According to FIDIC 1999 (Red Book), what conditions have to be satisfied by a Main Contractor / Employer in order to present a valid counterclaim against his subcontractor ? is there a requirement for notices to back up his claim ?
ANSWER: Dear Jack,
Apology for delay in replying to your question.
Usually, time bars for notice period for claims are common in contract forms but usually, under various laws and or codes that governs commercial and contractual transactions in most countries do set apart these time bars and that means, default majorly on time bars notice period would not necessarily deprive the injured party of his entitlements to compensation provided there is enough reasons and substantiation to justify such injury / damages suffered.But good practice demands that, any party intending to make claims against another whether for direct claims or counter claims should notify prior to effecting such claims in material figures.
Now, for a claim or counter claims to be valid:
1. There has to be a cause / event or instruction to this effect
2. There must have been material evidence of loss / damages / injury or circumstances leading to such losses which incidentally or directly has or translated to amount to additional financial or time implications.
3. There has to be proper notice of intention to claim as a result of the causation events for which the party that is claiming or the party that has suffered damages is not responsible or not part thereof. Where he is part thereof, the claim evaluation would consider the extent of his contribution to the damages and shall not be remunerated for such (fault of his won) by the paying party.
4. There has to be a contractual or legal (law) ground for the claim. And where contractual ground conflicts with legal provisions, the law takes pre-eminence.
Hope these answers your question.
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QUESTION: Thank you for your response Femi,but considers advising on this case:
1. subcontract was signed in December 2011 and first event giving rise to Employer counterclaim recorded in Apr 2012. A wrong notice to claim issued in February 2013 and in December 2013, we left site having completed the works. We submitted our final claim in April 2014 and that is when the Employer came up with the ridiculous counterclaim. The fact is that we have been on underclaim for the whole contract coz the Employer kept on telling us that the client was under-certifying their payments as well. This was a back-to-back arrangement, and now that the final bill is huge, they are coming with stories to avoid payment. what is your advice and take on this Femi ?
ANSWER: Dear Jack,
Thanks once again.
I can understand the circumstance surrounding your payment and it is not uncommon for Clients to behave in such a manner particularly when a lot of payment has accumulated unpaid over a long time till the completion.
Yes, i will also agree that, it is not impossible for Clients to have a counterclaim against the contractor provided the counterclaim is valid and genuine notwithstanding whether, it is an agelong valid claim or recent and whether notice was served at the time the claim was evident or events leading to the claim becoming apparent. Except otherwise provided in the contract, notification of valid claims or counterclaims is acceptable and would be upheld at any time during the currency of the contract or in certain countries' law, even after three years of the completion of the contract.
What i would advise is that, check the validity of the counterclaims and ensure that, only a valid counterclaims is accepted and also, the losses or damages and its costs entitlements are only what is also accepted as being associated with the counterclaims else, you can express your dissatisfaction and it could result to a dispute which you can then seek redress in line with the provision of your contract.
You can also put a claim which you could derive from a counterclaim.... You may wish to consult a claim specialist who can look at your records and assist.
Hope this helps you.
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QUESTION: That was great Femi !
The other item to sum it up might be clarity on :
1. I believe the Employer s counterclaim hinges om the wrong notice to claim - instead of a 2.5 notice he served us with a 20.1 contractors notice. Doesn't this procedural breach automatically nullify his right to counterclaim ?
2. There is no pre-agreed or contractual rates, no backup labour or machine hours records , no cost breakdown whatsoever for arriving at the quantum of his counterclaim. The Employer just punched a ridiculously high rate and multiplied by the quantity on areas that had to be re-done and came up with a counterclaim twice the quantum of our final claim. Is is unreasonable to suggest that the agreed subcontract rates should have been used in quantifying the Employers counterclaim ? In fact the value of their counterclaim far exceeds the total subcontract contract value, there were no LADs at all- we finished the job well before scheduled completion date.
3. there is a clause within the subcontract agreement for a non-defaulting party to sue and recover damages following failure after a 28 days notice to correct. Can't the Employer have relied on this clause instead of waiting for our payment demand before coming up with a counterclaim ?
4. we are of the opinion that the counterclaim issue is just an afterthought and a desperate effort to avoid a contractual obligation to pay for work done - which brings issues of 'within reasonable time' and 'acting in bad faith'.
5. Thank you Femi for your advice once more.
I will answer your question one by one.
Q1. No. Notice bar under the laws of most countries would not deprive entitlements to claim / counterclaim.
Q2. All evaluation procedures of claims entitlements must be reasonable and in line with the Contract and or the specific and must represent the (ACTUAL) cost of damages suffered.
Q3.Yes, the employer can rely on this clause and must be able to demonstrate any damages he has suffered due to non-conformance with the notice requirements and this could be adjusted against the Contractor's entitlement on his (contractor) claim.
Q4. You may be right but all claims and counterclaims must be examined and evaluated on their merits and not just discarded without reasonable proof to demonstrate the (employer's) non-entitlements.
Q5. Thank you too.