United States: Supreme Court Of Kentucky Holds Claim-Preservation Requirements Not Barred By KFCA; Strictly Enforced Notice Provisions

On Thursday, December 13, 2018, the Supreme Court of Kentucky, reversed an appellate court decision and reinstated the trial court's order granting partial summary judgment in favor of the Louisville and Jefferson County Metropolitan Sewer District.  Louisville and Jefferson County MSD v. T+C Contracting, Inc., Supreme Court of Kentucky, Case No. 2017-SC-000274-DG.  In addition to analyzing the enforceability of liquidated damages provisions,1 the decision is notable because, for the first time, the Court considered the application of Kentucky's Fairness in Construction Act (KFCA) in relation to claim notice provisions. In doing so, the Court held that the Act does not nullify "claim-preservation requirements" in a construction contract, even where failure to satisfy those requirements results in a waiver of the claim.  While the Court reached the correct result, the long overdue foray into the Act, led to a superfluous analysis that may generate more confusion than clarity. 

In 2007, Kentucky's Fairness in Construction Act was signed into law.  The act applies to all public and private projects, and was intended to level the playing field between contractors, subcontractors, and owners.  Accordingly, KRS 371.405(2) identifies certain construction contract provisions that are against public policy and void.  The provisions that are made unenforceable by the Act generally include: (a) a provision that purports to waive a contractor's right to resolve a dispute through litigation in court or binding arbitration with a neutral third-party adjudicator; (b) a provision that waives a contractor's right to file a lien; and (c) a provision that waives a contractor's ability to recover damages or additional time for delays caused by the owner (i.e. no-damages-for-delay provisions).

The construction contract before the Court contained comprehensive dispute resolution provisions comprised of 22 separate subsections.  The Court considered each section independently to determine whether it complied with the Act.  First, the Court classified each clause as either: (1) a provision that required the contractor to comply with certain requirements in order to preserve its claim; or (2) a provision that prohibited claims from eventually being resolved by a third-party adjudicator, even if they were properly preserved.  The Court held that KRS 371.405(2)(a) nullifies the second category, but not the first.  For example, the Court determined that section (J) of the contract, requiring the contractor to provide a detailed written claim to the owner within 30 days of the first notice, was deemed to be a "claim-preservation provision," permissible under KRS 371.405(2)(a). 

Next, the Court continued its analysis by considering whether each provision was barred by KRS 371.405(2)(c), the no-damages-for-delay provision.  While there was no delay claim before the Court, it broadly held that 2(c) operated to nullify all construction contract clauses that prohibit parties from asserting unpreserved claims, subject only to the exceptions enumerated under KRS 371.405(3).  Therefore, under the Court's reading, the contract provision requiring written notice of a claim within 10 days, section (A), was initially barred by KRS 371.405(2)(c), but salvaged by the exception found in 371.405(3)(b) – specifically stating that the Act shall not render void a provision that requires notice of any delay by the party affected by the delay.

Likewise, the Court held that section (F) of the contract - stating that compliance with the dispute resolution provisions was a condition precedent to any claim for additional costs –  was initially invalidated by 2(c), but salvaged by 3(d).  There, the Court reasoned that the KFCA does not render void a clause that provides for "any other procedure designed to resolve contract disputes."  Because section (F) required dispute resolution procedures be followed, but did not ultimately deny the contractor's right to submit its claims to a neutral third-party adjudicator, it was held to be enforceable.

However, two provisions in the construction contract were determined to be void and unenforceable under the KFCA.  First, section (O) required claims be submitted to MSD's chief engineer for the issuance of a final and binding decision.  Additionally, section (S) stated that the parties agreed that all decisions of the Chief Engineer are final, conclusive and binding and cannot appealed to or challenged in any forum or court.  The Court held that each of those provisions denied the contractor the right to submit its claims to a neutral third-party in violation of the KFCA.  Accordingly, under KRS 371.405(4), the Supreme Court severed sections (O) and (S) from the remainder of the contract that was in compliance with the KFCA.

After determining the enforceability of each of the provisions, the Supreme Court went on to consider whether the contractor preserved its claims under the terms of the contract.  The contractor argued that by providing written notice on at least three instances it satisfied the notice requirements.  The contractor further argued that its failure to provide a detailed claim within 30 days of the initial notice should be excused because it was impossible to comply with that provision under the circumstances.  The Court disagreed, and found that the contractor waived its claim for additional compensation by failing to strictly comply with the dispute resolution provisions required by the contract.  As a result, the trial court's order granting summary judgment in favor of MSD was proper.      

Construction contracts frequently include detailed dispute resolution provisions that require notice and claim submittal within a specific time from the date of the event giving rise to the claim.  The Supreme Court of Kentucky reinforced the validity of these provisions and the requirement that claimants must strictly comply in order to preserve a claim.  The KFCA will not invalidate a claim-preservation provision, even where the failure to comply results in a waiver.

Even so, the Court's broad interpretation of the no-damages-for-delay provision may create unintended consequences for lower courts attempting to apply the Supreme Court's framework.  Careful attention should also be given when drafting dispute resolution provisions to ensure that each clause, standing alone, is enforceable under the Supreme Court of Kentucky analysis. 

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.

Click here to see a copy of the Opinion.

Footnote

1 A subsequent alert will address the Supreme Court of Kentucky's analysis of the liquidated damages claim which revisits the seminal decision of Mattingly Bridge Co. v. Holloway & Son Const. Co., 694 S.W.2d 702 (Ky. 1985).

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions