Time-bar clauses in construction contracts

Why this matters

On most construction projects, disputes are not lost on the merits. They are lost on time. A contractor may have a perfectly valid claim for delay, breaches or extra cost, but if the notice went in a week late, the employer will say the claim no longer exists.

Disputes are rarely lost on the merits. They are lost on time.

That is the effect of a time-bar clause. These clauses are now standard in Nepali construction contracts, from multilateral-funded hydropower, road and water supply projects let on FIDIC terms, to national works let on the Standard Bidding Documents of the Public Procurement Monitoring Office.

In this insight we answer five practical questions:

• What is a time-bar clause, and how is it different from limitation?
• What do the standard forms used in Nepal actually require?
• Will a Nepali court or tribunal enforce a time bar?
• When does the clock start, according to the Supreme Court of Nepal?
• How many deadlines does a claimant really need to track?

What is a time-bar clause?

A time-bar clause requires a party to notify a claim, or submit its details, within a fixed period. If it does not, it loses its right to an extension of time, to additional payment, or both.

The clause looks procedural, but its effect is substantive. A valid entitlement can disappear simply because a letter was not sent on time.

Time bar against limitation

The two are often confused, but they work very differently.

A claimant must satisfy both. Passing one does not save you from the other.

What do the standard forms used in Nepal require?

The FIDIC notice regime has become stricter with each edition. Knowing which edition your contract uses is the first step.

Three points are worth noting under FIDIC 2017.

• It cuts both ways. The bar now binds the Employer too. Public entities in Nepal claiming liquidated damages or other deductions must give notice on time as well.
• Deemed validity. If the Engineer does not object to a late notice within 14 days, the notice is treated as valid.
• Legal basis matters. If the fully detailed claim does not state its contractual or legal basis within 84 days, the Notice of Claim is deemed to have lapsed.

For national competitive bidding, contracts generally follow the PPMO Standard Bidding Documents. Whatever the form, always check the Particular or Special Conditions, where notice periods and their consequences are often amended.

Will a time bar be enforced under Nepal law?

Short answer: a clearly drafted time bar is likely to be enforced.

No Nepali statute specifically regulates time-bar clauses. So the analysis starts with the contract itself, then turns to the Muluki (National) Civil Code, 2074, the Public Procurement Act, 2063, the Public Procurement Regulation, 2064 and the Arbitration Act, 2055.

The case for enforcement

Several Civil Code provisions point towards holding parties to what they agreed.

• Binding bargain. Once concluded, a contract creates a binding legal relationship — Section 504(3).
• Time and manner matter. Where the contract fixes the time and manner of performance, it must be performed that way — Section 523(1). An obligation not met within the stated period is deemed not fulfilled — Section 496(1) and (4).
• Read the contract as a whole. Contracts are interpreted by the common intention of the parties, giving effect to all terms — Section 515.
• Public contracts defer to the contract. Under Section 56(1) of the Act, extension of the contract period is governed by the contract.

The catch is that the clause must be clear on both the period and the consequence of missing it. An ambiguous clause is unlikely to be enforced as a bar.

Argument one: the employer caused the delay

Nepal law has its own version of the common law prevention principle.

• Each party must provide the facilities the other needs to perform, and a party is not liable where performance fails because of the other's default — Section 532.
• A party prevented from performing can recover its loss — Section 522(3).
• Obligations must be performed in good faith — Section 499.
• For public works, the contract may exclude liquidated damages where delay is due to force majeure or occurs without the contractor's fault — Rule 121(a) of the Regulation.

Argument two: statutory extension of time on public contracts

Section 56(2) of the Act lets the competent authority extend the contract period, on the contractor's application, where extension is unavoidable due to force majeure, the public entity's failure to supply materials, or other reasonable causes. The procedure under the Regulation is:

• Rule 120(1) — apply with reasons and a revised work schedule at least 21 days before the contract period expires.
• Rule 120(2)(b) — the authority must consider whether the public entity provided what it was required to.
• Rule 120(3) — the approving authority depends on the length of the extension.

Two cautions. First, whether Section 56(2) can override a contractual time bar is uncertain, and it concerns time only; it does not revive a time-barred money claim. Second, Rule 120A offers a special extension route, but only if the contractor undertakes not to make further financial claims arising from the revised schedule. Use it with care.

When does the clock start? Lessons from the case law

The clock starts when the claim is refused or rejected, not when the entitlement first arises.

The Supreme Court of Nepal has consistently taken this view. Nepal law speaks of the date when the reason to file a lawsuit, or to settle a dispute through arbitration, arises. That date can come much later than the date a claim falls due.

The qualification in Shreeram Sugar Mills

The Court held that there is no single rule. It is not always correct to say that time runs from the end of the contract or from receipt of a termination notice.

• Specific performance. Where a party seeks specific performance after breach or termination, time may run from expiry of the contract term, the date of termination, or the date of breach.
• Payment and compensation claims. For compensation or quantum meruit claims, time runs from the date the other party refuses its obligation. Without a denial, the reason to sue does not arise.

What this means for construction claims

The decisions show that two conditions must be met before the clock starts:

• the claimant has a good cause of action against the respondent; and
• the time has come when it is appropriate to start proceedings, in court or by arbitration.

In a construction setting, that usually means a claim has been made by the contractor and rejected by the employer. What counts as a rejection, and how final it must be, depends on the facts. Sometimes both conditions are met on one date, such as a unilateral termination. Often they are not.

How many deadlines does a claimant need to track?

At least three. A claimant under a Nepal-law contract must clear each of these in turn, and missing any one of them can end the claim.

The arbitration clock

Under Section 6(1) of the Arbitration Act, unless the agreement says otherwise, the process of appointing arbitrators must start within three months of the date the reason to settle the dispute through arbitration arises.

Does the Civil Code's two-year period apply to arbitration? Both the two-year period under the Civil Code and the limitation provisions under the Arbitration Act may be relevant, depending on the nature of the claim and the applicable statutory framework. However, where the claim is specifically pursued through arbitration, the limitation period prescribed under the Arbitration Act is the more directly applicable provision governing commencement of the arbitral proceedings.

In the ICC arbitration CCECC-Sharma-Lama JV v Melamchi Water Supply Development Board, the contract dated 25 January 2005 provided for ICC arbitration. The employer argued that the reason to arbitrate arose on 10 April 2011, while the Notice of Arbitration was issued only on 27 July 2014. The tribunal found that neither the contract nor the 2012 ICC Rules set a time for starting arbitration, so Section 6(1) of the Arbitration Act applied. It held that the claimant had started too late and declined jurisdiction over the merits.

The Supreme Court has repeatedly applied Section 6(1) as the limitation period for arbitration, but in arbitrations seated in Nepal. Where the seat is Nepal, or limitation is treated as procedural, the three-month limit can be expected to apply. Institutional rules do not rescue a late claimant either: in ICC Case 20375/CYK/PTA the tribunal found that the 2012 ICC Rules set no time limit of their own for the Notice of Arbitration.

Under Part 5 of the Civil Code, a lawsuit on obligations, formation, performance, or breach and remedies must be brought within two years of the cause of action — Sections 503, 516, 534 and 544. A void contract can be challenged at any time; a voidable one within one year — Section 520.

The bottom line

This article provides general information on Nepal law and is not legal advice. It should not be relied on for any specific matter without consulting a qualified professional adviser.

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