Authors: Babatunde Fagbohunlu, SAN and Ngo-Martins Okonmah (Aluko & Oyebode)
Common Substantive Issues and Remedies
- Time Bars as Condition Precedent to Entitlement
Nigerian courts have yet to address the specific question of the effect of time-bar clauses in construction contracts. However, the question whether such a clause would be construed as mandatory or directional would depend on the exact terms of the contract. Generally, the courts are likely to take the view that timelines in construction contracts are advisory rather than mandatory unless the clause clearly states that the party with a claim will lose the right to bring that claim if it fails to comply with the required timeline. As time-bar clauses operate to deprive a party of its entitlement to claim under the contract, to enforce such a clause as a condition precedent, the court will satisfy itself that the parties intended it to operate as such.
- Right to Payment for Variation and Varied Scope of Work
If a contract contains a variation clause permitting the employer to vary or alter the agreed scope of work, the court is likely to enforce the clause. Also, a variation clause entitles the contractor to payment for the varied work.
Generally, Nigerian courts will uphold the parties’ contract. The question whether the courts will allow payment where the written procedure stipulated in the contract has not been observed will depend on the exact terms of the contract. If the contract makes it mandatory to comply with certain procedures to be entitled to claim payment for the performance of additional works, the court is likely to enforce this provision as a condition precedent to making a claim under the variation clause. However, if the contract is not so expressed, the court may treat the procedure set out in the contract as merely indicative, especially if there is evidence before the court that additional works were indeed performed by the contractor with the knowledge of the employer, and if insisting on strict compliance with contractual terms may deprive the contractor of its entitlement to claim payment under the contract. The court may determine that the policy objective behind inserting the procedural requirement is to ensure that the employer approves additional work to be performed by the contractor to better manage its budget and if the evidence suggest that the employer was indeed aware of the varied work performed by the contractor, then non-compliance with the strict contractual terms should not deprive the contractor of its entitlement to make a claim under the variation provision.
- Concurrent Delay
We are not aware of any Nigerian authority that has addressed the question of concurrent delays in a construction contract. However, the prevention principle, as a rule of common law, is likely to apply where the contractor’s inability to meet the project completion deadline is attributable to the employer.
There is no authoritative position in Nigerian law on the question whether the principle of apportionment will apply in the event of concurrent delays. As such, it is unclear whether a court would adopt the apportionment principle or simply award time (and not costs) to the contractor in the event of concurrent delays. Therefore, parties are usually advised to address the question of concurrent delay in their contract.
- Suspension and Termination
There are no special procedures to be followed to suspend or terminate obligations under the contract other than by complying with the terms of the contract. Suspension or termination of work by either party without regard to the provisions of the contract may make that party liable for breach of contract. As such, a party seeking to suspend or terminate the contract must ensure that it gives the required notice as stipulated in the contract and that the basis for suspension or termination falls within the grounds contemplated by the contract.
- Penalties and Liquidated Damages
Parties are free to make provisions for loss occasioned by breach of contract by inserting a liquidated damages clause. For the liquidated damages clause to be enforceable, it must constitute a genuine pre-estimate of the loss that would arise from a breach of contract. However, if the court considers the liquidated damages clause to constitute a penalty, it will be unenforceable under Nigerian law.
Unlike courts in some jurisdictions, courts in Nigeria lack the power to alter a liquidated damages clause. The court will either enforce the clause as provided in the contract if it considers it justifiable to do so or declare it unenforceable. If it is declared enforceable, the innocent party may be able to recover damages under general contract law unless the contract provides otherwise.
- Defects Correction and Liabilities
Nigerian law does not impose any statutory liability for defects. Usually, the employer and contractor agree in their contract for the employer to retain a percentage of the contract sum for a defect liability period and where the contractor fails to remedy defects during this period, the contractor will not be paid the balance of the contract sum. The parties would also typically specify any intention or agreement for the contractor’s liability to extend beyond the defect liability period in the contract.
After the expiration of the defect liability or rectification period, the employer may still enforce a claim against the contractor (such a claim will generally be for damages arising from the defect) but cannot contractually compel the contractor to remedy the defects in the same way it was able to during the defect’s liability or rectification period. In practice, a contractor (assuming the defect is not disputed) will often rectify the defect itself as it tends to be more cost effective than paying the costs of a third-party service provider engaged by the employer.
- Bonds and Guarantees
It is not uncommon for construction contracts to require the contractor to take out performance bonds or guarantees for the benefit of the employer as security for the performance of the contractor’s obligations under the contract. The contract may also require the contractor to provide an advance payment bond as security for the advance payment made to it by the employer.
A call on such bonds may be restrained if there is evidence before the court that the performance bond no longer subsists or that the guarantor has been discharged, or if the guarantor successfully pleads that the performance bond was not the deed of the guarantor or never emanated from the latter.
- Overall caps on liability
There are no statutory caps or exclusions on liability. Liability caps and exclusions are typically achieved through limitation of liability clauses in the contract. It is not unusual for contractors to exclude liability for indirect and consequential loss. Construction contracts may also include caps on liability. The scope of such caps is fixed by the agreed commercial terms, based primarily on the risk allocation mechanism of the project. It is also possible to agree certain carve-outs from the operation of the liability cap. For instance, a party may expressly exclude deliberate default or gross negligence in which case the limitation of liability cap will not apply where a breach arises through either of these.
A party in breach of a fundamental term of a contract with a third party will generally not be allowed to benefit from or resort to exclusion clauses to limit liability. Likewise, courts are unwilling to enforce clauses limiting liability where there was negligent execution of the contract. Limitation of liability clauses are also not applicable in instances of fraud or willful misconduct.
