Compensation event claim emphasises importance of strictly complying with notification requirements

In Glen Water Ltd v Northern Ireland Water Ltd [2017] NIQB 20, the High Court of Justice in Northern Ireland examined the notification provision for compensation events in a project agreement. It took a strict approach, holding that a letter detailing the compensation event in this case did not amount to a notice, which resulted in the contractor’s claim being barred.

Background

On 6 March 2007, Glen Water Ltd (GW) entered into a PFI project agreement with Northern Ireland Water Ltd (NIW) to provide upgrade sludge treatment services. GW entered into subcontracts for its works.

Clause 33.2 of the project agreement required GW to notify NIW of a compensation event within 21 days of the occurrence of the event in order to claim relief and/or compensation. It also required GW to give full details of the compensation event and the extension of time and/or any estimated change in the project costs claimed.

GW claimed that NIW had breached the prudent operator obligations in the contract during the construction phase, which was said to be a compensation event. NIW denied this and also argued that GW had not complied with clause 33.2 to give notice of the compensation event. GW argued that notification had been provided by a letter of 20 October 2009 and that details of the claim had been provided in a meeting on 14 December 2009. NIW disputed that and argued that the letter of 20 October 2009 related to an entirely different claim.

Was the notification valid?

The Court was required to determine whether GW had properly notified NIW of its compensation event claim. In particular, whether GW’s letter dated 20 October 2009 amounted to proper notice for the purpose of clause 33.

Both parties agreed that the notification requirement under clause 33 was a condition precedent, such that if GW was found to have failed to notify its claim in accordance with that clause, there was no other basis upon which the proceedings could be maintained.

Decision

The Court held that the letter of 20 October 2009 did not constitute notice of a compensation event. The Court found that the letter was clearly part of a chain of correspondence relating to another compensation event claim. The letter bore a title referring to another historic claim that had nothing to do with the claim in issue. The question, the Court said, was whether the claim in issue could be inferred and the letter was hybrid as asserted by GW. The Court said that the burden was on GW to establish that the letter was a proper notification, the core issue being how it should be interpreted. A notification should be clear and unambiguous and must be certain, the Court said.

The Court held that the meaning of the 20 October 2009 letter was not apparent by looking closely at the wording and reading it in full or from the context. Moreover, the 20 October 2009 letter had not been relied upon or referred to during a previous adjudication. The Court found that the strength of the argument regarding the letter reduced with time and was diluted by the adjudication. Since GW had failed to notify NIW of the alleged compensation event in clear terms and within the timescale required, it was unable to claim a compensation event.

Conclusion

Compliance with notification requirements is a condition precedent to succeeding in any claim in many standard form contracts, including the NEC3 and the FIDIC forms. This case emphasises the importance of strictly complying with such requirements and ensuring that notifications are drafted in clear and unambiguous terms and are given within the specified deadline.

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Joseph Chung

Partner | Litigation and Dispute Resolution

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