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Extension of Time in Construction Contracts

An Extension of Time (EOT) is a clause in most of construction contracts offering the contractor the possibility to extend the construction period when a delay occurs. That delay must not be the contractor’s fault but caused by a distinct relevant event. There is a wide variety of events that could potentially disrupt a construction process and entitle the contractor to an EOT. Some relevant events are frequent, like failure to provide information, variations, or delay in giving the contractor possession of the site. Other relevant events are rare and rather unpredictable in the long term, like civil unrest, exceptionally adverse weather, or war.

When a delay happens or is about to happen, the contractor has to give written notice to the consultant/client. Such notice must clearly identify the relevant event responsible for the delay, as well as prove the causality between the disrupting force and the delay itself. If the other party shares the same view on what caused the delay, they usually grant the EOT and adjust the completion date accordingly. The completion date is a vital temporal landmark in the life of a construction project. Such a date establishes a clear limit for the main scope of works included in the contract to be completed.

EOT requests have to be thoroughly prepared before submission to maximise clarity and facilitate agreement. After identifying the responsible relevant event, the contractor has to link it to the contract clause that allows for the request. However, that is not always enough. The construction project can deviate from the baseline programme produced at the start of the contract, without that programme being updated to account for drops in productivity. In that case, the contractor might have difficulties separating delays occurring from its own fault from delays related to the relevant event. Besides causality, the claim for extension should also address liability. In other words, the contractor provides proof that they fully understand their responsibilities. Often, EOT requests have to be submitted in a certain time window to retain their validity.

Successful claims are reliant on good practices regarding documenting the delays. The contractor should be able to record when and why the relevant event occurred and output a list of resources, tasks, and activities that it directly or indirectly affected. It helps to have proof of all actions or alternative solutions taken to minimise the delay, as well as quantify all associated costs. Once all the available information is gathered, the contractor deploys a Delay Analysis meant to estimate the impact on the project completion date. Construction contracts are generally geared on allowing the construction period to be extended when the contractor has no fault in the delay and has formulated an EOT application. However, not all claims are successful. An application can be rejected when it is proven that the contractor has actually underperformed. Judging claims for extensions of time is more complicated when concurrent delays occur. For example, a contractor already not keeping up with the programme due to a force outside their control (excusable delay) might also have been the cause for a different delay (inexcusable) where both of these delays’ effects are felt simultaneously. Usually, in this case, the contractor would claim for an EOT award and avoid paying liquidated damages while the owner is relieved from compensating the contractor for its prolongation costs.

Concurrent Delay

A concurrent delay occurs when independent delays overlap, each affecting the schedule and completion date of a construction project. Depending on project scale and complexity, two or more concurrent delays can act at the same time. True concurrency means the delay events of the client and the contractor both start and finish at the same time. However, true concurrency is very unlikely to occur. Reality shows that delays need only to overlap for a given period of time to qualify as concurring delays.

The most relevant aspect of concurrent delays is that courts, boards of contract appeals, arbitration panels, and experts, are inconsistent in defining and assessing concurrent delays. That is a direct consequence of contracts failing to include terms for matters of concurrency or doing it in an ambiguous way. Concurrent delays represent unique situations in which establishing liability is not a straightforward process. Although the consequences overlap, the causes are usually traced at various dates back in time. This leads to the difficult task of establishing the presence or absence of correlation. The most common bias here is to assume that if one event came after another, it must have been influenced by it.

While normal delays generate well-known contractual consequences, supported by either the client or the contactor, concurring delays leave many ends that are open to interpretation. Owners use concurrent delays to avoid being billed for extended overhead, change orders and other claims. On the other side, contractors invoke concurrent delays to escape paying liquidated damages and to recover extra costs associated with delays. A common example occurs when the contractor is already behind schedule by its own fault and the client triggers a second delay-producing event. Concurrent delays also take place when a delay caused by one party overlaps with an abnormal neutral event (extreme weather, social or political disturbance) causing an excusable event.

Judging concurring delays is complicated and verdicts are often unpredictable. An investigation is launched to establish culpability, with the first focus on confirming that the delays are indeed independent of each other. That is usually done through an analysis that proves the impact on the critical path of one delay persists when all the other concurrent delays are neglected. Another condition for concurrency as defined in AACE International RP 29R-03 is that none of the delays are voluntary. In addition, the delayed work has to be substantial and not easily correctable to constitute a claim. One possible outcome when no dominant cause of delay is found is apportioning delay. The decision must be fair for all parts, as verdicts on concurrent delays are often judged based on legal precedent. How cases are solved today will influence future cases.

When supporting their claims, parties should provide evidence derived from records of documents and communication. Such evidence must focus on pinpointing the exact moment the event causing the delay occurred. A cause-effect relation has to be proven, most often through a critical path analysis. Parties have an advantage when they can provide proof of identifying and addressing the danger of the delay with written notices.

Contractors should invest time and resources into making sure the contract’s requirements are well-known by all their personnel having an administrative role in the project. This is crucial for notifying delays in a timely manner and in applying for time extension. Prompt notice on anything that can potentially impact project completion should become a priority as any delays can have weight in court, even if the other party is also responsible for much of the delay. A contractor invoking a concurrent delay should always back their claims against a solid construction schedule. Owners should also take a proactive stance by being careful that the contract terms are enforced from the very beginning. The danger here lies in a more relaxed and passive attitude being mistaken by the contractor as implied consent.

Invoking a concurrent delay can constitute a strong defence for both contractors and owners. However, for that to be achieved, parties need to familiarise themselves with accurate tools for schedule updates, analysis, and forecasts. Concurrency of delay will probably continue to remain one of the most complex matters regarding construction claims, a double-edged sword that introduces uncertainty and maximises the potential for conflict.

Acceleration Claims

An acceleration of a construction project defines the situation when work is performed at a faster pace than initially planned. In most cases, acceleration is needed to counteract accumulated delays and to meet the agreed completion date. Acceleration can also occur when the contractor has a direct interest in seeing a project completed ahead of schedule – either by receiving a performance bonus or by relocating resources to another project. The contractor can accelerate work on a project by requesting its workers to perform overtime, by adding a new shift, hiring additional labour, subcontracting, or changing the sequence of activities. Whatever method is chosen, it comes with extra costs that can or cannot be later recovered. Accelerating the project schedule is never free. In addition, when the acceleration is sudden, labour productivity decreases substantially because of fatigue (for current workers required to do overtime) or unfamiliarity to the project (new workers).

There are three types of acceleration that are different based on their causes: Voluntary Acceleration, Directed Acceleration, and Constructive Acceleration.

Voluntary Acceleration describes the situation when the contractor unilaterally takes the initiative of speeding up work on-site, without being previously asked by the owner to do so. This can result in costs that go beyond the original bid and which won’t be recovered unless the client is notified and agrees with the acceleration. Reasons for a client to accept a voluntary acceleration mostly relate to the ability to generate revenue faster by selling, letting, or starting production, which can counterweight the increase in construction costs.

Directed Acceleration is the simplest and most straightforward case of speeding up the construction schedule. The client requests the contractor to accelerate work and pays for the acceleration costs. Such a situation won’t lead to disputes if parties agree on the magnitude of additional costs.

Constructive Acceleration is a situation that is not explicitly voluntary nor directed. Constructive Accelerations typically occur when the contractor is able to invoke an excusable delay such as design changes, added scope, extreme weather, site conditions that differ from bidding specifications, or force majeure events. Owner-caused delays also qualify to justify a constructive acceleration, as well as any other factors beyond the contractor’s control that couldn’t be initially assessed as risks.

Each type of acceleration can lead to an acceleration claim. Voluntary Acceleration claims don’t entitle to extra payment unless agreed with the client. Directed Acceleration claims usually have a predictable outcome, as extra payment is granted to the contractor once an agreement is reached. Constructive Acceleration claims are the ones more prone to create a dispute. The client might argue the contractor wasn’t entitled to accelerate, and the contractor might argue that accelerating the project was the only choice. Acceleration claims must meet a set of preconditions to constitute a reasonable dispute and grant compensation to the contractor. First, the excusable delay must be clearly identified. Delays qualify as excusable only if they impact the critical path of the schedule. Second, the contractor must have made the request for time extension according to contract obligations and in a timely manner to accommodate a response. If the owner denied the request, thus implicitly requiring for project completion according to the initial schedule, it forces the contractor towards a constructive acceleration. The final condition states the contractor must attempt an acceleration to counteract the delays caused by the excusable event and prove such action incurred extra costs.

As always, solving acceleration claims in a mutually advantageous way requires for communication between parties to be prompt and explicit. The difficulty of proving delays and associated acceleration orders highlights once more the importance of proper document management.

To give an example, the contractor is mistaken if they speculate a time extension won’t be granted by the client and act according to that presumption. What might have constituted a valid constructive acceleration becomes a voluntary acceleration in the absence of written client consent. Another common issue regarding acceleration claims is when the granted time extension is insufficient. In that case, a contractor has to prove that the anticipated work requires additional time or additional cost compensation.

Lastly, acceleration is a topic that has to be addressed as early as possible in a complex project. It is always simpler and less disruptive to smoothly speed up works as they encounter the first signs of delays, instead of waiting for them to accumulate.

The New Company Law and the Constitutional Rights of Nigerians

The Companies and Allied Matters Act, 2019 (“the new CAMA”) recently signed into law by the President of the Federal Republic of Nigeria is a welcome development to Nigerian businesses. It has addressed the bottlenecks in formation of business entities and improved Nigerian corporate governance. It has also given leverage to small companies to thrive and incorporated technological innovations to the processes of the Corporate Affairs Commission (“Companies’ Registry”) to facilitate the ease of doing business in Nigeria.

However, the legislature in extending the powers of the Companies’ Registry to effectively regulate the activities of Churches, Islamic Religious Organisations, Charity and Non-Government Organisation which are registered as Incorporated Trustees (“associations”) has introduced some new provisions in the new CAMA which are capable of usurping the fundamental rights of citizens to their freedom of thoughts, conscience and religion, freedom of peaceful assembly and association and constitutional rights of access to Courts.

It is upon this premise that the Plaintiff, a Nigerian Citizen and Legal Practitioner, commenced Suit No. FHC/ABJ/CS/1076/ 2020; Emmanuel Ekpenyong Esq. v. National Assembly, Corporate Affairs Commission and Attorney General and Minister of Justice of the Federation at the Federal High Court, Abuja Division, challenging the constitutionality of some provisions of the new CAMA.

The Plaintiff contends that Section 839 of the new CAMA which gives power to the Companies’ Registry to remove trustees and appoint an interim manager to take over an association where it reasonably believes that there is misconduct, mismanagement, fraudulent practices, for protection of the property of the association and public interest; Section 842, Section 843, Section 844 of the new CAMA which gives the Companies’ Registry the powers to control the proceeds of a dormant account of an association and dissolve an association on account of its dormant account; Section 845, Section 846, Section 847 and Section 848 of the new CAMA which directs associations to keep and submit their statement of affairs and accounting records to the Companies’ Registry, infringes the Plaintiff’s freedom of thoughts, conscience and religion enshrined in Section 38 of the Constitution of the Federal Republic of Nigeria, 1999 (as amended) (“the Constitution”).

The Plaintiff opines that Churches, Islamic religious organisations, Charity and Non-Governmental Organisations give hope to the Plaintiff and the Nigerian people. The activities of associations augment the efforts of government. They act as watchdogs for the people and put the government in check. It is unfortunate for the provisions of the new CAMA to put the activities of associations under the complete whims and caprices of the Companies’ Registry which is an agency of the Federal Government.

The law provides for every association to have a Constitution which regulates the affairs of the association and protect them against misconduct, mismanagement, fraudulent or other activities which are contrary to the objects of the association. Hence, the Companies’ Registry has no business whatsoever in suspending trustees and appointing interim managers for them. This is a sure recipe for disaster. The activities of associations are not against public interest to warrant such draconian provisions.

The funds of associations are not public funds. They are contributions, offerings and freewill donations of members to carrying out their objectives. There is no legal justification for the Companies’ Registry to be interested in the dormant account of associations. Associations are non-profit making organisations. They are not business ventures as such the Companies’ Registry cannot be ingrained in the affairs of associations by expecting them to submit statement of affairs or accounting records to the Registry.

The Plaintiff has a freedom to his thought, conscience and religion alone or in community with others. The Plaintiff has a right to propagate his religion, worship, teaching, practice and observance in public or private and does not even need to register same with the Companies’ Registry to propagate same. Therefore, giving powers to the Companies’ Registry who is an outsider and complete stranger to determine the affairs of a place where the Plaintiff professes his thoughts, conscience and religion is an aberration which is in contravention of Section 38 of the Constitution.

Furthermore, the Plaintiff contends that Section 839, Section 843, Section 844, Section 845, Section 846, Section 847 and Section 848 of the new CAMA infringe his freedom to peaceful assembly and association. This is because the Companies’ Registry has a wide discretion to appoint interim managers to replace suspended trustees. The interim managers to be appointed by the Companies’ Registry may have nothing in common with the members of the association and the members will not have a right to challenge such appointment.

This will impair the rights of members of associations to actively participate in activities of their associations and determine its direction. The enormous and dictatorial powers given to the Companies’ Registry to intrude and interfere with the operations and management of associations is not legally justifiable. The use of phrases such as “is satisfied”, “reasonably believes”, “deem it necessary”, “public interests” in relation to the powers of the Companies’ Registry over associations are ambiguous phrases that can easily lead to an abuse of power by the Companies’ Registry and contravene the Plaintiff’s freedom to associate peacefully with other persons enshrined in Section 40 of the Constitution.

Again, the Plaintiff contends that the provisions of Section 851 of the new CAMA which gives powers to the Administrative Proceedings Committee to hear cases arising from the provisions of the new CAMA limits the Plaintiff’s constitutional rights of access to Courts. Section 6 (1) and 6 (b) of the Constitution confers judicial powers to the Courts. Section 36 (1) of the Constitution gives citizens the right to access an independent and impartial Court to determine their civil rights and obligations. Section 251 (1) (e) of the Constitution provides for the Federal High Court to hear any matter arising from the provisions of the new CAMA.

Hence, the provision of Section 851 of the new CAMA comes as a very huge surprise. The composition of the Administrative Proceedings Committee is made up mostly of employees of the Companies’ Registry who are involved or aware of the issue which caused the dispute in the first place. It is against the principle of natural justice for a person to be a judge in his own case. In most disputes arising from the provisions of the company law or regulations, the Companies’ Registry is usually a party to the dispute.

The Companies’ Registry cannot independently and impartially determine a dispute which it is also a party. If this is allowed the Companies’ Registry will be a party and judge in its own case. It is without doubt that Section 851 of the new CAMA is contrary to the Plaintiff’s rights of access to Courts enshrined in Section 6 (1) 6 (b), Section 36 and Section 251 (1) (e) of the Constitution.

In conclusion, the Plaintiff contends that his freedom of conscience, thoughts and religion, freedom of peaceful assembly and right to access to Court are so serious and the only way to ensure that the rights are protected in the circumstance, is for the provisions of Section 839, Section 843, Section 844, Section 845, Section 846, Section 847 and Section 848 and Section 851 of the new CAMA to be expunge from the new CAMA. The Plaintiff prays for an order of mandatory injunction of the Court directing the Defendants to expunge the offending provisions of the new CAMA.

Benefits upon Discharge On Grounds of Redundancy in Nigeria

Like in other Countries, the COVID-19 pandemic has affected the survival of many businesses across all the sectors in Nigeria. In other to grapple with the rough tides and remain in business, owners of businesses have deliberately cut down the cost of running their business by reducing overhead costs, declaring some post redundant and reducing their workers by discharging them on grounds of redundancy.

This has created problems for both workers and employers. Whilst workers will lose their means of livelihood, it opens up employers to industrial actions by the discharged workers. It is therefore in the best interest of the employers and workers for employers to discharge workers on grounds of redundancy in line with the provisions of the labour law.

Section 20 of the Labour Act provides that in the event of redundancy, the employer shall inform the trade union or workers’ representative concerned of the reasons and extent of the anticipated redundancy. The employer shall adopt the principle of “last in, first out” in the discharge of the workers affected, subject to all factors of relative merit, including skill, ability and reliability. This means workers who have been in employment longer will be considered for discharge before the latest workers to come into the employment. The employer shall use his best endeavours to negotiate redundancy payments to the discharged workers who are not covered under any regulation.

However, it is settled law that where the employment of workers is wrongfully terminated i.e. terminated against the provisions of the labour law or their contract of employment, the remedy available to the workers is for their benefits which would have accrued to them had their employment been legally terminated, to be paid to them. Apart from employment with statutory flavour (i.e. workers in civil service or other employments protected by statutes), it has been settled by Nigerian courts that the law or Court cannot foist a willing employee on an unwilling employer and vice versa.

Hence, an employer has a duty to furnish the workers with a notice stating the reasons for their discharge on the grounds of redundancy and comply with the “last in, first out” principle in the labour law in discharging the workers. Nevertheless, the employer has the right to consider other factors like the relative merit, skill, ability and reliability of the workers in reaching a decision on which of the workers to be discharged on grounds of redundancy. The employer has a duty to rely on international best practices to reach a redundancy payment to the discharged workers who are not covered by any existing regulation.

Regrettably, where a worker was wrongfully discharged on ground of redundancy, the worker is only entitled to his redundancy benefits as stated in the relevant Employment Contract, Collective Agreement or regulation. The worker does not have a right to reinstatement, loss earnings, emotional or psychological pain. This is because the Court cannot force or foist a willing worker on an unwilling employer.

Brazil – Retention of title in international business

We commonly find, in contracts for the purchase and sale of movable property, and even in more generic documents (for example in General Conditions of Sale), the existence of the so-called “retention of title” (reserva de domínio) clause, the purpose of which is to ensure that the seller continues as owner of the goods sold until the price for the said goods has been paid in full by the purchaser.

Although the insertion of such a clause in credit sales is a common practice and is even to be recommended, it is important to emphasise that the contractual provision of a retention of title clause does not by itself guarantee the protection desired, and may not produce the practical effect expected.

Brazilian law contains certain rules that must be complied with in order for the title retention clause to be effective, but many international contracts do not in fact observe such rules, which can cause disagreeable surprises for the seller when it tries to exercise its rights in relation to the retention of title.

In most cases, this occurs because foreign sellers simply enter into contracts and/or establish general conditions of sale based on their own laws, and choose to submit any disputes to the jurisdiction of their own country.

It is understandable that the foreign seller may often prefer to choose the law and jurisdiction of its own country in order to govern its contracts, on the assumption that such choice offers it more facilities and security. However, in matters involving international business, this may prove to be a serious problem if the seller is not aware of the legal rules that exist in the country of the purchaser.

In this respect, it should be pointed out that, in certain cases, the simple choice of foreign law and jurisdiction may not be the best option, even though foreign companies may have the false impression that such option will always be the one that best meets their interests. It must be remembered that, taking as an example a retention of title clause, any legal action to recover possession of the goods in the event of the purchaser’s default, will take place in the country of the purchaser, and for this reason it is essential to know whether such action is likely to cause conflict with the laws of that country.

In Brazil, the choice of law in itself is frequently the subject of controversy and must be considered on a case-by-case basis, since Brazilian law imposes certain restrictions on the parties’ freedom of choice on this topic. There are cases where there exists an imposition of the law of the country of the offeror, while in others there are special Brazilian laws regarded as being rules of public policy.

The choice of forum must also be considered very carefully, because even if it is possible to take advantage of a foreign jurisdiction, it must be remembered that any foreign decision needs to undergo a process of validation by the Brazilian Superior Court of Justice in order to be recognised and be enforceable in Brazil, which could lengthen the procedure.

With specific reference to the retention of title, Brazilian law establishes, among other requirements, that the contract containing such clause must be registered at a notary’s office (Deeds and Documents Registry) of the purchaser’s domicile, within a period of 20 days as from its signature. Late registration does not invalidate the contract, but retention of title is only effective as from such registration.

If the contract is written in a foreign language, it is also necessary to have the document officially translated into Portuguese by a sworn public translator before applying for registration.

Absence of registration of the contract at a notary’s office does not guarantee protection to the seller, whether vis-à-vis the purchaser or third parties. Thus, the seller cannot claim the property if the purchaser has sold it to a third party, or pledged it to a third party as security, or if the seller becomes insolvent, as in cases of judicial restructuring, where the clause will not be effective against other creditors, and the seller may end up as an unsecured creditor.

Apart from the need to register the contract at a notary’s office, it is also essential to put the debtor officially in default, by notification or protest of the “security”, as only then will the seller be able to claim recovery of the property. Here too there is another peculiarity of Brazilian law, since the exercise of the right to repossess goods sold subject to retention of title presupposes the existence of a debt represented by an enforceable instrument (for example, a promissory note, bill of exchange or even a contract containing characteristics of an enforceable instrument under Brazilian law).

In addition, Brazilian law now allows contracts to establish the rules relating to procedural matters that may arise between the parties and, in this respect, it is recommended that contracts containing a title retention clause provide, for example, for the possibility of search and seizure of the goods in the event of non-payment, the manner of appraising the goods for the purpose of calculating a debit balance, who will be responsible for the cost of such appraisal, the possibility of sale or assignment of the goods to a third party to avoid the risk of deterioration, among others.

Apart from the measures referred to above, special care must be taken when General Conditions of Sale are concerned. This is because such documents have a generic characteristic and, unlike specific contracts of purchase and sale, do not contain a description of the merchandise, which is essential for the effectiveness of the retention of title, because the Brazilian Civil Code stipulates that “An object that cannot be described perfectly cannot be the subject-matter of a sale with retention of title”. In principle, there exist means of complying with the legal requirements even in cases of retention of title in General Conditions of Sale (for example, registration of the said general conditions together with the invoice containing a description of the merchandise sold, inclusion of an express reference to the general conditions in the invoice itself, among others), but this must be evaluated in each specific case.

These brief comments make it clear that protection of the seller’s rights as regards title to the goods requires more careful consideration than the mere inclusion of a retention of title clause. A wider examination of the issue is always to be recommended, taking into consideration the peculiarities of the laws of the country of the purchaser, in order to ensure maximum legal protection for the seller.

Frederico Amaral Filho and Charles Wowk

Associate lawyer and Partner in the Civil Area – São Paulo

[email protected] and [email protected]