Carillion Construction Limited was employed by Rolls Development UK Ltd for the construction of the new court building. Completion of the works was delayed and, under the terms of an amended JCT contract, Carillion was liable to pay liquidated damages. By way of a Further Supplemental Agreement, Carillion and Rolls agreed to a new date for completion and a revised contract sum, which included a deduction for liquidated damages.
Carillion then sought to pass down those liquidated damages (together with other delay-related losses of its own) to two of its subcontractors, EMCOR and AECOM - the defendants in these proceedings. This was on the basis that the delayed completion of those subcontract works (for which Carillion held EMCOR and AECOM responsible) caused Carillion to delay completion of the main contract works.
The first issue
This judgment concerned two preliminary issues. As to the first, on the assumption that EMCOR was entitled to an extension of time, the Court was asked whether such period would be:
- added contiguously to the end of the current period for completion (as contended for by EMCOR), or
- not necessarily contiguous, but reflective of the period for which EMCOR had in fact been delayed and entitled to an extension of time (as contended for by Carillion).
You may be thinking this sounds a lot like the 1993 case of Balfour Beatty Building Ltd v Chestermount Properties, in which Colman J concluded:
The completion date as adjusted retrospectively is thus not the date by which the contractor ought to have achieved or ought in future to achieve practical completion but the date which marks the end of the total number of working days starting from the date of possession within which the contractor ought fairly and reasonably to have completed the works.
The facts in that case were not wholly dissimilar to the facts at hand, and EMCOR primarily relied on Chestermount in its submissions. However, there is a distinction to be made; it lies in the type of contract, the parties to it and the nature of the claims being made. As counsel for Carillion pointed out, Chestermount was concerned with a main contract, with a fixed completion date and a liquidated damages clause. This case concerned a delay claim under a subcontract, which provided a period or periods for completion. But, rather than an obligation to pay liquidated damages, the sub-contractor was required to pay loss and expense (i.e. unliquidated damages).
Nonetheless, applying established rules of contract interpretation, the Court favoured EMCOR’s position. The relevant provisions of the subcontract provided for the extension of the period or periods for completion of the subcontract works, but not the creation of new periods. As such, any extension of time was to be bolted on (or added contiguously) to the existing date for completion. The Court recognised the possibility that, on this interpretation, a subcontractor’s liability may not always be a true reflection of the loss and expense caused by its breach (because different losses were likely to accrue at different times); but decided that this was not a sufficient reason to move away from the proper interpretation of the subcontract. If the case proceeds to a final hearing, it will be interesting to see what effect this interpretation has on the losses claimed.
In any event, this should offer some food for thought for those drafting subcontract extension of time provisions.
The second issue
As for the second issue, the Court was asked to consider whether Carillion’s liability to Rolls for liquidated damages was in fact extinguished by the terms of the Further Supplemental Agreement and, if so, whether there was no actual loss to pass down to EMCOR and AECOM.
EMCOR and AECOM argued that by agreeing to new date for completion, Rolls had effectively granted Carillion an extension of time. It followed that Carillion could not be liable for liquidated damages prior to that new date and neither, then, could EMCOR or AECOM.
The Court did not accept that argument. Rolls and Carillion had agreed new dates for completion without reference to the extension of time mechanism in the main contract. Rather, the new date had been agreed on the basis that Carillion was liable for liquidated damages up to that date, and the court held that it was entirely within the parties’ rights to do so.
This is perhaps an uncontroversial but welcome decision for contractors. The courts have always encouraged commercial settlement, and the Further Supplemental Agreement will not have been the first of its kind. Interestingly, the Court stated that nothing it had said in its judgment affected any argument that may be open to EMCOR and AECOM as to Carillion’s liability to Rolls and the reasonableness of the settlement. A series of cases have addressed reasonableness in this context – Biggin v Permanite , Siemens v Supershield  – but there is still room for development. The full trial is scheduled for April/May 2017. Watch this space.
Sarah Fraser is a trainee with the Construction, Engineering & Procurement team and authored this article.