Carillion Construction Ltd v Emcor Engineering Services Ltd & Anor

1. This judgment is in five parts, namely: Part 1 – Introduction Paragraphs 2 - 8 Part 2 – The facts Paragraphs 9 - 17 Part 3 – The litigation Paragraphs 18 - 24 Part 4 – The appeal to the Court of Appeal Paragraphs 25 – 33 Part 5 – Decision Paragraphs 34 – 56 i) The natural meaning of clause 11.3 of the sub-contract conditions. Paragraphs 39 – 40 ii) The authorities on extension of time. Paragraphs 41 – 44 iii) Commercial Common Sense Paragraphs 45 – 56 Part 1 – Introduction

2. This is an appeal by a main contractor against a decision on preliminary issues concerning delay and extension of time. The central issue is whether any extension of time granted under the standard “DOM/2” form of sub-contract must commence on what was previously the due date for completion. The question is of some importance for the construction industry.

3. The main contractor in this case and claimant in the proceedings is Carillion Construction Limited, to which I shall refer as “Carillion”. The relevant sub-contractor, which is third Defendant in the proceedings, is Emcor Engineering Limited. I shall refer to it as “Emcor”. Emcor (UK) Limited, which is the fourth defendant, provided a parent company guarantee in respect of Emcor.

4. The employer under the main contract is Rolls Development UK Limited, to which I shall refer as “Rolls”. Another sub-contractor which will feature in the narrative is AECOM Limited. I shall refer to that company as “AECOM”.

5. In this judgment I shall use the following abbreviations: “LAD” means liquidated and ascertained damages. “M+E” means mechanical and electrical. “TCC” means Technology and Construction Court.

6. The building which is the subject of this litigation is the Rolls Building in Fetter Lane, London EC4. That is where the Commercial Court, the Chancery Division and the TCC now sit.

7. Both the parties and the judge at first instance have used the word “contiguous” to describe an extension of time which starts on what was previously the due date for completion. I shall do the same. I will use the word “non-contiguous” to describe an extension of time which starts on some later date.

8. After these introductory remarks, I must now turn to the facts. Part 2 – The Facts

9. By a written building contract dated 14 th June 2007, Rolls employed Carillion to develop the Rolls Building in Fetter Lane for use as offices and courtrooms. The contract was on the JCT Standard Form of Contract with Contractor’s Design, 1998 edition, incorporating amendment 1(1999), amendment 2(2001) and amendment 4(2002).

10. Clause 23 of the building contract required Carillion to complete each section of the work by a specified completion date. The sections of the works were redefined and the specified completion dates were revised by subsequent agreements between the parties. The final position was as follows: Carillion were required to complete section B (court fit-out) and section C (fifth floor fit-out) by 28 th January 2011. LAD were agreed at the rate of £86,000 per week for delay on section B and £18,000 per week for delay on section C. Completion dates and rates of LAD for other sections of the works are not relevant to this appeal.

11. Clause 25.2 of the conditions of the building contract required Carillion to give written notice to the employer of any event delaying or likely to delay completion. Clause 25.3 provided: “25.3 .1 If .1 .1 any of the events which are stated by the Contractor to be the cause of the delay is a Relevant Event and .1 .2 the completion of such Section is likely to be delayed thereby beyond the Completion Date for such Section, the Employer upon receipt of any notice, particulars and estimate under clauses 25.2.1, 25.2.2 and 25.2.3 shall make in writing to the Contractor such extension of time, if any, for completion of such Section beyond the Completion Date for such Section as is then fair and reasonable, by fixing a later date as the Completion Date for such Section.”

12. I turn now to the sub-contracts. Carillion engaged AECOM as sub-contractor for the provision of various M+E services and Emcor as sub-contractor for the provision of other M+E services.

13. Emcor’s sub-contract was dated 18 th July 2008. It incorporated the standard form of Domestic Sub-Contract known as “DOM/2”, 1981 edition. That sub-contract, although earlier in time, is intended to be used with the 1998 JCT contract.

14. Clause 11.2 of the sub-contract conditions requires the sub-contractor to give notice of delay or likely delay. Clause 11.3 provides as follows: “11.3 If on receipt of any notice, particulars and estimate under clause 11.2 the Contractor properly considers that: .1 any of the causes of the delay is an act, omission or default of the Contractor, his servants or agents or his sub-contractors, their servants or agents (other than the Sub-Contractor, his servants or agents) or is the occurrence of a Relevant Event; and .2 the completion of the Sub-Contract Works is likely to be delayed thereby beyond the period or periods stated in the Appendix, part 4, or any revised such period or periods, then the Contractor shall, in writing, give an extension of time to the Sub-Contractor 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.”

15. It is necessary to read that provision in context. I therefore attach as an appendix to this judgment the whole of clauses 11 and 12 of the sub-contract conditions. These are taken from the standard DOM/2 form, but include certain amendments made by the parties.

16. As can be seen from clause 11 of the conditions, Emcor were required to complete their works in accordance with the details set out in part 4 of the appendix to the sub-contract. As a result of subsequent agreements between the parties, part 4 of the appendix underwent successive amendments. The final position was that Emcor were required to commence their section B works (court fit-out) on 5 th October 2009 and complete them in 68.57 weeks. Emcor were required to commence their section C works (fifth floor fit-out) on 11 th January 2010 and to complete them in 54.57 weeks. The consequence of these provisions was that Emcor were required to complete both the section B and section C works by 28 th January 2011. That was also the revised contractual completion date under the main contract.

17. Unfortunately delays occurred. Carillion did not achieve practical completion under the main contract until 29 th July 2011. That was 182 days late. Carillion blamed its sub-contractors for causing delays. The sub-contractors blamed each other and Carillion for causing delays. In those circumstances, perhaps unsurprisingly, litigation followed. Part 3 – The Litigation

18. By a claim form issued in the TCC on the 28 th November 2014, Carillion claimed relief against AECOM, Emcor and other parties involved in the project.

19. On 8 th March 2016, Carr J ordered the trial of two preliminary issues. Issue 1 was formulated as follows (using “CCL” as an abbreviation for Carillion): “1. On the assumption that EMCOR is entitled to an extension of time pursuant to clause 11.3 of the EMCOR Sub-Contract (as amended) by fixing such revised or further revised period or periods for the completion of its Sub-Contract Works, does the EMCOR Sub-Contract (as amended) require: (a) that such revised or further revised periods are added contiguously to the end of the current period, so as to provide an aggregate period within which EMCOR’'s Sub-Contract Works should be completed (as contended for by EMCOR); or (b) that such revised or further period or periods are fixed in which EMCOR can undertake its Sub-Contract Works, which are not necessarily contiguous but which reflect the period for which EMCOR has in fact been delayed and is entitled to an extension of time (as contended for by CCL).”

20. Issue 2 concerned other contractual disputes between Carillion, Emcor and AECOM. Issue 2 does not feature in the present appeal.

21. The trial of the preliminary issues took place before Miss Recorder Nerys Jefford QC, as she then was, on 6 th April 2016. I shall refer to her as “the judge”.

22. The judge handed down her reserved judgment on 28 th April 2016. Her decision on preliminary issue 1 was as follows: “…on the assumption that EMCOR is entitled to an extension of time pursuant to clause 11.3 of the EMCOR Sub-Contract (as amended) by fixing such revised or further revised period or periods for the completion of its Sub-Contract Works, the EMCOR Sub-Contract requires that such revised or further revised period or periods are added contiguously to the end of the current period within which EMCOR’'s Sub-Contract Works should be completed;…”

23. I would summarise the judge’s reasoning on issue 1 as follows: i) The natural meaning of the words used in clause 11.3 of the sub-contract conditions, when read in context, is that any period of extension granted will be added contiguously to the end of the current period within which the sub-contractor is required to complete its works. ii) There are situations in which clause 11.3, so interpreted, may lead to an unsatisfactory result. The sub-contractor may incur a liability to the main contractor which is greater than, or less than, the true consequences of his breach. iii) Despite those shortcomings, clause 11.3 so interpreted is practicable and workable. It accords with commercial common sense. iv) Applying the principles in Arnold v Britton [2015] UKSC 36 ; [2015] AC 1619 , the court should not depart from the natural meaning of the words used in clause 11.3. v) The decision of Colman J in Balfour Beatty Building Ltd v Chestermount Properties Ltd (1993) 62 BLR 1 and subsequent decisions following Chestermount are not directly in point. Nevertheless they support Emcor’s argument as to how a reasonable person, with the parties’ knowledge of the background, would interpret clause 11.3.

24. Carillion were aggrieved by the judge’s decision. Accordingly they appealed to the Court of Appeal. Part 4 – The appeal to the Court of Appeal

25. By an appellant’s notice filed on 2 nd June 2016, Carillion appealed against the judge’s decision on issue 1, on grounds which I would summarise as follows: i) The judge erred in interpreting the natural meaning of clause 11.3. ii) Chestermount and the other authorities cited provide no support for the judge’s interpretation of clause 11.3. iii) The judge’s interpretation of clause 11.3 does not accord with commercial common sense.

26. The appeal came on for hearing on 2 nd February 2017. Mr Paul Reed QC, leading Mr Edmund Neuberger, appeared for Carillion, the appellant. Mr Paul Cowan, leading Mr Simon Hale, appeared for Emcor, the respondent. Mr Ben Quiney QC was present at the hearing with a watching brief on behalf on AECOM.

27. Mr Reed took the court through clause 11 of the sub-contract conditions and the surrounding provisions. He developed an argument that clause 11.3 was permissive. Where a delaying event occurred after the date when the sub-contractor ought to have completed, the main contractor had a choice. He could grant either a contiguous or a non-contiguous extension of time.

28. Mr Reed argued that this interpretation accorded with the natural meaning of the words of clause 11. Also, unlike the judge’s interpretation, it accorded with commercial common sense. Clause 12 of the conditions required the sub-contractor to compensate the main contractor for any loss or damage caused by the sub-contractor’s delay. That loss or damage ought to be calculated by reference to the period when the sub-contractor was actually being slow; not by reference to some later period when external events (e.g. variation instructions) were preventing the sub-contractor from completing timeously.

29. Mr Reed submitted that the judge’s interpretation did not sit easily with the prevention principle. The contractor was, in effect, being made subject to obligations which he was prevented from performing. A more reasonable and logical approach would be to grant an extension in respect of the period of time during which the delaying event was operative.

30. Turning to the authorities cited, Mr Reed submitted that they were of no help. None of them addressed Carillion’s argument in the present case. He demonstrated this by taking the court on a rapid journey through the two authorities’ bundles. Mr Reed’s submissions lost none of their force through being concise and focused. On the contrary they gained force.

31. Mr Cowan, for Emcor, submitted that the judge’s interpretation of clause 11.3 was the only possible interpretation of that provision when read in context. That interpretation did not offend commercial common sense; alternatively, it only did so to a modest extent. Applying the principles in Arnold and Balfour Beatty Regional Construction Ltd v Grove Developments Ltd [2016] EWCA Civ 990 ; (2016) 168 Con LR 1, the natural meaning of the words used should prevail.

32. Mr Cowan took the court on a lengthy excursion through the authorities. He did not, however, alight upon any case in which the argument as formulated by Mr Reed had been considered.

33. Having outlined the parties’ respective positions, I must now come to a decision. Part 5 – The Decision

34. In this part I shall refer to the date upon which a contractor or sub-contractor is required to complete as “date A”. That date may be specified in the contract or sub-contract. Alternatively, date A may be derived from the contract or sub-contract, for example because x weeks are allowed for carrying out the works. Alternatively, date A may be the consequence of one or more extensions of time granted by the person or body empowered to extend time.

35. I shall refer to a delaying event which occurs after date A as “event B”. I shall refer to the date upon which event B actually causes delay to start to occur as “date C”. Date C will usually postdate event B. For example, if the event B is an instruction to install additional lighting, date C may be the date when the electrical sub-contractor starts his first fix.

36. Carillion’s case in relation to Emcor’s sub-contract is that where a delaying event occurs after date A, the proper way to deal with the matter is to grant a non-contiguous extension of time. In other words, the sub-contractor is liable for all delay between date A and date C, but is not liable for delay during the period following date C. In this way the sub-contractor bears the consequences of the delay for which he is responsible. He does not bear the consequences of the delay caused by event B, which is not his fault.

37. This is a novel argument, which I do not recall ever encountering, either in practice at the Bar or when sitting as a TCC judge. Mr Reed submits that none of the authorities cited by Mr Cowan address that argument. Mr Reed says that he and Mr Neuberger have done extensive research of law journals and overseas authorities, but have not found any relevant material.

38. Let me now deal with the grounds of appeal in the order set out in paragraph 25 above. (i) The natural meaning of clause 11.3 of the sub-contract conditions.

39. In my view, whether one reads clause 11.3 in isolation or in its full context, the natural meaning of the words used is that the extension should be contiguous. I say this for five reasons: a) The phrase “any such revised period or periods” in clause 11.3.2 indicates that when the employer grants extensions of time he is 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 dates. b) The simple phrase “extension of time” in the last part of clause 11.3 has the natural meaning that the period of time which is allowed for the work is being made longer. c) The next phrase in the last part of clause 11.3 “by fixing such revised or further revised period or periods” naturally conveys the same meaning. d) The notice provision in clause 11.2.2.2 includes 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 ” (my underlining). Those words indicate that if the employer has granted an extension of time, he will 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. e) More generally, as I read and re-read the provisions of clauses 11 and 12, they all fit naturally with the assumption that any extensions of time granted will be contiguous.

40. I therefore reject the first ground of appeal. (ii) The authorities on extension of time

41. Let me now turn to the authorities cited by the judge and heavily relied upon by Mr Cowan. In Chestermount date A was 9 th May 1989. Event B was a group of variation instructions issued between February and July 1990. The architect granted a contiguous extension of time to September 1989 on the basis that the variation instructions had caused four months delay. The contractor contended that the architect should have granted an extension of time for the entire period from 9 th May 1989 to late 1990. The judge rejected that argument. He held that the extension of time should be the period of actual delay caused by the variation instructions; that extension of time should start on date A and thus it should end well before event B (the variation instructions) occurred.

42. The important feature of Chestermount is that both parties accepted that the extension of time should be contiguous. The employer was arguing for a short contiguous extension, limited in length to the actual period of the delay caused by the variation instructions. The contractor was arguing for a long contiguous extension, namely covering the whole period up to event B plus four months thereafter for the actual delay caused by event B. Neither party invited the arbitrator or the judge to award a non-contiguous extension of time starting on date C.

43. Similar comments apply to each of the other authorities cited. The authorities which we have reviewed are: Floods of Queensferry Limited v Shand Construction Limited [1999] B.L.R 319; Ascon Construction Limited v Alfred McAlpine Construction Isle of Man Limited (1999) 66 Con LR 119; Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 32; Multiplex Construction (UK) Ltd v Honeywell Control Systems Ltd [2007] BLR 195; Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm) ; [2011] BLR 384; Walter Lilly & Company Limited v Mackay [2012] EWHC 1773 (TCC) and McAlpine Humberoak Ltd v McDermott International Inc (No 1) (1992) 58 BLR 1. These cases involve main contracts and sub-contracts on a variety of standard forms. There are two common strands in the decisions. First, in each case the court only allowed extensions of time reflecting the actual delay caused by event B. Secondly, it was common ground between the parties that whatever extensions of time were awarded should be contiguous. In no case did either party contend that there should be an intervening period during which the contractor or sub-contractor was liable for delay, followed by a non-contiguous extension of time.

44. I therefore agree with Mr Reed’s contention that the authorities relied upon by Mr Cowan do not provide any direct support for Emcor’s case. On the other hand, the judge was right to say that those authorities support Emcor’s argument as to how a reasonable person with the parties’ knowledge of the background would understand clause 11.3. The blunt fact is that until the present litigation, apparently no one has ever argued that any extension of time clause requires or permits non-contiguous extensions of time to be granted. (iii) Commercial Common Sense

45. Mr Reed submits that, as a matter of commercial common sense, his interpretation of clause 11.3 should prevail.

46. Recent case law establishes that only in exceptional circumstances can considerations of commercial common sense drive the court to depart from the natural meaning of contractual provisions. See Arnold at [19] to [20]. In Grove the Court of Appeal applied those principles to a construction contract, which operated harshly against the interests of a contractor. The court declined to depart from the natural meaning of the contractual provisions.

47. I turn now to the substantive argument. Mr Reed points out that on the judge’s interpretation of clause 11.3 Emcor may be exempted from liability under clause 12 during a period when Emcor is in culpable delay. Emcor would then be made liable to the employer under clause 12 during a period when Emcor is not in culpable delay, for example because it is complying with a late variation instruction. The loss and damage suffered by Carillion during those two periods is unlikely to be the same. Therefore one or other party will gain a windfall benefit.

48. I am unable to see any answer to this argument. It is, at the very least, an oddity. We pressed Mr Cowan with this point in argument. He too was unable to suggest any convincing answer to it.

49. I am therefore bound to accept the logic of Mr Reed’s argument. On the other hand, as Oliver Wendell Holmes famously observed in his lectures on The Common Law , “the life of the law has not been logic: it has been experience”. In practice the system of awarding extensions of time contiguously has worked satisfactorily, even though it is open to the criticisms which Mr Reed advances. It appears that no contractor or sub-contractor in a reported case has ever before felt the need to argue that awards of time should be non-contiguous.

50. In the case of main contractors that omission is not surprising. Liquidated and ascertained damages are normally levied at a specified rate per week or per month. Therefore, it makes no difference whether any extension of time granted is contiguous or non-contiguous. In the case of sub-contractors, however, the position is different. Their liability for delay is often calculated (as in this case) by reference to the loss and damage which their delay has caused to the main contractor or to some other sub-contractor higher up the chain.

51. The judge accepted that anomalies of the kind identified by Carillion may arise. In her view, those possible scenarios were not sufficient to displace the natural interpretation of clause 11.3. I have come to the same conclusion. As the judge rightly observed, Emcor’s interpretation of clause 11.3 is practicable and workable. It accords to what a reasonable person, with all the background knowledge of the parties, would have understood the clause to mean on the date when the sub-contract was made.

52. Let me now draw the threads together. I am, perhaps, more troubled than was the judge by the anomalies to which clause 11.3 may give rise, especially in a case such as the present where there are multiple sub-contractors, who are said to have caused delay. On the other hand, I am in agreement with the judge that these considerations cannot displace the natural meaning of the words used in clause 11.

53. This is a case in which the parties, although following the wording of a standard form sub-contract, have made what may turn out in particular circumstances to be a bad bargain for one or other of them. That is no reason to depart from the natural meaning of the words which they used or adopted.

54. I turn now to Mr Reed’s ‘prevention’ argument. If (a) an employer delays a contractor or a contractor delays a sub-contractor and (b) there is no mechanism for extending the time allowed for completion of that contractor’s or sub-contractor’s work, then time becomes at large. The contractor or sub-contractor is no longer required to complete by a specified date or within the contractually specified period. There is, ordinarily, substituted an obligation to complete within a reasonable time: See Multiplex and Adyard .

55. In the present case the sub-contract contains a perfectly workable extension of time clause. If event B causes, say, two months delay, then the sub-contractor obtains a two month extension of time. The fact that the extension commences on date A, not date C, does not bring the prevention principle into operation. The sub-contractor is not prevented from carrying out the sub-contract works within the extended period which the sub-contract allows. If the sub-contractor fails to complete within that period (either through its own fault or because of the fault of others for whom the sub-contractor is responsible, or because of events for which the sub-contractor bears the risk) then the sub-contractor is liable to the main contractor under clause 12 of the conditions. The question whether the extension of time is contiguous or non-contiguous may affect the quantification of that liability. But it does not bring into play the prevention principle.

56. In the result, therefore, I would dismiss this appeal. Lord Justice Simon :

57. I agree. Lord Justice Flaux :

58. I also agree.