VARIATIONS AND CONDITIONS PRECEDENT (AGAIN)
In the recent Technology and Construction Court decision of Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd & Anor (Judgment No. 2) [2023] EWHC 1142 (TCC) (“Energy Works v MW”), the issue of conditions precedent cropped up yet again in respect of a “variation claim”.
Background. Energy Works (Hull) Limited (“EWH”) engaged MW High Tech Projects UK Ltd (“M+W”) to design and build an energy-from-waste plan in Hull via an engineering, procurement and construction contract to process and gasify refuse-derived fuel. Subsequently, disputes arose between the parties. The principal judgment was rendered in Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd & Ors [2022] EWHC 3275 (TCC). This is the second judgment, where the judge addressed the outstanding matters in issue between M+W and the gasifier subcontractor, Outotec (USA) (Inc) (“Outotec”).
Given the sheer number of issues raised, in this blog, we will just focus on a small part of Energy Works v MW, being [71] – [79].
The reason is because in these 8 paragraphs, we see, yet again, the importance of compliance with conditions precedent.
The claim. As set out in Energy Works v MW [71], Outotec sought to claim for costs of “investigating a revised ash discharge system”.
What is interesting is that, as set out in Energy Works v MW [71] – [72], this is not a claim for a variation per se. Rather, it is a claim for “work done with a view to a potential variation”.
Practically, this meant that this was not a claim that fell under the definition of a “variation” pursuant to clause 16.1 of the subcontract. Rather, it fell under a separate clause, being clause 16.3 (Energy Works v MW [72]).
“The Contract Manager may at any time instruct the Subcontractor to prepare or to assist him in the preparation of a potential Variation and the Subcontractor shall comply with such instruction and give to the Contract Manager his recommendations for the form and scope together with an estimate of the Cost and impact on the Approved Programme of the Variation at such time and in such detail as the Contract Manager shall require.”
As such, this claim for a “potential variation” was governed by clause 16.7, which provided as follows (Energy Works v MW [72]):
“The Subcontractor shall be entitled to an addition to the Subcontract Price determined in accordance with and subject to Clause 19 (Claims) in respect of the Cost of preparing a potential Variation in accordance with Sub-clause 16.3, of commenting upon a proposed Variation in accordance with Sub-clause 16.4 or of responding to a Variation Order in accordance with Sub-clause 16.5 and 16.6, whether or not any such potential or proposed Variation is ordered or amended or such Variation Order is confirmed or withdrawn.”
Reading clause 16.7, it is clear that a claim under clause 16.7 had to comply with clause 19. So, what did clause 19 provide?
The condition precedent. Clause 19 made the “prompt notification” of Outotec’s intention to claim for additional payment a condition precedent. Importantly, it does so via clause 19.1 and 19.3A which are excerpted below:
Clause 19.1 “If the Subcontractor intends to claim any additional payment which does not arise out of a Variation, he shall notify the Contract Manager of such intention within ten days of becoming aware of the event which gives rise to the claim, and shall establish and maintain records relevant to the claim, together with such additional records as the Contract Manager may direct. All such records shall be open to inspection by the Contract Manager.”
Clause 19.3A. “Service of notice in accordance with the Subcontract Conditions is a condition precedent to the entitlement of the Subcontractor to any compensation for any matter to which clause 19.1 relates.”
We see that the “magic phrase”, “condition precedent”, is used. So, the question became “Did Outotec satisfy the condition precedent?”
Was the condition precedent satisfied? Outotec claimed that an instruction was given in or around July and August 2016 in respect of the potential variation in meetings, and attempted to rely on a Project Change Order given to M+W on 2 October 2016 which asserted “… a claim for $10,023.30 in respect of the engineering, administrative and project management time that had already been spent on the proposed variation” (Energy Works v MW [76])
M+W denied contemporaneous receipt of the said Project Change Order. In fact, the unchallenged evidence was that the Project Change Order was not received until April 2017 (Energy Works v MW [77]).
The result was that the judge found that there was no “contemporaneous notification of an intention to claim for this proposed variation”. In fact, the judge found that even if the notification had been sent in October 2016, it would have been too late for the purposes of being the notice of intention required under clause 19.1 (Energy Works v Hull [78]).
As such, Outotec’s claim for this “variation” was dismissed.
Conclusion. Energy Works v MW is another case showing, yet again, that courts treat “conditions precedent” for liability to make payment for variations strictly.
If a contractor attempts to claim for additional payment for a variation, or as in the case of Energy Works v MW, a potential variation, the contractor will do well to scrutinize the contract carefully and ensure that all conditions precedent for a valid claim are satisfied. If not, it can be difficult for the contractor to claim for additional payment in subsequent dispute resolution proceedings.
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