Background

Carillion Construction Limited (Carillion), a contractor, entered into a JCT standard form building contract with contractor’s design with Rolls Development UK Ltd (Rolls) in June 2007, for the construction of the High Court’s Rolls Building in London.  The building contract contained typical provisions for the extension of time and liquidated damages in the event of delay, including a clause which allowed the contractor to recover sums for liquidated damages deducted in the event that an extension of time was later granted in relation to that delay.

The works were delayed in November 2010.  Rolls and Carillion entered into a supplemental agreement which, among other things, stated that Carillion had no claims to an extension of time arising out of the occurrence of any event that had taken place on or before the date of the supplemental agreement, and that the contract sum would be revised to take into account the liquidated damages levied up until that point.  Further delays occurred and both parties entered into a further supplemental agreement in July 2011 incorporating the following key provisions:

  • That the building contract continued “in full force and effect”, subject to the changes made by the further supplemental agreement itself;
  • That the contract sum be adjusted to account for any deductions and/or additions arising up to the date of the supplemental agreement; and
  • That the Contractor was not entitled to any extension of time or loss and/or expense up to the date of the supplemental agreement.

Carillion engaged two sub-contractors (EMCOR and AECOM) to carry out sub-contractor works in relation to mechanical and electrical services. Clause 11 of the sub-contract dealt with delays, in particular clause 11.3.2 stated:

“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”.

A dispute arose between Carillion and EMCOR in relation to damages that Carillion say were caused by the sub-contractor’s delay which in turn led to liquidated damages being levied against Carillion by Rolls. The sub-contractor’s defence rested on the following arguments:

  • EMCOR was entitled to an extension of time (therefore they were not liable for liquidated damages); and, in the alternative
  • EMCOR and AECOM could not be liable for liquidated damages because Carillion had no liability to Rolls under the further supplemental agreement.

Ms Nerys Jefford QC, sitting as judge in the Technology and Construction Court, summarised the preliminary issues as follows:

Preliminary issue 1 – On the basis that EMCOR was entitled to an extension of time under clause 11.3, was that extension of time to run contiguously from the date of practical completion or would the extension of time be considered a separate fixed period of time in which EMCOR would undertake its sub-contract works?; and

Preliminary issue 2 – Had Carillion’s liability to Rolls for delay damages been extinguished by the further supplemental agreement? If so, how did that affect EMCOR and AECOM’s liability to Carillion?

Decision

The Court found in favour of EMCOR on preliminary issue one.  While the court considered the arguments brought by Carillion to be “clear and detailed submissions”, it did not consider the interpretation of clause 11.3 to mean that any extension of time given was to be a separate fixed period of time that would not run contiguously.

The Court in coming to its decision, cited the case of Arnold v Britton [2015] UKSC 36, emphasising “(i) the natural and ordinary meaning of the clause and (v) commercial common sense” when interpreting contracts (paragraph 15 of Lord Neuberger’s dictum).  Ms Nerys Jefford QC highlighted how it was “clear that the natural meaning of clause 11.3” supported the argument made by EMCOR, and that such extensions of time were to be considered contiguous.  Moreover, the Court emphasised the fact that clause 11.3 made no apparent distinction for any extension of time being considered a separate and distinct fixed period of time.  The Judge stated that “if it [clause 11.3] had been intended to have this unusual effect, I would have expected to see this much more clearly provided for” in the drafting of the sub-contract.

Using the dictum delivered by Lord Neuberger, the Court stated that it would be slow to depart from the natural meaning provided for in the contract even if it conflicted with commercial common sense, but it did not consider that to be the case on this occasion.

In answering preliminary issue two, the Court found in favour of Carillion, dismissing the arguments made by the sub-contractors.  EMCOR and AECOM contended that Carillion was not in fact liable to Rolls for liquidated damages, because the further supplemental agreement extinguished the contractor’s liability for liquidated damages by establishing a new date for practical completion. The Court found that the further supplemental agreement did not in fact extinguish Carillion’s liability.

Importantly, the Court highlighted that the wording in the further supplemental agreement, which agreed a new date for practical completion, set the date for when any further (emphasis added) liability for liquidated damages would be decided.  This was of concern to EMCOR and AECOM as they were hoping to avoid liability for the liquidated damages that had been decided before the date of the supplemental agreement.

The Court found that both parties “agreed by reference to a particular date, that there would be no extension of time granted to Carillion” in relation to any incidents of delay leading up to the date of the further supplemental agreement.

Implications

The decision handed down by Ms Nerys Jefford QC is welcome guidance for parties and practitioners in the construction industry as it confirms the approach that the Court is likely to adopt on issues of contractual interpretation.

The Technology and Construction Court has in recent cases, been somewhat reluctant to depart from the meaning of the words agreed in a commercial contract.  Ms Nerys Jefford QC stated that “the Court should first look for the natural meaning of the words used in the contract and not be too ready to depart from the natural meaning on the basis of the meaning the Court thinks accords with commercial common sense”.

This judgement echoes the remarks made by Mr Justice Stuart-Smith in the case of Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another [2015] EWHC 3573 (TCC), in which he stated “the Court should not strain to find ambiguity where none exists.”  With that, the Court appears willing to give business efficacy to the natural meaning of wording agreed between parties with equal bargaining power.

This case confirms that extensions of time caused by delay will run contiguously unless expressly provided for in the contract.

Also, this case illustrates that liquidated damages already incurred will not be extinguished by virtue of parties agreeing to extend the date for practical completion.  As stated by Ms Nerys Jefford QC “the fixing of new Dates for Completion is a means of drawing a line under previous claims but not of granting extensions of time”.  If parties want the benefit of a new date for completion extinguishing a claim for previously accumulated liquidated damages, the contract or contract variation should be drafted to reflect this.

For more information about this case, please contact Justin Mendelle on 020 7061 5948 or mail email hidden; JavaScript is required

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.