FIDIC Red Book 99 Clause 15 and the Notice to Correctcontracts
Clause 15 is a very important and dangerous clause. It deals with the topic of termination by the Employer. The Red Book gives the Employer the right to terminate on seven grounds, six of which are stated in Sub-Clause 15.2, while the other is termination for convenience, stated in Sub-Clause 15.5.
One of these six grounds of termination is the provisions of a Notice to Correct, stated in Sub-Clause 15.1. This provision of Notice to Correct, along with the provisions of Sub-Clause 15.6 are new in the Red Book 1999.
Sub-Clause 15.1 - Notice to Correct #
Under the provisions of this Sub-Clause, if the Contractor fails to carry out any of his obligations under the Contract, the Engineer send a notice under the same Sub-Clause requiring the Contractor to remedy and make good the failure, within a reasonable time.
Failure of the Contractor to comply with any such notice, entitles the Employer, under Sub-Clause 15.2(a), to terminate the Contractor upon giving 14 days prior notice.
This clause implies that the Engineer could serve a Notice to Correct to the Contractor on any failure to comply with any obligation no matter how insignificant it could be.
Fails to carry out any obligation? #
Recent case law has highlighted that the Notice to Correct should relate to significant breaches related to the Contract, not merely any obligation as implied in the Sub-Clause. In particular, in the case of Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar, the Judge stated that:
"... (a) Clause 15.1 relates only to more than insignificant contractual failures by the Contractor. It could be a health and safety failure, bad work, serious delay on aspects of the work or the like. It will need to be established as a failure to comply with the Contract. Something may have not yet become a failure; for instance the delivery to site of the wrong type of cement may not become a failure until the cement is or is about to be used ...... It follows that, in construing both Clauses 15.1 and 15.2 of the Contract, a commercially sensible construction is required. The parties can not sensibly have thought (objectively) that a trivial contractual failure in itself could lead to contractual termination. Thus, there being one day's culpable delay on a 730 day contract or 1m of defective paintwork out of 10,000m good paintwork would not, if reasonable and sensible commercial persons had anything to do with it, justify termination even if the Contractor does not comply with a Clause 15.1 notice. What is trivial and what is significant or serious will depend on the facts."
The editors of Hudson's Building and Engineering Contracts (Twelfth Edition) also say at Para 8.056:
"Termination clauses occasionally allow termination on the ground of "any breach" or "any default". Although in principle, parties may agree whatever they wish, the courts will generally be reluctant to read such wording literally. "Default" will be read as meaning a default relevant to the contract, and the courts will treat matters which are not a breach of contract as excluded from the meaning of default. "Any breach" will be held to refer only to important breaches, to exclude minor breaches, and to include only such breaches as are of substantial importance."
Furthermore, the Egyptian Civil Law, Article 5 states that:
"The exercise of a right is considered unlawful in the following cases:
- if the sole aim thereof is to harm another person;
- if the benefit it is desired to realize is out of proportion to the harm caused thereby to another person;
- if the benefit it is desired to realize is unlawful."
which, in my opinion, agrees with the reasoning of Mr. Justice Akenhead above, which limits the type of obligations Sub-Clause 15.1 relates to to more significant breaches related to failure to comply with the Contract.
Reasonable time? #
In the same case above, the Judge further stated: "...(b) The specified time for compliance with the Clause 15.1 notice must be reasonable in all the circumstances prevailing at the time of the notice. Thus, if 90% of the workforce had gone down with cholera at that time, the period given for compliance would need reasonably to take that into account, even if that problem was the Contractor's risk. It may well be relevant to take into account whether the Clause 15.1 notice is coming out of the blue or if the subject matter has been raised before and the Contractor has chosen to ignore what it has been told. What is reasonable is fact sensitive. (See for instance Shawton Engineering Ltd v. DGP International Ltd  EWCA Civ 1359 )..."
The problem remains then, what is the reasonable time? Getting to send a Notice to Correct generally succeeds a long rounds of deadlines and failure on the Contractor to comply, thus he may not be bound by the "time required by a normal Contractor".
In any case, the Engineer should be very realistic and prudent while specificing such time. Moreover, the Engineer and the Employer should not hinder the Contractor in any way while he is complying with the Notice to Correct.
This could be counted as a breach by the Employer of Clause 2, in addition to the legal issues that may arise as a result of terminating the Contract on basis of failure to comply with a Notice to Correct, where the Contractor was actually prevented by the Employer from complying.
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