Carillion Construction Ltd v Emcor Engineering Services Ltd and others

Construction – Subcontract – Extension of time – Appellant main contractor engaging third respondent as sub-contractor for M&E works – Domestic Sub-Contract “DOM/2” (1981 ed – Whether extension of time under clause 11.3 of subcontract required to run contiguously from previous completion date or non-contiguously from later date – Appeal dismissed The appellant was employed as the main contractor on the development of the Rolls Building in Fetter Lane, London EC4A, for use as offices and courtrooms. The contract was on the JCT Standard Form of Contract with Contractor’s Design (1998 ed), with amendments. The appellant engaged the third respondent as a sub-contractor to carry out certain mechanical and electrical (M&E) works on the standard form of Domestic Sub-Contract “DOM/2” (1981 ed). The fourth respondent provided a parent company guarantee in respect of the third respondent. Clause 11.3 of the sub-contract conditions provided that, if the third respondent gave notice of a delay to the works “beyond the period or periods stated in the Appendix, part 4, or any revised such period or periods”, then, in certain events, the contractor would grant an extension of time “by fixing such revised or further revised period or periods for the completion of the Sub-Contract Works as the Contractor then estimates to be reasonable”. The appellant did not achieve practical completion under the main contract until the end of July 2011, which was 182 days late. Litigation ensued between the appellant and its sub-contractors as to who was to blame for the delays. A preliminary issue was tried as to whether any time extension to which the third respondent might be entitled under clause 11.3: (i) should run from what was previously the due date for completion, so as to provide an aggregate period within which the subcontract works should be completed (a “contiguous” extension); or (ii) should start on some later date, reflecting the period for which the third respondent had in fact been delayed (a “non-contiguous” extension). In the court below, the judge held that clause 11.3, when read in context, required that any period of extension should be added contiguously to the end of the current period within which the sub-contractor was required to complete its works. The appellant appealed. It argued that clause 11.3 was permissive, such that, where a delaying event occurred after the date when the sub-contractor ought to have completed, the main contractor had a choice of granting either a contiguous or a non-contiguous extension of time. Held: The appeal was dismissed. (1) Whether read in isolation or in its full context, the natural meaning of clause 11.3 of the subcontract was that any extension of time should be contiguous. The reference in clause 11.3 to “any revised such period or periods” in clause 11.3 indicated that, where the employer granted extensions of time, it was revising the period or periods stated in part 4 of the appendix, not granting separate periods of justified delay with their own start and end date. The simple phrase “extension of time” also had the natural meaning that the period of time which was allowed for the work was being made longer. The reference to “fixing such revised or further revised period or periods” naturally conveyed the same meaning. Further, the notice provisions in clause 11.2 included the telling phrase “beyond the expiry of the period or periods stated in the appendix part 4 or beyond the expiry of any extended period or periods previously fixed under clause 11”. Those words indicated that if the employer had granted an extension of time, it would have increased the length of the existing period or periods for doing sections of the work, not created new periods for doing the work, each with their own start and end dates. In general, the provisions of clauses 11 and 12 of the subcontract all fit naturally with the assumption that any extensions of time granted would be contiguous. (2) The interpretation of clause 11.3 was not displaced by considerations of commercial common sense. Only in exceptional circumstances could such considerations drive the court to depart from the natural meaning of contractual provisions. An interpretation of clause 11.3 that allowed only for contiguous extensions meant that the third respondent might be exempted from liability for non-compliance with the completion periods during a period when it was in culpable delay, but might be liable during a period when it was not in culpable delay because, for example, it was complying with a late variation instruction. The loss and damage suffered by the appellant during those two periods was unlikely to be the same. Therefore, one or other party would gain a windfall benefit. Nonetheless, the system of awarding extensions of time contiguously had worked satisfactorily in practice, even though it was open to some criticism. It appeared that no contractor or sub-contractor in a reported case had ever before felt the need to argue that awards of time should be non-contiguous: Balfour Beatty Building Ltd v Chestermount Properties Ltd (1993) 62 BLR 1, Floods of Queensferry Ltd v Shand Construction Ltd [1999] BLR 319, Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm); [2011] BLR 384 and Walter Lilly & Co Ltd v Mackay [2012] EWHC 1773 (TCC) considered. In the case of main contractors that omission was not surprising, since LADs were normally levied at a specified rate per week or per month and it therefore made no difference whether any extension of time granted was contiguous or non-contiguous. In the case of sub-contractors, the position was different, since their liability for delay was often calculated, as in the present case, by reference to the loss and damage which their delay had caused to the main contractor or to some other sub-contractor higher up the chain. Anomalies might therefore arise. However, those possible scenarios were not sufficient to displace the natural interpretation of clause 11.3. That interpretation was practicable and workable and accorded with what a reasonable person, with all the background knowledge of the parties, would have understood the clause to mean on the date when the subcontract was made. (3) Not did that interpretation of clause 11.3 run counter to the “prevention principle”, by making the sub-contractor, in effect, subject to obligations which it was prevented from performing. The subcontract contained a perfectly workable extension of time clause. If an event caused, say, two months’ delay, then the sub-contractor obtained a two-month extension of time. The sub-contractor was not prevented from carrying out the sub-contract works within the extended period which the sub-contract allowed. If it failed to complete within that period, then it was liable to the main contractor. The question of whether the extension of time was contiguous or non-contiguous might affect the quantification of that liability but did not bring the prevention principle into play. Paul Reed QC and Edmund Neuberger (instructed by Reynolds Porter Chamberlain LLP) appeared for the appellant; Paul Cowan and Simon Hale (instructed by White & Case LLP) appeared for the respondents. Sally Dobson, barrister