become apparent that the regular progress of the works had been or was likely to be affected. The timeliness and the two-month period were related to either progress actually being affected or to a time when it was likely to be affected; and
  • The proper construction of clause 4.21 was that it was a condition precedent to the trade contractor's entitlement to recover loss or expense.

Clause 4.21: the detailed analysis

Looking at clause 4.21 in detail the court broke down the essential elements of the clause as follows:

(i) "If the Trade Contractor makes written application to the Construction Manager stating that he has incurred or is likely to incur direct loss and/or expense"

The trigger for the operation of clause 4.21 was the making of a written application by the trade contractor. There was nothing in clause 4.21 which suggested that the construction manager or the employer had any obligation to ascertain loss and expense or adjust the contract sum if there was no application.

(ii) "because the regular progress of the Works ... has been or is likely to be materially affected ..."

This made it clear that the application should state in effect that the regular progress was or was likely to be affected by the various matters listed as entitling additional loss and expense.

(iii) "provided always that"

Use of this wording was often the strongest sign that the parties intended there to be a condition precedent which was followed by a qualification and explanation of what was required to enable the preceding entitlement to materialise, i.e:

".1 the Trade Contractor's application shall be made as soon as and in any event not later than two months after it has become, or should reasonably have become, apparent to him that the regular progress of the Works ... has been or was likely to be affected"

There was nothing particularly difficult or onerous on the trade contractor to make its application within either the general or specific timetables. The application had to be made within the long stop period of two months after it had become or should reasonably have become apparent that the regular progress of the works was or was likely to be affected.

"and such application shall be formally made in writing and fully documented and costed in detail."

The requirement for the application to be made "formally" added very little if anything to the requirement that the application must be in writing. The application had to be made pursuant to clause 4.21 but it was not essential that any particular form of words was used.

"and it shall be a condition precedent to the Trade Contractor's entitlement under this clause 4.21.1... that the Trade Contractor has complied fully with all the requirements of this clauses [sic] 4.21.1 including, for the accordance [sic] of doubt, the said time period of two months"

The incorrect references to "clause 4.21.1" in this part of the sub-clause suggested a lack of attention in the drafting or checking of the draft because there was no specific entitlement under clause 4.21.1. Essentially, the words in this sub-clause were superfluous because the drafting of the earlier parts of clause 4.21 and 4.21.1 was sufficient to establish that the submission of a timely application was a condition precedent to the allowance of loss or expense.

Following the opinion of Lord Hoffman in Chartbrook, what the parties clearly intended was to refer to that part of the overall clause which actually gave rise to an entitlement which was clause 4.21. The whole context of clause 4.21.1 itself is clause 4.21 and it was obvious that the parties were intending to refer to clause 4.21.

Editors' comments

The court was clear in this case how the relevant clause was intended to operate and was prepared to correct the error the parties made in the cross-referencing of clause 4.21 and 4.21.1.

It was clear to the court that it was the trade contractor's application which triggered the ascertainment process and the fact that there was an obvious mistake in the drafting of one of the sub-clause to clause 4.21 did not change that.

View: WW Gear Construction Ltd v McGee Group Ltd [2010] EWHC 1460 (TCC)

This article was first published in the Norton Rose Construction and infrastructure updater July 2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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