The orthodox view on how employer delay affects its entitlement to damages has been shown to be quite wrong
Lord Justice Coulson last month delivered a seminal lecture to the Society of Construction Law on the topic of delay claims. The most senior construction judge in England and Wales explained that the orthodox view on so-called “time at large” among contractors, engineers, lawyers, experts, adjudicators, arbitrators and judges may not actually be correct. I will here first explain what he said about the misconception of time at large and then set out the practical implications of this seminal lecture.
It is important to note that although the judge was careful to say that his comments were not to be taken as any indication of how a particular case would be decided in the future the practical reality is that practitioners, clients and experts will of course, now, employ the judge’s analysis and look at time at large in a fundamentally different way.
So, what is the orthodox view? Put simply, there are two parts to the orthodox view: Firstly, if the employer delays the contractor in the completion of the building works, then the employer cannot point to the contractor’s failure to complete the works by the contract completion date as if its own default had never happened – this so-called “prevention principle” is well understood and the employer would not be entitled to claim liquidated damages for the delay to completion.
The orthodox view has forced experts to predict a reasonable date for completion and then quantify actual or unliquidated damages. That may now all change
Secondly, the orthodox view holds that if in this scenario there is an absence of a contractual extension of time regime for the employer’s delay then the liquidated damages regime falls away such that the employer may have a right to claim unliquidated damages from a reasonable date for completion. This second part of the orthodox view is not correct, said Lord Justice Coulson.
The orthodox view encourages contractors to look for gaps in the extension-of-time machinery so that time can be “set at large” which, in turn has led to the standard form contracts seeking to cover all acts of prevention by an employer in the definition of a delay event. In practical terms, the orthodox view has forced experts to predict a reasonable date for completion and then quantify actual or unliquidated damages. That may now all change.
One can now see delay experts having to switch the focus onto the effect of employer delays and on adjusting the date for completion
Lord Justice Coulson explained that the 19th century cases support only the first part of the orthodox view. For example, in Holme vs Guppy (1838) 3 M&W 387, the defendant failed to give possession of the site for four weeks following execution of the contract. The court found that there were clear authorities to the effect that “if the party be prevented by the refusal of the other contracting party from completing the contract within the time limited he is not liable in law for the default”. The second part of the orthodox view has been built on Peak vs McKinney (1970) 1 BLR 111.
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In this case McKinney was responsible for defective foundation piling and ultimately carried out the necessary remedial work. The overall delay to the works was 58 weeks because, prior to the remedial works being carried out, Liverpool Corporation had delayed in deciding what it should do and how the problem should be rectified. There was an extension of time provision but it was limited, and the only relevant subclause referred to delays as a result of “any other unavoidable circumstances”.
The Court of Appeal held that the delay resulting from the corporation’s indecision could not be said to have been an unavoidable circumstance. There was therefore no basis on which time could be extended as a result of the delays for which the corporation was responsible, and, in consequence, the court found that time was set at large and no liquidated damages could be levied.
Lord Justice Coulson said Peak vs McKinney may be an unusual case where there was a long time between the judgment being given and the law report of the judgement and it is not in fact supported by the earlier cases. He said the three appeal court judges may have not considered all the issues and alternatives. In his thinking the more appropriate way to consider such matters in the above scenario is that liquidated damages are levied for the period of delay for which the employer is not liable, and not for the period for which the employer is liable. His comments and analysis are likely now to be applied by many in the industry and especially so at the claims and adjudication stages.
Although it is tempting to think time at large occurs rarely, it is still feasible where the extension-of-time machinery is incomplete, inoperable or simply broken down. In such cases one can now see delay experts having to switch the focus onto the effect of employer delays and on adjusting the date for completion. The fact that the liquidated damages regime does not now fall away is a significant factor. Lord Justice Coulson has delivered a seminal paper – the gaps to defeat liquidated damages are getting ever smaller.