Delays mean damages – whatever the status of time extension applications
There has been lots of commentary on what the judge said about payment notices and pay less notices in the case of Henia v Beck (in which I represented Henia). There was another key issue in the case – what happens if a contract administrator fails to deal with a contractor’s application for additional time when it should? Can the employer still claim liquidated damages? Does the contractor’s obligation to complete by a particular date fall away? If so, what is it replaced with?
Before this case, you would have struggled to find one to help answer such questions. That’s now changed – at least in relation to the JCT Standard Form Contract 2011.
Beck was carrying out extensive fit-out works for Henia at a property in Cheval Place, London, under the JCT Standard Form. Under that contract, the employer can only deduct or require the payment of liquidated damages once the contract administrator has issued a non-completion notice and the employer has notified the contractor that it intends to make a claim.
The works were supposed to be finished by early September 2014 but were still on-going in August 2015. Shortly after the contractual completion date, given that no extension of time had been granted, the contract administrator issued a non-completion notice. Henia subsequently notified Beck that it intended to deduct liquidated damages and started to do so in spring 2015.
Beck argued that Henia was not entitled to do this because the contract administrator had not dealt with an application for an extension of time within the required 12 weeks. Beck claimed the non-completion notice and Henia’s notification were in vain as the right to deduct liquidated damages had not arisen.
The judge disagreed, holding that nothing in the JCT Standard Form suggests that the proper operation of the extension of time mechanism by the administrator is a pre-requisite (or condition precedent) to an employer’s right to deduct liquidated damages.
Beck argued that this is unfair. However, as the judge pointed out, it is not necessarily a question of fairness but rather the bargain agreed between the parties.
Nothing in the JCT Standard Form suggests that the proper operation of the extension of time mechanism by the administrator is a pre-requisite to an employer’s right to deduct liquidated damages
The judge also noted that a contractor is not left defenceless. If the contract administrator fails to make a decision on an application for an extension of time within the required timescale, the contractor can refer its claim for an extension of time (and so challenge the deduction of liquidated damages) to adjudication in the short term and either litigation or arbitration in the longer term.
Beck conceded that a contract administrator’s failure to determine an application for an extension of time does not result in the contractor’s obligation to finish the works by a particular time being replaced with an obligation to complete within a reasonable time. The contractual completion date still applies.
While the judge’s findings turned out to be academic (as the parties had accepted, for the purposes of the proceedings, a decision in an earlier adjudication that Beck had not validly applied for additional time and so the 12 week review period was not triggered), the judgment provides useful new guidance.
Despite this guidance, architects who act as contract administrators should continue to comply with the timescales for dealing with claims for additional time in order to ensure that liquidated damages are not deducted when an extension of time is justified, and that unnecessary expensive and time consuming disputes do not arise which could otherwise have been avoided. However, it is clear that a delay in dealing with an extension of time application does not have the draconian consequences contended for by Beck.
Douglas Wass is partner at Macfarlanes
IN PLAIN ENGLISH
A clause in a contract which provides that either the contract or particular provisions of it will only apply if and when a particular condition has been satisfied is a condition precedent. Conditions precedents are usually drafted so that they are clear that something needs to be done within a particular time limit and that something will be lost if the obligation is not complied with. However, clauses do not have to expressly state that they are a ‘condition precedent’ in order to take effect as one. In the JCT forms, a non-completion notice and a notification from the employer that it intends to deduct or require payment of liquidated damages are conditions precedent to an employer being able to deduct or claim liquidated damages. In other forms of contract, a contractor may be required to give notice of a potential or actual delay within a particular timescale in order to be able to claim additional time and/or money as a result of that delay.