Time-bar clauses for construction claims

Introduction

A time-bar clause requires a party to notify a claim, or submit its particulars, within a stated period and provides that failure to do so results in the loss of the right to an extension of time, additional payment, or both. Although procedural in form, such a clause can extinguish a substantive right.

Time-bar clauses are now a routine feature of construction contracts in Nepal. Contracts procured through international competitive bidding, particularly on hydropower, road and water supply projects financed by multilateral lenders, are commonly let on FIDIC or MDB-harmonised conditions. National competitive bidding contracts generally follow the Standard Bidding Documents issued by the Public Procurement Monitoring Office. In either case, where the contract is governed by Nepal law, the enforceability of a time bar depends on the contract itself, read with the Muluki (National) Civil Code, 2074, the Public Procurement Act, 2063, the Public Procurement Regulation, 2064 and the Arbitration Act, 2055.

A contractual time bar must be distinguished from the statutory limitation period (hadmyad) for bringing proceedings. The former operates within the contract and is measured in days or weeks; the latter is fixed by statute and governs the time within which a lawsuit or arbitration must be commenced.

Time-bar clauses in the standard forms used in Nepal

Under the FIDIC Conditions of Contract for Works of Civil Engineering Construction, 4th Edition (1987), still found in older Nepali contracts, time and money were treated separately. Under Sub-Clause 44.2, the Engineer was not bound to determine an extension of time unless the Contractor had given notice within 28 days after the event first arose and submitted detailed particulars within a further 28 days. Under Sub-Clause 53.1, notice of a claim for additional payment was also required within 28 days, but under Sub-Clause 53.4 non-compliance limited recovery to the amount verifiable from contemporary records rather than extinguishing the claim. Both periods ran from the occurrence of the event.

The FIDIC 1999 suite consolidated time and cost claims in Sub-Clause 20.1. Notice must be given as soon as practicable and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance, failing which the Time for Completion is not extended, no additional payment is due and the Employer is discharged from all liability in connection with the claim. A fully detailed claim is to follow within 42 days.

The FIDIC 2017 suite extends the regime to both parties. Under Sub-Clause 20.2.1, a Notice of Claim must be given within 28 days of awareness, failing which the claiming Party loses its entitlement; however, if the Engineer does not object within 14 days, the notice is deemed valid. Under Sub-Clause 20.2.4, a fully detailed claim must be submitted within 84 days, and if the statement of its contractual or other legal basis is not submitted within that period, the Notice of Claim is deemed to have lapsed. Sub-Clause 20.2.5 permits a late submission to be treated as justified having regard to prejudice to the other Party and its prior knowledge.

Since the 2017 bar also binds the Employer, public entities in Nepal must observe it when claiming liquidated damages or other deductions.

The governing legal framework

No Nepal statute specifically regulates contractual time-bar clauses. The analysis therefore begins with the governing contract, including any amendment in the Particular or Special Conditions, and only then turns to statute. For public contracts, Section 56(1) of the Public Procurement Act provides that the provisions concerning extension of the period of a procurement contract shall be as provided in the concerned contract. The substantive law of contract is found in Part 5 of the Civil Code, and the time for referring a claim to arbitration is governed by Section 14 of the Arbitration Act, 2055.

Enforceability of time bars under Nepal law

Arguments supporting enforcement

Section 504(3) of the Civil Code provides that once a contract is concluded, a binding legal relationship is created between the parties. Section 523(1) requires a contract that specifies the time and manner of performance to be performed within that time and in that manner, and Section 496(1) and (4) provide that an obligation not fulfilled within the specified period is deemed not to have been fulfilled. Section 515 requires a contract to be interpreted according to the common intention of the parties, in the light of the entire contract, and so as to give effect to all of its terms.

Read together with Section 56(1) of the Act, these provisions support the enforcement of a time bar that clearly states both the period and the consequence of non-compliance. A clause that is ambiguous as to either is unlikely to be enforced as a bar.

Void restraint on legal proceedings

Section 517(2)(d) of the Civil Code declares void a contract restraining the legal right of any person from being enforced by a court. A contractor may argue that an absolute time bar, which extinguishes an accrued right, operates as such a restraint. The better view is that a time bar does not bar access to a court or tribunal but defines the conditions on which the entitlement arises, and whether the bar applies remains fully justiciable. Even if a time bar were held void, Section 517(4) preserves the remaining parts of the contract.

Employer's own default

Section 532 of the Civil Code requires each party to provide the facilities needed for the other to perform, and provides that where the contract cannot be performed due to such failure, the party in default of performance shall not be held liable. Section 522(3) entitles a party prevented from performing by the other's failure to recover its loss, and Section 499 requires obligations to be fulfilled in good faith. For public works, Rule 121(a) of the Regulation provides that the contract may exclude liquidated damages where delay is due to force majeure or occurs without fault or negligence on the contractor's part.

These provisions operate as a statutory counterpart to the common law prevention principle. How a tribunal would reconcile them with a clearly drafted time bar, where the contractor failed to notify employer-caused delay, is not settled.

Statutory extension of time for public contracts

Section 56(2) of the Act provides that, notwithstanding Section 56(1), where the contract period must inevitably be extended due to force majeure, failure of the public entity to make available the materials to be made available by it, or other reasonable causes, the competent authority may extend the period on application by the contractor. Rule 120(1) of the Regulation requires the application, with reasons and a revised work schedule, at least 21 days before the contract period expires; Rule 120(2)(b) requires the authority to consider whether the public entity provided what it was required to provide; and Rule 120(3) fixes the approving authority by reference to the length of the extension.

Whether Section 56(2) can override a contractual time bar in respect of time is uncertain. The provision concerns the contract period only and does not revive a time-barred money claim. Rule 120A provides a special extension route but requires the contractor to undertake not to make additional financial claims arising from the revised schedule and extension, and should be used with caution.

Waiver and conduct

Under Section 527(a) of the Civil Code, an act under a contract need not be performed where the other party waives its performance, and under Section 533(1) the parties may agree to alter the contract or extend time. Where an employer or Engineer considers a late claim on its merits without reserving its position, the contractor may argue that compliance with the notice requirement has been waived.

Guidance from English law

Where a Nepal-law contract is let on a FIDIC form, tribunals frequently refer to English authorities on the interpretation of the form as persuasive guidance.

Historically, a notice provision was treated as a condition precedent only where the contract stated a precise time and made plain that the right would be lost if notice was not given within it: Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd's Rep 109 (HL). This mirrors the emphasis on clear wording under Section 515 of the Civil Code.

In Gaymark Investments Pty Ltd v Walter Construction Group Ltd [1999] NTSC 143, the prevention principle was applied to set time at large even though the contractor had failed to give the required notice. That approach was rejected in Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No 2) [2007] EWHC 447 (TCC), where Jackson J held that a contractor who fails to comply with a notice condition precedent cannot claim that time is at large. In Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar [2014] EWHC 1028 (TCC), Akenhead J accepted that FIDIC 1999 Sub-Clause 20.1 is a condition precedent but held that it should be construed reasonably, so that notice may be given when the contractor becomes aware, or should have become aware, that delay is actually being experienced.

English law therefore enforces clearly drafted time bars, construed reasonably. Nepal law is likely to reach a broadly similar result on a clear clause, but with the additional statutory arguments under Sections 517(2)(d) and 532 of the Civil Code and Section 56(2) of the Act, which have no direct English equivalent.

Statutory limitation for bringing proceedings

Under Part 5 of the Civil Code, a lawsuit in respect of matters under the chapters on obligations, formation, performance, and breach and remedies must be brought within two years from the accrual of the cause of action (Sections 503, 516, 534 and 544). Under Section 520, a claim in respect of a void contract may be brought at any time, and one to avoid a voidable contract within one year.

Where the dispute is referred to arbitration, Section 14(1) of the Arbitration Act, 2055 requires the claimant to submit its claim within the time limit stated in the agreement or, where the agreement names arbitration without stating a time limit, within three months from the date the dispute arose, or from the date of appointment of the arbitrator where the arbitrator is appointed after the dispute has arisen. For public works, Section 58 of the Act and Rules 129 and 135 of the Regulation contemplate amicable settlement, mediation, adjudication or a dispute resolution committee, and then arbitration. Separately, Rule 124(3) permits the contract to provide that, to obtain final payment, the contractor shall not make any claim other than a special claim and certain third-party liability and reimbursement claims.

A claimant under a Nepal-law contract must therefore observe three distinct layers of time limit: the contractual notice and particulars periods, the contractual dispute resolution steps, and the statutory period for commencing arbitration or proceedings.

Conclusion and practical recommendations

A clearly drafted time bar is likely to be enforced under Nepal law, relying on Sections 504, 515 and 523 of the Civil Code and Section 56(1) of the Act. It remains open to challenge under Sections 517(2)(d) and 532 of the Civil Code and, in respect of time only, under Section 56(2), but these arguments are uncertain and should not be relied upon in place of compliance. In practice:

• Give notice as soon as the claimant becomes aware, or should have become aware, of the event, without waiting for the effect to be quantified and without leaving it to the last day of the period.
• Maintain contemporaneous records to support both the notice and the detailed claim.
• Check the Particular or Special Conditions for any amendment to the notice periods or their consequences.
• On public contracts, apply for extension under Rule 120(1) at least 21 days before the contract period expires, in addition to giving contractual notice, and consider carefully before invoking Rule 120A.
• Diarise the contractual dispute resolution steps and the period for commencing arbitration under Section 14(1) of the Arbitration Act, 2055.
• Employers and Engineers should respond within the contractual periods and expressly reserve their position when considering a late claim, to avoid an argument of waiver.

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