In February 2017, in Carillion Construction Ltd v Emcor Engineering Services Ltd,1 the Court of Appeal had the opportunity to consider a novel issue in relation to extensions of time: how extensions of time after the date for completion are applied.
As Andrew Weston explains below, this was a case in which a question was raised about whether an extension of time awarded under a subcontract should be contiguous or non-contiguous.
The essential issue for the Court to decide, where an extension of time is granted after the date for completion under a standard DOM/2 form of subcontract, was whether it must commence on what was the date for completion (i.e. a contiguous extension of time) or when the delay occurs (i.e. a non-contiguous extension of time).
To explain this a little further I will use a simplified example. Assume a delay event commences three weeks after the date for completion of the subcontract works that entitles the subcontractor to an extension of time of one week. Should that extension of time:
- be added to the date for completion, such that the date is moved back by one week, in which case the subcontractor would be liable for the three-week delay from the revised date for completion; or
- take effect over the period of delay such that the subcontractor is liable for the delay cause from the date for completion for three weeks until the delay event commences?
The timing of the liability has the potential to affect the extent of the liability both from the contractor to the subcontractor and/or vice versa.
This, perhaps surprisingly, was not an issue that had come before the Court prior to the matter being heard at first instance by Miss Recorder Jefford QC (“the Judge”) in April 2016.
The dispute arose in the context of the construction of the Rolls Building, Fetter Lane, London, the home of, amongst other courts, the Technology and Construction Court (“TCC”).
Carillion had been employed by Rolls Development Limited to develop the Rolls Building for use as offices and court rooms. Carillion’s contract incorporated the JCT Standard Form of Contract with Contractor’s Design, 1998 edition.
The relevant provision of the main contract was clause 25.3. It included an obligation on the employer when, following receipt of a written notice of a delaying event by the contractor, that event was accepted as giving rise to entitlement to an extension of time under the contract to make “…such extensions of time, if any, for completion of the such Section beyond the Completion Date for such Section as is then fair and reasonable, by fixing a later date as the Completion Date for such Section”.
Carillion employed two mechanical and electrical subcontractors, AECOM and Emcor. Emcor’s subcontract incorporated the standard form of Domestic Sub-Contract (“DOM/2”), 1981 edition. That form of subcontract was intended to be used with the 1998 JCT contract.
The relevant provisions of the DOM/2 form were clauses 11 and 12 which included some bespoke amendments. Clause 11.3 stated:
“If on receipt of any notice, particulars and estimate under clause 11.2 the Contractor properly considers that:
1. any of the causes of delay is an act, omission or default of the Contractor, his servants or agents or his sub-contractors, their servants or agents (other than the Sub-Contractor, his servants or agents) or is the occurrence of a Relevant Event; and
2. the completion of the Sub-Contract Works is likely to be delayed whereby beyond the period or periods stated in the Appendix, Part 4, or any revised such period or periods,
then the Contractor shall in writing, give an extension of time to the Sub-Contractor by fixing such revised or further revised period or periods for the completion of the Sub-Contract Works as the Contractor then estimates to be reasonable.”
The dispute concerned delays to two Sections of the works: Section B, comprising the court fit-out works, and Section C, comprising the fifth floor fit-out works. Both Sections were to be completed by 28 January 2011 under the main contract and the Emcor Sub-Contract. Liquidated damages for late completion had been agreed for the two Sections respectively at £86,000 per week and £18,000 per week.
Practical completion was achieved 182 days late on 29 July 2011. Responsibility for the cause of these delays was disputed as between Carillion, AECOM and Emcor.
Following the commencement of proceedings in the TCC by Carillion, the trial of two preliminary issues was ordered. Issue 1, which is relevant to the Court of Appeal proceedings, was formulated as follows:
“On the assumption that EMCOR is entitled to an extension of time pursuant to clause 11.3 of the EMCOR Sub-Contract (as amended) by fixing such revised or further revised period or periods for the completion of its Sub-Contract Works, does the EMCOR Sub-Contract (as amended) require:
(a) that such revised or further revised periods are added contiguously to the end of the current period, so as to provide an aggregate period within which EMCOR’s Sub-Contract Works should be completed (as contended for by EMCOR); or
(b) that such revised or further period or periods are fixed in which EMCOR can undertake its Sub-Contract Works, which are not necessarily contiguous but which reflect the period for which EMCOR has in fact been delayed and is entitled to an extension of time (as contended for by [Carillion])?”
Judgment was handed down on the preliminary issues on 28 April 2016. In relation to Issue 1 the Judge concluded that if Emcor was entitled to an extension of time pursuant to clause 11.3, the fixing of such revised or further period(s) for the completion of the Sub-Contract Works “…requires that such revised or further period or periods are added contiguously to the end of the current period within which EMCOR’s Sub-Contract Works should be completed”.
The Judge’s reasoning, briefly summarised, included:
- the actual meaning of the words used in clause 11.3 meant that any extension of time awarded needed to be added contiguously;
- although such interpretation may lead to unsatisfactory results in certain situations, such that liability incurred to the contractor may be more or less than the consequence of the subcontractor’s breach, clause 11.3 was practicable and workable, and in accordance with commercial common sense;
- applying the principle in Arnold v Britton,2 the court should not depart from the natural meaning of the words used in clause 11.3; and
- previous authorities concerning extensions of time awards (including Balfour Beatty v Chestermount3) although not directly on point, supported Emcor’s argument as to how a reasonable person, with the parties’ knowledge of the background, would interpret clause 11.3.
The Court of Appeal proceedings
Carillion’s appeal was made on the grounds that:
- the Judge had erred in interpreting the natural meaning of clause 11.3;
- Chestermount and other authorities cited provided no support for the Judge’s interpretation of clause 11.3; and
- the Judge’s interpretation of clause 11.3 did not accord with the commercial common sense.
Counsel for Carillion raised novel arguments as to why an extension of time should be non-contiguous, suggesting by reference to other provisions of the Sub-Contract that clause 11.3 was permissive. Counsel argued that where a delaying event occurred after the date for completion the contractor had the choice to grant a contiguous or a non-contiguous extension of time.
It was argued that this interpretation accorded with the ordinary meaning of the words and, unlike the Judge’s interpretation, it accorded with commercial common sense. As clause 12 required Emcor to compensate Carillion for any delay for which it was responsible, it was argued that it ought to be calculated by reference to the period when the delay actually occurred, and not an earlier period as it would be if any extension of time was awarded contiguously.
Carillion also argued that contiguous extensions of time did not sit easily with the prevention principle (whereby a party may not enforce a contractual obligation against the other party where it has prevented the other party from performing that obligation) as the contractor was in effect being made subject to obligations that it was prevented from performing.
Lastly, Carillion argued that as none of the authorities cited on behalf of Emcor dealt with the contiguous vs. non-contiguous issue, they were of no assistance. A review of the authorities presented to the court was recognised by Lord Justice Jackson as giving force to Carillion’s arguments.
Counsel for Emcor supported the Judge’s interpretation as the only possible interpretation of clause 11.3. Counsel argued that the interpretation did not offend commercial common sense or, if it did, it was only to a modest extent. In support of the submission that the natural meaning of the words of clause 11.3 should prevail, Counsel referred to the application of the principles in Arnold and to Balfour Beatty Regional Construction Ltd v Grove Developments Ltd,4 a court of appeal case in which the Arnold principles were applied to a construction contract.
The Court of Appeal decision
The lead judgment was delivered by Lord Justice Jackson.
Ground 1: had the Judge erred in interpreting the natural meaning of clause 11.3?
Whether read in isolation or in full context the natural meaning of the words of clause 11.3 is that any extension should be contiguous.
In arriving at this conclusion and rejecting the first ground of appeal Lord Justice Jackson relied, amongst other things, on the following:
- the phrase “any such revised period or periods” in clause 11.3.2 as indicating that when the employer grants extensions of time he is revising a period or periods in appendix 4, not granting separate periods of justified delay with their own start and end dates;
- the phrases “extension of time” and “by fixing such revised or further revised period or periods” in the last part of clause 11.3 have the natural meaning that the period of time allowed is longer; and
- the notice provision in clause 126.96.36.199 including the phrase “beyond the expiry of the period or periods stated ... or beyond the expiry of any extended period or periods previously fixed under clause 11” indicates that if the employer has granted an extension of time, he will have increased the length of the existing period(s).
Ground 2: did Chestermount and other authorities cited provide support for the Judge’s interpretation of clause 11.3?
Although it was acknowledged that none of the authorities relied upon by Counsel for Emcor provided any support for Emcor’s case. In Chestermount, both parties agreed that the extensions of time should be contiguous so the issue did not arise.
Lord Justice Jackson listed the authorities reviewed and observed that until the present litigation no one had ever argued that any extension of time clause requires or permits non-contiguous extensions of time to be granted.
Ground 3: did the Judge’s interpretation of clause 11.3 accord with the commercial common sense?
This was not necessarily the right question.
Counsel for Carillion argued that his interpretation must prevail as a matter of commercial common sense. However, Lord Justice Jackson observed that it is only in exceptional circumstances that considerations of commercial common sense can cause the court to depart from the natural meaning of contractual provisions, and referred to the judgment in Grove where the Court of Appeal declined to depart from the natural meaning of contractual provisions of a construction contract.
Lord Justice Jackson acknowledged that the loss and damage suffered by the contractor was unlikely to be the same if an extension of time was granted contiguously rather than as a separate period. Accordingly one party or the other would gain a windfall benefit. On this basis the logic of the argument advanced for Carillion was accepted.
Nevertheless, he also noted that the practice of awarding extensions of time contiguously had worked well in practice and that the issue had never been argued in a reported case. Lord Justice Jackson agreed with the Judge that although awarding contiguous extensions of time caused some anomalies, those difficulties were not sufficient to displace the natural interpretation.
Although the parties were following the wording of a standard form subcontract, the parties had made a bargain which, in certain circumstances, may be a bad bargain for one of them. That was no reason to depart from the natural meaning of the words used.
Lord Justice Jackson also rejected Carillion’s prevention principle argument on the basis there was a perfectly workable extension of time provision. The prevention principle did not arise simply because an extension of time was added contiguously.
Lord Justices Simon and Flaux agreed with Lord Justice Jackson. Carillion’s appeal was accordingly unanimously dismissed. As a result, extensions of time granted after practical completion under comparable subcontract terms and conditions should be granted contiguously.
This judgment aligns with the way most construction professionals and construction lawyers expect such a provision to operate. As the judgment highlights, where an extension of time after practical completion is granted contiguously, there is scope for a contractor to incur loss and/or damage by reason of delay for which a particular subcontractor is liable, that the contractor cannot recover from that particular subcontractor. However, could there be an appetite for subcontract provisions that allow for non-contiguous extensions of time to be awarded? On balance the answer is likely to be no, but only time will tell.
One theme in this year’s Review5 is the impact upon the courts of the Supreme Court decision in Arnold. This case is yet another where the courts have made it clear that the key consideration when considering the meaning of a particular contract is the natural meaning of contractual provisions in question.
Only in exceptional circumstances will considerations of commercial common sense allow a court to depart from that natural meaning, even if the application of those principles operates harshly against the interests of one of the parties. The task of the court is to identify and give effect to the agreement of the parties. It is not for the court to make some different bargain because it thinks that the parties or a party would have been wiser to do so.