Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar

Under a FIDIC-style construction contract, physical conditions are “Unforeseeable” only if they were not reasonably foreseeable by an experienced contractor at tender stage. That assessment requires consideration of the whole tender information, including the site’s history, environmental risks and the limitations of sampling. Contamination in made ground and groundwater was foreseeable where the site had a long military and airport history and the tender documents identified contamination risks.

A contractor must proceed with due expedition and without delay. An unnecessary suspension or redesign does not excuse delay. Termination provisions must be construed commercially, excluding trivial defaults, but a repudiatory breach is not invariably required. A notice served at a technically incorrect address may remain effective where the contract does not make that address an indispensable condition and the notice was actually received.

The claimant contractor contracted with the defendant Government of Gibraltar to design and construct a road and tunnel beneath the airport runway. The project fell substantially behind programme, with disputes concerning contaminated soil and groundwater, rock, design approvals, disposal arrangements and the contractor’s suspension and redesign of the tunnel works.

The Government served notices to correct under sub-clause 15.1 and subsequently a termination notice under sub-clause 15.2(a), (b) and (c) of the contract. The contractor challenged the alleged defaults, contended that the relevant conditions were unforeseeable, and argued that the termination notice was invalid because it had initially been served at the site office rather than the contractual Madrid address. The central issues were whether the Government lawfully terminated and what principles governed the parties’ resulting financial entitlements.

1. Foreseeability. The contamination encountered in the made ground and groundwater was not unforeseeable under clause 4.12. An experienced contractor had to consider the site’s military and airport history, the known rifle ranges, fuel storage and fuel lines, the Environmental Statement, the site investigation material and the limitations of borehole sampling. The contractor should have anticipated substantial contaminated material and the need for appropriate water treatment and discharge arrangements.
2. Rock and delay. Some hard material or rock was unforeseeable, but only to the extent established by the evidence. The contractor was entitled to one day’s extension for unforeseeable rock. Six days caused by exceptional rainfall were not recoverable because no timely clause 20.1 notice had been given. The contractor was otherwise responsible for the substantial delay.
3. Clause 20.1. The notice requirement was a condition precedent. Notice had to be given as soon as practicable and no later than 28 days after the contractor became, or should have become, aware of the event or circumstance. The clause should be construed reasonably and broadly. A notice could identify either the relevant incident or the resulting delay, provided it clearly constituted a claim.
4. Termination. The contractor’s suspension and redesign were unnecessary and unreasonable. It had failed to proceed with due expedition and without delay, had failed to comply with material notices to correct, and had plainly demonstrated an intention not to continue performing its contractual obligations. The clause 15.1 periods were generally reasonable. The defaults were sufficiently serious to justify termination under clauses 15.2(a), (b) and (c).
5. Construction of termination provisions. The clauses had to be construed commercially and did not permit termination for trivial defaults. A repudiatory breach was not invariably required where the contract provided distinct grounds, including failure to comply with a notice to correct and failure to proceed with due expedition. An employer could not rely on a contractor’s failure to remedy a notified default where the employer had prevented or hindered the remedy.
6. Service and outcome. Service of the termination notice at the site office was effective. Clause 1.3 did not make service at the Madrid address an indispensable condition, particularly since the site office had been used throughout for contractual communications and the notice was promptly received by responsible personnel. The Government lawfully terminated the contract on 20 August 2011, alternatively following re-service on 4 August 2011. The Government was entitled to the contractual remedies under clauses 15.3 and 15.4.