Here’s a warning to all those clients, and their lawyers, who want to make the granting of extensions conditional on a contractor giving notice about the effects of delay
It is a standard feature of most construction contracts that the contractor has to complete the works within a fixed time, and if it fails to do so the employer can claim liquidated damages. Also, it is usual for the employer or its contract administrator to have the power to extend time for completion if the contractor is delayed by various matters – for example, late instructions or bad weather.
It is now well established that if the employer delays the contractor in completing the works, it cannot insist on completion by the original completion date, nor recover liquidated damages for the contractor’s failure to do so. For this reason, a carefully drafted contract will include a power to extend the time for completion if the contractor is delayed by the employer. If time is extended so as to compensate the contractor for the delay caused by the employer, then the right of the employer to claim liquidated damages is preserved.
Another common feature is the requirement that a contractor who wishes to claim an extension of time must give notice of the delay being suffered, the cause of the delay and its expected impact. These are sensible provisions. Given enough warning, the employer may be able to take steps to mitigate the effect of any delay.
However, it has become increasingly common for compliance with such notice provisions to be expressed as a condition precedent to an extension of time. Failure to give proper notice will remove the entitlement to an extension. At first blush this looks like a provision that can only harm the contractor. However it may in fact prove damaging to the employer.
Suppose the employer has delayed completion through an act of prevention and the contractor does not comply with the notice provisions. The result is that no extension of time can be granted. Does this mean that the employer can rely on the original completion date and claim liquidated damages for the contractor’s failure to meet it? This would be a remarkable result: the contractor would be paying the employer damages for a delay which the employer itself had caused.
There is no English authority directly on this point. However in the Australian case of Gaymark Investment vs Walter Construction, it was held that in the circumstances outlined above, the employer could not claim liquidated damages. A distinguished author has criticised this decision, referring to two earlier Australian cases (Turner vs Austotel and Turner vs Co-Ordinated Industries). A counter argument to Gaymark is that if the contractor can obtain extensions by giving proper notice and it fails to do so, there can be no objection to its having to pay liquidated damages.
If failure to give proper notice removes the entitlement to a time extension, this may prove damaging to the employer
It is not possible to explore this interesting topic in any depth here, but there must be considerable doubt as to whether the Gaymark approach will be held by the English courts to be wrong. The true cause of the delay is the employer’s prevention not the lack of notice, and it is well established that a party will not be permitted to take advantage of its own wrong (Alghussein vs Eton College).
It would need very clear words in a contract to achieve the bizarre result of party A agreeing to pay damages to party B for a delay caused by party B – a result which, on the face of it, runs counter to the prevention principle. Neither of the Turner cases faced this problem head on.
A decision of the court would be welcome. My money would be on the Gaymark approach being followed unless very clear words show that the parties intended the bizarre result above – but it is not an easy point. In the meantime an employer would be wise to include in such a contract a clause which gives it the power to extend time even if the contractor has not complied with the notice provisions. Such a clause had been removed from the contract in Gaymark.
Tim Elliott QC is an arbitrator and barrister specialising in construction at Keating Chambers