Hong Kong – Should Extensions Of Time Under Construction Contracts Run Contiguously Or Non-Contiguously From Original Completion Date?

5 June, 2017

 

In Carillion Construction Limited v Emcor Engineering Services Limited, Emcor (UK) Limited [2017] EWCA Civ 65, the  main issue before the court was whether extensions of time granted under the standard form of Domestic Sub-Contract “DOM/2” (Sub-Contract) should run contiguously i.e. immediately after what was previously the due date for completion, an important question for the construction industry. Both the Technology and Construction Court (TCC) and Court of Appeal answered that question in the affirmative, as that was the natural meaning of the words used in the Sub-Contract and was also consistent with commercial common sense. 

 

Background 

 

The Claimant (and Appellant) in this case was Carillion Construction Limited (Carillion), the main contractor for the construction of the new court buildings where the TCC is based. It engaged several sub-contractors, one of which was the 3rd Defendant (and 3rd Respondent), Emcor Engineering Limited (Emcor). 

 

Clause 11.2 of the Sub-Contract conditions required Emcor to give notice of delay or likely delay. According to Clause 11.3 of the Sub-Contract:- 

 

“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.” 

 

The completion date had been revised, and the final position was that Emcor was required to complete the works by 28 January 2011, which was also the revised contractual completion date under the main contract (Completion Date). Carillion failed to achieve practical completion under the main contract on the Completion Date and blamed its sub-contractors, including Emcor for causing delays. It claimed damages from Emcor and other parties involved in the project. . Emcor argued that it was entitled to an extension of time and was therefore not liable. 

 

TCC’s Ruling 

 

Ruling in Emcor’s favour, the TCC decided, as a preliminary issue, that assuming that Emcor was entitled to an extension of time pursuant to the Sub-Contract by fixing such revised or further revised period(s) for the completion of its Sub-Contract works, such revised period(s) are added contiguously to the end of the current period within which Emcor’s Sub-Contract works should be completed. The TCC found that this was the natural meaning of the words used in Clause 11.3 of the Sub-Contract conditions and was practicable and workable and also in line with commercial common sense. Carillion appealed the decision. 

 

Court of Appeal 

 

The Court of Appeal rejected Carillion’s argument that Clause 11.3 was permissive and that where a delaying event occurred after the date the sub-contractor ought to have completed, the main contractor had a choice to grant either a contiguous or non-contiguous extension of time.   

 

The Court of Appeal agreed with the TCC and ruled that the natural meaning of the words used in Clause 11.3 of the Sub-Contract (above) was that the extension of time should be contiguous because :

 

• the phrase “any such revised period or periods” in clause 11.3.2 indicated that when the employer (Carillion in this case) granted extensions of time, it was revising the period(s)originally stated in the Sub-Contract, rather than granting separate periods of justified delay with their own start and end dates;
• the simple phrases “extension of time” and “by fixing such revised or further revised period or periods” in the last part of Clause 11.3 had the natural meaning that the period of time which was allowed for the work was made longer;
• the words used in the notice provision in the Sub-Contract indicated that if the employer had granted an extension of time, he will have increased the length of the existing period(s) for doing sections of the works, not created new periods for doing the work, each with their own start and end dates;
• the provisions in the Sub-Contract all fit naturally with the assumption that any extensions of time granted would be contiguous;      
• the case authorities cited did not support Carillion’s case. No one had ever argued that any extension of time clause required or permitted non-contiguous extensions of time to be granted. 

 

Further, the Court of Appeal held that such interpretation was consistent with commercial common sense. In practice, the system of awarding extensions of time contiguously has worked satisfactorily, the Court of Appeal said, and Emcor's interpretation of clause 11.3 was practicable and workable. Further, such interpretation was in line with what a reasonable person, with all the background knowledge of the parties, would have understood the clause to mean when making the Sub-Contract. 

 

The Court of Appeal acknowledged that an interpretation imposing a contiguous time extension may give one party a windfall because it could lead to a sub-contractor being exempt from liability during a period when it was in culpable delay or render it liable to the contractor when it was not in culpable delay. However, this could not displace the natural meaning of words used in Clause 11.3. 

 

Comments 

 

In order to find out the meaning and legal effect of an extension of time clause, one must look at the actual wording of the contract. Different wording of the clause may give rise to different conclusions. In Hong Kong, there are two forms of sub-contracts commonly used in building projects which require the sub-contractor to complete within a period or extended period:- 

 

(1)    the old “Green Form” i.e. the standard form of sub-contract for use where the sub-contractor is nominated under the standard form of building contract (pre-2005 edition) ; and

 

(2)    the “Blue Form” i.e. the Hong Kong Construction Association Standard Form of Domestic Sub-Contract. 

 

Other forms such as the Standard Forms of Building Contract (2005 and 2006 editions) and Government Forms, in particular, the main contract conditions, all have a “Completion Date” and granting of extensions of time is by way of fixing a new completion date.