A query that is often raised is, can an Employer under a standard JCT contract make a deduction for Liquidated Damages in a case where a Contract Administrator has not made a decision in respect of a contractually compliant application for an extension of time submitted by a Contractor?
This issue was considered in the recent case of Henia Investments Inc. v Beck Interiors Ltd. [2015] EWHC 2433 (TCC) where Mr Justice Akenhead made the obiter determination on this issue, as follows.
“It is, rightly, common ground that prima facie such a failure by the CA (i.e. the failure to make a decision in respect of a contractually compliant application for an extension of time submitted by a Contractor) would not put time at large and would not in itself be an act of prevention which caused delay.
The language of the principal liquidated damages provision, Clause 2.32, is not cast in a way that suggests that the obligation on the part of the CA to operate the extension of time provisions is a condition precedent to an entitlement to deduct liquidated damages. Indeed Clause 2.32.1 does expressly purport to impose 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. It seems 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.”
Mr Justice Akenhead made it clear that the Contractor has a remedy under the contract to deal with the failure of the CA to make a decision in respect of a contractually compliant application for an extension of time submitted by a Contractor, both in the short term through adjudication and in the long-term through a final dispute resolution process.
Whilst Mr Justice Akenhead noted that 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 deliver the process of considering extension of time claims. The two answers to that are the ready availability of short and long-term remedies and the fact that there are numerous potential defaults on the part of both Employer and Contractor which can give rise to serious financial consequences to the other and merely because unfairness can happen in the short term does not necessarily or obviously lead to the need to construe clauses as conditions precedent to the ability of one party to secure such financial advantage in that short term.
Therefore, although the above determination was made by Mr Justice Akenhead on an obiter basis (which means that his determination is not legally binding as a precedent for other court cases), and although Mr Justice Akenhead stated that there is no authority in relation to decided cases in respect of this issue, the above obiter determination made by Mr Justice Akenhead follows the generally held view that, in the normal course of events, an Employer can deduct Liquidated Damages in a case where a Contract Administrator has failed to make a Decision in respect of a Contractor’s Extension of Time claim.
Peter Barnes
30 November 2015
“It is, rightly, common ground that prima facie such a failure by the CA (i.e. the failure to make a decision in respect of a contractually compliant application for an extension of time submitted by a Contractor) would not put time at large and would not in itself be an act of prevention which caused delay.
The language of the principal liquidated damages provision, Clause 2.32, is not cast in a way that suggests that the obligation on the part of the CA to operate the extension of time provisions is a condition precedent to an entitlement to deduct liquidated damages. Indeed Clause 2.32.1 does expressly purport to impose 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. It seems 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.”
Mr Justice Akenhead made it clear that the Contractor has a remedy under the contract to deal with the failure of the CA to make a decision in respect of a contractually compliant application for an extension of time submitted by a Contractor, both in the short term through adjudication and in the long-term through a final dispute resolution process.
Whilst Mr Justice Akenhead noted that 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 deliver the process of considering extension of time claims. The two answers to that are the ready availability of short and long-term remedies and the fact that there are numerous potential defaults on the part of both Employer and Contractor which can give rise to serious financial consequences to the other and merely because unfairness can happen in the short term does not necessarily or obviously lead to the need to construe clauses as conditions precedent to the ability of one party to secure such financial advantage in that short term.
Therefore, although the above determination was made by Mr Justice Akenhead on an obiter basis (which means that his determination is not legally binding as a precedent for other court cases), and although Mr Justice Akenhead stated that there is no authority in relation to decided cases in respect of this issue, the above obiter determination made by Mr Justice Akenhead follows the generally held view that, in the normal course of events, an Employer can deduct Liquidated Damages in a case where a Contract Administrator has failed to make a Decision in respect of a Contractor’s Extension of Time claim.
Peter Barnes
30 November 2015
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