Notices as conditions precedent: Key issues for safeguarding benefits under a contract

The Technology and Construction Court handed down judgment in May 2024 in a long-gestating IT dispute which was one of the top 20 cases of 2023 according to The Lawyer. The dispute arose because of a modernisation project to the IT and other systems used by the Disclosure and Barring Services (“DBS”) between 2012 and 2020.

The Claimant, Tata Consultancy Services Limited, (“TCS”) claimed more than £110m in delay damages, with DBS counterclaiming for delay and for the poor quality of the software delivered. Separately, both parties disputed the true construction of a volume-based regime for service charges.

This recent case of TCS v DBS 2024 EWHC 1185 covered several issues on interpretation of the agreement between the parties and issues relating to delay analysis. This note only looks at the way the learned judge, Constable J, dealt with the question of whether a notice to be given under the contract was a condition precedent.

This issue commonly arises in circumstances where the giving of a notice is a precondition to a party being able to claim a benefit, usually an extension of time or compensation, under a contract.

As stated, the case concerned an agreement between TCS and DBS under which TCS was to provide an IT system to modernise DBS’s process for processing and issuing DBS checks. The project was substantially delayed for reasons considered in much of the judgment.

The contract contained delay notice provisions as follows:

“clause 5.1 if, at any time, the Contractor becomes aware that it will not, (or is unlikely to) achieve any Milestone by the relevant Milestone Date it shall as soon as reasonably practicable notify the Authority of the fact of the Delay or projected Delay…”

Clause 5.6 stated that the Authority “shall not be liable to compensate the Contractor for Delays… unless the Contractor has fulfilled its obligations in accordance with clause 5.1…”

Clause 6.1 also had a requirement for the Authority to “promptly issue a non-conformance report to the Contractor” if the Contractor failed to satisfy Acceptance Tests.

Both parties contended that the clauses that benefited them, clause 5.1 and 5.6 in DBS’s case and clause 6.1 in TCS’s case were conditions precedent to be able to recover compensation.

The learned judge reviewed the authorities on conditions precedent and at paragraph 74 of the judgment set out the relevant matters to be considered when construing a relevant clause as a condition precedent.

He did warn that “any attempt to articulate an exhaustive checklist of factors to consider when considering whether a particular clause in a particular contract is a condition precedent will inevitably be futile“. That is because clearly every contract turns on its specific wording.

The list of matters which he identified, and no doubt will be set out in future cases or submissions on the interpretation of whether a clause is a condition precedent, was as follows:

1. Whether it is necessary for a party to comply with one or more stated requirements in order to be entitled to make a claim for money or relief will ultimately turn on the precise words used, set within the contractual context;
2. There is nothing as a matter of principle which prevents parties freely agreeing that the exercise of a particular right to payment or relief is dependent on compliance with a stated procedure, but parties will not be taken to have done so without having expressed that intention clearly;
3. The language of an obligation in relation to procedure to be complied with (e.g. “shall”) is necessary, but not sufficient;
4. The absence of the phrase “condition precedent” or an explicit warning as to the consequence of a non-compliance is not determinative against construing the regime as one of condition precedent;
5. However the absence of any language which expresses a clear intention that the right in question is conditional upon compliance with a particular requirement is likely to be, at the very least, a powerful indicator that the parties did not intend the clause to operate as a condition precedent;
6. The requisite “conditionality” may be achieved in different ways using different words and phrases when construed in their ordinary and natural meaning;
7. The clearer the articulation, purpose and feasibility of the requirement to be complied with (in terms of substance and/or timing), the more consistent it will be with the conclusion that, depending on the rest of the language used the requirement forms part of a condition precedent regime”.

Applying those factors to the clauses in question, the judge felt the clauses were conditions precedent.

It is often the case that a party seeks to get round the effect of a notice being a condition precedent by reframing the claim as one for general contractual damages rather than compensation under the particular contract. In this case, the learned judge found that clause 5.6 was sufficiently widely drawn to cover claims for general damages for delay as well as loss and expense pursuant to the contract.

The judge also had to consider another commonly used attempt to avoid the consequences of a failure to comply with a condition precedent namely estoppel. In this case he found, on the facts, that DBS were estopped from claiming delay damages because both parties had shared an assumption that the requirement on TCS to serve an exception report within five days would not be adhered to.

The case is interesting for other issues including how the judge dealt with delay issues and his robust views on certain expert evidence in relation to delay analysis.

On the question of whether a notice is a condition precedent or not the summary of matters to be considered in interpreting a clause will no doubt prove useful in future cases.  One lesson is clearly that if the intention is to make a clause a condition precedent then expressly say so in the contract.

The party who has the benefit of such a condition precedent also needs to be careful in their conduct and in open negotiations and correspondence not to have encouraged an assumption of an agreement not to enforce any condition precedent. An express reservation of rights may well assist in defeating any alleged estoppel.

Not identifying and complying with conditions precedent could be costly for contractors if they lose their entitlements. Similarly, inadvertently waiving the benefit of such conditions could leave Employers out of pocket.

If you would like to discuss any of the issues raised in this article, please contact Ashley Pigott.