Last summer we reported on a TCC decision which had identified, for the first time, an anomaly commonly present in the extension of time provisions of traditionally drafted construction sub-contracts. The anomaly arises where a Sub-contractor becomes entitled to an extension of time for an event occurring after the contractual date for completion and can result in the Sub-contractor’s liability being greater or lesser than the true consequences of its delay. In a decision last week, the Court of Appeal has upheld the TCC’s decision, noting that the potential unfairness produced was not sufficient to overcome the standard drafting of the sub-contract in question.
Carillion Construction Ltd v Woods Bagot Europe Ltd: a recap As discussed in our previous Law-Now (available here) construction contracts will normally allow a Contractor or Sub-contractor to claim an extension of time for events occurring after the contractual date for completion. There are no difficulties for a contract with a liquidated damages clause, where damages due to the Employer or Contractor are fixed. However, liquidated damages clauses are rare for sub-contracts, and where unliquidated damages apply the granting of extensions for events occurring after the contractual date for completion can led to unexpected results. As explained in more detail in our previous Law-Now, a Sub-contractor in such circumstances will already be in breach of contract for failing to meet the agreed completion date when the event giving rise to an extension of time arises (such as a new variation). Simply extending the existing date for completion will mean that the previous culpable delay in breach of contract will be erased and effectively “moved forward” by the amount of the extension. This creates a disconnect between the actual period when the Sub-contractor was causing delay and the Sub-contractor’s contractual liability for delay. The period for which the Contractor is entitled to claim delay damages will be disconnected from the actual effects of the delay caused by the Sub-contractor. The outcome is likely to be that one party receives a windfall whilst the other is unfairly prejudiced. In the present case, Carillion as main contractor entered into an M&E sub-contract with EMCOR under the DOM/2 JCT form in relation to the construction of the Rolls Building in London. Carillion started proceedings against EMCOR seeking to recover liquidated damages levied against it under the main contract due to delays in carrying out the sub-contract as well as its own costs of delay. EMCOR claimed for extensions of time for events which arose after the contractual date for completion. Carillion claimed that any extension awarded for such events should be “discontinuous” and not simply added to the existing date for completion, so as to preserve the connection with any culpable delay by EMCOR prior to the event in question. The TCC rejected Carillion’s argument finding that any extension of time should be added contiguously to the existing date for completion. Carillion appealed.