The facts

WW Gear Construction Ltd, the employer, wished to develop a site in the middle of a roundabout directly on the south side of Westminster Bridge in London. McGee, the trade contractor, was a ground works trade contractor and was retained by Gear to carry out excavation and other ground works for the development. The agreed contract sum was £1,812.836.75. McGee completed its work and Gear made some payments. However, disputes arose in relation to payments including McGee’s claims for delay and disruption-related loss and expense.

Gear referred to adjudication issues arising between the parties including issues relating to the proper interpretation and application of extension of time and delay-related loss and expense clauses in the contract. The adjudication decision went against Gear and, having not challenged the enforceability of the decision, it issued proceedings in the Technology and Construction Court (TCC) for a final declaration on the interpretation of the contract.

The contract

The contract incorporated the JCT Trade Contract terms (TC/C) 2002 (current version is 2008) as amended by the parties. The relevant clauses were as follows:

• Clause 4.11.1 (which was an agreed amendment) provided that: “As a condition precedent to the Trade Contractor’s entitlement to payment under clause 4.11.2, the Trade Contractor shall, on each date for application for Interim Payment submit to the Construction Manager a detailed application setting out the amounts which the Trade Contractor considers to be due pursuant to clause 4.12 to 4.16…”
• Clauses 4.21 and 4.21.1 provided that: “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 (of which the Trade Contractor may give his quantification) in the execution of this Trade Contract….because the regular progress of the Works or any part thereof has been or is likely to be materially affected by any one or more of the matters referred to in clause 4.22; and if as soon as the Construction Manager is of the opinion…that the regular progress of the Works or of any part thereof has been or is likely to be so materially affected as set out in the application of the Trade Contractor then the Construction Manager from time to time thereafter shall ascertain the amount of such loss and/or expense which has been or is being incurred by the Trade Contractor, 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 or any part thereof has been or was likely to be affected as aforesaid, 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 or clause 4.25 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.” [The bold sections were the subject of the agreed amendments].

The proceedings

Gear sought a final declaration from the court as to the meaning and effect of clause 4.21. Gear asserted that, as amended, clause 4.21 provided that a timely and detailed application would be a condition precedent to entitlement under that clause. It took issue with the adjudicator’s decision which decided that the condition precedent was “devoid of meaning” and of no effect. Gear therefore sought a declaration that McGee was required to comply with the provisions of Clause 4.21.1 as a condition precedent to its entitlement to have any application for loss and expense ascertained by the construction manager, further or alternatively, to loss and expense.

The issue

The issue was whether meaning could or should be given to the words “Trade Contractor’s entitlement under this clause 4.21.1″ on the basis that, at least superficially, there was no entitlement under clause 4.21.1. Gear argued that as a matter of construction, what was intended was a reference to clause 4.21 “in the round”, while McGee argued that conditions precedent were to be construed strictly and given that the words were superficially meaningless, they should not be construed as barring McGee from a legitimate claim for loss and expense if the application was not made within the periods set out in clause 4.21.1. Further, McGee referred to the adjudicator’s decision in this regard which found this expression to be meaningless and that the condition precedent had “no teeth”.

Analysis

Akenhead J noted that while the court did not readily accept that contractual parties make mistakes in their written contracts, once it is clear that something has gone wrong with the language, the court will seek as a matter of construction and interpretation to determine what the parties really meant. However, if it is simply not possible to determine what was mutually intended from the wording, the background and the context, it may well be the case that the court has to say that the parties have produced a meaningless term or contract as the case may be. The judge referred to the recent House of Lords’ case of Chartbrook Ltd v Persimmon Homes Ltd where it was held that it clearly required a strong case to persuade the court that something must have gone wrong with the language of a contract. Chartbrook was an exceptional case in which the drafting was careless and no one noticed. In relation to conditions precedent, the judge referred to the argument that they have the effect of excluding what would otherwise be perfectly valid claims or entitlements and are to be construed strictly.

The decision: construction of clause 4.21.1

The judge’s view was the “provided always that” (in clause 4.21) wording was often the strongest sign that the parties intended that there be a condition precedent. What follows is usually a qualification and explanation of what is required to enable the preceding requirements or entitlements to materialise.

As regards the wording, “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 have become, apparent to him that the regular progress of the Works or any part thereof has been or was likely to be affected as aforesaid”, the judge was of the view that the wording was such that McGee had the option of making its application under clause 4.21 at the later of the two alternative stages, if they turned out to be different.

As regards the wording, “and it shall be a condition precedent to the Trade Contractor’s entitlement under this clause 4.21.1 or clause 4.25 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”, the judge highlighted that there were two obvious drafting errors in the clause which suggested a lack of attention in the drafting or checking of the clause. The judge’s view was that it was obvious that there was no specific entitlement under clause 4.21.1 which was merely a proviso to the substantive part of clause 4.21.1. The words were superfluous because the drafting of the earlier parts of clauses 4.21 and 4.21.1 was sufficient in itself to establish the submission of a timely application as a condition precedent to the allowance of McGee’s loss and expense.

The judge concluded that the parties clearly intended to refer to that part of the overall clause which actually gave rise to an entitlement which was clause 4.21. There was no other obvious clause to which the parties could have been referring. It followed that McGee had no entitlement to recover such loss or expense unless and until it had made a written application and the requirement to make a timely application was a precondition to the recovery of loss and/or expense under clause 4.21. Accordingly, Gear was entitled to a declaration that McGee was required to comply with the provisions of clause 4.21.1 as a condition precedent to its entitlement to loss and expense under and pursuant to clause 4.21.

Points to consider

• If parties wish to operate conditions precedent strictly and to the letter, they should draft such clauses very clearly so as to avoid the need for adjudication/litigation proceedings to decide on interpretation. The more stringent or onerous the clause, the greater the risk that enforceability can be challenged and therefore water-tight drafting is essential.
• This case illustrates how a dissatisfied, but pro-active party can usefully apply to the TCC to speedily and, importantly, finally determine an issue by way of a declaration. Note that the judgment does not open up the adjudicator’s decision. Adjudicator’s decisions are only binding until the dispute is finally determined by litigation, arbitration or agreement by the parties.
• The parties, on this occasion, had preserved McGee’s right to claim at common law for breach of contract notwithstanding the validity of the condition precedent. This is something to think about at drafting stage.
• While it is not necessary to expressly use the words “conditions precedent”, nor to spell out the consequences of non-compliance, clear and precise drafting will be less likely to give rise to a dispute over interpretation.