Managing claims and avoiding disputes in Offshore Energy projects: The importance of timely and adequate contractual notices

Companies involved in marine construction projects in the renewable energy sector (such as offshore wind farm projects), which operate within complex contracting environments typically involving multiple construction contracts, can be drawn into significant disputes related to time and money claims.

If a dispute arises, the failure to make prompt and adequate notices of claim can be the end of otherwise valid claims. This article, from Haynes and Boone CDG LLP, sets out some key considerations to keep in mind when notifying claims, and the approach of the English Courts, which would also guide arbitrators deciding English law arbitrations.

Considerations for Contractual Notice Provisions

Bespoke contracts or contracts based on international model forms used in the offshore construction sector typically include notice and time bar provisions in relation to claims. The ability to make a valid claim will depend on the wording of the notice provisions, applying the usual principles of contract construction,[1] and whether they are construed as directory or mandatory.

If parties intend notice provisions to operate as a condition precedent to the making of a claim, clear language should be used stating (i) the precise time within which the notice is to be served; and (ii) that failing timely notice, the party making the claim will lose its right to claim under the clause. An ambiguous provision would not be construed as a condition precedent because, since such provisions are intended to operate in the interests of both parties, that would only benefit one party and would deprive the other of a potentially valuable right to claim an extension of time. However, the phrase “provided that the Subcontractor shall have given within a reasonable period written notice to the Contractor of the circumstances giving rise to the delay”, even though it did not contain an express warning as to the consequences of non-compliance, has been held to be a condition precedent, as the courts considered that it made clear in ordinary language that the right to an extension of time was conditional on the notification being given. The relevant event triggering a time bar should be clearly identifiable to avoid uncertainty, especially given the serious effect of a condition precedent clause. Provisions may be drafted to ensure notice is given either at the earliest opportunity upon the occurrence of the trigger event, which would be in the employer’s interest, or only once the contractor, having knowledge or means of knowledge of the event, is delayed by the event or reasonably believes it will be delayed.

Typically notices need to be made in writing and care should be taken to comply with any additional requirements as to content and form, as they will be subject to careful scrutiny especially in the event of a dispute. Simply put, a notice should be clear and unambiguous as a recognisable claim. The notice should make clear to the other party that the party making it is contending that the relevant event has occurred and has led to a delay giving rise to a claim. Unless the contract includes specific requirements, the level of detail of the claim and supporting documents may not be an absolute obligation but may depend on what is available to a party at the time of the notice. To put matters beyond doubt, a written notice should provide sufficient details as to the claim by describing the event and the information, as to additional time and/or money claimed, which is available to it at the time the notice is made, and make reference to the contractual provision relied on.

Where no formal notices or doubtful notices are made, subsequent attempts to construe project correspondence as valid notices, if these were not originally intended as notices, or to justify a claim through technical and project reporting, or reliance on the fact that the circumstances of the claim were known to the other party or discussed between parties, will be unlikely to succeed. If the notice provision is a condition precedent, the party seeking to make a claim would not be relieved from the obligation to give proper and unambiguous notice of the claim.

The contractual provisions about the circumstances in which notices are to be given should always be read in conjunction with the provisions regarding delivery of the notice, which are usually included in the so-called “boilerplate” clauses. These provisions are generally mandatory such that notices would only be deemed to be valid if the requirements as to the provision of written notices, the person(s) to be notified, the place and permitted modes of delivery (whether these are to be sent by letter, email, or fax) and the time of deemed receipt, are also complied with. It is essential to check whether any changes to the delivery address have been formally notified. Care should also be taken, if there has been consistent conduct by parties using another address (such as a site office) for correspondence during the project, as this may operate as a waiver of strict compliance with the service provisions. However, when formal notification of changes is absent, the notice provisions must be followed to the letter.

Both parties need to pay careful attention to the notice obligations. The onus is first on the party making the claim, and a failure to serve a compliant notice may be a complete answer to such claims, even if the claims would in theory be valid. However, such provisions typically also stipulate a time limit within which the other party is to respond, and a failure to do so or raise any objections as to non-compliance with these requirements may constitute a waiver of the right to reject the claim in future.

Conclusions

Notice provisions, in particular those which impose strict obligations, are intended to provide commercial certainty in preventing late and unparticularised claims, thus enabling parties to know where they stand as regards claims as soon as possible. Timely notice also gives the other party the opportunity to investigate whether or not to allow the claim, and to consider and possibly mitigate any financial consequences of the claim. Such clauses also operate as gateways to liability and, especially in complex international construction projects, where many claims may arise during the course of the project, care needs to be taken to ensure that notices and responses to them do not fail to comply with the essential requirements of the notice provisions.

Article submitted by Helen Conybeare Williams, Counsel, Haynes and Boone CDG, LLP

[1] What a reasonable person, having all the background knowledge available to the parties, would have understood the words of the contract to mean, using the language in its commercial and factual context. Where there are rival interpretations, concepts of business common sense can be relevant as an aid to construction.