Practical Law

In Carillion Construction Ltd v Emcor Engineering Services Ltd and others, an issue arose as to the proper interpretation of a relatively unusual extension of time clause in a standard form construction contract.

Carillion contended that the particular nature of the clause warranted a departure from the method by which extensions of time are usually added to the contractual completion date in a construction, engineering or energy context. Despite Carillion’s “well made” submissions, Miss Recorder Nerys Jefford QC (sitting as a judge of the TCC) held that, on its proper interpretation, the relevant clause required the court to treat extensions of time in the “usual” manner and, on that basis, found for Emcor in respect of the relevant issue.

Carillion v Emcor and others

The parties’ dispute concerned the construction of the Rolls Building, now the TCC’s new home. Carillion was the main contractor and Emcor was a mechanical and electrical sub-contractor. The works were delayed and accordingly Carillion sought damages from Emcor. Carillion’s claim included its own costs associated with the delay as well as liquidated damages levied against Carillion under its contract with the developer.

The first of the two preliminary issues assumed that Emcor was (as a matter of principle) entitled to an extension of time for a matter arising after the completion date had passed. The question was whether such extension ought to be:

• Added contiguously to the end of the pre-existing period for completion of the works.
• Fixed (not necessarily contiguously and quite possibly discontinuously) so as to accurately reflect the period for which Emcor was, in fact, delayed.

Contractual provisions

The Emcor sub-contract incorporated the standard form of Sub-Contract Conditions for use with the Domestic Sub-Contract DOM/2, 1981 edition (DOM/2). Clause 11.2.2 entitled Emcor to seek an extension of time in respect of:

“…the expected delay in the completion of the Sub-Contract Works or any part thereof beyond the expiry of the period or periods [for completion]… or beyond the expiry of any extended period or periods previously fixed under clause 11 which results therefrom.”

If Carillion was satisfied by Emcor’s claim, then under clause 11.3.2 it was compelled to give an extension of time “by fixing such revised or further revised periods for the completion of the Sub-Contract Works” as it estimated to be reasonable.

Authorities and submissions

Both parties relied upon the Supreme Court decision in Arnold v Britton as being the most recent statement on the principles relevant to issues of contractual interpretation. Miss Recorder Jefford QC summarised those principles as follows:

“…the court should first look for the natural meaning of the words used in the contract and not be too ready to depart from the natural meaning on the basis of the meaning the court thinks accords with commercial common sense. However, the more unclear the words or the worse the drafting, the more ready the court should be to do so. When considering the parties’ intended commercial meaning of the words used, the court should be careful to have regard only to what the parties knew or could reasonably have known at the time of entering into the contract.”

Emcor contended that clause 11.3 was clear in requiring any extension of time to be added contiguously to the end of the pre-existing period for completion of the works. This interpretation accorded with common sense and was also supported by authority. Emcor relied on the judgment in Balfour Beatty Ltd v Chestermount Properties [1993] 62 BLR.

In Balfour Beatty Ltd v Chestermount Properties, Colman J described the objective underlying the liquidated damages and extension of time regime before him as being:

“…to arrive at the aggregate period of time within which the contract works as ultimately defined ought to have been completed having regard to the incidence of non-contractor’s risk events.”

This description would be readily applicable to many standard form extension of time provisions and reflects the “usual” treatment of extensions of time.

Emcor also relied upon Ascon v Alfred McAlpine, where HHJ Hicks QC held that a clause cast in the same manner as clause 11.1 of DOM/2 gave rise to an extension of time, which was awarded on an aggregate (and therefore contiguous) basis.

Carillion’s submissions

By contrast, Carillion contended that the natural and ordinary meaning of the words used in clause 11.3 contemplated and allowed for the provision of additional “periods” of time for the carrying out and completion of the sub-contract works. Moreover, Carillion contended that Emcor’s interpretation of the clause could give rise to an un-commercial result. In support of that contention, Carillion noted that:

• If Emcor was in culpable delay when it received a variation and if the extension of time granted in respect of that variation was added contiguously to the original period for completion, then the effect of adding the extension of time contiguously, rather than discontinuously, would be to artificially and retrospectively absolve Emcor of liability for failure to complete by the end of the original period for completion.
• Not only would that conclusion fail to reflect the reality of the impact to Carillion of Emcor failing to complete the works within the original period for completion, but it would leave open the possibility of Emcor absolving itself from liability for any delay if and to the extent that another party’s acts or omissions were driving delay at the end of the extension of time arising out of Carillion’s variation.
• The use of a contiguous extension of time, which failed to reflect the actuality of the financial impact upon Carillion caused by Emcor’s delay, was at odds with the fact that the DOM/2 conditions did not provide for liquidated damages to be payable by Emcor to Carillion, but rather left Carillion to prove its actual loss and expense caused by Emcor’s failure to complete the works within the contractually specified period.

Court favoured Emcor’s interpretation

The court found in Emcor’s favour on the proper interpretation of the extension of time clause. There were four main grounds:

• Emcor’s interpretation represented the natural meaning of the words used:
  • it was easy to envisage circumstances in which sub-contract works, which have to fit with main contract works, might have more than one period provided for their execution on site. As such, there was no particular significance in the use of the expression “period or periods”;
  • however the extension of time claim arose, the relevant clause provided that the starting point was the original period for completion or the previously extended period for completion. There was no express provision for a fresh period to be fixed at some distinct point in time thereafter;
  • the use of the word “extended” evidenced that the extension of time mechanism was intended to give rise to a greater aggregate period for completion, not a fresh period; and
  • the natural meaning was supported by the fact that clause 11.6 (which provided for the fixing of a “period or periods for the completion of the Sub-Contract Works shorter than that previously fixed under clause 11.3”), also emphasised that clause 11 was concerned with shortening and lengthening of the period for completion, not the creation of fresh periods reflecting discrete delay events for which Carillion was contractually responsible.
• Emcor’s interpretation did not offend commercial common sense because the use of contiguous extensions of time comprised a “practical and workable” solution to the apportionment of liability for delay.
• Even if Emcor’s interpretation had offended commercial common sense, in light of the principles laid down in Arnold v Britton, the court would be slow to depart from the natural meaning of the words used.
• The “usual” treatment of extensions of time (that being a contiguous treatment on all fours with Balfour Beatty v Chestermount and subsequent authorities) supported Emcor’s argument as to how a reasonable person with the parties’ knowledge of the background would have understood the relevant clause.

Conclusion

This judgment is likely to be useful for parties and practitioners in the construction, engineering and energy sectors because it:

• Evidences the way in which the TCC is likely to approach issues of contractual interpretation in the light of recent Supreme Court guidance.
• Deals with an issue that has not been directly addressed in previous authorities, namely whether extensions of time can or should be added discontinuously in discrete periods of time, rather than contiguously from the original date for completion.