Operation of extension of time provisions not pre condition to liquidated damages claim

Can it be said in absolute terms that any failure on the part of a Contract Administrator (“CA”) to operate the extension of time provisions under a building contract prevents a claim for liquidated damages?

In the High Court case of Henia Investments Inc v Beck Interiors Ltd [2015] the Claimant, Henia Investments Inc (the “Employer”) sought declarations concerning its building contract (“the Contract”) with Beck Interiors Ltd (“the Contractor”) in relation to an Application for an interim payment that the Contractor had issued.

The Contract was the JCT Standard Building Contract without Quantities 2011 as amended.

One of the issues was whether a failure on the part of the CA to make a decision in respect of a contractually compliant application for extension of time rendered the CA’s Non-Completion Certificate invalid or otherwise prevented the Employer from deducting and/or claiming liquidated damages?

The court actually decided the case on other grounds but as a non binding aside it said the language of the principal liquidated damages provision, Clause 2.32, did not suggest that the CA fulfilling its duty to operate the extension of time provisions was a condition precedent to the Employer’s entitlement to deduct liquidated damages.

It seemed odd that, if there was to be a condition precedent that no liquidated damages should be payable or allowable unless the extension of time clauses have been operated properly, it was not spelt out as such.

This was more especially the case as Clause 2.32.1 expressly imposed two other conditions precedent, namely the need:

– for the CA to have issued a Non-Completion Certificate for the Works and

– for the Employer to have notified the Contractor before the date of the Final Certificate that he may require payment of, or may withhold or deduct, liquidated damages.

The lack of any precondition as to the extension of time clauses having been operated properly could be explained commercially by the facts that:

1. There can be serious arguments between the Contractor and the CA (as there were here) not only as to whether delays have occurred by reason of which extensions of time can be granted but also as so as to whether the Contractor has properly complied with the notification and particularisation requirements required by Clause 2.27.

2. The extension of time application may range from being a wholly good to a hopeless one or it may relate to the whole of the delay or only a very small part.

In short, there may turn out to be no or only a limited entitlement to an extension of time, leaving intact all or most of the Employer’s liquidated damages entitlement.

3. The Contractor is not left without remedies which, in the short term, it can pursue through adjudication and in the long-term final dispute resolution processes.

It can challenge the refusal to grant an extension and/or the deduction of liquidated damages and, in the case of adjudication, secure relief if it can persuade the adjudicator that it is appropriate and that the Employer and the CA are wholly or partly in the wrong.

It could be argued that it is unfair on the Contractor to have liquidated damages deducted at a time when the CA has failed to consider extension of time claims. The answers to that were:

A the ready availability of those short and long-term remedies

B the existence of numerous potential defaults on the part of both Employer and Contractor which could cause serious financial consequences for the other and

C the mere fact that unfairness could happen in the short term does not necessarily or obviously require clauses to be interpreted to be conditions precedent to the ability of either party to secure such financial advantage in that short term.

So a failure on the part of the CA to operate the extension of time provisions did not preclude the Employer from deducting liquidated damages where the explicit conditions precedent in Clauses 2.32.1.1 and 2.32.1.2 have been complied with.

However under other building contracts, if the effective operation of extension of time provisions is clearly a condition precedent it may be a precondition to the Employer’s claim for liquidated damages.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.