DBS, delay and decoding conditions precedent

The Court of Appeal has dismissed a claim by the UK Home Office's Disclosure and Barring Service for over GBP1.5 million worth of delay payments against its IT supplier Tata. The contract contained a condition precedent to claiming these delay payments, which DBS had failed to comply with. 

The relevant part of the contract read:

6.1 If a Deliverable does not satisfy the Acceptance Test Success Criteria and/or a Milestone is not Achieved due to the CONTRACTOR’s Default, the AUTHORITY shall promptly issue a Non-conformance Report to the CONTRACTOR …. The AUTHORITY will then have the options set out in clause 6.2. 

6.2 The AUTHORITY may at its discretion (without waiving any rights in relation to the other options) choose to … require the payment of Delay Payments….

The issue on appeal was whether this was meant to make DBS’s issuance of a non-conformance report a condition precedent to recovering delay payments. The court found that it did indeed impose this conditionality, so that DBS's failure to issue a non-conformance report was fatal to its recovery of delay payments. 

“If” … “Then”: the words in their context

The court noted that whether a party must comply with stated requirements before being entitled to relief will turn on the precise words used, set within their context. In this case, the language was clear on the face of it: if either or both events at the start of clause 6.1 happen, DBS shall promptly issue a non-conformance report. Then, and only then, do the options in clause 6.2, including DBS's entitlement to delay payments, kick in. It made no sense, linguistically or commercially, to apply the conditional link to clause 6.2 only with the occurrence of an event in the first part of clause 6.1, effectively "leapfrogging" the obligation to issue the non-conformance report. 

Placing the clause in its wider context was important too. The non-conformance report was not simply procedural; it allowed the parties to identify issues so that they might work together to resolve them. Additionally, the fact that delay payments were payable on demand meant that Tata should be entitled to the information in the non-conformance report beforehand. The utility of the non-conformance report, then, played a part in the court's interpretation of the clause as a condition precedent.

Time limits and conditionality

DBS argued that the lack of a precise time limit for submitting the non-conformance report indicated that it was not intended as a condition precedent. The court rejected this, stating that "promptly" was sufficiently certain, and the flexibility did not negate the conditionality of the clause. The court pointed to similar flexible language throughout the contract, again highlighting the importance of considering the broader contractual context.

Asymmetrical conditions precedent clauses

DBS also argued that different phraseology in a separate conditions precedent clause in the contract, which set out Tata's requirements to recover delay payments from DBS—"the AUTHORITY shall not be liable to compensate the CONTRACTOR for Delays … unless the CONTRACTOR has fulfilled its obligations …"—suggested that clause 6.1 was not intended to be a condition precedent. While the court acknowledged this as a factor weighing against construing clause 6.1 as a condition precedent, it denied that there should be any presumption in this case that clause 6.1 was intended to mean something different. There was no rational basis for treating one clause as a condition precedent and not the other, despite differing language.

Judgment: Disclosure and Barring Service v Tata Consultancy Services