This was a delay dispute concerning the construction of the Rolls Building in which the main contractor (“Carillion”) claimed liquidated damages levied under the main contract by the developer (“Rolls”) from a number of Mechanical and Engineering sub-contractors (“EMCOR” and “AECOM”), along with Carillion’s own costs from the delays. Miss Recorder Nerys Jefford QC (sitting as a Judge of the Technology and Construction Court) was asked to determine a number of preliminary issues in relation to the liability of EMCOR and AECOM.
The Contracts, Variations and Supplemental Agreements
The building contract between Carillion and Rolls was a JCT 1998 edition with bespoke amendments containing provisions entitling Rolls to liquidated and ascertained damages for non-completion of the various sections of the building works by the specified contractual completion dates. The EMCOR sub-contract was a DOM/2 1981 edition which provided that where EMCOR was responsible for delays to the project, “[EMCOR] shall pay or allow to [Carillion] a sum equivalent to any direct loss and/or expense suffered or incurred by [Carillion] and caused by the failure of [EMCOR] as aforesaid.” The terms of AECOM’s engagement were not relevant to the preliminary issues.
Both the building contract and the sub-contracts were subject to a major variation to include substantial fit out works to the Rolls Building, which also necessitated the contractual completion dates to be pushed back to 2010. The project was delayed past those later dates and Carillion became liable to pay liquidated damages to Rolls under the terms of the building contract. However, at two different stages in the project, Carillion and Rolls came to Supplemental Agreements which established, at the time they were entered, the liquidated damages owed under the contract up until that point, subtracted that figure from the contract price and then agreed a new, later completion date after which further liquidated damages could be levied. The Supplemental Agreements were in essence a method through which Carillion and Rolls could come to an agreement regarding the liquidated damages that were owed up until that point, reduce the contract price accordingly and treat the building contract as including a later completion date for the lesser overall sum.
There were two principal issues for Miss Recorder Nerys Jefford QC to decide:
- Would any extension of time granted to EMCOR be added contiguously onto the already existing contractual date for completion, such that no liabilities would be owed until the expiry of the contractual completion date plus the full length of any extensions of time granted?
- Did the Supplemental Agreements have the effect of pushing back the contractual completion date under the building contract, such that no damages could be levied against the sub-contractors in relation to any delays before the new, later completion date came and went?
Issue 1: Would the Extension of Time be added contiguously?
Although it is usual practice under building contracts to fix a new date for completion after granting an extension of time and thereby to add that further time “contiguously” to the time originally provided for completion, Carillion sought to argue that this might not necessarily be the case where the delay arose after the original date for practical completion had passed. In these circumstances, consideration would have to be given to the effect of the matter relied on at the time it occurred, and this could result in a discontinuous extension of time being granted in order to properly reflect the sub-contractor’s responsibility for the delay.
The following example was advanced to demonstrate the difference between the two methods of applying an extension of time to the sub-contracts:
- The original period for completion of the sub-contract works is 100 days.
- By the end of this period, the sub-contract works are not complete. This delays the main contract works and causes loss to the contractor.
- The sub-contract works are still not complete by day 150. At this point, a major variation is instructed which entitles the sub-contractor to an extension of time for 50 days.
- If that 50 days is added contiguously to the original time for completion, the sub-contractor is not in breach by failing to complete until day 150 and will not be liable for the delay up to that point.
- Alternatively, if the 50 day extension is added between day 150 and day 200, the sub-contractor would still be liable for the delay from day 100 to day 150 and this would properly reflect the loss and expense which it has caused.
Carillion also emphasised the wording of the sub-contract with EMCOR which provided for the payment of “direct loss and expense” rather than liquidated damages as part of a suite of contracts with complex interactions, which, Carillion argued, was intended to ensure that EMCOR was made responsible for the actual consequences of the delay for which it was responsible.
Although Miss Recorder Nerys Jefford QC acknowledged that there may be different consequences depending on which method was used, this was no reason to depart from the explicit wording of the sub-contract. The terms of the sub-contract were quite clear in their references to an extended period for completion rather than suggesting the creation of a new period:
“It is evident from the wording that what is contemplated is a revision to the period or periods in the Appendix part 4 and potentially further revision of that revised period or periods. The starting point, so to speak, is always the period or periods in the Appendix part 4. It is not the case that the clause makes provision for giving an “"extension of time”" by providing a fresh and distinct period in which the Sub-Contract Works may be carried out without further liability attaching to EMCOR unless they fail to complete by the end of that period.”
Equally, there was no ambiguity within the contract and therefore no basis upon which to use commercial common sense to interpret the clause. The extension of time would therefore be added contiguously to the original completion date.
Issue 2: Did the Supplemental Agreements extinguish the sub-contractors’ liability for delay prior to the new dates for completion?
Miss Recorder Nerys Jefford QC was unconvinced by this argument from the outset. Although the Supplemental Agreements had specified a new contractual date for completion, they had done so entirely outside of the mechanism within the building contract for assessing extensions of time and liability for liquidated damages, and so the new date for completion would not extinguish the sub-contractors’ liability under the sub-contract:
“When the Further Supplemental Agreement is seen in this way, it demonstrates the flaw in the Defendants’ argument: the Defendants’ argument assumes that the agreement of new Dates for Completion under the Further Supplemental Agreement has the same effect as the fixing of a new Completion Date under the main contract by the operation of the provisions in respect of extensions of time. There is no reason why that should be the case. It was open to Rolls and Carillion to agree, as they did, a new Date for Completion but not by the granting of an extension on time and on the basis that Carillion was liable for liquidated damages up to that date. Put another way, they agreed, by reference to a particular date, that there would be no extension of time granted to Carillion, that Carillion would be liable for liquidated damages and the amount of those damages, and what would happen from that date onwards.”
Accordingly, AECOM and EMCOR could still be liable for delays prior to the new, later dates for completion fixed under the Supplemental Agreements.
For more information please refer to the case judgment.