Liquidated Damages and Extensions of Time in Construction Contracts

Liq u id a t ed D a m a ges a n d
Ext en sion s o f Tim e

In Con st r u ct ion Con t ra ct s
Liquidated Damages and Extensions of Time: In Construction Contracts, Third Edition. Brian Eggleston
© 2009 Brian Eggleston. ISBN: 978-1-405-11815-6
Liq u id a t ed D a m a ges a n d
Ext en sion s of Tim e
In Con s t r u ct ion Con t ra ct s
Th ird Ed it ion
Brian Eggleston
CEng, FICE, FIStructE, FCIArb
A Joh n Wiley & Son s, Lt d., Pu blicat ion

This ed ition fi rst p u blished 2009
© 1992, 1997, 2009 Brian Eggleston
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Library of Congress Cataloging-in-Publication Data

Eggleston, Brian, CEng.
Liquid ated d am ages and extensions of tim e in constru ction contracts /
Brian Eggleston. — 3rd ed .
p . cm .
Includ es bibliographical references and ind ex.
ISBN 978-1-4051-1815-6 (hard back : alk. p ap er). 1. Constru ction contracts—
England . 2. Perform ance (Law )—England . 3. Breach of contract—England .
4. Dam ages—England . 5. Tim e (Law )—England . 6. Constru ction contracts—
Wales. 7. Perform an ce (Law )—Wales. 8. Breach of contract—Wales.
9. Dam ages—Wales. 10. Tim e (Law )—Wales. I. Title.
KD1641.E34 2009
343.41′078624—d c22
2008044760
A catalogue record for th is book is available from the British Library.
Set in 10/ 12 p t Palatin o by SN P Best-set Typ esetter Ltd ., H ong Kong

Printed in Great Britain by TJ In tern ation al Ltd , Pad stow, Cornw all
1 2009
Con ten ts
Preface ix
References x
Acknowledgements xi
1 In trod u ction 1
1.1 General overview 1
1.2 Legal d evelop m ents 10
1.3 Contractual d evelopm ents 14
2 Tim e in con tracts 16
2.1 Problem s w ith term inology 16
2.2 Cond itions and w arranties 17
2.3 Term ination 20
2.4 Tim e for perform ance 22
2.5 Tim e of the essence 25
2.6 N otice m aking tim e of the essence 30
2.7 Tim e at large 33
2.8 Reasonable tim e 34
2.9 Fixing tim e by reference to correspond ence 39
2.10 The effect of tim e at large on the contract price 39
3 D am ages for late com p letion 41
3.1 Liqu id ated and general d am ages d istingu ished 41
3.2 Princip les of general dam ages 43
3.3 Alternative rem ed ies 49
3.4 Can general d am ages exceed liquid ated d am ages? 57
3.5 Und er-liqu id ation of d am ages 58
3.6 Dou ble d am ages 61
3.7 Liability for d am ages in tort 64
3.8 The Panatown problem 66
4 Liq u id ated d am ages an d p enalties 71
4.1 Penalties – general introd u ction 71
4.2 Liqu id ated d am ages 76
4.3 Liqu id ated d am ages and penalties d istinguished 78
4.4 Pre-estim ates of d am age 104
4.5 Particular asp ects of penalty clauses 117
4.6 Evidential m atters 123
4.7 Bonu s clau ses 125
4.8 Site occu pation charges 128
5 Preven tion 131
5.1 Princip le of prevention 131
5.2 N eed for extension of tim e provisions 133
vi Contents
5.3 Defi ning an act of prevention 136

5.4 Prevention after the com pletion d ate 138
5.5 Effect of late variations on unliquid ated d am ages 142
5.6 Prevention and tim e at large 143
5.7 Cond itions p reced ent and tim e-bars 144
5.8 Steria Ltd v. Sigma Wireless Communications Ltd (2007) 150
6 Legal con stru ction of liq uidated d am ages clau ses 156
6.1 Ru les of constru ction 156
6.2 Contra proferentem rule 160
6.3 Restrictions on im plied term s 163
6.4 ‘Catch all’ p hrases 163
6.5 Inconsistencies in d rafting 166
7 Effects of d eterm in ation 170
7.1 The qu estion of continuing responsibility 170
7.2 British Glanzstoff 170
7.3 Contractu al p rovisions 171
7.4 N ovations 172
7.5 Su m m ary on liquid ated dam ages 173
7.6 Determ ination and lim itation on liability 173
8 Prob lem s with section al com pletion 175
8.1 Discovering the parties’ intentions 175
8.2 Prop ortioning d ow n clauses 175
8.3 Provisions for sectional com pletion 177
8.4 Requ irem ents not fu lly specifi ed 177
9 App lication to su b -con tractors 179
9.1 Effect of ‘stepp ing-dow n’ provisions 179
9.2 Can there be a genuine pre-estim ate of loss? 180
9.3 Com m ercial considerations 181
9.4 N om inated su b-contracts 182
10 Recovery of liq u id ated d am ages 188
10.1 When do liqu id ated d am ages becom e payable? 188
10.2 Meaning of com p letion 190
10.3 Certifi cates and cond itions p reced ent 196
10.4 Method s of recovery 200
10.5 Time lim its on recovery 202
10.6 Interest on repaym ent 203
10.7 Withhold ing notices 204
10.8 Decisions of ad jud icators 206
11 D efen ces / ch allen ges to liq u id ated d am ages 209
11.1 Benefi ts of preced ents 209
11.2 Extension of tim e d ue 209
11.3 Com p letion achieved earlier than certifi ed 218
11.4 Certifi cates not valid 219
11.5 Cond itions p reced ent not observed 226
Contents vii
11.6 N o d ate for com m encement 227

11.7 Prevention 228
11.8 Penalties 228
11.9 Provisions void for uncertainty 230
11.10 Waiver / estop pel 230
11.11 Unfair Contract Term s Act 1977 232
12 Exten sion s of tim e 236
12.1 Pu rp oses of extension provisions 236
12.2 N otices, ap plications and assessm ents 237
12.3 Tim e for granting extensions 242
12.4 Ap plication to claim s 246
12.5 Proof of entitlem ent 248
12.6 Global claim s 250
12.7 The liability of certifi ers 263
13 Relevan t even ts 265
13.1 Force m ajeure 265
13.2 Ad verse w eather 267
13.3 Civil com m otion, strikes, etc. 270
13.4 Dam age to the w orks 271
13.5 Sub-contractors 272
13.6 N on-availability of resources 274
13.7 Statutory u nd ertakers’ w orks 275
13.8 Other sp ecial circum stances 276
13.9 Statutory p ow ers 276
13.10 Possession and access 277
13.11 Late issu e of draw ings and instructions 278
13.12 Variations and extra works 281
13.13 Com p liance w ith instructions 281
13.14 Unforeseen physical conditions 282
14 Cau sation an d con cu rren cy 285
14.1 Introd u ction 285
14.2 Cau sation generally 286
14.3 Concurrency generally 289
14.4 Dom inant cau se app roach 291
14.5 Ap portionm ent 292
14.6 Ru les for extension of tim e 297
14.7 Discu ssion on variou s ap p roaches 297
14.8 Extensions w hen in culpable d elay 300
15 Program m es, m eth od statem en ts and best en d eavours 302
15.1 Status of contractor ’s p rogram m es and
m ethod statem ents 302
15.2 Programm es 302
15.3 Shortened p rogram m es 306
15.4 Method statem ents 308
15.5 Best end eavou rs and the like 309
viii Contents
16 D elay an alysis 313

16.2 Critical p aths 316
16.3 Float 318
16.4 Method s of d elay analysis 320
16.5 Ju d icial com m ents on delay analysis 322
17 Bu ild in g form s 325
17.2 JCT 2005 contracts 325
17.3 Com m encem ent and com pletion 326
17.4 N otifi cation of d elay 327
17.5 Extension of tim e 328
17.6 Relevant events 332
17.7 N on-com pletion certifi cates 333
17.8 Paym ent of liquidated d am ages 334
17.9 Proportioning d ow n of liquid ated dam ages 336
18 Civil en gin eerin g form s 337
18.1 N EC 3 – Engineering and Construction Contract, 2005 337
18.2 ICE Cond itions of Contract – 7th edition, 1999 343
18.3 ICE Cond itions of Contract for Minor Works –
3rd ed ition, 2001 350
18.4 CECA Form of sub-contract, 2008 353
19 Process an d p lan t form s 356
19.1 The IChem E Red Book – 4th ed ition, 2001 356
19.2 MF/ 1 (Rev. 4) 2000 ed ition 360
20 FID IC con d ition s of con tract 1999 372
20.1 FIDIC contracts 372
20.2 Com m encem ent and com pletion 373
20.3 Extension of tim e 374
20.4 Delay d am ages 377
Tab le of Cases 379
Index 389
Preface to Th ird Ed ition
The fi rst ed ition of this book, intend ed as a constru ction ind ustry guid e to
the pu rp oses and p erils of liquid ated d am ages and extensions of tim e, w as
pu blished in 1992. The second edition follow ed in 1997, by w hich time it
had becom e evid ent that the book w as also of interest to law yers as a com-
pendiu m of cases. In this third edition I have end eavou red to retain the
original intent w hilst at the sam e time covering in som e d etail new cases, of
w hich there are m any, refl ecting cu rrent ap proaches of the cou rts to various
legalistic problem s. For that reason, and recognising that many read ers of
this book m ay not have read y access to court jud gm ents or the tim e or incli-
nation to stu d y them in d ep th, the extracts I have includ ed from the m ore
im portant ju d gm ents are som etim es lengthy bu t hop efully no m ore so than
su ffi cient to explain their purpose.
I have been su rp rised at the large am ount of new m aterial. The fl ow of
cases seem s to have risen d ram atically over the past ten years or so. One
likely reason for this is that the right to ad jud icate d isp utes has increased
their volu m e w ith a correspond ing increase of the follow -on w ork of the
courts. Another likely reason is the present high standing of the Technology
and Constru ction Court.
One change to the book I have been obliged to m ake has been to aband on
the earlier inclu sion of provisions for liquidated d am ages and extensions of
time from all w ell-used standard form s of constru ction, process and plant
contracts. Such has been the m ultip licity of new and am end ed form s in
recent years that all that can be done now is to includ e a selection of the
lead ing stand ard form s.
That change ap art, the stru ctu re of the third ed ition is broad ly the sam e
as in p revious ed itions. There is, how ever, a new chap ter on d elay analysis
and the chapters covering penalty clau ses, the effects of cond itions prece-
d ent and tim e-bars, and the com plexities of cau sation have been signifi -
cantly exp anded .
I am ind ebted to m any friend ly law yers for bringing cases to m y attention
and for p rovid ing m e w ith transcripts of the ju d gm ents but sp ecial m ention
m u st go to Mr N eil Kelly of MacRoberts for com piling three enorm ou s
volu m es of cases w ithout w hich I w ou ld have stru ggled to prod uce this
third ed ition.
Brian Eggleston
Ju ly 2008
Referen ces
The follow ing books are referred to in variou s p arts of the text:
Anson – Anson’s Law of Contract, 26th ed ition, A.G. Gu est (ed .), The
Clarend on Press, Oxford .
BLR – Bu ild ing Law Reports, Volu m es 1–79, H . Lloyd , N . Baatz, D.
Streatfi eld -Jam es, P. Fraser and R. Clay (ed s), F.T. Law and Finance,
Lond on.
Emden – Em d en’s Constru ction Law, 8th ed ition, A.J. Anderson, S.
Bickford -Sm ith, N .E. Palm er and R. Red m ond-Cooper (ed s), Butterw orth,
Lond on.
Hudson – H u d son’s Build ing and Civil Engineering Contracts, 11th ed ition,
I.N. Du ncan-Wallace (ed .), Sw eet & Maxw ell, London.
Keating – Keating on Construction Contracts, 8th ed ition, V. Ram say and
S. Fu rst (ed s), Sw eet & Maxw ell, Lond on.
Ack n owled gem en ts
The clau ses in Chapters 17, 18, 19 and 20 are rep rod uced by kind p erm ission
of the copyright hold ers:
Stand ard Form of Bu ild ing Contract

• The Joint Contracts Tribunal
ICE Cond itions of Contract
ICE Cond itions of Contract for Minor Works

• Institution of Civil Engineers/ Association of Consu lting Engineers/ Civil
Engineering Contractors Association
The New Engineering Contract

• Institution of Civil Engineers
FIDIC Cond itions of Contract
• Féd ération Internationale d es Ingénieurs-Conseils
CECA Form of Sub-Contract
• Civil Engineering Contractors Association
Mod el Form – MF/ 1
• Institution of Electrical Engineers
The IChem E Red Book
• Institution of Chem ical Engineers
Chap ter 1
In trod u ction
1.1 Genera l overview
There is an old saying that tim e is m oney. It certainly is in the w orld of busi-
ness and no m ore so than w hen a construction contract overruns its allotted
time for com pletion. When that hap pens, both p arties can exp ect to suffer.
This book is essentially about how contracts deal w ith the fi nancial conse-
quences of late com p letion and how, w ithin the scop e of the law and the
scope of the contractual provisions, the p arties end eavou r to protect their
respective interests.
To those not d eep ly involved w ith su ch m atters it m ight seem extraord i-
nary that it requ ires a book of som e magnitu d e to explore the fu ll com -
plexities of the su bject. To exp lain this conund rum this fi rst section of the
book provid es a general overview of the law relating to liqu idated d am ages
and extensions of tim e. This review w as, for the m ost part, the op ening
chap ter of previou s ed itions of the book.
Breach es of con tract
Every breach of contract carries w ith it the p otential for d isp ute. There m ay
be those w ho thrive on d ispu te bu t they rarely includ e the parties to the
contract. N ot surprisingly it has long been accepted as good com m ercial
practice for the parties to includ e in their contracts p rovisions for d ealing
w ith the m ost likely breaches. This is how standard form s of contract and
the u se of liqu id ated d am ages began to d evelop.
In the constru ction ind u stry, breaches of contract are comm onplace to the
point of being rou tine. Did any em ployer ever w holly avoid im ped ing the
contractor in the p erform ance of his obligations and d id any contractor ever
w holly fulfi l his obligations w ithou t fault? Not often. This is refl ected in the
stand ard form s and m ost contain clau ses d etailing the proced ures to be
applied and the recovery p erm itted in the event of those sp ecifi ed breaches
id entifi ed and d escribed w ith the benefi t of centu ries of experience.
When the em ployer is in breach by w ay of interference or p revention
arising from late su pp ly of inform ation, failure to give fu ll p ossession of the
site and the like, the result for the contractor is d elay, d isrup tion and involve-
m ent in loss and exp ense or extra cost. The contractu al remed y gives the
contractor recovery of his provable loss and expense or extra cost and , in
appropriate circum stances, an extension of tim e for com pletion. In som e
2 1.1 General overview
contracts certain breaches by the em ployer, such as failure to m ake paym ent
on an interim certifi cate, entitle the contractor to d eterm ine his em ploym ent
under the contract bu t such rem ed ies are few and as a general ru le the
contractor ’s rem ed y for em ployer ’s breach is the recovery of general or
unliqu id ated d am ages. That is to say, d am ages w hich are assessed after the
breach.
The contractor ’s breaches of contract are m ost com m only failure to proceed
with d u e d iligence, failu re to m eet specifi ed stand ard s and failure to com -
plete on tim e. Only in resp ect of the last d oes the em ployer have a solely
fi nancial contractual rem edy. For other breaches he m ay have the right to
term inate the contractor ’s em ploym ent or ord er reconstru ction bu t he w ill
rarely have an entitlem ent to d ed uct m oneys from sum s d ue to the contrac-
tor. The em p loyer m ay, of course, sue for latent or p atent d am age bu t this
is a com m on law rem ed y rather than a contractual one.
The emp loyer ’s position is, therefore, signifi cantly d ifferent from the con-
tractor ’s. Whereas the contractor has a fi nancial rem ed y for nu m erou s and
variou s breaches, the em p loyer has his for only one breach of com m on
occurrence – failure by the contractor to com p lete on tim e. And w hereas the
fi nancial effects of the em ployer ’s breach on the contractor can rarely be
estim ated in ad vance of the breach, not least because of the involvem ent of
sub-contractors, the fi nancial effects of the contractor ’s late com p letion can
usually be estim ated w ith som e certainty.
Consequ ently m ost stand ard form s of constru ction contract are d rafted to
perm it the parties to fi x in ad vance the d am ages payable for late com p letion.
When these d am ages are a genuine pre-estim ate of the loss likely to be suf-
fered or a lesser su m they can rightly be term ed liquid ated d amages.
In short, liquid ated d amages are fi xed in ad vance of the breach, w hereas
general or u nliqu id ated d am ages are proven d am ages assessed after the
breach.
The p ractice of liqu id ating d am ages is by no m eans of recent origin. The
Shorter Oxford English Dictionary gives 1574 as the earliest know n d ate for
‘ascertained and fi xed in am ount’ as the m eaning of the w ord ‘liqu id ated ’.
And from the courts there are num erous law rep orts d ating back to the early
19th centu ry of cases concerned w ith liqu id ated d am ages in construction
contracts.
Ind eed this is a su bject on w hich Kip ling’s fam ou s lines seem to be p ar-
ticularly relevant:
‘H ow very little since things w ere mad e
Things have altered in the bu ilding trad e.’
Hudson’s Building and Engineering Contracts gives the 1838 case of Holme
v. Guppy in w hich carp entry contractors at a brew ery fi nished late and
sou ght relief from d ed u ction of liqu idated d am ages from the contract price
on the ground s that the em ployer had prevented them from fi nishing on
tim e by d elay in giving p ossession of the site and by d elays on the part of
his ow n w orkm en. A fam iliar story w hich could have com e from any m od ern
d ay contract. And , as it hap pened , nearly a centu ry and a half later, Lord
Justice Salm on referred to Holme v. Guppy in his jud gm ent in Peak v.

McKinney (1970) w hen saying:
‘I cannot see how, in the ord inary cou rse, the em ployer can insist on
com p liance w ith a cond ition if it is p artly his ow n fau lt that it cannot be
fulfi lled .’
Peak v. McKinney is the m od ern authority on prevention – a subject to be
consid ered in som e d etail in later chapters.
Liq u id ated d am ages an d pen alties
The association betw een liqu id ated d am ages and penalties lies in the natu re
of the rem ed y – an agreed price to be p aid for breach or non-perform ance.
The p arties m ay agree any price they w ish; they are not bou nd by any ru les
and if the p rice they agree is clearly intend ed to p enalise the d efaulting party
rather than to com p ensate and restore the p osition of the innocent p arty, that
is a m atter for the p arties. When Antonio in Shakespeare’s The Merchant of
Venice agreed to give a pound of his fl esh if he d efaulted on his bond he d id
so w illingly – albeit in the m istaken belief that his d efau lt w ould never
occu r.
The question w hich is of prim e imp ortance to the p arties in agreeing their
price is, w ill the cou rts assist them in enforcing paym ent? In The Merchant
of Venice Portia could fi nd nothing in Venetian law to p revent the app lication
of the p enalty and Antonio was saved only by the im possible precision of
the penalty – a p ou nd of fl esh, no m ore nor less; and not a d rop of blood to
be inclu d ed .
In fact m any legal systems d o allow the recovery of penalties and it is
som ething of a p eculiarity of English law that the courts w ill look at the
price irresp ective of w hether it is called liqu id ated d am ages or a p enalty,
and , if it is found to be a penalty, w ill lim it dam ages to the am ount fl ow ing
from the breach.
The origin of this lies in the branch of ju stice nam ed equ ity, w hich trad i-
tionally relieved against penalties but for the last tw o centuries the d octrine
has been taken up and applied by the com m on law. The logic of the position
seem s to be that since a penalty is d esigned to secu re perform ance, the
prom isee is suffi ciently com p ensated by recovery of his actu al loss and he
is not entitled to d em and a su m w hich although fi xed by agreement is d is-
prop ortionate to the actu al loss suffered .
An early exam ple of the thinking of the courts is Kemble v. Farren (1829)
w here it w as held that a sum of £1000 to be p aid for any breach, and said
by the parties to be liqu id ated and ascertained d am ages and not a penalty,
w as held nonetheless by the court to be a p enalty.
How ever, the cou rts show a sensible reluctance to go too far in interfering
in the com m ercial bargains struck by the p arties. In the case of Elsley v. J.G.
Collins Insurance Agencies (1978) Jud ge Dickson, d elivering the jud gm ent of
the Sup rem e Court of Canad a, said :
‘It is now evid ent that the pow er to strike d ow n a penalty clau se is blatant
interference w ith freed om of contract and is d esigned for the sole purp ose
of p rovid ing relief against oppression for the party having to pay the
stipu lated sum . It has no place where there is no op pression.’
Later thinking of the cou rts was given by Lord Roskill in the case of Export
Credits Guarantee Dept v. Universal Oil Products Company (1983), w here he
said:
‘My Lord s, one pu rp ose, perhaps the main pu rp ose, of the law relating
to penalty clau ses is to prevent a plaintiff recovering a su m of m oney in
respect of a breach of contract com m itted by a d efend ant w hich bears
little or no relationship to the loss actu ally su ffered by the p laintiff as a
result of the breach by the defendant. Bu t it is not and never has been for
the courts to relieve a party from the consequ ences of w hat m ay in the
event p rove to be an onerous or possibly even a com m ercially im p ru d ent
bargain.’
And in The Angelic Star (1987) Lord Justice Gibson said that the doctrine
of p enalties w as not a rule of illegality. It w as a rule of p ublic policy by w hich
the courts refu sed to sanction legal p roceed ings for recovery of a p enalty.
The ru le w as not d esigned to strike d ow n any m ore of a law ful contract than
was necessary to app ly p ublic policy. It shou ld interfere as little as possible
with p roper enforcem ent of a law fu l contract.
The case of Kemble v. Farren w as one of m any consid ered by Lord Du ned in
in his ju d gm ent in Dunlop Pneumatic Tyre Company Ltd v. New Garage (1915)
which stand s to this d ay as provid ing the princip al tests for d istingu ishing
liquid ated d am ages from p enalties.
Becau se of its continu ing im portance the case is exam ined in d etail in
Chapter 4 but the follow ing short extract from Lord Du ned in’s jud gm ent is
given here to sum up the p oint:
‘The essence of a penalty is a p aym ent of m oney stip ulated as “in terro-
rem ” of the offending party: the essence of liqu id ated d am ages is a
genu ine covenanted p re-estim ate of d am age.’
Contentions that liqu id ated d am ages are, in law, penalties rank highly
am ongst the d efences p u t u p to avoid paym ent of liqu id ated d amages. This
is not so much that the stipu lated sum s are patently extravagant and evid ently
intend ed as threats but m ore because of the ingenuity of law yers in making
argu able cases from d iscrep ancies and od dities in contract d ocum ents.
The su bject is u nd ou bted ly com plex and it offers an excuse perhaps for
the com m on m isconception that d am age m ust be su ffered before liqu id ated
d am ages becom e payable. Usually this line of thought app lies to public
sector p rojects or non-com m ercial buildings such as chu rches. How ever,
those w ho harbou r su ch thoughts, m ostly contractors it m ust be said , even-
tually learn to their d ism ay that the test for enforcem ent of liquid ated
d am ages is: w ere they a genuine pre-estim ate of loss at the tim e the contract
was m ad e? If it is not, can loss be proved after the breach? Indeed as later
chapters w ill reveal, p rovid ing the liqu id ated d am ages are a genuine p re-
estim ate or a lesser su m , not only need there be no proof of loss, there need
be no loss at all for the d am ages to becom e enforceable.
Since the fi rst ed ition of this book w as pu blished in 1992 the law on liq-
uid ated d am ages and p enalties has been exam ined and clarifi ed by the
English and Com m onw ealth cou rts in a surp rising num ber of cases. The
m ore notew orthy are consid ered in later chap ters.
Am ongst the m ost im p ortant of these cases is that of Philips Hong Kong
Ltd v. Attorney General of Hong Kong w hich travelled throu gh three tiers of
the courts in 1990, 1991 and 1993. The conclu d ing d ecision of the Jud icial
Com m ittee of the Privy Council given in 1993 p rovid es the basis of the
current ap proach of the courts on the qu estion of w hen in law liquid ated
d am ages are to be regard ed as penalties.
The d ecision of the Privy Council restated the p rinciples that the cou rts
shou ld not ad op t an ap proach to provisions for liquid ated d am ages w hich
could d efeat their purpose and that the test for d eterm ining w hether a p ro-
vision for liquid ated d am ages is a penalty is w hether or not it is a genu ine
pre-estim ate of loss.
G en u in e p re-estim ate of loss
The relationship betw een a pre-estim ate of loss and liquid ated d am ages
raises som e d iffi cu lt questions, not least how can there be a genuine pre-
estim ate of loss for a non-com m ercial project? This w as an argu m ent
pu t forw ard by the ship build ers in Clydebank Engineering Co. v. Yzquierdo y
Castaneda (1905) w here the contract for the build ing of four warships pro-
vid ed that ‘the p enalty for late d elivery shall be at the rate of £500 per week’.
It w as said by Clyd ebank in opposing an action to enforce the p enalty clau se
that there can be no genu ine pre-estim ate of loss as a w arship d oes not earn
m oney. But Lord H alsbury refuted the argu m ent and held the stated su m to
be liqu id ated d am ages, establishing that d iffi cu lty in ascertainm ent is no
barrier to an estim ate being m ad e.
The ru ling has been follow ed by the cou rts on m any occasions and not
infrequ ently the p oint has been m ad e that the very d iffi culty in ascertaining
d am ages for late com p letion is a good reason w hy su ch d amages should be
liqu id ated . For exam p le, Lord Duned in in his jud gm ent in the Dunlop case
restated the p oint m ad e by Lord H alsbu ry in the Clydebank case that:
‘It is no obstacle to the sum stipulated being a genuine pre-estim ate of
d am age, that the consequences of the breach are such as to m ake precise
pre-estim ation alm ost an im possibility. On the contrary, that is ju st the
situ ation w hen it is p robable that p re-estim ated d amage w as the tru e
bargain betw een the p arties.’
There is no bar therefore to a genuine pre-estim ate of loss in non-
comm ercial p rojects and various m ethod s and form u lae have been d evised
for ap p lication in the construction ind u stry w hich m eet satisfactorily the test
of a genuine p re-estim ate.
If one p arty wishes to challenge the su m so calcu lated and stated in the
contract as liqu id ated d am ages, the best tim e to d o so is before the contract
is signed . Post contract challenges to liquidated d amages on the ground s
that they are not a genu ine pre-estim ate of loss have had a poor record of
success in the cou rts in the past and are likely to have even less in the
fu ture.
Agreed n atu re of d am ages
There is a view that too m uch attention is som etim es given to the ‘pre-
estim ate’ aspect of liqu id ated dam ages and not enou gh to the agreed natu re
of su ch d am ages. This is not a plea for the enforcem ent of p enalties but a plea
for greater recognition of the fact that liquid ated d amages are frequently not
a genu ine p re-estim ate of loss bu t are sim ply a sum agreed by the parties as
part of their com mercial bargain. In short, the parties, u sing their com m er-
cial ju d gm ents, agree a sum w hich serves as com pensation for the em p loyer
and lim itation of liability for the contractor. Where that sum is less than a
genu ine p re-estim ate it w ill not be in law a p enalty – althou gh that has not
alw ays been w ithou t d ou bt – but this d oes raise the qu estion, w ho can say
whether or not a su m is m ore or less than a genuine pre-estim ate if there
was no pre-estimate to start w ith? The im p lications of this are consid ered
later.
Exh austive rem ed y
There is som etim es the question of w hether or not liqu id ated d am ages
provid e an exhau stive and exclusive rem ed y.
At fi rst sight there w ou ld seem to be no d ou bt w hatsoever on this. Why
introd uce liquid ated d am ages into a contract to give both parties the benefi t
of certainty of know led ge of the consequences of the relevant breach if the
liquid ated d amages clause can be avoid ed and general or unliqu id ated
d am ages can be claim ed ?
The Court of Appeal in the case of Temloc Ltd v. Errill Properties Ltd (1987),
where liqu id ated d am ages had been stated as £nil, fi rm ly su pported the
exhau stive rem ed y p rincip le. Lord Ju stice Nourse said in the course of his
jud gment:
‘I think it clear, both as a m atter of constru ction and as one of com m on
sense, that if . . . the parties com plete the relevant parts of the ap pend ix,
. . . then that constitu tes an exhau stive agreement as to the d am ages w hich
are . . . p ayable by the contractor in the event of his failu re to com p lete
the w orks on tim e.’
Why, then, shou ld there be a question of w hether or not liqu idated d am ages
provid e an exhaustive and exclu sive rem ed y? Firstly because it is not u ncom -
mon for em p loyers w ho fi nd their actu al losses to be greater than their
liquid ated d am ages to argu e that they have retained , and are entitled to
pu rsu e, their com m on law rights to su e for the d am ages they can p rove to
have been incu rred . And second ly because both Lord Ju stice Bingham and
Lord Justice Parker in the Court of Appeal in E. Turner & Sons v. Mathind Ltd
(1986) expressed forcefu l view s, albeit obiter and therefore not bind ing
authority, to the effect that the em p loyer cou ld have both liquidated d am ages
for failu re to com plete the w hole w orks on tim e and unliqu idated d am ages
for failu re to m eet p hased handover d ates. Fu rtherm ore a N ew Zealand
Cou rt in the case of Baese v. Bracken (1989) d eclined to follow the ruling in
Temloc v. Errill on ‘nil’ d am ages and ad vanced an interesting argum ent on
w hy, given certain form s of w ord ing, a liqu id ated d am ages clau se is an
alternative to unliqu id ated d am ages. More w ill be said on both cases later
but it will be a bad d ay for the construction ind ustry if the certainty brou ght
to contracts by liqu id ated dam ages is ever lost.
Exten sion s of tim e
Just as there are m any m isund erstand ings on the p u rpose and p rinciples of
liqu id ated d am ages, there are m any on extensions of tim e.
It is a comm on belief that liqu id ated d amage provisions are solely for the
benefi t of the em p loyer and extensions of tim e p rovisions solely for
the benefi t of the contractor. Both view s are not only w rong but almost the
reverse of tru e intentions. Liquidated d am ages provisions are benefi cial to
contractors for they not only limit the contractor ’s liability for late com ple-
tion to the sum s stipu lated , but they also ind icate to the contractor at the
time of his tend er the extent of his risk.
Thu s, if a contractor believes that he cannot com plete w ithin the tim e
allow ed he can alw ays bu ild into his tend er p rice his estim ated liability for
liqu id ated d am ages.
All that the em p loyer gets out of liqu id ated d am ages is relief from the
burd en of p roving his loss and usually, in construction contracts, the right
to d ed uct liqu id ated dam ages from su m s d ue to the contractor. To the extent
that the em ployer ’s true losses m ay be greater than the stipu lated level of
liqu id ated d am ages he is d isad vantaged by agreeing to a restrictive rem ed y.
Ind eed d u ring the prop erty boom s of the 1980s m any em ployer / d evelop-
ers p referred to enter contracts w ithout liqu id ated d am ages because rental
valu es w ere rising so qu ickly that liqu id ated d am ages w ou ld alm ost in-
variably u nd erstate true losses. Bu t not su rp risingly few contractors w ere
prep ared to op erate und er such terms since their liability for late com pletion
w as not only u ncertain bu t potentially crip pling.
Sim ilarly w ith extensions of tim e provisions, the fact that the contractor
is the obviou s recip ient of benefi t in gaining relief from liquidated d am ages
obscu res the p rim ary pu rp ose of su ch provisions. That is, they p reserve the
contractor ’s obligation to com plete w ithin a sp ecifi ed tim e and in d oing
so they preserve the em p loyer ’s right to liquidated d am ages w hen, by p re-
vention, he has d elayed the contractor and is resp onsible in part for late
comp letion. That w as the p oint at issue in Holme v. Guppy (1838) and Peak
v. McKinney (1970) m entioned earlier.
The am ou nt of d etail in stand ard form s of contract on p roced ural ru les

for m aking extensions of tim e varies enorm ou sly. Build ing contracts tend to
have elaborate schem es w hereas process and plant contracts say very little.
Much of the case law relating to the p roced ures for extend ing tim e concerns
the alleged non-observance of particu lar ru les and is of only lim ited assis-
tance in setting general gu id elines. That m ay account for the fact that there
is a great d eal of variability and unp red ictability in aw ard s of extensions of
tim e. In later chap ters of this book an attem p t is m ad e to d erive from case
law the basic ru les w hich shou ld be follow ed. Of p articu lar note are a clutch
of recent cases rep orted since the fi rst ed ition of this book w as pu blished .
John Barker Construction Ltd v. London Portman Hotel Ltd (1996) is imp ortant
because it em p hasises the need for an analytical app roach to the investiga-
tion of d elay and the correspond ing extension d ue. Balfour Beatty Civil Engi-
neering Ltd v. Docklands Light Railway Ltd (1996) confi rm s the need for
d iscretion to be exercised w ith fairness w hen extensions are being consid -
ered . And , Balfour Beatty Building Ltd v. Chestermount Properties Ltd (1993)
confi rm s that extensions granted for entitlements to extensions arising after
the com p letion d ate has p assed should be on a ‘nett’ rather than a ‘gross’
basis.
Preven tion
If the extension of tim e clau se fails to cover the em p loyer ’s fault then u sually
the right to liqu id ated d am ages is lost; the liqu id ated d am age clau se fails;
and the em p loyer is left to sue for general d am ages which mu st be p roved .
Lord Salm on in Peak m ad e the follow ing statem ent:
‘If the failure to com p lete on tim e is d u e to the fau lt of both the em ployer
and the contractor, in m y view, the clause d oes not bite.’
Consequ ently, extension of tim e clauses are d rafted to inclu d e the likely
range of events for w hich the em ployer is resp onsible, althou gh as w ill be
seen later, not all are successfu l and there rem ain som e rem arkable gaps in
well used build ing and civil engineering form s.
Most stand ard form s d o, of course, also provid e for extensions of tim e for
a range of neu tral events associated w ith bad w eather, ind u strial d isp utes
and the like and it is u nd erstand able that in resp ect of these m atters the
benefi t shou ld seem to be w holly for the contractor. On a narrow view it is,
bu t on a broad er view the inclu sion of neu tral events for extensions of tim e
is part of the give and take of the consultative drafting process and the
establishment of an accep table balance of risk between the parties.
Relation sh ip to claim s
The p urp ose of extension of time provisions is further com p licated and
wid ely confu sed by the linkage in the ind ustry of extensions of tim e and
claim s for loss and exp ense or extra cost. This is not a legal link, nor is it in
m ost stand ard form s a contractual link, since the extension of tim e clau ses
and the fi nancial claim clauses usually stand alone. Bu t w hat has hap pened
over the years is that contractors have d eveloped the m axim : get time fi rst
and the m oney w ill follow, and contract ad m inistrators have also fou nd
extensions of tim e a u seful peg on w hich to hang claim s w hen justifi cation
for ap proval of p ayment has to be m ad e to the em p loyer or his aud itors.
From this has grow n the operational p ractice of separating extensions of
time and events giving rise thereto into ‘reimbu rsable’ and ‘non-reim bu rs-
able’ categories; the fi rst set covering em ployer ’s fault and the second set
covering neu tral events. ‘Operational’ is u sed in the sense that those seeking
and those granting extensions of tim e play their card s to suit the circu m-
stances of their situ ation, and though there m ay be no distinctions in the
contract betw een reim bursable and non-reim bu rsable extensions and prob-
ably none in the corresp ond ence exchanged on the applications, both p arties
are aw are of the other ’s intentions.
The court in Fairweather & Co. Ltd v. London Borough of Wandsworth (1987)
took a p ractical view of the relationship betw een claim s and extensions of
time w hen consid ering the problem of concu rrent d elays, notw ithstand ing
the w ell established d om inant event app roach w hich takes a d etached view
of the relationship .
Althou gh this book is not about claim s, the im p ortance of extensions of
time in claim su bm issions has to be recognised and consequ ently attention
is given to the su bject in later chapters. In connection w ith claim s the phrase
‘loss and expense or extra cost’ is used. This is not a new form of contractu al
entitlem ent. It is sim ply that this book is intend ed to cover both build ing
and civil engineering contracts and it so hap p ens that build ing contracts
usu ally refer to ‘loss and expense’ and civil engineering contracts to ‘extra
cost’.
Ad d ition al tim e for th e em p loyer
Because the obligation to com plete the works of a contract on tim e rests w ith
the contractor and becau se the essential pu rpose of an extension of tim e
clau se is to m aintain a fi xed tim e for com p letion it is und erstand able that
m ost extension of time clauses are drafted so as to be app licable only to
extend ing the tim e for the contractor ’s obligations. To the extent that exten-
sions of tim e are available for d elays for w hich the em p loyer is resp onsible,
it cou ld not be otherw ise. H ow ever, it is a fact that m ost extension of tim e
clau ses perm it extensions for d elays caused by events beyond the control of
the contractor as w ell as for acts of prevention by the em p loyer. The effect
of this, as a jud ge once pu t it, is that the loss lies w here it falls. The contrac-
tor obtains relief from his liability for d am ages bu t has no claim for d elay,
w hilst the em p loyer by losing his right to d am ages for d elays stands his
ow n costs of the d elay. This is generally taken to be a fair and reasonable
approach to the p roblem of d elays cau sed by neutral events.
10 1.2 Legal developments
H ow ever, w hat of the p osition w here the em ployer is d elayed by circum -

stances beyond his control in the perform ance of his obligations to the
contractor? What relief, if any, is to be afford ed to the em ployer against
claim s for d elay by the contractor? In constru ction contracts the answ er is
usually none – u nless there is exceptionally a force majeure clau se w hich
exp ressly ap p lies to both parties. H ow ever, in process and p lant contracts
such a clau se is norm al and the IChem E Red Book even goes so far as to
form alise the p roced ure for granting extensions of tim e to the em ployer.
Liq u id ated d am ages oth er th an for d elay
It is not intend ed in this book to exam ine in any d etail the provisions w hich
ap pear in som e form s of contract for liquid ated d am ages for breaches other
than delay in com pletion. The most com m on are, of course, liquid ated
damages for low performance. These are stand ard in process and plant
contracts.
H ow ever, the p oint is w orth m aking that liqu id ated d am ages, w hether
for d elay or for som e other d efault in the contractor ’s perform ance, are, as
is stated often in this book, an exhau stive and exclusive rem ed y for the
particu lar breach. It is usually not too d iffi cu lt for an emp loyer to see that
by opting for liqu id ated d am ages for d elay he is forgoing his right to have
his d am ages assessed u nder his com m on law rem ed y. How ever, w hen liq-
uid ated d am ages are ap p lied to other m atters such as low p erform ance it is
easier to m ake the m istake of thinking that the liquid ated d am ages give an
ad d itional rem ed y and there is a d anger of failing to recognise the exclu sive
and exhau stive natu re of such dam ages.
Cau tion d oes need to be exercised , therefore, in ad ding into contracts
liquid ated d am ages clau ses for m atters other than d elay.
1.2 Lega l development s
As is evid ent from the large nu m ber of new cases consid ered in this third
ed ition, the courts rem ain busy w ith m atters concerning liquidated d am ages
and extensions of tim e. It is d iffi cult to confi rm w hether or not the nu m ber
of ju dgm ents released in the last ten years on such m atters exceed s the
num ber in any p revious ten-year period bu t it seem s to be a possibility.
Som e of the new cases have been generated by ad ju d ications and m any
of the jud gm ents on these relate to proced ural and / or ju risd ictional dis-
putes w hich d o little to ad vance the law on substantive m atters. These are
not covered in this book except to the extent that they concern rights on the
d ed uction of liqu id ated d am ages.
Most of the new cases of interest can be categorised as relating to:
• p enalty clau ses
• p revention / cond itions preced ent / tim e at large
1.2 Legal developments 11
• cau sation and / or concurrency

• app ortionm ent / global claim s
• d elay analysis.
An interesting aspect of the judgm ents in som e of these cases is their length
– w ith a few running into hund red s of p ages. The am ount of d etail covered
w ou ld , by p ast stand ard s, be consid ered extraord inary. It su ggests that a
preference for litigation over arbitration m ay be d eveloping.
Pen alty clau ses
It is not stating anything new to say that present law on penalties clau ses is
less than satisfactory. The English Law Com m ission pu blished a w orking
paper on the subject in 1975. The Scottish Law Com m ission prod uced a
report and a d raft Bill in 1999. They both ad dress the und erlying issu e of
w hether the cou rts shou ld have any p ow ers to strike d ow n as penalties
certain types of com m ercial agreem ents su ch as liquid ated d am ages. They
both look in detail at the problems created by the legal d istinction betw een
penalties for breach and p enalties for exercising contractual rights and at
the p roblems cau sed by the ‘genu ine pre-estim ate of loss’ rule for liquid ated
d am ages.
The recom m end ations of the Scottish report m ake interesting read ing:
‘1. (1) There should continu e to be jud icial control over contractu al
p enalties.
(2) The criterion for the exercise of that control shou ld be w hether the
p enalty is “m anifestly excessive”.
(3) Penalties w hich are not m anifestly excessive shou ld be enforce-
able even if they cannot be regarded as based on a genu ine pre-
estimate of loss.
2. Ju d icial control over contractual penalties should not be confi ned to
cases w here the penalty is d ue w hen the p rom isor is in breach of
contract. It should extend to cases w here the penalty is d ue if the
p rom isor fails to p erform , or to perform in a particu lar w ay, under a
contract or w hen there is an early term ination of a contract.
3. (1) Ju d icial control over contractu al penalties should app ly w hat-
ever form the p enalty takes. It shou ld, in particu lar, app ly
w hether the penalty takes the form of a p aym ent of m oney,
a forfeitu re of m oney, a transfer of prop erty, or a forfeitu re of
p rop erty.
(2) Withou t p rejud ice to the p ossibility of a system atic review of the
law on irritancies of leases of land , the recom m end ed jud icial
control over contractual p enalties shou ld not ap ply to su ch
irritancies.
4. In d ecid ing w hether a clau se comes w ithin the scope of the new law
on p enalty clau ses regard shou ld be had to the su bstance of the clause
rather than to its form .
12 1.2 Legal developments
5. The enforceability of a penalty shou ld be ju d ged according to all the

circu m stances, inclu d ing circum stances arising since the contract w as
entered into.
6. A court, or a tribunal or arbiter ad ju dicating on a penalty clause,
shou ld have pow er to m od ify a m anifestly excessive p enalty so as to
m ake it enforceable – by for exam ple, red u cing its amount or attach-
ing cond itions to the exercise of the relevant right.
7. In any new law on penalty clau ses it should be m ad e clear that p arties
cannot contract out of the application of that law.
8. The onu s of show ing that a penalty is u nenforceable should lie on the
p arty so contend ing.
9. The p rop osed ru les on penalty clauses shou ld ap ply to p enalty clau ses
in bond s and other u nilateral voluntary obligations in the sam e w ay
as to p enalty clau ses in contracts.
10. Any new legislation should app ly only to penalty clauses agreed after
it com es into force.’
And it will certainly be interesting if the Scottish d raft Bill incorporating the
above recom m end ations com es into force – thereby m oving Scots law closer
to continental law but creating a signifi cant legal gulf betw een Scotland and
the rest of the United Kingd om .
Most of the new cases on penalty clau ses covered in this book show the
d iffi cu lties of the courts in m aintaining com pliance with the genuine pre-
estim ate of loss rule and in u sing the Dunlop Tyre case criteria to d istingu ish
betw een liqu id ated d am ages and penalties. Som e of the cases, Cine,
Jeancharm, and Leisureplay have Court of App eal rulings but perhap s the
most infl u ential ju d gm ent is that of Mr Justice Colem an in Lordsvale Finance.
He ad d ressed head -on the d iffi culties of ap plying old English ru les on pen-
alties in a m od ern fi nancial w orld and in d oing so illu m inated a path for
others to follow.
Preven tion / con d itions p reced en t / tim e at large
A d ebate has been going on for som e years as to how to reconcile the prin-
ciple of p revention w ith cond itions preced ent to entitlem ent to extension of
tim e su ch as notice requ irem ents and tim e-bars. The key issue is to w hat
extent the legal ru le that a party cannot benefi t from its ow n breach operates
in circum stances w here the em ployer has p revented com pletion on tim e bu t
the contractor has not com plied w ith the contractual requ irem ents for obtain-
ing extension of tim e. From that com es the qu estions – can the em p loyer
claim liqu id ated d am ages for a d elay he has caused or is tim e put at large
by lack of entitlem ent to an extension?
One aspect of the d ebate is w hether the principle of p revention is a ru le
of law or a ru le of constru ction. Another is w hether a d istinction shou ld be
mad e w hen consid ering the effects of conditions p reced ent betw een p reven-
tive acts w hich am ou nt to breach of contract and preventive acts su ch as the
ord ering of extra w orks w hich are p ermitted by the contract.
1.2 Legal developments 13
Until recently there was little guid ance from the cou rts on these m atters
save for a batch of confl icting decisions from the Australian and United
States courts. We now have jud gm ents in the Scottish case of City Inn v.
Shepherd, the English case of Multiplex v. Honeywell, and other follow ing
cases. All incline tow ard s uphold ing the operation of cond itions preced ent
and rejecting tim e at large claim s.
How ever, it is u nlikely that the d ebate is conclu d ed . The contractu al pro-
visions in City Inn w ere som ew hat u nu su al and Multiplex provid es observa-
tions rather than fi nal d ecisions.
Cau sation an d / or con cu rrency
Disp u tes on construction contracts, p articu larly those relating to claim s

for d elay, extensions of tim e and liqu id ated dam ages are frequently beset
by argum ents on w hat events have caused d elays and on how the concur-
rency of their effects should be treated . Such are the com plications that
it seem s to be recognised by the cou rts and legal au thorities that there is
no single ap p roach w hich fi ts all situ ations. This lead s Keating to suggest
a num ber of p ropositions w hich m ight app ly: the Devlin approach, the
d ominant cause ap proach, the burd en of proof ap proach, and the tortiou s
solu tion.
As m ight be exp ected therefore the guid ance to be d erived from recent
construction indu stry cases is of lim ited general effect. Nevertheless som e
useful p ointers to the current thinking of the cou rts on p articular situ ations
can be gained from cases such as Plant Construction (2000), John Doyle (2004),
Great Eastern Hotel (2005), City Inn (2007) and others.
Ap p ortion m en t / glob al claim s
Ever since the 1967 jud gm ent in the Crosby v. Portland case contractors have
end eavoured to extend the perm issible bound aries of global claim s. Gener-
ally such claim s are for m oney but in comp lex d elay situ ations they are
som etim es m ad e for extensions of tim e.
One of the diffi culties faced by contractors making global claim s is that
until recently su ch claim s, under English law, only stood if it w as possible
to exclu d e the effects of causes other than those relied on for entitlem ent.
App ortionm ent was not p erm itted. Understand ably therefore the ju d gm ent
in the Scottish case of John Doyle v. Laing (2004) created som e excitem ent. In
that case the jud ges of the Inner House (equivalent to the English Court of
App eal), having review ed d ecisions in overseas cases, conclud ed that the
facility to u nd ertake ap portionm ent exercises as carried ou t in the United
States shou ld be available und er Scots law.
App roval to that app roach has since been given in a num ber of English
cases. H owever, as to w hether that ap p roval extend s to tim e claim s as w ell
as to m oney claim s rem ains in som e d ou bt.
14 1.3 Contractual developments
D elay an alysis
Until com paratively recently the p rocess of calcu lating am ounts d u e to con-
tractors and to su b-contractors as extensions of time w as not regard ed as an
exact science. Provid ing that a fair and reasonable aw ard of extension w as
given there w as no great concern as to the m ethod of calcu lation. The courts
were rarely trou bled w ith the d etails of calculations – that bu rd en fell u pon
arbitrators.
But w ith the ad vent of com puters and sop histicated logic-linked p ro-
gram s there cam e increased interest in the techniques of d elay analysis. Even
so it cam e as som ething of a shock w hen in 1996 the jud ge in John Barker v.
London Portman Hotel rejected an architect’s assessm ent on ground s that
it w as im p ressionistic rather than calculated and that there w as
no logical analysis. That w as a w ake-u p call to m any architects and
engineers.
Since the John Barker case the cou rts have becom e increasingly involved
in the d etails of d elay analysis. See, for exam ple:
• Ascon v. McAlpine (1999)
• Royal Brompton Hospital v. Hammond (2002)
• Great Eastern Hotel v. Laing (2005)
• Skanska v. Egger (2004)
• Mirant v. Ove Arup (2007)
• London Underground v. Citylink (2007)
• City Inn v. Shepherd (2007).
If any com m on m essage can be taken from these cases it is that som e form
of method ical d elay analysis is essential but over-elaboration is no substitute
for comm on sense.
In an attem p t to imp rove und erstanding of d elay analysis and to establish
a m easure of conform ity in its p ractice the Society of Construction Law
published in 2002 its ‘Delay and Disru ption Protocol’. It w as hop ed that its
recom m end ations w ould be ad opted in stand ard form s of contract but as
yet there is little evid ence of that hap pening.
1.3 Cont ra ct ua l development s
In 1964 the governm ent-sp onsored Banw ell Report ‘The placing and m an-
agem ent of contracts for bu ild ing and civil engineering w orks’ recom m ended
the joint p rod uction of a single form of contract for the constru ction ind u s-
try. That never hap p ened . Instead of com bining their efforts, the variou s
professional and other bod ies prod ucing stand ard form s expanded their
outpu ts into fam ilies of form s thereby largely d ashing hop es that the con-
struction ind ustry w ould m ove tow ard s rationalisation of its cond itions of
contract. With that w ent hop e of ind u stry-w id e stand ard provisions for
extensions of tim e and liquid ated d am ages.
1.3 Contractual developments 15
The 1994 governm ent sponsored Latham Report ‘Constructing the Team ’,
w ithou t going so far as to recom m end integration of build ing and civil
engineering form s, d id recom m end that p ublic and p rivate sector clients
shou ld begin to u se the N ew Engineering Contract. This d id hap p en bu t
there is still a long w ay to go before it can be said to be the constru ction
ind u stry’s stand ard form .
How ever, if the N ew Engineering Contract ever d oes achieve that role
there will be, so far as provisions for extension of tim e and liqu id ated
d am ages are concerned , a measu re of irony in the situ ation. As things pres-
ently stand there is a d egree of uniform ity betw een the m ain bod y of build -
ing and civil engineering form s on such provisions despite the variety of
their titles. In contrast the p rovisions in the New Engineering Contract are
not only signifi cantly d ifferent to those in com m on use bu t also they have
not been tested in the cou rts.
Chap ter 2
Tim e in con tracts
2.1 P roblems wit h t erminology
Contractu al requ irem ents on tim e d iffer greatly in status and on the conse-
quences w hich fl ow from their breach. Failure to m eet tim es for perform ance
may attract sanctions ranging from rep ud iation to d am ages, liquid ated or
unliqu id ated; failu re to m eet tim es for p aym ent may result in d eterm ination
or paym ent of interest; failu re to give notices on tim e m ost com m only lead s
to a loss of entitlem ents; and failu re to und ertake ad m inistrative d uties
frequently attracts no sanction at all. Mu ch d epends upon the intentions of
the parties, their cond uct in connection w ith the contract and the particular
term s and cond itions of the contract.
A problem for the non-law yer is that legal term inology provid es little
assistance in p ointing to the consequ ences of breach. Thus in Wickman
Machine Tools v. Schuler (1972) it w as said :
‘If a term is d escribed as a “cond ition” there is a strong ind ication that
the p arties intend ed any breach, how ever small, to be repu d iatory, bu t
the d escription is not conclusive and yield s to the d iscovery of the parties’
intentions as d isclosed by the contract read as a w hole. Conversely the
use of the w ord “w arranty” to describe a term is not conclu sive that that
term is not a cond ition.’
Lord Denning, in the sam e case, suggested that the w ord ‘condition’ has
three p ossible m eanings and he conclu ded that the w ord s ‘it shall be a con-
d ition of this agreem ent,’ used in connection w ith the num ber of visits to be
mad e by a sales rep resentative, had an ord inary m eaning as a term of the
contract and breach d id not free the other p arty from its obligations.
This reveals another p roblem, that everyd ay language end ow s som e legal
phrases w ith far w id er m eaning than the law recognises. Althou gh w ell-
worn phrases su ch as ‘time of the essence’ and ‘tim e at large’ m ay safely be
used in ord inary d ialogu e without und ue concern for precision, the ap plica-
tion of these p hrases to contractual situ ations need s to be hand led w ith care.
There is alw ays a d anger that the assum ed m eaning of the phrases w ill be
translated into action w hich is incom patible w ith, or at od d s w ith contrac-
tual p rovisions. This is easily d one. If there is any com mon thread in con-
struction d ispu tes it is that one or both parties m isund erstand s or m isread s
the factu al p osition and the legal remed ies. This failing extend s to interpre-
tation of the contract itself as w ell as to phrases im ported into the contractu al
relationship by com m on usage.
2.2 Conditions and warranties 17
The u ltim ate disp ute on a constru ction contract is for an em ployer to
assert that tim e is of the essence and to determ ine w ithou t paying w hilst the
contractor is claim ing tim e to be at large and d eterm ining for non-paym ent.
This m ay be extrem e, but is not so far rem oved from the circu m stances
of tw o cases: J M Hill & Sons Ltd v. London Borough of Camden (1980) and
Lubenham Fidelities and Investments Co. Ltd v. South Pembrokeshire District
Council (1986), w here the contractor in each case d eterm ined his ow n em p loy-
m ent for alleged non-paym ent and the em ployer concu rrently d etermined
the contractor ’s em p loyment for failure to p roceed regu larly and d iligently.
As the contractor in the latter case w as to learn to his cost, w hat seem ed to
him , taking a com m on sense approach to the m eaning of non-p aym ent, an
obviou s breach of contract w as in law no breach at all. This is a story
repeated tim e and again on m any m atters throughout the law reports. See,
as a recent exam ple, the case of Shawton Engineering Ltd v. DGP International
Ltd (2005) exam ined later in this chapter.
It is clear that the fi rst p lace for an injured party to look for a d escrip tion
of his rem ed y in the event of breach m u st be in the term s of his contract,
and if a stand ard form has been used he w ill frequ ently fi nd the rem ed y
expressed w ith clarity and certainty: for exam ple, the rem ed y for late com-
pletion w ill be stated as liquidated d am ages. How ever, if the contract is less
than clear on m atters such as rem ed ies for late comp letion, the safe cou rse
for the em p loyer is to rely on an im p lied term that the contractor w ill com -
plete w ithin a reasonable tim e and to u se his com m on law rights to sue for
general and provable d am ages. The unsafe and often fatal course is to
assum e that cond itions of contract are cond itions in the legal sense and that
the p arties intend any breach, how ever sm all, to be repu d iatory.
Before going on, therefore, to consid er the m eaning of the phrases ‘time
of the essence’, ‘tim e at large’, and ‘reasonable tim e’, som e thou ght needs to
be given to the legal m eaning of ‘cond itions’ and to the extent to w hich
repu d iation, rescission, or d eterm ination, how ever expressed , can be a
prop er rem ed y for failu re to meet the tim e requirem ents of a contract.
2.2 Condit ions a nd w a rra nt ies
There is a line of thou ght that concepts su ch as cond itions and w arranties
are outm od ed. It is beyond the scop e of this book to enter too far into that
particu lar d ebate or to offer a d etailed analysis of this com p lex subject
but it is necessary for p ractical reasons to fi nd d efi nitions w hich still carry,
at least in the constru ction ind ustry, a broad level of agreem ent on their
application.
Anson’s Law of Contract, in consid ering the trad itional approach of the
courts to the term s of a contract, describes cond itions and w arranties in
this w ay:
‘If the p arties regard ed the term as essential, it is a cond ition: any breach
of a cond ition entitles the innocent p arty, if he so chooses, to treat him self
as d ischarged from further performance of the contract. H e can also claim
18 2.2 Conditions and warranties
d am ages for any loss su stained by the fact that the contract has not been
performed . If the p arties d id not regard the term as essential, but as su b-
sid iary or collateral, it is a warranty; its failure gives rise to a claim for
such d am ages as have been sustained by the breach of that p articular
term , but the innocent party is not entitled to treat him self as d ischarged .
The classifi cation of a term as being either a “cond ition” or “w arranty”
w ill therefore d eterm ine the legal rem ed ies available to the innocent p arty
in the event of its breach.’
These d efi nitions, even if old fashioned , d o offer som e assistance in that

constru ction contracts althou gh frequ ently inapprop riately called ‘cond i-
tions of contract’ ap ply the above principles in their express term s. Thus the
contractor ’s rem ed y for the em ployer ’s acts of prevention is u sually given
as loss and exp ense or extra cost and the em p loyer ’s rem ed y for the con-
tractor ’s tim e and quality fau lts is sim ilarly to be fou nd in d am ages.
Where the p arties d o intend a cond ition of the contract to be a cond ition
in law and not m erely a w arranty they w ill incorporate a d eterm ination or
forfeiture clause in the contract setting out those m atters w hich they regard
as essential. In JCT contracts, for instance, the em ployer can determ ine the
contractor ’s em ploym ent for various d efaults – su spend ing the works
without reasonable cause; failing to proceed regu larly and d iligently; refus-
ing or neglecting to com ply w ith the architect’s instructions; failing to
com p ly w ith nom ination p roced u res – and for other issu es involving bank-
ru ptcy or corrup tion. Sim ilar provisions ap ply in ICE contracts.
JCT and ICE form s d iffer, how ever, in their app roach to the contractor ’s
right to d eterm ine his ow n em ployment. JCT gives the contractor rights to
d eterm ine w here there is: failu re to pay on any certifi cate by a set tim e;
interference w ith the issue of any certifi cate; su sp ension of w ork exceed ing
a sp ecifi ed p eriod or bankruptcy or sim ilar by the em ployer. ICE form s
have no p rovisions giving the contractor rights to d eterm ine his ow n
em ploym ent.
It m ay seem su rp rising that on such an im portant m atter as p aym ent of
certifi cates the bu ild ing and civil engineering form s shou ld be so far ap art,
with JCT form s m aking failure to pay on tim e a breach of a condition and
ICE forms m aking failure to pay on tim e a breach of a w arranty and allow -
ing only the paym ent of interest as a rem ed y.
This illustrates the d iffi culty in distingu ishing betw een conditions and
warranties, p articu larly w here there are no exp ress term s in the contract
to settle the m atter. It also p oints to an area of overlap . Clearly there m u st
com e a tim e w hen continu ing or repeated breach of a w arranty exhibits an
intention no longer to be bound by the contract or an inability to continu e.
With regard to interim paym ents, for exam p le, single non-p aym ent w ould
not give ground s for d eterm ination in the absence of an express term
bu t continuing non-paym ent could d o so at com m on law in app rop riate
circum stances.
This, perhaps, is w here the m od ern approach of the cou rts in moving
aw ay from the rigid d istinction betw een cond itions and w arranties toward s
2.2 Conditions and warranties 19
a third category of ‘interm ed iate’ term s is m ore help fu l. The need for su ch
fl exibility w as show n by Lord Justice Dip lock in Hongkong Fir Shipping Co.
Ltd v. Kawasaki Kisen Kaisha (1962) w hen he said:
‘There are, how ever, m any contractu al u nd ertakings of a m ore com p lex
character w hich cannot be categorised as being “cond itions” or
“w arranties” ’ . . . Of such und ertakings all that can be p red icated is that
som e breaches w ill and others w ill not give rise to an event w hich will
d ep rive the party not in d efault of su bstantially the w hole benefi t w hich
it w as intend ed he should obtain from the contract; and the legal conse-
quences of su ch a breach of such und ertaking, unless p rovid ed for
expressly in the contract, d epend u pon the natu re of the event to w hich
the breach gives rise and d o not follow autom atically from a prior clas-
sifi cation of the u nd ertaking, as a “cond ition” or a “w arranty”.’
Anson says of ‘intermed iate’ term s:
‘A term is most likely to be classifi ed as “interm ed iate” if, as in the
Hongkong Fir case, it is capable of being broken either in a m anner that is
trivial and cap able of rem ed y by an aw ard of dam ages or in a w ay that
is so fu nd am ental as to und erm ine the w hole contract.’
The d anger for the practical m an is that fl exibility in the law introd uces
uncertainty into the d ecision m aking process.
Fu nd am en tal b reach
When faced w ith p roblems on a contract and the need to d ecid e on a course
of action becau se none is clearly d efi ned in the contract, there is som etim es
talk of a ‘fu nd am ental breach’. This is a d angerous phrase w hich attracts a
nu m ber of m eanings.
The p rinciple of fund am ental term s and fu nd am ental breach d eveloped
to provid e som e relief against carefu lly d rafted exem ption clauses. Anson
explains it as follow s:
‘There w ere, it w as said in every contract certain term s w hich w ere fun-
d am ental, the breach of w hich am ou nted to a com plete non-p erform ance
of the contract. A fu nd am ental term w as conceived to be som ething m ore
basic than a w arranty or even a cond ition. It form ed the “core” of the
contract, and therefore could not be affected by any exem ption clau se.’
Most legal cases on fu nd am ental term s related to the sale of good s – the
w rong good s altogether, thus peas instead of beans; good s of the wrong
sp ecifi cation; or good s w ithou t legal title. In constru ction, the w rong bu ild -
ing; or the right build ing in the w rong place; or a build ing in the w rong
m aterials might sim ilarly have qualifi ed .
On the sale of good s, the Unfair Contract Term s Act 1977 largely obviated
the need for the principle of fund am ental breach. On a w id er front it w as
said by Lord Justice Diplock in Photo Production Ltd v. Securicor Transport Ltd
20 2.3 Termination
(1980) that if the exp ression ‘fu nd am ental breach’ w as to be retained it

should , in the interests of clarity, be confi ned to the ord inary case of breach
where the consequ ences entitle the innocent party to elect to p ut an end to
all rem aining unfulfi lled prim ary obligations of both parties.
The use of the p hrase ‘fund am ental breach’ to d escribe a breach of cond i-
tion or an interm ed iate term is best avoid ed by all bu t law yers.
Ap p lication to tim e
The relationship s of these various m atters, cond itions, w arranties and inter-
med iate breaches, to the tim e requ irem ents of constru ction contracts are
therefore d iverse and to som e extent unp red ictable. The express term s are
not everything; im plied term s are far from certain; and the facts of each case
and the cond u ct of the parties have an imp ortant bearing on the outcom e
of any d isp ute.
In cases relating to tim e for com pletion, as d istinct from tim e for p aym ent
or other issues, the qu estion of w hether the relevant term s of the contract
are conditions or w arranties can take on im m ense imp ortance, particu larly
when there is d ou bt as to w hether or not com pletion can ever be achieved
within a satisfactory tim e or at all. In som e su ch cases term ination of the
contract m ay be the only sensible course of action, notw ithstand ing other
exp ress contractu al rem ed ies. But this is very m u ch a m atter w here the
ad vice of law yers is essential.
2.3 Termina t ion
Termination of a contract can occu r in variou s ways – by agreement betw een

the parties; by novation; by acceptance of repu d iation; or by app lication of
the determ ination p rovisions of the contract.
N ovation
Novation is a trip artite agreem ent w hereby a contract is rescind ed in con-

sid eration of a new contract being entered into, on the sam e or sim ilar term s
as the old contract, by one of the original parties and a third p arty. This
frequently occu rs w hen one of the original p arties changes its legal statu s
or goes into receivership .
Repu d iation
Repu d iation is an act or om ission by one party w hich indicates that he d oes
not intend to fu lfi l his obligations u nd er the contract. In constru ction a
bu ild er w ho aband oned the site or an em p loyer w ho refu sed to give pos-
session of the site w ould be obvious exam p les. H ow ever, rep u d iation by one
2.3 Termination 21
party does not in itself term inate the contract. It requ ires the other p arty to
accept the rep ud iation.
It is theoretically possible for the innocent p arty to refu se to accept the
repu d iation and to press for specifi c p erform ance of contractual obligations,
but in constru ction contracts w here there are no practical m eans of enforce-
m ent this w ou ld be excep tional.
D eterm in ation
The m ost comm on m ethod of term ination of constru ction contracts is by

application of the d eterm ination provisions of the contract. Insolvency of
the contractor accounts for the m ajority of cases but failure by the contractor
to proceed w ith d ue d iligence, and failure by the em p loyer to p ay on tim e,
are not u ncom m on.
Not all constru ction contracts contain d etermination clauses – ICE Minor
Works is one that d oes not – and the clauses of those that d o d iffer w id ely.
As m entioned earlier, JCT contracts generally give rights of d eterm ination
to both the em ployer and the contractor, w hereas ICE contracts generally
give right only to the em ployer. It is therefore necessary for the innocent
party w here he has no express contractu al rights of d eterm ination to estab-
lish rep u d iation by the other party or breach of a legal cond ition if he w ishes
to term inate the contract at com m on law.
The p oint is som etim es m ad e in respect of d eterm ination u nd er contrac-
tu al p rovisions that this is not d eterm ination of the contract bu t only d eter-
m ination of the contractor ’s em ploym ent u nd er the contract. This is a fi ne
legal point of som e interest to acad em ics but it d oes not appear to have any
practical effect on the ou tcom e of proceed ings.
Com m on law righ ts
Where there are no contractual provisions for determ ination and the inno-
cent party relies w holly on his com m on law rights, the grou nd s for d eter-
m ination w ill not necessarily correspond w ith those in stand ard form s of
construction contracts. Thu s it w ould be hard to establish at com m on law
that failure by the contractor to proceed w ith regular and d ue d iligence w as
evid ence of either repud iation or breach of a cond ition. The case of GLC v.
Cleveland Bridge & Engineering Ltd (1986) show s the d iffi cu lty. The case itself
d id not concern d eterm ination bu t w hether a term requiring the contractor
to proceed w ith d u e d iligence should be im plied in connection w ith his
entitlem ent to p aym ents u nd er a variation of price clau se. One of the argu-
m ents for the GLC w as that in the d eterm ination clause of the contract
failu re by the contractor to proceed w ith d u e d iligence and exp ed ition w as
grou nd for taking the w ork out of his hand s. N otw ithstanding this, the
Cou rt of Ap peal refu sed to im ply a term of du e d iligence into the contract
since no su ch term w as necessary to give it bu siness effi cacy. Moreover, the
22 2.4 Time for performance
obligation on the contractor w as to fi nish on tim e and he w as entitled to

proceed at his ow n p ace in d oing so.
Sim ilarly it w ou ld be u nlikely that an application for ap pointm ent of an
ad m inistrative receiver – one of the grou nd s for d eterm ination und er JCT
contracts – w ould be accep ted as a com m on law entitlem ent to d etermine
since the p urp ose of the application w ou ld be an attem pt to stay in business
and not evidence of an intention to repud iate. But whilst the grou nds for
d eterm ination u nd er the contract m ight be w id er than for d eterm ination at
com m on law, there can be d isad vantages w ith d eterm ination u nd er the con-
tract in the need to follow precisely the p roced ures expressed in the d eter-
mination provisions. This raises the question: w hen the p roced u res have not
been follow ed suffi ciently d o the contractu al provisions for d eterm ination
exclud e comm on law rights? The p oint cam e up in Architectural Installation
Services Ltd v. James Gibbons Windows Ltd (1989) where a d eterm ination w as
held to have failed und er the contractu al provisions but to be rightfu l u nd er
com m on law rights w hich w ere not expressly exclud ed by the contract.
H ow ever, in a m ore recent case, Lockland Builders Ltd v. Rickwood (1995),
the Cou rt of App eal took a different approach. Mr Rickw ood, d issatisfi ed
with the p erform ance of Lockland , had exclu d ed the fi rm from the site
without follow ing the d eterm ination provisions of the contract. It w as held
that w here a contract provid ed m achinery for d eterm ination of a d isp ute,
and it w as not expressed to be w ithout preju d ice to the parties’ com m on law
rights, then the contractual m achinery and the com m on law rights cou ld
co-exist only w hen one p arty d isplayed a clear intention not to be bound by
the contract.
Sim ilarly in Balfour Beatty Civil Engineering Ltd v. Docklands Light Railway Ltd
(1996) the Court of Ap peal on the question of w hether certifi cates should be
challengeable in the courts took the view that it had no power to review
decisions w hich w ere stated by the contract to be mad e by one of the p arties.
In short, contrary to long-held belief that comm on law rights can only be
exclud ed by exp ress term s, the Lockland and the Balfour Beatty ju d gm ents
suggest that com m on law rights can be exclud ed by im p lication if there is
an alternative contractual m achinery or rem ed y and there is no qu alifying
phrase such as ‘w ithout prejud ice to other rights and rem ed ies’ ap plicable
to or attached to such m achinery or rem ed y.
The relevance of d eterm ination to tim e in contracts is that late comp letion,
or the p rosp ect of it, m ay be w holly u naccep table notw ithstand ing the
rem ed ies of d am ages, liqu id ated or u nliquid ated . There m ay be tim es w hen
an em ployer can rightly consid er d etermination and can rightly claim that
tim e is of the essence.
2.4 Time for performa nce
Most construction contracts specify tim e for perform ance in achieving com -
pletion of the w hole of the w orks and m any have add itional requirem ents
for phased or sectional hand overs.
2.4 Time for performance 23
Tim e m ay be fi xed either by reference to sp ecifi ed d ates or by reference

to a constru ction p eriod , but if the latter m ethod is u sed it is essential that
a p recise com p letion d ate can be established . This m eans there m u st be an
id entifi able com mencem ent date from w hich time runs and there m ust be
no u ncertainty on w hether the constru ction period takes in or exclud es
holid ay p eriod s. These m ay seem obvious m atters bu t it is extraord inary
how often in constru ction ind ustry d ispu tes it is found that the intentions
of the parties in respect of tim e have not been clearly expressed or have been
m isap plied .
Fixin g tim e
Su ch troubles m ay arise in part from the varying approaches taken to tim e

in the com m only u sed stand ard form s of contract. Bu ild ing form s usu ally
sp ecify a d ate for com pletion in the ap pend ix w hereas civil engineering
form s usually specify a time for com p letion, leaving the d ate for com pletion
to be calcu lated from a d ate for com m encem ent given by the engineer. But
in both cases p roced ural variations are frequently introd uced and sight can
be lost of the objective, w hich is to establish precise d ates for com m encem ent
and com p letion.
It is, for examp le, quite com m on to allow tend erers to give their ow n
preferred tim es for com p letion or to allow them to offer an alternative to
that sp ecifi ed in the tender d ocum ents. The p ractice is used m ore in build ing
than in civil engineering although it has a great d eal to recom m end it w hen-
ever it is u sed . Firstly, it enables the tend ering contractor to exercise his
comm ercial and technical jud gm ent in arriving at his best p rice; second ly,
it gives the em p loyer the opportu nity to com pare tend ers on both price
and tim e; and third ly, if the contractor ’s ow n time for com pletion is used
as the contractual tim e it elim inates the contentiou s and claim s oriented
business of shortened program m es – a su bject consid ered in m ore d etail in
Chap ter 15.
It is necessary, how ever, if the contractor is allow ed to fi x his ow n time
that this tim e is linked in the contract d ocu mentation to either a start d ate
or a com pletion d ate. Without one or the other there will be no fi rm d ate for
comp letion.
Fixin g th e com p letion d ate
Sim ilar p roblem s in fi xing the date for com p letion w ith certainty can arise
w hen extensions of tim e are granted . Again, d ifferences of ap proach in
variou s stand ard forms of contract m ay be in part resp onsible. JCT contracts
for instance requ ire the architect to fi x a new com p letion d ate bu t ICE
contracts require the engineer to grant a p eriod of time. Often in practice,
however, architects grant p eriods of tim e and engineers fi x new com pletion
d ates.
24 2.4 Time for performance
The d anger in granting p eriod s of tim e instead of fi xing new d ates is that
uncertainty can be created as to w hether such period s, p articularly w here
they are exp ressed in d ays, cover w orking d ays only or includ e weekend s
and holid ays. If the contractor has applied for an extension of ten w orking
d ays and has been granted ten d ays, he m ay w ell assu m e that he has been
granted a two-w eek extension of tim e, w hereas his application m ay have
been scaled d ow n and ten days is the fu ll am ount inclu d ing w eekend s.
Unless and until a new d ate is fi xed the m isund erstand ing m ay not com e
to light but if the app lication of liqu id ated d am ages becomes an issu e the
contractor m ay well feel that he has been m isled .
Fin ish ing early
On m any construction p rojects the p roblem is not alw ays one of late com ple-
tion. Contractors strive to fi nish early and often d o so to the em barrassm ent
of their em ployers. It m ay be that the em ployer has no use for a build ing or
engineering p roject before a particular d ate and has no w ish to accept p re-
mature resp onsibilities of care and insurance. It m ay be that the em p loyer
has infl exibility in his fu nd ing arrangem ents and is u np repared for early
paym ent. Generally, how ever, und er most stand ard form s su ch m atters are
of no concern to the contractor and he is entitled to fi nish early if he can.
Und er JCT contracts the contractor ’s obligation is generally to comp lete ‘on
or before the Com pletion Date’ and und er ICE contracts the obligation is
generally to comp lete ‘w ithin the tim e prescribed ’.
O b ligation to p roceed ‘regu larly an d d iligen tly’
In West Faulkner Associates v. London Borough of Newham (1994) the Cou rt

of Appeal had to consid er the obligation im posed on a contractor by a
clau se requ iring the contractor to proceed ‘regu larly and d iligently’. The
cou rt held that literal interpretation, comm ercial logic and com m on sense
required the contractor to proceed both regularly and d iligently and he
cou ld be d ism issed from the site if he failed to d o either. For fu rther com m ent
on sim ilar obligations such as requirem ent to use best end eavours see
Chapter 15.
The last h ou r
When it d oes come to a close fi nish contractors can be relieved to know that
they have u ntil the last hou r of the last d ay to com p lete their w ork – a ruling
established in the very old case of Startup v. McDonald (1843).
When no tim e for p erform ance is specifi ed the contractor has a reasonable
tim e in w hich to comp lete the w ork. The qu estion of w hat is reasonable is
consid ered later in this chapter.
2.5 Time of the essence 25
2.5 Time of t he essence
The p hrase ‘tim e of the essence’ has the ord inary m eaning that u nless som e-
thing is d one qu ickly it w ill be d one too late: too late to be effective in itself
or too late to facilitate or prevent som e other end eavou r. When used in a
contractu al context the phrase takes on a m ore precise m eaning. It is not
then a m atter of com pleting as soon as p ossible; it is a m atter of com pleting
by a specifi ed d ate.
In short w hen tim e is of the essence in a contract failure to com p lete by
the sp ecifi ed d ate is a breach of a cond ition entitling the innocent party to
treat the contract as repu d iated .
If the contract is a su p ply contract and the good s are offered late, accep-
tance of the goods can be refused . If the contract is a construction contract
and the contractor fails to fi nish on tim e, the em ployer is entitled to d ism iss
the contractor from the site and has no liability for p aym ent for the unfi n-
ished w ork.
Clearly this is not the u su al position in a constru ction contract. Finishing
late d oes not normally entitle the em ployer to d ism iss the contractor from
the site; it is a breach of w arranty and d am ages are the em ployer ’s rem ed y.
Nor d oes fi nishing late norm ally excu se the em ployer from p aym ent for
unfi nished w ork; even w here determ ination is m ad e und er contractu al pro-
visions or at com m on law the em ployer mu st p ay for any benefi t he has
received .
The question then is: w hat governs w hether or not tim e is of the essence
in contracts? Is it the u se of the phrase in the contract; is it the specifi cation
of fi xed tim e; or m u st other circum stances be taken into account? To answ er
this it is necessary to exam ine the cou rts’ ap proach to tim e.
Ru les of equ ity
Com m on law originally held that w hen tim e for p erform ance w as sp ecifi ed
then tim e w as of the essence. Equity took a different view and inquired
w hether by fi xing tim e the parties intend ed anything m ore than to secu re
perform ance w ithin a reasonable tim e.
How ever, there w ere three situations w here equ ity w as of no assistance:
(i) w here the contract expressly stated time to be of the essence;
(ii) w here tim e, not originally of the essence, w as m ad e so by one party
giving reasonable notice to the other;
(iii) w hen from the natu re of the contract or its subject m atter tim e m ust
obviously be intend ed to be of the essence.
Ru les of com m on law
The ru les of equity are now also the rules of com m on law, and the general
ru les as set out in Halsbu ry’s Law s of England , and app roved by the Hou se
26 2.5 Time of the essence
of Lord s in United Scientific Holdings Ltd v. Burnley Council (1977), are that
tim e w ill not be consid ered of the essence u nless:
(i) the parties exp ressly stipu late that cond itions as to tim e m u st be strictly
com p lied w ith;
or
(ii) the nature of the subject m atter of the contract or the su rrou nd ing cir-
cu m stances show that tim e shou ld be consid ered to be of the essence;
or
(iii) a party w ho has been su bjected to unreasonable d elay gives notice to
the party in d efau lt m aking tim e of the essence.
Note, how ever, that u nd er this ruling the stipu lation or statem ent in a con-
tract that tim e is of the essence is not in itself su ffi cient for the law to hold
tim e to be of the essence.
Cases in contract
It is not diffi cu lt to envisage contracts for the sale of good s or the provision
of services w here these ru les w ill apply and tim e w ill be of the essence by
the very natu re and circum stances of the pu rchaser ’s requ irem ents.
Thus in Rickards (Charles) Ltd v. Oppenheim (1950) a Rolls Royce car w as
to be d elivered ‘at the m ost’ w ithin six or seven m onths. When the car w as
not d elivered on tim e the purchaser d id not cancel the contract bu t contin-
ued to p ress for d elivery. After three m onths the purchaser w rote saying that
unless the car w as delivered within a month in tim e for him to take it abroad
on holiday he w ould have to buy another car. Again the car w as not d eliv-
ered , the p u rchaser m ad e other arrangem ents and w hen three months or
so later the original car w as com pleted it w as not accepted . The Cou rt of
Appeal fou nd in favou r of the p urchaser, hold ing that the original ord er
mad e tim e of the essence and althou gh this had been w aived by the pu r-
chaser after the fi rst failu re of d elivery, and the sup plier ’s obligation then
becam e to com plete w ithin a reasonable tim e, the fi nal w ritten notice rein-
stated tim e of the essence and that the supp lier had failed to com ply.
Regard ing the service of notices m aking tim e of the essence Lord Ju stice
Denning said :
‘If the d efend ant, as he d id , led the plaintiff to believe that he w ould not
insist on the stip u lation as to tim e and that if they carried out the w ork,
he w ou ld accep t it, and they d id it, he cou ld not afterw ard s set up the
stipu lation as to tim e against them . Whether it be called w aiver or for-
bearance on his part or an agreed variation or substituted p erform ance
d oes not m atter. It is a kind of estop pel. By his cond u ct he evinced an
intention to affect their legal relations. H e m ad e in effect a p rom ise not
to insist u pon his strict legal rights. That p rom ise w as intend ed to be acted
up on and was in fact acted up on. H e cannot afterw ard s go back on it.
How ever,
‘It w ould be m ost u nreasonable if the d efend ant having been lenient and
w aived the initial exp ressed tim e, should , by so d oing, have prevented
him self from ever thereafter insisting on reasonably qu ick d elivery. In m y
ju d gm ent, he w as entitled to give a reasonable notice m aking tim e of the
essence of the m atter.’
Cases in con stru ction con tracts
The app lication of the rules on tim e of the essence to construction contracts
show s how u nu sual it is for tim e to be of the essence in such contracts. It is
possible to envisage circum stances w hen late com p letion of the contract
w orks w ou ld rend er them valueless to the em ployer: for exam ple, a m arqu ee
for a w ed d ing; a stand for a show ; a car p ark for a festival, and in su ch
circu mstances tim e could properly be of the essence. But m ore com m only,
the inclu sion of extension of tim e provisions; the express rem ed y of liqu i-
d ated d amages; and the valu e to the em ployer of good s fi xed on his land
m ake the prop osition that tim e is of the essence in a construction contract
d iffi cu lt to su stain.
The cou rts have historically been relu ctant to hold tim e to be of the
essence in constru ction contracts. Thu s in Lucas v. Godwin (1837) it w as
said :
‘It never cou ld have been the und erstand ing of the parties that if the
house w ere not d one by the precise day the plaintiff would have no
rem u neration; at all events if so unreasonable an engagement had been
entered into the parties shou ld have expressed their m eaning w ith a
precision w hich could not be m istaken.’
In Lamprell v. Billericay Union (1849) it w as stated that:
‘We are of the opinion that tim e for comp letion w as not an essential part
of the contract; fi rst because there is an expressed provision m ade for a
w eekly su m to be paid for every w eek d u ring which the w ork should be
d elayed . . . and second ly, because the deed clearly m eant to exem pt the
plaintiff from the obligation . . . shou ld he be p revented by fi re or other
circu m stances satisfactory to the architect.’
In Felton v. Wharrie (1906) a dem olition contractor failed to clear the site
by the sp ecifi ed d ate and w hen asked w hen he w ould d o so d eclined to say.
The em p loyer, w ithout notice and w ithou t express right u nder the contract,
took p ossession and p ut in another contractor. It w as held that notw ith-
stand ing the contractor ’s answ er there w as no evidence of any repu d iation
on the p art of the contractor entitling the em p loyer to d eterm ine.
This case illu strates not only the d iffi culty of claim ing tim e to be of the
essence bu t also the d anger m entioned earlier of term ination on an assum p-
tion that late com p letion is repud iation.
28 2.5 Time of the essence
As to the actu al incorp oration of the p hrase ‘tim e of the essence’ in con-
struction contracts, this is som ething of a rarity.
P ea k v. McKinney (1970)
The phrase tim e of the essence w as used in the case of Peak Construction
(Liverpool) Ltd v. McKinney Foundations Ltd (1970) in a clause w hich read :
‘Tim e shall be consid ered as of the essence of the contract on the part
of the contractor, and in case the contractor shall fail in the d u e
performance . . . shall be liable to p ay the corporation, as and for
liquid ated d am ages, the su m of . . .’
There then follow ed an extension of tim e clause. This w as the case in w hich
Lord Ju stice Salm on said :
‘The form of this contract has been m u ch criticised d uring the cou rse of
the argu m ent – and not w ithout ju stifi cation. Ind eed if a p rize w ere to be
offered for the form of a build ing contract w hich contained the m ost one-
sid ed , obscu rely and inep tly d rafted clauses in the United Kingdom , the
claim of this contract could hard ly be ignored even if the RIBA form of
contract w as am ong the com petitors.’
When consid ering later in his ju dgm ent the signifi cance of the p hrase ‘tim e
shall be consid ered as of the essence’, Lord Justice Salmon said :
‘N o d ou bt this gave the corporation the right to d eterm ine the contract
at the end of the 24 m onths period as extend ed by the architect. Had they
d one so, som e other contractors m ight have been called in to com p lete
the work, or the p laintiffs m ight have com p leted it on freshly negotiated
term s. But the corporation did not d etermine the contract. They elected
to leave the plaintiffs to com plete the w ork. . . .’
This w ou ld seem to suggest that the corporation had as its op tion alternative
rem ed ies – d eterm ination or liquid ated dam ages – but the point w as not
consid ered by the other m em bers of the Cou rt of App eal.
McAlpine Humberoa k (1992)
The p hrase tim e of the essence w as also found in McAlpine Humberoak Ltd
v. McDermott International Inc. (1992), a case concerning the constru ction of
part of the d eck structu re for an off-shore d rilling rig. Clau se 2 of the contract
read :
‘2. Com m encem ent and Com pletion
Tim e is of the essence of this contract. Contractor shall com m ence the
w ork after receip t of notice from McDerm ott and shall com plete the w ork
in accord ance w ith the d ates set ou t in Exhibit B SC 5.’
Disp u tes arose on the effects of variations on contract price w hich w as on a

lu m p su m basis. The ju d ge at fi rst instance held that the contract had been
frustrated saying, am ongst other things:
‘Tim e w ent out of the w ind ow of this contract w ith the fi rst tw o issues of
ad d itional d raw ings in Decem ber 1981. The effect of its d eparture and the
introd u ction of the ad d itional d raw ings w as to p ut paid to the lu m p sum
constitu ent of the contract as w ell. From that tim e, tim e was at large.’
The Court of Ap peal sound ly rejected the jud ge’s d ecision. In exam ining the
prop osition p ut forw ard for the contractor that ‘Since tim e w as of the essence
of the contract, and since the [em ployer] had no pow er to fi x a new com ple-
tion d ate, tim e becam e at large’, Lord Justice Lloyd said this:
‘It is w orth p au sing here to consid er the consequences of Mr Thom as’s
argu m ent, if it is correct. In its extrem e form it com es to this. If, in a con-
tract w hich provides for a lum p su m p rice and a fi rm d elivery d ate, the
em p loyer cau ses the contractor to m iss the d elivery d ate by one d ay, as
he m ight, for exam p le, by ord ering extra w ork, both the lu m p sum and
the d elivery d ate are d isplaced . Otherw ise the contract rem ains intact. So
the contractor can take as long as he likes, p rovid ed only he is not gu ilty
of culp able d elay, and can at the end recalculate his price based on the
tim e actu ally taken.
The only au thority cited in su p port of this novel d octrine of qu asi-
frustration is Wells v. Army & Navy Co-operative Society (1902) 86 LT 764.
In that case there w as a contractu al date for com pletion, a p rovision
enabling the em p loyer to extend the tim e for com p letion in certain d efi ned
circu m stances, and a liqu id ated d amages clau se. The contractor w as
fi fteen m onths late in com p leting the contract. The em ployer pu rported
to extend the com p letion d ate by three m onths, and then claim ed liqu i-
d ated d am ages for the rem aind er. It w as held that the extension clause
d id not apply, and that since the em ployer had contribu ted to the d elay,
thereby p reventing the contractor from com p leting by the contractu al
com p letion d ate, he could not rely on the liqu id ated d am ages clau se.
The p rinciple enu nciated in Wells v. Army & Navy Co-operative Society
w as not new. It is as old as Holme v. Guppy (1831) 3 M & W 387, w here
Baron Parke fi rst used the phrase, often since repeated, of the contractor
being “left at large”. In recent tim es the princip le has been ap plied in su ch
cases as Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd
(1970) 1 BLR 114, The Cape Hatteras [1982] 1 Lloyd ’s Rep 518 and SMK
Cabinets v. Hili Modern Electrics Pty Ltd [1984] VR 391. In all these cases
the em p loyer w as claim ing liqu idated d am ages. In all of them it w as held
that the claim for liqu id ated dam ages m u st fail since the em ployer could
not rely on the original d ate of com pletion, nor on a pow er to extend the
d ate of com p letion. In the absence of su ch a pow er, there cou ld be no
fi xed d ate from w hich the liqu id ated dam ages cou ld run.
In the present case the d efend ants are not seeking liqu id ated d am ages,
since there is no liquid ated d am ages clause. So the line of cases has no
30 2.6 Notice making time of the essence
d irect ap p lication. It is true that the d efend ants have a m od est cou nter-
claim for unliquid ated d am ages. We w ill discuss w hat effect, if any, Wells
v. Army & Navy Co-operative Society has on a claim for unliquidated
d am ages w hen w e com e to d iscuss the cou nterclaim . Bu t one thing is
quite clear. The princip le on w hich Mr Thom as relies cannot possibly help
him establish his claim . Even if tim e is “at large” (w hatever that m ay
m ean) there is nothing in the quoted line of authorities to suggest that
the p rice is at large.’
Tim e of the essen ce gen erally in constru ction con tracts
Perhap s all that can be said of tim e of the essence generally is that time w ill
not norm ally be of the essence in a constru ction contract w hich contains
extension of tim e and liqu id ated d am ages provisions. H ow ever, if the con-
tract ad d itionally contains an exp ress statem ent that tim e is of the essence,
the em ployer m ay have a stronger d efence to any legal challenge on action
taken arising from d eterm ination of the contract.
In any event, there are practical problems for the em p loyer in treating tim e
to be of the essence in a construction contract, since the right to term inate
d oes not arise u ntil the comp letion d ate, w hilst the obligation to m ake
interim p ayments continu es up to that d ate notwithstand ing the em p loyer ’s
eventu al likely loss.
2.6 Not ice ma king t ime of t he essence
The realisation by one party that tim e is of the essence, or needs to be m ad e

of the essence, is not alw ays evid ent at the start of a contract. Frustration or
concern is likely to d evelop progressively as comp letion reced es to an u ncer-
tain d ate in the d istant fu tu re.
The remed y of liquid ated d am ages m ay seem inad equate, w hilst the
cou rse of d eterm ining the contract und er express p rovisions or at com m on
law m ay seem too risky.
At w hat stage is it possible for one p arty to say enou gh is enou gh and , by
notice, m ake tim e of the essence in the contract?
In Rickards v. Oppenheim (1950), m entioned earlier in this chap ter, the
exasp erated car pu rchaser succeeding in reinstating tim e of the essence in a
contract w here by his previous cond u ct the p rovision had been w aived . Bu t
what of the situ ation w here tim e w as not originally of the essence? Can one
party by notice u nilaterally change the term s of the contract and m ake tim e
of the essence?
This is w hat Lord Sim on had to say in United Scientific Holdings Ltd v.
Burnley Council (1977):
‘The notice op erates as evid ence that the prom isee consid ers that a rea-
sonable tim e for perform ance has elapsed by the d ate of the notice and
2.6 Notice making time of the essence 31
as evid ence of the d ate by w hich the p rom isee now consid ers it reason-
able for the contractu al obligation to be perform ed . The prom isor is pu t
on notice of these m atters. It is only in this sense that tim e is m ad e of the
essence of a contract in w hich it w as previou sly non-essential. The p rom-
isee is really saying unless you perform by such and su ch a date I shall
treat you r failure as repud iation of the contract. To say that tim e can be
m ad e of the essence of a contract by notice except in the lim ited sense
alone w ou ld be to perm it one party to the contract u nilaterally by notice
to introd u ce a new term into it.’
In Felton v. Wharrie (1906) w here the em p loyer expelled the contractor from
the site w ithou t notice, it w as said:
‘If he w ere going to act u pon the plaintiff’s cond u ct as being evid ence of
his not going on he ought to have told him of it, and to have said “I treat
that as a refu sal”.’
Notice m aking tim e of the essence can therefore be effective bu t it operates
w ith and not against the principle of a reasonable tim e for com pletion.
Con tractu al p rovision s
Sha w t on Engineering v. DGP
Som e of the d iffi culties of m aking tim e of the essence w ere consid ered by
the Cou rt of Ap peal in the case of Shawton Engineering Ltd v. DGP Interna-
tional Ltd (2005). The case concerned the circu mstances in w hich a contract-
ing party m ay law fu lly term inate the contract for d elay in p erform ance by
the other p arty w hen that p arty’s obligation is to com plete its w ork w ithin
a reasonable tim e.
DGP w as emp loyed on a sub-su bcontract basis to p rodu ce d esigns for a
d esign and m anu facture subcontract u ndertaken by Shaw ton at British
Nu clear Fuels Sellafi eld plant. Variations w ere issued bu t there w as no pro-
vision in the sub-contract for extend ing tim e. It w as accepted that the orig-
inal contractual d ate for com pletion w as lost and that DGP’s obligation w as
to com p lete w ithin a reasonable tim e. Shaw ton w as not satisfi ed w ith DGP’s
perform ance and term inated the sub-subcontract contend ing that DGP w as
in breach of its obligation to com plete w ithin a reasonable tim e and , in any
event it had m ad e tim e of the essence.
The Court of Appeal up held the fi nd ings of the ju d ge at fi rst instance that
Shaw ton had not m ad e tim e of the essence and that no breach of DGP’s
obligation to com p lete w ithin a reasonable tim e had been established . Lord
Justice May said:
‘71. Mr Thom as w as u nable to show us any evidence or corresp ond ence
earlier than 7th N ovem ber 2000 to show that Shaw ton w ere com -
p laining of d elay by DGP. Letters from DGP of 19th May and 2nd
32 2.6 Notice making time of the essence
October 2000, to w hich Mr Thom as d id refer, contain exp lanations

by DGP relevant to their ow n p rogress. Bu t he show ed us nothing
to the effect that Shaw ton rejected their explanations. There w as
nothing to gainsay the jud ge’s fi nd ings to the effect that u p to
N ovem ber 2000 Shaw ton w ere sim ply not insisting on early com ple-
tion by DGP. The original com pletion d ates, and , ind eed , the original
com p letion period s had ceased to be of any relevance. Shaw ton w ere,
in the langu age of Denning LJ in Rickards v Oppenheim, not insisting
on the stipu lations as to tim e, nor w ere they insisting on any tim es
or p eriod s for com p letion. This circu m stance, in m y view, overlaid
to extinction any question of calcu lating tim e p eriod s by reference to
the original d ates for com pletion and the w ork content of variations.
In the strange circum stances of this case, a reasonable tim e for com -
pletion w as literally at large, in the sense of being u nd efi ned , until
Shaw ton took step s, as they d id , on 7th N ovem ber 2000 to start
negotiating for its better d efi nition.
72. The jud ge w as, in m y judgm ent, accord ingly right to hold that
Shaw ton had not established w hat w as a reasonable time for com ple-
tion. H e w as right to hold that DGP w ere not in breach for d elay on
7th N ovember 2000. H e w as right to hold , as he im plicitly d id , that
on 7th Novem ber 2000 the reasonable tim e for com pletion w as to be
assessed afresh, m ainly with reference to the ou tstand ing w ork
content includ ing variations. That w as not solely or m ainly because
Shaw ton had issued variation instructions, but because, until 7th
N ovem ber 2000, Shaw ton had not insisted on com p letion by any
particu lar d ate or w ithin any particu lar period .
73. Since DGP w ere not in breach for d elay on 7th N ovem ber 2000,
Shaw ton w ere not then able to give notice m aking tim e of the essence.
Mr Thom as accep ts this, if DGP w ere not in breach for d elay.
Shaw ton’s ap p eal accord ingly fails in so far as they contend that tim e
w as of the essence on 26th March 2001.
and
76. I have alread y consid ered and rejected the alternative su bm ission
that, even if tim e w as not of the essence, DGP w ere in repu d iatory
breach of contract on 26th March 2001, su ch that Shaw ton w ere
entitled to accept the rep udiation by d eterm ining the contracts. The
jud ge w as right to hold that the m ain case here w as the d elay claim .
There w ere other allegations, som e of them insu bstantial, but the
m ain signifi cant consequ ence of them w as d elay. I accep t that, even
if tim e is not of the essence, it is theoretically p ossible for a party to
show that another p arty’s delay is so profou nd as to be repud iatory.
Bu t w hat has to be show n is, not m ere breach, but a breach of su ch
gravity as to d ep rive the other party of su bstantially the w hole benefi t
w hich it w as the intention of the p arties that they shou ld obtain from
the contract. Mr Thom as accep ted that the ju d ge correctly articulated
the law – see p aragraphs 165 and 169, 4th sentence.’
2.7 Time at large 33
In short, the Court of Appeal ru ling confi rm s that before a valid notice
m aking time of the essence can be given in circum stances w here the obliga-
tion is to com plete w ithin a reasonable tim e it m u st fi rst be established that
there has been breach of an obligation to com p lete w ithin a reasonable tim e.
The ru ling also confi rm s that w hat w as a reasonable tim e had to be ju d ged
at the tim e the question arose, in the light of all the relevant circum stances.
Con tractu al p rovision m ak in g tim e of th e essen ce
Although it is not u nusu al to fi nd the phrase ‘tim e of the essence’ in the

non-stand ard p arts of construction contracts, m ore often than not this is
m ere exhortation and it is not intend ed in its tru e legal sense. There is,
however, one stand ard form of contract, MF/ 1, the m od el form cond itions
for electrical and m echanical plant, w hich d oes have a provision for notice
to be given m aking tim e of the essence – althou gh it d oes not actu ally u se
those w ord s. By clau se 34.2 of MF/ 1, if the contractor is in prolonged d elay
and the sp ecifi ed m axim u m amount of liqu id ated dam ages for late com ple-
tion has been exhau sted , then the pu rchaser (em ployer) can give notice
requ iring the contractor to com plete w ithin a stated reasonable tim e and can
term inate if that is not achieved .
2.7 Time a t la rge
The p hrase ‘time at large’ is m uch loved by contractors. It has abou t it the
ring of plenty; the su ggestion that the contractor has as m u ch tim e as he
w ants to fi nish the w orks.
This is not w hat it m eans.
Tim e becom es at large w hen the obligation to com plete w ithin the speci-
fi ed tim e for com pletion of a contract is lost. The obligation then becom es
to com p lete w ithin a reasonable tim e. The question of w hat is a reasonable
time w ill be consid ered in the next section but it is m ost certainly not ‘as
and w hen the contractor sees fi t’.
The circu m stances of tim e becom ing at large are usually w here an act of
prevention by the emp loyer creates d elay and that d elay is not covered by
an extension of tim e p rovision; and , to a lesser extent:
(i) where there is no stated tim e or d ate for com pletion;
(ii) where there is lack of clarity in the p rovisions for extend ing tim e;
(iii) w here the p rovisions for extension of tim e have not been properly
ad m inistered , have been m isapplied ; or have not been utilised ;
(iv) where there has been w aiver of the original tim e requ irem ents;
(v) where there has been interference by the em ployer in the certifying
p rocess.
All of these m atters w ill be consid ered in greater d etail in later chapters
(particu larly Chapter 5), bu t what is generally at stake in the m atter of
34 2.8 Reasonable time
whether or not tim e is at large is the em ployer ’s right to d ed u ct liquid ated

d am ages for late com pletion. This right is lost com p letely if tim e becom es
at large – the em p loyer can still sue for general or unliquidated d am ages for
late com pletion – bu t regard w ill then be had to the contractor ’s entitlem ent
to a reasonable tim e. As noted in Section 2.5 above, the Court of App eal in
the McAlpine Humberoak case disposed of the p rop osition that if tim e becom es
at large that has the effect of pu tting the contract p rice at large.
2.8 Rea sona ble t ime
The qu estion of w hat is a reasonable tim e for com pletion is a m atter of fact
to be d ecid ed in the light of the circu m stances of each case.
Guid ance on this can be had from the H ou se of Lord s’ ru ling in the case
of Hick v. Raymond and Reid (1893) w here it w as said that w here the law
im plies a contract shall be p erform ed w ithin a reasonable tim e it has:
‘invariably been held to m ean that the p arty u pon w hom it is incu m bent
d uly fulfi ls his obligations, notw ithstand ing protracted d elay, so long as
such d elay is attributable to cau ses beyond his control and he has neither
acted negligently nor u nreasonably.’
This princip le has been the found ation for m any su bsequent d ecisions.
Thus, in British Steel Corporation v. Cleveland Bridge and Engineering Co. Ltd
(1984) the ju d ge said :
‘It w as com m on ground betw een the p arties that the p rinciples I had to
ap ply in this connection were those stated by the H ou se of Lord s in Hick
v. Raymond & Reid, viz. that the question w hat constituted a reasonable
tim e had to be consid ered in relation to the circum stances w hich existed
at the tim e w hen the contractual services w ere perform ed , bu t exclud ing
circu m stances w hich w ere u nder the control of the party perform ing
those services. As I und erstand it, I have fi rst to consid er w hat w ould , in
ord inary circum stances, be a reasonable tim e for the perform ance of the
relevant services; and I have then to consid er to w hat extent that tim e for
performance . . . w as in effect extend ed by extraordinary circu mstances
ou tside their control.’
There rem ains, how ever, som e uncertainty as to w hether the assess-
ment of reasonable tim e should pu t the tim e actu ally taken u nd er exam ina-
tion or w hether the task is to build u p a theoretical tim e allow ance having
regard to all the circu mstances. The answ er to this m ay depend upon
whether the issu e is w hether or not the contractor is entitled to a reasonable
tim e for com p letion and , if so, how m uch or w hether the issue is w hether
or not the contractor has failed to com plete w ithin a reasonable tim e. The
bu rd en of p roof rests on the asserting party and in p ractical term s that
means that the contractor has to p rove that the tim e taken w as reason-
able w hereas the em p loyer has to p rove that the tim e taken w as not
reasonable.
2.8 Reasonable time 35
N o tim e for com p letion sp ecifi ed
The princip les of reasonable tim e apply not only to contracts w here specifi ed
time has been lost and reasonable tim e substitu ted , but also to contracts
w here no tim e for com pletion has been specifi ed in the fi rst p lace. Su ch
contracts are very com m on and, su rprisingly even in the constru ction ind u s-
try, they m ay form the m ajority. This is because w hen the average house-
hold er em p loys a build er to fi t new w ind ow s, erect a porch, or d ecorate the
bed rooms, he pays m ost attention to the price and the w ritten quotation.
Beyond that the contractu al details are frequ ently left open – inclu d ing the
time for perform ance.
In Machenair Ltd v. Gill & Wilkinson Ltd (2005), Mr Justice Jackson, in con-
sidering a su b-su bcontract w ith sparse exp ress term s said :
‘In m y ju d gm ent, on a p roper constru ction of this su b-sub-contract, alter-
natively by im p lication, Gill’s obligation w as to com plete the m echanical
w orks w ithin a reasonable time. In determ ining what constitu tes a rea-
sonable tim e it is necessary to have regard to the m ain contractor ’s pro-
gram m e, and also to all the other circum stances.’
Factors relevan t to reason ab le tim e
Where there is a form al contract and tim e is at large the d efu nct extension
of tim e p rovisions m ay w ell serve as som e guid e as to w hat is reasonable
time. Thus, extra w orks, exceptional w eather, strikes etc., m ight all be taken
into accou nt. With or w ithout a form al contract it m ight be app rop riate to
look at the p rod u ction capability of the contractor, his managem ent and
fi nancial resou rces, and his other contractu al com m itm ents – particularly if
know n to both p arties.
Late in stru cted variation s
One p oint of general interest is how late instru cted variations affect the
reasonable tim e for com p letion. This point cam e u p in the Shawton case w ith
Lord Ju stice May saying:
‘69. I am not convinced that the jud ge w as entirely correct in w hat he
said abou t DGP’s m isapp rehension of the w ork content, nor abou t
the effect of Shaw ton instructing variations after the original com p le-
tion d ates. What is a reasonable tim e has to be jud ged as at the tim e
w hen the question arises in the light of all relevant circu m stances.
One su ch circu m stance w as that DGP had originally agreed fi xed
tim e period s, althou gh they d id so up on a m isapp rehension as to the
w ork content. It w as a relevant factor that Shawton originally had
the contractu al benefi t of these time period s, and that fact was not
to be entirely ignored sim ply becau se DGP’s obligation becam e to
com p lete within a reasonable tim e. Equally, the true w ork content
w as a relevant circum stance. If these tw o factors had been the only
relevant circu m stances, jud ging w hat w as a reasonable time m ay
have p resented som ething of a conund rum , since the tw o factors
w orked in op p osite d irections. But they w ere not the only relevant
circu m stances. The m ere instru cting of a (perhap s qu ite m od est)
variation after the original d ate for com pletion w ou ld not by itself
necessarily m ean that a reasonable tim e had to be assessed afresh by
reference only to the variation and w hatever w ork hap p ened to
rem ain at the d ate of the variation instru ction – w hich is w hat the
jud ge appears to say in the fi nal sentences of p aragraphs 101 and 108
of his ju d gm ent. Mr Thom as m ay w ell be right that a m od est varia-
tion instru ction given after an original com p letion d ate has p assed
cou ld , d ep end ing on all the circum stances, resu lt in an obligation to
com p lete w ithin a reasonable tim e whose assessm ent w ou ld p rod u ce
a date w hich w as in the p ast. Bu t I accep t Mr Fried m an QC’s su bmis-
sion that the qu estion is a com p osite one. The circu m stances in the
present case inclu d ed that the variations w ere signifi cant in scope
and , im p ortantly, that, throughou t m ost of the year 2000, Shaw ton
w ere not insisting on, nor particu larly concerned abou t, early com -
pletion of DGP’s d raw ing w ork.’
Urgency an d exp ed ition
Another p oint of general interest is to w hat extent the contractor has an

obligation to recognise the urgency of the situ ation faced by the em ployer.
This point w as considered in the Astea case d etailed below.
Ast ea v. Time Group (2003)
In the case of Astea (UK) Ltd v. Time Group Ltd (2003) Ju d ge Seym ou r sitting
in the Technology and Constru ction Court had to consid er w hether Astea,
a sup plier of com p uter software, w as liable for d am ages for failu re to com -
p lete w ithin a reasonable time in a contract w here there w as no set tim e for
com p letion. Astea contend ed that its obligation w as to com p lete w ithin a
tim e w hich w as reasonable in the circu m stances – althou gh conced ing that
it could not rely on its ow n failings as extending such tim e. Tim e contended
that a reasonable tim e should be assessed by reference not so m u ch as the
tim e actu ally taken bu t m ore by reference to the tim e w hich could have been
achieved w ith d ue exp ed ition.
The jud ge p ut it this w ay:
‘141. The d istinction betw een these tw o ap proaches seem ed to be that
Mr H ossain [for Tim e] in effect w as contend ing that Astea w as
bou nd to com plete the Services as fast as hum anly or technically
p ossible, subject only to being excused in resp ect of d elays over
2.8 Reasonable time 37
w hich it had no control, w hile Mr Kinsky [for Astea] sought to

p ersu ad e m e that the question was not so m u ch how fast the
Services could have been perform ed by Astea had it chosen to allo-
cate to d oing so the greatest possible resources and to maintain
them for as long as necessary, bu t rather, consid ering all of the
circu m stances, how long, as things turned out, it w as reasonable
for Astea to take.‘
The ju d ge w ent on to say:
‘142. Both Mr H ossain and Mr Kinsky end eavoured to seek sup port for
their resp ective em phases from the w ell-know n d ecision of the
H ou se of Lord s in Pantland Hick v. Raymond & Reid [1893] AC 22.
The lead ing speech in that case w as that of the Lord Chancellor,
Lord H erschell. At pages 28 and 29 of the report Lord H erschell said
this:
“The bills of lad ing in the present case contained no su ch stip ulation
[as to tim e for p erform ance], and , therefore, in accord ance w ith
ord inary and w ell-know n princip les the obligation of the resp on-
d ents w as that they should take d ischarge of the cargo w ithin a
reasonable tim e. The qu estion is, has the app ellant p roved that this
reasonable tim e has been exceed ed? This d epend s u p on w hat cir-
cu m stances m ay be taken into consid eration in d eterm ining w hether
m ore than a reasonable tim e w as occup ied .
The app ellant’s contention is, that inasm u ch as the obligation to
take d ischarge of the cargo, and to provid e the necessary labou r for
that p urpose, rested upon the respond ents, the test is w hat tim e
w ou ld have been required for the d ischarge of the vessel u nder
ord inary circu m stances, and that, inasm uch as they have to provid e
the labour, they mu st be responsible if the d ischarge is delayed
beyond that period .
The respond ents on the other hand contend that the question is
not w hat tim e w ould have been necessary or w hat tim e w ou ld have
been reasonable und er ord inary circu mstances, bu t w hat tim e w as
reasonable u nd er existing circum stances, assu m ing that, in so far as
the existing circum stances w ere extraord inary, they w ere not d u e to
any act or d efault on the p art of the respond ents.
My Lord s, there app ears to me to be no d irect au thority up on the
p oint, although there are ju d gm ents bearing on the subject to w hich
I w ill presently call attention. I w ou ld observe, in the fi rst place, that
there is of course no such thing as a reasonable tim e in the abstract.
It mu st always d epend u pon circum stances. Up on ‘the ord inary
circu m stances’ say the learned cou nsel for the app ellant. But w hat
m ay w ithout im p ropriety be term ed the ord inary circu m stances
d iffer in p articu lar ports at d ifferent tim es of the year. As regard s
the p racticability of d ischarging a vessel they m ay d iffer in sum m er
and w inter. Again, w eather increasing the d iffi cu lty of, though not
p reventing, the d ischarge of a vessel m ay continue for so long a
p eriod that it m ay justly be term ed extraord inary. Cou ld it be con-

tend ed that in so far as it lasted beyond the ord inary p eriod the
d elay caused by it w as to be exclu d ed in d eterm ining w hether the
cargo had been d ischarged w ithin a reasonable tim e? It ap pears to
m e that the appellant’s contention w ou ld involve constant d iffi cu lty
and d isp ute, and that the only sound p rinciple is that the “reason-
able tim e” shou ld d epend on the circum stances w hich actu ally
exist. If the cargo has been taken w ith all reasonable d espatch u nd er
those circu m stances I think the obligation of the consignee has been
fu lfi lled . When I say the circu m stances w hich actually exist, I, of
cou rse, im ply that those circu m stances, in so far as they involve
d elay, have not been cau sed or contributed to by the consignee. I
think the balance of authority, both as regard s the cases w hich relate
to contracts by a consignee to take d ischarge, and those in w hich
the question what is a reasonable time has had to be answ ered w hen
analogous obligations w ere u nd er consid eration, is d istinctly in
favou r of the view taken by the Cou rt below.”
143. I w as also referred by Mr Kinsky to the speech of Lord Watson at
p ages 32 and 33 of the report, w here he said:
“When the langu age of a contract d oes not expressly, or by necessary
im plication, fi x any tim e for the p erform ance of the contractual obli-
gation, the law im plies that it shall be p erform ed w ithin a reasonable
tim e. The ru le is of general ap plication, and is not confi ned to con-
tracts for the carriage of good s by sea. In the case of other contracts
the cond ition of reasonable time has been frequently interpreted ; and
has invariably been held to m ean that the p arty upon w hom it is
incu m bent d uly fu lfi ls his obligation, notw ithstanding protracted
d elay, so long as su ch d elay is attributable to causes beyond his
control, and he has neither acted negligently nor unreasonably.”
and
‘144. . . . What it seem s to m e the app lication of the test form ulated by
the H ou se of Lord s in Pantland Hick v. Raymond & Reid involves in
a case such as the p resent is a broad consid eration, w ith the benefi t
of hind sight, and view ed from the tim e as at w hich one party con-
tend s that a reasonable tim e for perform ance has been exceed ed , of
w hat w ou ld , in all the circum stances w hich are by then know n to
have happ ened , have been a reasonable time for perform ance. That
broad consid eration is likely to inclu d e taking into account any
estim ate given by the p erform ing p arty of how long it w ould take
him to perform ; w hether that estim ate has been exceed ed and , if so,
in w hat circu m stances; w hether the party for whose benefi t the
relevant obligation w as to be perform ed need ed to p articip ate in
the perform ance, actively, in the sense of collaborating in w hat w as
need ed to be d one, or passively, in the sense of being in a position
to receive p erform ance, or not at all; w hether it w as necessary for
third parties to collaborate w ith the perform ing party in ord er to
2.9 Fixing time by reference to correspondence 39
enable it to perform ; and w hat exactly w as the cause, or w ere the

cau ses of the d elay to perform ance. This list is not intend ed to be
exhau stive.’
The jud ge w ent on to hold that no breach of contract by Astea had been
established .
Su m m ary
As is evid ent from the closing w ord s of the above p assage, assessment of a
reasonable tim e for com p letion is not an exact science bound by rigid ru les.
How ever, the general principles for assessm ent of a reasonable tim e for
comp letion remain as stated in Hick v. Raymond and Reid (1893) – som etim es
nam ed Pantland Hick v. Raymond Reid. Generally the assessm ent is a retro-
sp ective exercise since a reasonable time inclu d es d elays beyond the control
of the contractor – and su ch d elays are unlikely to be capable of prospective
assessm ent. The bu rd en of proof rests on the party w hich seeks to rely on
reasonable tim e or on the party w hich asserts that the obligation to com plete
w ithin a reasonable tim e has been breached .
2.9 Fixing t ime by reference t o correspondence
It is not unusu al, p articu larly in sub-contracts, for im portant terms on tim e
to be less than clearly stated . The d etails of the p articu lar contract m ay be
set ou t in exchanges of corresp ond ence bu t they are not alw ays transferred
into a form al contract d ocum ent. In such cases there is, of cou rse, consid er-
able scop e for d ispu te as to w hat term s app ly.
One party, for exam p le, m ight argu e that in the absence of a clearly or
form ally stated tim e for com pletion then a reasonable tim e shou ld ap ply.
The p oint cam e u p in the case of J and J Fee Ltd v. The Express Lift Company
Ltd (1993), w here the p arties agreed to u se DOM/ 2 cond itions bu t never
w ent beyond an extensive exchange of corresp ondence on w hat com pletion
d ate was to app ly. The ju d ge, after review ing the correspond ence, held that
the op erative com p letion d ate w as that stated in the fi nal non-contested
letter and that the date ap plied as if it had been w ritten into a DOM/ 2 con-
tract signed by the p arties.
2.10 The effect of t ime a t la rge on t he cont ra ct price
As noted in Section 2.5 above, the Court of Ap peal in McAlpine Humberoak

sou ndly rejected the sim p le proposition w hen tim e is pu t at large the con-
tract p rice is also pu t at large. Bu t that does not d ispose of such questions
as how p rolongation costs should be assessed w hen tim e is at large or how
other costs should be assessed if the effect of tim e at large is to rend er the
contract p rice inap plicable.
40 2.10 The effect of time at large on the contract price
For exam p le, it m ight be said in relation to p rolongation costs that since
tim e at large requ ires the contractor to com plete w ithin a reasonable tim e
then recoverable p rolongation costs should be those w hich are likew ise
reasonable. Or p ut another w ay, since the bu rd en falls on the em p loyer to
show that the contractor failed to com plete w ithin a reasonable tim e if the
em ployer w ishes to recover d elay d am ages then, ap plying the sam e prin-
ciple to p rolongation costs, it should be for the em ployer to p rove that the
contractor ’s incurred prolongation costs are not reasonable.
There seem s to be little legal authority on this m atter and there is prob-
ably no single ru le to fi t all cases. The term s of the contract m ay be relevant
and it m ay d ep end u pon the circum stances w hich pu t tim e at large. Thus
for breach of contract the contractor m ay be able to recover prolongation
costs as d am ages w hereas for ad d itional w orks not covered by any extension
of tim e p rovision the valuation of variation ru les of the contract m ay take
effect.
Sim ilar points to these cam e up in the case of Wiltshier Construction
(Scotland) Ltd v. Drumchapel Housing Co-operative Ltd (2003) w here it w as
argu ed by the contractor that as a resu lt of excessive vand alism the contract
tim e and contract price w ere supersed ed by a reasonable tim e for com ple-
tion and reasonable rem u neration. The cou rt ru led, however, that the
original contract p rovisions w ere not d isp laced .
Chap ter 3
D am ages for late com p letion
3.1 Liquida t ed a nd genera l da ma ges dist inguished
As exp lained in Chap ter 1, liquid ated dam ages are fi xed in ad vance of the
breach and can be recovered w ithout p roof of loss; w hereas general d am ages
are assessed only after the breach and can only be recovered u pon proof
of loss.
Reasons for u se
There are sou nd com m ercial reasons for using liqu id ated d am ages w hen-
ever p ossible. Firstly becau se of the certainty they bring to the consequences
of breach; and secondly becau se they avoid the expense and d ispu te involved
in p roving loss. As Lord Ju stice Diplock said in the case of Robophone
Facilities Ltd v. Blank (1966) w hen sum m ing u p the balance betw een the
parties:
‘The court shou ld not be astute to d escry a penalty clause in every provi-
sion of a contract w hich stipu lates a su m to be payable by one party to
the other in the event of a breach by the form er. Su ch a stip ulation refl ects
good bu siness sense and is ad vantageou s to both parties. It enables them
to envisage the fi nancial consequences of a breach; and if litigation proves
inevitable it avoid s the d iffi culty and the legal costs, often heavy, of
proving w hat loss has in fact been su ffered by the innocent party.’
Pre-estim ates of loss
It is clearly not easy to estim ate in ad vance the fi nancial consequ ences of the
variou s breaches of a constru ction contract w hich the contractor m ight
allege, such as the d am ages arising from late instru ctions, p revention, and
the like. Consequently m ost claim s from contractors com e to be settled by
w ay of general d am ages. Som e contracts have been pu t ou t w here the con-
tractor is required to state a su m p er w eek for reim bursable d elay but the
practice is not w id esp read . It w as consid ered bu t not u sed in edition 3 of
GC / Works / 1 / .
For the em ployer, how ever, the most com m on breach suffered is late
comp letion by the contractor and here it is p ossible to m ake genu ine
42 3.1 Liquidated and general damages distinguished
pre-estim ate of the loss and to incorporate the sam e into the contract as
liquid ated d am ages.
There are clear ad vantages to the em p loyer in this because he d oes not
have to p rove his loss and there w ill probably be a m echanism in the contract
for d edu ction of the d am ages from su m s d ue to the contractor. There are
also correspond ing benefi ts to the contractor in that he know s in ad vance
what d am ages he is liable for in the event of late com pletion. At tend ering
stage this is often an im portant factor in the contractor ’s bid . If he feels that
he cannot risk the level of d am ages stated for late com pletion, he can w ith-
d raw or bid high. If he thinks that he cannot com plete in the tim e allow ed
he know s how m uch to ad d to his bid for anticip ated late com pletion and
then, d u ring constru ction, when there m ay be a balance to be stru ck betw een
spend ing m ore m oney to com plete on tim e or facing d am ages for late
com p letion, the contractor know s w hat these d am ages w ill be and can cal-
culate accord ingly.
M u tu ality
The m u tuality of liquid ating dam ages is not alw ays recognised by the courts
or by contractors. Thus, in Peak v. McKinney (1970), Lord Justice Salmon
said:
‘The liquid ated d am ages clause contemp lates a failure to com p lete on
tim e d ue to the fault of the contractor. It is inserted by the em ployer for
his ow n p rotection; for it enables him to recover a fi xed su m as com pen-
sation for d elay instead of facing the d iffi culty and expense of proving
the actu al d am age w hich the delay m ay have cau sed him .’
Ind eed , m any of the su ccessful challenges to liqu id ated d am ages rely on the
traditional hostility of the cou rts to such d am ages, often d em onstrating a
logic w hich now seems d istinctly old fashioned .
As for contractors, those w ho d islike liquid ated d am ages frequ ently m is-
understand basic p rincip les and believe either that such d am ages are p enal-
ties for late comp letion, or that such dam ages are im p osed in circum stances
where no other d am ages w ould be p ayable. The reality is very d ifferent. If
liquid ated d am ages can be show n to be penalties they cannot be enforced ;
and if liqu idated d am ages cannot be enforced , for w hatever reason, then
general dam ages are p ayable. Thus om itting liquid ated d am ages clauses
from construction contracts w ou ld not relieve the contractor of liability for
d am ages for late com p letion. The best perhap s that can be said for the hostile
contractor ’s view is that p roving d am ages for late com pletion in som e pro-
jects, particu larly those in the public sector, w ou ld be no easy m atter and
many em ployers w ould not consid er it w orth the effort.
H ow ever tru e this p oint may be and how ever d ifferent liquid ated
and general d am ages m ay appear, the p rincip les w hich app ly to the pre-
estim ation of liqu id ated d am ages cannot be d ivorced from the p rincip les
which app ly to the calcu lation of general d am ages.
3.2 Principles of general damages 43
3.2 P rinciples of genera l da ma ges
Tw o asp ects of general d am ages need to be consid ered . First, remoteness of

d am age, w hich relates to liability and is in effect a d efence against a claim
for breach on the grou nd s that the consequences could not have been
foreseen.
Second ly, m easu re of d am ages, w hich relates to the quantum of a claim
once the p rincip le of liability has been established.
Rem oten ess of d am age
The law d oes not allow a claimant to succeed in every case w here d am age
follow s a breach but d raw s a practical line by exclud ing that w hich is too
rem ote. Lord Wright in Liesbosch Dredger v. Edison Steamship (1933) p ut it
this w ay:
‘The law cannot take accou nt of everything that follow s a w rongfu l act;
it regards some subsequ ent m atters as outsid e the scope of its selection,
becau se “it w ere infi nite for the law to ju dge the cau se of cau ses”, or
consequ ences of consequences. In the varied w eb of affairs the law m ust
abstract som e consequ ences as relevant, not p erhap s on grounds of pure
logic, but sim p ly for p ractical reasons.’
Ha dley v. Ba xenda le (1854)
The gu id ing principles of rem oteness ap plying to cases of breach of contract

d erive from the ju d gment of Baron Ald erson in the very old case of Hadley
v. Baxendale (1854). In the cou rse of his jud gm ent he said :
‘Where tw o p arties have m ad e a contract w hich one of them has broken,
the d am ages w hich the other party ou ght to receive in respect of su ch
breach of contract shou ld be such as m ay fairly and reasonably be con-
sid ered either arising naturally, i.e. accord ing to the usual cou rse of things,
from su ch breach of contract itself, or su ch as m ay reasonably be sup -
posed to have been in the contem plation of both parties, at the tim e they
m ad e the contract, as the probable resu lt of the breach of it.’
The facts of the case w ere that the m ill of the plaintiffs at Glou cester w as
brou ght to a stand still by a broken crank shaft and it becam e necessary to
send the shaft to the m akers at Greenw ich as a pattern for a new one.
The d efend ant, a com m on carrier, prom ised to d eliver it at Greenw ich on
the follow ing d ay. Ow ing to his neglect it w as und u ly d elayed in transit
w ith the resu lt that the m ill rem ained id le for longer than it w ou ld have
d one had there been no breach of the contract of carriage. The p laintiffs
therefore claim ed to recover dam ages for the loss of profi t cau sed by the
d elay.
44 3.2 Principles of general damages
In his jud gm ent Baron Alderson d em onstrated that in accord ance w ith
the p rincip le that he had ju st expressed there w ere only tw o possible
ground s u p on w hich the plaintiffs could su stain their claim . First, that in
the usu al course of things the w ork of the m ill w ould cease altogether for
the w ant of the shaft. This, he said , w ould not be the norm al occu rrence
for, to take only one reasonable possibility, the plaintiffs m ight well have
had a spare shaft in reserve. Second ly, that the sp ecial circu m stances w ere
so fu lly d isclosed that the inevitable loss of profi t w as m ad e app arent to
the defend ant. This, how ever, w as not the case since the only com m unica-
tion p roved w as that the article to be carried w as the shaft of a m ill and that
the p laintiffs w ere the ow ners of the m ill. The jury, therefore, shou ld not
have taken the loss of profi t into consid eration in their assessm ent of
d am ages.
Rule in Ha dley v. Ba xenda le
The ru le in Hadley v. Baxendale is taken as having tw o branches and is com -

m only expressed as:
‘Su ch losses as m ay fairly and reasonably be consid ered as either arising:
(1st rule) “natu rally”, i.e. accord ing to the usual course of things, or (2nd
ru le) “such as m ay reasonably be su p posed to be in the contem p lation of
both p arties at the tim e they m ad e the contract, as the probable resu lt of
breach of it”.’
Vict oria La undry v. Newma n (1949)
The test of rem oteness laid d ow n by Baron Ald erson w as reform ulated in
the jud gm ent of Lord Ju stice Asquith in the case of Victoria Laundry (Windsor)
Ltd v. Newman Industries Ltd (1949).
The p laintiffs w ho w ished to extend their business contracted to bu y a
second -hand boiler w hich w as then d am aged in dismantling and d elivered
fi ve m onths late. They su ed for loss of profi t d u ring the period of d elay,
w hich p rofi t w ou ld have com e from tw o sou rces; fi rstly the general exten-
sion of their business and second ly, highly lu crative contracts from the
Ministry of Su pp ly. The Court of App eal allow ed d am ages und er the fi rst
head ing but not the second .
Lord Ju stice Asqu ith, having review ed the law as it then stood , gave six
p ropositions in w hich he introd uced the test of reasonable foreseeability:
‘What propositions ap plicable to the p resent case em erge from the au thor-
ities as a w hole, inclu ding those analysed above? We think they inclu d e
the follow ing:
(1) It is w ell settled that the governing p urpose of d am ages is to pu t the
p arty w hose rights have been violated in the sam e position, so far as
money can d o so, as if his rights had been observed . This pu rp ose, if
relentlessly p u rsued , w ould provid e him w ith a com plete ind em nity
for all loss d e facto resulting from a particu lar breach, how ever
im probable, how ever u npred ictable. This, in contract at least, is
recognized as too harsh a ru le. H ence,
(2) In cases of breach of contract the aggrieved p arty is only entitled to
recover such part of the loss actu ally resulting as w as at the time
of the contract reasonably foreseeable as liable to result from the
breach.
(3) What w as at that tim e reasonably so foreseeable d ep end s on the
know led ge then p ossessed by the p arties or, at all events, by the party
who later com m its the breach.
(4) For this pu rpose, know led ge “p ossessed ” is of tw o kind s; one im pu ted ,
the other actual. Everyone, as a reasonable person, is taken to know
the “ord inary cou rse of things” and consequently w hat loss is liable
to resu lt from a breach of contract in that ord inary course. This is the
subject m atter of the “fi rst rule” in Hadley v. Baxendale. Bu t to this
know led ge, w hich a contract-breaker is assu m ed to possess w hether
he actu ally possesses it or not, there m ay have to be ad ded in a par-
ticu lar case know led ge w hich he actually possesses, of sp ecial circum -
stances ou tsid e the “ord inary cou rse of things”, of su ch a kind that a
breach in those sp ecial circum stances w ou ld be liable to cau se m ore
loss. Su ch a case attracts the operation of the “second ru le” so as to
make ad d itional loss also recoverable.
(5) In ord er to m ake the contract-breaker liable u nd er either ru le it is not
necessary that he should actu ally have asked him self w hat loss is
liable to result from a breach. As has often been pointed ou t, parties
at the tim e of contracting contem plate not the breach of the contract
bu t its p erform ance. It suffi ces that if he had consid ered the qu estion,
he w ou ld as a reasonable m an have conclu ded that the loss in ques-
tion w as liable to result.
(6) Nor, fi nally, to m ake a particular loss recoverable need it be proved
that u pon a given state of know led ge the d efend ant could , as a rea-
sonable m an, foresee that a breach m ust necessarily resu lt in that loss.
It is enou gh if he cou ld foresee it was likely so to result. It is ind eed
enou gh if the loss (or som e factor w ithout w hich it w ou ld not have
occu rred ) is a “serious possibility” or a “real d anger”. For short we
have u sed the w ord “liable” to resu lt. Possibly the colloquialism “on
the card s” ind icates the shad e of m eaning w ith som e app roach to
accu racy.’
Cu rren t p osition
In Czarnikow Ltd v. Koufos (1969), know n as The Heron II, the H ou se of Lord s
m oved aw ay from the foreseeability test to one of assu m ed com m on know -
led ge. The effect of this on the law and a su m m ary of the law as it now stand s
was ad mirably exp ressed by the Cou rt of App eal of N ew Zealand in Bevan
Investments v. Blackall & Struthers (1977) as follow s:
‘(1) The aggrieved party is only entitled to recover such p art of the loss
actu ally resu lting as m ay fairly and reasonably be consid ered as
arising naturally, that is accord ing to the usu al cou rse of things, from
the breach of the contract.
(2) The question is to be ju d ged as at the tim e of the contract.
(3) In ord er to m ake the contract-breaker liable it is not necessary that
he should actually have asked him self w hat loss w as liable to result
from a breach of the kind w hich subsequ ently occu rred. It suffi ces
that if he had consid ered the question he w ou ld as a reasonable m an
have conclu d ed that the loss in question w as “liable to resu lt”.
(4) The w ord s “liable to result” should be read in the sense conveyed by
the expressions “a seriou s p ossibility” and “a real d anger”.’
Presu m ed k n ow led ge
In Balfour Beatty Construction (Ltd) v. Scottish Power plc (1994) the H ouse of
Lord s had to consid er the extent to w hich one party to a contract is pre-
sum ed to know about the business activities of the other. Scottish Pow er had
provid ed a p ow er su pply to Balfour Beatty’s concrete batching plant and as
a resu lt of a failure of the pow er supply d uring the continuous pou r of an
aqu ed uct stru ctu re Balfour Beatty had to d emolish the p artly fi nished p our.
It w as held that the need for d em olition w as not w ithin the contem p lation
of Scottish Power and they w ere not liable for the resu lting fi nancial
d am ages.
For fu rther discussion on applicability of the rules of Hadley v. Baxendale
to genu ine p re-estim ates of loss see Chapter 4 and, in p articu lar, the case of
Multiplex v. Abgarus (1992).
M easu re of d am ages
The p rincip les applied by the courts in m easu ring dam ages d ate back to the
case of Robinson v. Harman (1848) w here it w as stated :
‘The rule of com m on law is that w here a p arty su stains a loss by reason
of a breach of contract, he is, so far as m oney can d o it, to be p laced in
the sam e situation, w ith respect to d am ages, as if the contract had been
performed .’
This ru le is, of cou rse, su bord inate to the ru le on rem oteness fi rst consid ered .
As Lord Esher in The Argentino (1888) said :
‘This rule does not com e into play w ith regard to any claim ed head of
d am age until it has been d etermined by the rule as to rem oteness w hether
that head of d am age can be brou ght into consid eration at all.’
The d istinction betw een rem oteness of d am age and m easu re of d am age
is not alw ays obviou s. Thus, in Parsons (Livestock) Ltd v. Uttley Ingham & Co.
Ltd (1977) a d efective ventilator in a feed hopp er led to m ould in the p ig
feed and the d eath of 254 top -grade p igs. The pig farm er claim ed £36,000
for loss of his herd ; the hopper m anu facturer offered £18 for rep lacem ent
feed . The Court of App eal held that the type of d am age (the d eath of the
pigs) w as foreseeable from the consequences of the breach and the pig
farm er ’s losses w ere recoverable.
Fu rther com p lications arise w hen the m easure of d am ages is to cover
d iminu tion in valu e and / or liability for rectifi cation. In Ruxley Electronics
and Construction Ltd v. Forsyth (1995), a case w hich concerned a sw im m ing
pool bu ilt to a d ep th of 6 feet 9 inches instead of the specifi ed 7 feet 6 inches,
the Hou se of Lord s held that the em p loyer cou ld not recover the full cost of
a replacem ent pool and that, w hen such expend iture w ou ld be out of all
prop ortion to the benefi t to be obtained , the appropriate measure of d am ages
w as d im inu tion in value. Or, pu t another w ay, the proper m easu re of
d am ages w as not the m onetary equ ivalent of sp ecifi c perform ance but the
loss su ffered as a resu lt of the breach.
Wasted exp en d itu re
Som e jud icial guid ance on w asted exp end itu re can be gained from the case
of C & P Haulage v. Middleton (1983).
In that case, a m otor repairer execu ted certain w orks to p rem ises he
occu pied for his bu siness to rend er them su itable for his p u rpose and
su ed for w asted expend itu re when his lease w as term inated in breach of
contract.
The Court of Appeal held that he could not succeed as he had su ffered no
loss of p rofi t becau se he had fou nd alternative accom m od ation and the
earlier ‘w asted ’ exp end itu re w ou ld have been spent anyw ay even if the
contract had not been broken. The cou rt held that the correct ap proach w as
that he shou ld be p u t in the position he w ou ld have been in had the contract
been p erform ed . H e could not have d am ages to p u t him in the position as
if the contract had never been m ad e.
The general point here is that a claim for d am ages is not intend ed to
im prove one’s p osition on w hat it w ould have been w ithou t any breach. In
short, a claim is not a d evice for turning loss into profi t.
M itigation of loss
It is som etim es said that a claim ant has a d u ty to m itigate his loss. This is
true to the extent that the claim ant seeks to recover his loss as d am ages, bu t
it d oes not follow that an injured p arty in a breach of contract situ ation
shou ld have his cond u ct d eterm ined by the breach.
The follow ing extracts from legal jud gm ents explain this.
Viscou nt H ald ane in British Westinghouse Electric & Manufacturing Co. Ltd
v. Underground Electric Railways of London Ltd (1912) said that:
‘A p laintiff is u nd er no du ty to m itigate his loss, d esp ite the habitu al
use by the law yers of the phrase “d u ty to m itigate”. H e is com pletely
free to act as he jud ges to be in his best interest. On the other hand , a
d efend ant is not liable for all loss suffered by the plaintiff in consequ ence
of his so acting. A d efendant is only liable for su ch p art of the p laintiff’s
loss as is p rop erly to be regard ed as caused by the defend ant’s breach
of du ty.’
Sir John Donald son, Master of the Rolls, in The Solholt (1983) said :
‘The fu nd am ental basis is thu s com p ensation for pecu niary loss natu-
rally fl ow ing from the breach; but this fi rst principle is qu alifi ed by a
second , w hich im p oses on a plaintiff the d u ty of taking all reasonable
steps to m itigate the loss consequent on the breach, and d ebars him from
claim ing any p art of the d am age w hich is du e to his neglect to take
such step s.’
There is clearly w id e scope for d ebate on how far the concept of ‘neglect
to take su ch step s’ shou ld apply. It is d ou btfu l, for exam ple, that it extend s
to exp end itu re of fu rther m oneys w hich might or m ight not be recoverable
bu t it p robably d oes inclu d e taking-u p reasonable offers and app lying prac-
tical step s.
In Pilkington v. Wood (1953) it w as held that a hou se p urchaser was und er
no d u ty to sue the vend or for conveying a d efective title in ord er to m itigate
his loss in p roceedings against his solicitor.
Against that, in Brace v. Calder (1895), an emp loyee w ho sued for breach
of his em p loym ent contract w as aw arded only nom inal d amages because
he rejected an offer of a new contract.
See also the case of Murray v. Leisureplay Plc (2005), d iscussed in Chapter
4, on the qu estion of w hether foreseeable p rospects for m itigation of loss
need to be includ ed in genu ine pre-estim ates of loss to avoid them being
d eclared penalties.
Best end eavou rs an d th e lik e
Obligations to use best endeavours, reasonable end eavou rs and other

term s of sim ilar intent are generally related in the construction indu stry, to
progressing the w orks. Often they am ount to no m ore than exhortation and
only rarely w ill breach lead d irectly to liability for d am ages. The usu al situ-
ation is that breach im p acts on entitlem ent to extension of tim e or m ay
provid e ground s for d eterm ination. These m atters are d iscussed in later
chapters.
H ow ever, note the com pu ter softw are case of Astea (UK) Ltd v. Time Group
Ltd (2003) d iscu ssed in Chap ter 2 w here an attem pt w as m ad e to fi x a rea-
sonable tim e for com p letion by reference to du e exped ition.
3.3 Alternative remedies 49
3.3 Alt erna t ive remedies
The ru le is well settled that w hen a liquid ated d am ages clause fails to
operate becau se it is su ccessfully challenged as a penalty, or fails because of
som e d efect in legal construction, act of prevention or other obstacle, then
general d amages can be sought as a substitute. Thus, Lord Justice Phillim ore
in Peak v. McKinney (1970) said :
‘If the em p loyer is in any w ay responsible for the failure to achieve the
com p letion d ate, he can recover no liquid ated d am ages at all and is left
to prove su ch general d amages as he m ay have su ffered .’
Lord Justice Step henson in Rapid Building Group Ltd v. Ealing Family Housing
Association (1984) said :
‘It is accepted that a party m ust elect w hether to claim liquid ated or
unliqu idated d am ages; but as it seem s to m e, w here the claim for liqu i-
d ated d am ages has been lost or has gone . . . the d efend ants are not pre-
clud ed from p u rsu ing their counterclaim for unliquid ated d am ages.’
The statem ent in this latter qu otation that a p arty m ust elect w hether to
claim liqu id ated or unliqu id ated d am ages requ ires som e explanation. At
fi rst sight it im p lies that liquid ated d am ages and general d am ages are alter-
native rem ed ies at the option of the claim ing party; bu t this cannot generally
be the case since it w ou ld d efeat the p u rpose of liqu id ating d am ages.
Clearly, at the outset before the contract is prep ared there are genu ine
alternatives to consid er because a d ecision has to be m ad e on whether to
rely on general d am ages or w hether to includ e w ithin the contract express
provisions for liqu id ated d am ages. The p oint is fairly obviou s, bu t it is
w orth stating that: general d am ages can follow im p lied term s; but liqui-
d ated d am ages can only follow express terms.
In practice it is normally solely the p arty w ho prepares the contract w ho
m akes the d ecision on w hether or not to includ e liquid ated d am ages and at
w hat rates they shou ld be, and that d oes leave open som e scop e for later
d isp ute on w hether the rates stated are tru ly liqu id ated d am ages or are
penalties. But that argu m ent apart, once liqu id ated d am ages are inclu ded
in a contract they are d eem ed to be there by agreem ent betw een the parties.
Their application can be challenged later on various grounds but the argu -
m ent som etimes p u t forw ard by a party facing liquid ated d amages that they
shou ld not apply becau se they were set w ithou t consultation has no m erit.
How ever, w here there is a liquidated d am age clau se in a contract, a m ajor
point to consid er is to w hat extent is it possible for either party to avoid
liqu id ated d am ages and substitute general d amages?
The position of the party facing liability for liqu id ated dam ages is p erhap s
the m ost straightforw ard since that party alw ays has a choice; to pay or
accept the d ed u ction of the liquidated d am ages d ue, or to challenge them
and face general d am ages. The d esire to avoid liquid ated d am ages m ight
arise from an attem p t to d efer paym ent or a belief that su ch general d am ages
as could be proved w ould be less than the liqu id ated d am ages. There m ight
50 3.3 Alternative remedies
well also be the belief, and not w ithou t som e fou nd ation, that avoid ance of
liquid ated dam ages w ou ld in practice m ean the avoid ance of general
d am ages since p ursuit of the latter is a tim e consu m ing and exp ensive
process.
This is a choice, how ever, on w hether or not to challenge liqu id ated
d am ages; it is not an election on w hether or not they shou ld ap p ly. That
pow er of election, if such a p ow er exists, can only vest in the party seeking
to ap ply d am ages. The point at issue then becom es: is a liqu id ated d am ages
clau se in the natu re of an exclu sion clau se shutting out the alternative
rem ed y of general d amages?
Exclu sion effect
This w as one of the m atters which cam e to be consid ered by the Cou rt of
Appeal in the u nusu al case of Temloc Ltd v. Errill Properties Ltd (1987) w here
the entry in the append ix to a JCT 80 contract w as stated as £nil liquid ated
d am ages. The contract w as fi nished late and the emp loyer / d eveloper w ho
was liable to the p rop erty pu rchaser for d am ages sought to recover them as
general dam ages from the contractor. On the argu m ent that the em ployer
had a choice of d am ages, Lord Ju stice Croom -Johnson had this to say:
‘[Counsel for Errills] su bm its that Errills had a choice as to w hich they
shou ld go for, w hether for the liqu id ated d am ages or for d am ages at
large. On the w ording of Clau se 25 there is no choice available. Any su ch
claim for d am ages at large w ould have to be based on an imp lied term
in the contract. If Clause 24 had been exclud ed from the contract alto-
gether, as w as su bmitted by [Counsel for Errills], it w ould have been
necessary to im ply su ch a term and give effect to it. Bu t as Clau se 24 is
tied to d ates certifi ed by the architect and a m ethod of calcu lation is p ro-
vid ed in the ap pend ix, there is no room for im plying such a term . Clause
24 is head ed “Dam ages for non-comp letion”, and then lays d ow n an
agreed p rovision for calculating those by liqu id ated d am ages, w hich is
covering all the d am ages for non-com pletion. There is every reason w hy
parties to build ing contracts should agree to liquidated d am ages for non-
com p letion. Proof of such loss is often d iffi cu lt to achieve and agreem ent
in ad vance is a saver of d isp utes.’
Exh austive rem ed y
As to w hether liquid ated d amages provid e an exhaustive rem ed y, in Temloc

v. Errill, Lord Ju stice N ourse, agreeing with Lord Justice Croom -Johnson,
said:
‘I think it clear, both as a m atter of constru ction and as one of com m on
sense, that if (1) Clau se 24 is incorporated in the contract and (2) the
parties com p lete the relevant part of the append ix, either by stating a rate
at w hich the sum is to be calculated or, as here, by stating that the sum
is to be nil, then that constitutes an exhaustive agreem ent as to the
d am ages w hich are or are not to be p ayable by the contractor in the event
of his failure to com p lete the works on tim e.’
He w ent on to say:
‘Viewing the clause in this w ay, I fi nd it im possible to attribute to parties
w ho com p lete the app end ix in one w ay or the other an intention that the
em p loyer shall have the option of claim ing d am ages of precisely the sam e
character but in an unliquid ated amount.’
Su m m ary
All of the above can be su m m ed up as:

(i) express term s on liqu id ated d am ages exclud e the possibility of im p lied
term s for general d am ages;
(ii) liquid ated d amages are an exhau stive rem ed y for the breach to w hich
they apply;
(iii) the em ployer has no option of claim ing general d am ages instead of
liqu id ated d amages.
O ther cases
The exhau stive effect of a liquid ated dam ages clause w as also consid ered in
the case of Pigott Foundations Ltd v. Shepherd Construction Ltd (1993). The
su b-contract contained an agreem ent w hich read :
‘With regard to B9, it w as agreed that d am ages w ou ld only app ly in the
event of Pigott’s not com pleting w ithin 10 w eeks and any su m w ould be
lim ited to £40,000 (m ax) at the rate of £10,000 p er w eek.’
In bringing a cou nterclaim against Pigott, Shep herd argu ed that the agree-
m ent ap plied only as a lim itation of Pigott’s liability in respect of any liqui-
d ated d am ages fl ow ing d ow n from the m ain contract and that it d id not
apply to the d am ages for d elay, d isru ption and consequ ential loss and
expense.
Rejecting that argu m ent, Judge Gilliland QC said :
‘The effect of a provision for the paym ent of liquid ated d am ages for d elay
in a bu ilding contract has been consid ered in a num ber of recent author-
ities from which it is clear that not only d oes such a clause have the effect
of imp osing a liability upon the party w ho is responsible for the d elay to
pay d amages at the stated rate bu t also it has the effect of preclu d ing the
other party to the contract from seeking to avoid the limitation on any
am ou nt of dam ages contained in a liqu id ated d am ages clau se by claim ing
d am ages for d elay or disru ption arising from d elay in com p leting the
w orks as d am ages for the breach of some other provision of the contract.
See for exam p le Temloc Ltd v. Errill Properties Ltd (1988). In that case the
amou nt of the liquid ated d am ages w as stated to be nil, bu t it w as held
by the Cou rt of Ap p eal that the provisions constitu ted an exhau stive
agreem ent as to the am ount of the d am ages w hich w ere to be payable by
the contractor in the event of his failure to com plete the w orks on tim e.
A sim ilar conclusion w as reached in Surrey Heath Borough Council v. Lovell
Construction Ltd (1988).’
A recent thorou gh review of the law on liquid ated d am ages as an exhau s-
tive rem edy is found in Mr Justice Ram sey’s jud gm ent in the case of Biffa
Waste Ltd v. Maschinfabrik Ernst Hese GMBH (2008). The contract in that case
contained a provision cap p ing liquid ated d am ages for d elay at 7.5% of the
contract p rice. The claim ant sought to recover unliqu id ated d am ages relying
on other p rovisions in the contract. The jud ge said :
‘102. I consid er fi rst, the provisions of Clause 47.1 of the Design and Bu ild
Deed . This clause provid es for liquid ated d am ages for d elay. Under
Clause 43 there are a nu m ber of obligations relating to com p letion.
Clause 43.1 states that the w hole of the Works shall be com pleted
in accord ance w ith the provisions of Clau se 48 (the Taking over
Certifi cate) by the Tim e for Com pletion. Clause 43.2 provid es that
MEH shall com plete any task specifi ed in Part B of Sched u le 3 by
the d ate specifi ed or su ch extend ed tim e as m ay be allow ed u nder
Clause 44.
103. Time for Com pletion is d efi ned in Clau se 1.1.49 as the tim e stated
in Part A of Sched ule 3 (or as extend ed und er Clau se 44 or red u ced
u nd er Clause 44.3). Part A of Sched u le 3 provid es: “Tim e of com ple-
tion for the w hole of the Works (save for achieving biogas prod uc-
tion and generated electricity tests at Wanlip d escribed in Sched u le
2.0 of the Plant Specifi cation) 18 June 2004 (w ith com m issioning
operations to start no later than 18 Ap ril 2004)”.
104. Part B of Sched ule 3 provid es d ates or a period of tim e for d ifferent
tasks und er a head ing of “tim e for sectional com p letion”.
105. As a resu lt, there are a num ber of contractu al obligations as to tim e
u nd er Clau ses 43.1 and 43.2 w hich, if breached , w ou ld ordinarily
give rise to a claim for d am ages for breach of contract in an un-
liqu id ated am ou nt.
106. Clause 47.1 d eals both w ith the p osition w here MEH “fails to com p ly
w ith the Tim e for Com pletion in accord ance w ith Clause 48 for the
w hole of the Works w ithin the relevant tim e p rescribed by Clause
43” and also w here MEH fails “to com ply w ith clau se 43.2”.
107. Clause 47.1 then p rovid es that if there is su ch a failu re then MEH
shall pay Biffa Waste “the relevant sum stated in Sched u le 12 as
liqu id ated d am ages for such d efau lt and not as a p enalty (which sum
shall be the only monies due from the Contractor for such Default) for
every w eek or p art w eek w hich shall elapse betw een (a) the Tim e
for Com pletion and that d ate stated in a Taking Over Certifi cate
of the w hole of the Works or (b) the d ate specifi ed in part B of
Sched u le 3 and the d ate the task specifi ed in Part B of Sched u le 3
is actu ally com p leted .” (emphasis added).
108. Biffa accepts, the phrase in parentheses, “which sum shall be the only
monies due from the Contractor for such Default”, w ould have the effect
of m aking Clau se 47.1 the exclu sive rem ed y for su ch d elay. This
w ou ld be consistent w ith the general position that a liquidated
d am ages clause in a contract covers “all the d am ages for non-
com pletion” or “constitu tes an exhaustive agreem ent as to the
d am ages w hich are or are not to be payable by the contractor in the
event to the failu re to com plete the works on tim e”: see Temloc Ltd
v. Errill Properties Ltd (1987) 33 BLR 30 at 38 to 40.
109. Clause 47.1 then inclu des this p rovision: “The p aym ent or d ed uc-
tion of su ch d am ages shall not relieve the Contractor from its obli-
gation to com plete the Works or from any other of its obligations
and liabilities und er the Contract and shall be w ithout p reju dice to
any other right or rem ed y of the Em ployer.”
110. Biffa su bm its that this w ord ing op ens u p a claim by Biffa Waste
against MEH for d am ages for d elay w here that delay is not sim ply
a breach of the requirem ents of Clause 43, w hich it refers to as
“sim p le” d elay. Thus, in this case, on the basis of d elay cau sed by
the p lead ed breaches of Clau ses 8.1(a), 8.2, 15.1 and 36.1(g), Biffa
su bm its that Biffa Waste is entitled to u nliqu id ated d am ages w hich
are not affected by Clau se 47.1.
111. MEH su bm its that the d istinction betw een a breach of Clau se 43
and breaches of other term s of the contract lead ing to d elay is not
one w hich is p rop erly m ad e. MEH relies on Piggott Foundations Ltd
v. Shepherd Construction Ltd (1993) 67 BLR 48 and Surrey Heath
Borough Council v. Lovell Construction Ltd (1988) 42 BLR 25 and
su bm its that the p osition is correctly stated in Keating on Construc-
tion Contracts (8th Edition) at para 9-006. It is submitted by MEH that
the sentence in Clause 47.1 relied on by Biffa m erely acts as a
rem ind er that the obligation to pay liqu id ated d am ages d oes not
relieve MEH of its other obligations und er the Design and Bu ild
Deed . If it w ere read as Biffa contend s, MEH su bm its that it w ould
confl ict w ith and d eprive the earlier phrase in parentheses of any
m eaning.
112. I accept MEH’s subm ission. The sentence relied on by Biffa com -
m ences by rem ind ing MEH that the paym ent of liquid ated dam ages
d oes not relieve MEH of its obligation to com plete the Works or
from any other obligations or liabilities u nd er the contract. When
read in context, I d o not consider that the other liabilities can includ e
a liability to p ay u nliqu id ated d am ages for d elay for breach of other
p rovisions of the Design and Build Deed .
113. The phrase that the paym ent of liquidated d am ages “shall be without
prejudice to any other right or remedy of the Employer” w hen read w ith
the w ord s in p arentheses m ust refer to a right or rem ed y w hich is

not a m onetary right or rem ed y. The w ord s in parentheses m ake it
clear that liqu id ated dam ages shall be “the only m onies” d ue from
MEH for su ch failure to com p lete. If a contractor fails to com plete
the em ployer has rights and rem edies other than d am ages. In this
case these inclu d e rights in relation to rates of p rogress in Clause
46.1 and term ination und er Clau se 59.1 or at com m on law. It is those
other rights w hich are not p rejud iced . How ever if liquidated
d am ages are the only m onies p ayable for failu re to com plete, that
m u st exclu d e other rem ed ies for paym ent of d am ages.
114. Fu rther I d o not consid er that the p rovisions of clau se 47.1 can be
construed to d raw a distinction betw een a “sim ple” failu re to com -
p lete and a failure to com plete caused by the breach of another
obligation und er the Design and Bu ild Deed . First, I d o not consid er
that it is p ossible to draw a d istinction betw een a “sim ple” failure
to com p lete and a failure to com plete caused by breach of another
obligation. If there is a failure to com plete then liquid ated dam ages
are “the only m onies” du e for such d efault. If there is a breach
of another obligation and that breach causes a failure to com plete
then liqu id ated d am ages are still the only m onies d u e for that
d efau lt, that is a breach of contract causing a failu re to com p lete
on tim e.
115. Second ly, I d o not accept that a liquid ated d am ages clause w hich
only app lied to a case w here there w as sim ply a failu re to com p lete
on tim e w ithou t a breach of any other p rovision w ou ld m ake com -
m ercial sense. The purp ose of the liqu id ated dam ages clause is, as
Lord Up john said in the Suisse Atlantique case, for the benefi t of both
p arties: “the p arty establishing breach by the other need prove no
d am age in fact; the other m ust p ay that, no less and no m ore.”
Assessm ent of d am ages for d elay is a d iffi cu lt process as the expert
evid ence in this case has show n. The ad vantage of certainty in the
su m payable as liquid ated d am ages provid es ad vantages to both
sid es. If that benefi t w ere lim ited to cases of “sim ple” d elay but not
to cases w here that “sim p le” d elay had been cau sed by breach of
another obligation, the com m ercial pu rp ose w ou ld d isappear. A
p arty w ishing to avoid liquid ated d am ages and argu e for no loss
or a sm aller su m w ould attem p t to fi nd som e other breach of an
im plied or exp ress term to hang the d elay on. A party seeking to
u p hold the clau se w ou ld be trying to d isprove that another breach
w as the cause of the d elay.
116. In the context of the Design and Build Deed , Clau se 41.1 also m akes
the argu m ent d iffi cult becau se it p rovid es that “the Contractor shall
p roceed w ith the works w ith d ue exped ition and w ithout delay”
w hich w ou ld be capable of giving rise to another breach for “simp le
d elay”. If the liqu id ated dam ages provision ap plied only to those
cases w here there was no other breach then such a constru ction
w ou ld neither be consistent w ith the phrase in p arentheses nor
give sensible com m ercial m eaning to the liquid ated dam ages
p rovision.
117. I consid er that m y view is consistent w ith the d ecision of H is H onou r
Ju d ge Gilliland QC in Piggott Foundations Ltd v. Shepherd Construc-
tion Ltd (1993) 67 BLR 48 at 68 w here he held that there w as a liq-
u id ated d amages provision and that this p rovision “p revents the
d efend ant from seeking to avoid the overall lim itation of dam ages
to £40,000 by claim ing as a head of general d am ages for the breach
of any other p rovisions or obligation u nd er the contract su ch
d am ages w hich have resulted from the failu re of the p laintiff to
com plete the piling w ork w ithin the period of 10 w eeks.” The sam e
consistency is im plicit in the d ecision of H is H onou r Jud ge Fox-
And rew s QC in Surrey Heath Borough Council v. Lovell Construction
Ltd (1988) 42 BLR 25 w here at 37 he found that the liquidated
d am ages w ere an exhau stive rem ed y for d elay w here a bu ild ing
had been d am aged by a fi re.
118. In Keating on Construction Contracts (8th Edition) at p ara 9-006 the
issu e of w hether liquidated d am ages are an exhau stive rem ed y for
d elay caused by breach of an obligation other than the obligation
to com plete is d ealt w ith. It is stated that “It is suggested that the
solu tion is p rim arily a qu estion of the constru ction of the contract
in qu estion. If, as in m ost (if not all) cases, the clau se is clearly
exp ressed to be or, as a m atter of p rop er constru ction appears to be,
a com p lete remed y for d elayed com p letion then it m atters not w hy
the contractor failed to com p lete by the d ue d ate . . . The fact that
the d elay is du e to a breach of contract by the contractor as opp osed
to m erely going slow, cannot affect the natu re or qu ality of the loss
w hich the liquid ated d am ages is intend ed to com pensate. In reality,
in such situations, there are tw o breaches: the carrying out of the
d efective w ork . . . and the failure to com plete by the d ue d ate.
N either the em p loyer nor the contractor can avoid liqu id ated
d am ages by sim p ly relying on the fi rst breach.”
119. I consid er that this passage correctly sets ou t the position. In this
case, on a true constru ction of the Design and Bu ild Deed , Clause
47.1 provid es a com plete rem ed y in d am ages for d elayed com -
p letion. As a result, in m y ju d gment, Biffa Waste cannot recover
from MEH in respect of d elay caused by the breaches of the
Design and Bu ild Deed , other than liqu id ated d am ages u nder
Clause 47.1.’
Exh austive in con tract an d in tort
A further asp ect of the exhau stive natu re of liqu id ated d am ages provisions
confi rmed in the Surrey Heath Borough Council v. Lovell Construction Ltd case
w as that liquidated d am ages exclu d ed any parallel remed y in tort for late
comp letion. Shortly before com pletion of a new offi ce building a fi re
d estroyed the w orks, alleged ly d ue to the negligence of a sub-contractor.

Lovell obtained an extension of tim e for re-bu ild ing but w ere sued in con-
tract and in tort for variou s sum s, som e of w hich related to late com p letion.
It w as held by Jud ge Fox-And rew s follow ing Temloc that the liquid ated
d am ages p rovisions w ere exhaustive of Su rrey Heath’s rem ed ies in respect
of any head s of claim relating to d am ages for late com pletion.
It d oes not follow, how ever, that claim s other than for late com pletion
wou ld be sim ilarly treated .
An Au stralian view on altern ative rem ed ies
The d ecision in the Australian case of Baese Pty Ltd v. Bracken Building Pty
Ltd (1989) appears to show a d ifferent view than that taken by the English
cou rts. This w as another case of nil liqu id ated d am ages bu t the Su prem e
Cou rt of New Sou th Wales d eclined to follow the ju d gm ent in Temloc and
held that:
(i) the liqu id ated d am ages clause w as not an exhaustive statem ent of enti-
tlem ent to d am ages in the event of late com pletion;
and
(ii) the function of the clau se w as to p rovid e a m echanism for invoking
liqu id ated d am ages if the em ployer so w ished bu t if he d id not d o so
he w as entitled to rely on his com m on law rights.
How ever, the d ecision rested on giving the phrase ‘if such notice is given’
(in relation to the architect’s d uty to issue a certifi cate on non-com pletion)
a d ifferent effect from the phrase ‘then the architect shall’ w hich ap plied in
Temloc. ‘If’ w as taken to give the em ployer an option w hereas ‘shall’ w as
said to be imp erative.
Accord ingly the d ecision m ay be of lim ited effect.
M itigation costs
It is w ell established that acceleration costs incurred to relieve effects of

breach are recoverable as d am ages. Thu s it w as said in Great Eastern Hotel
Company Ltd v. John Laing Construction Ltd (2005):
‘Any acceleration m easures even if partially successfu l, w ere clearly m ea-
sures ad op ted in ord er to m itigate GEH ’s losses and as such the cost of
such m easures are recoverable from the contract breaker, see Lloyds and
Scottish Finance Limited v. Modern Cars and Caravans [1966] 1 QB 764 at
page 782’
H ow ever, w hen the rem edy for breach is exp ressed in the contract as
liquid ated d am ages op eration of the above ru le m ay w ell be exclu d ed as
shown by the ju d gm ent in the above-m entioned Biffa Waste Services case
3.4 Can general damages exceed liquidated damages? 57
w here having held that liquid ated dam ages provid ed an exhau stive rem ed y
the ju d ge said :
‘120. Biffa also claim s the costs of running the p lant w ith a tem porary
liner. This raises the question of w hether the recovery of liquidated
d am ages preclu d es the recovery of any costs incurred in reasonable
m itigation of d elay. Biffa contend s that the costs of m itigation are
recoverable. MEH su bm its that they are not.
121. The cost of taking reasonable mitigating step s is generally recover-
able as p art of the d am ages for the breach: see The World Beauty
[1970] P 144 at 156 per Winn LJ. As stated above, liqu id ated dam ages
are an exhau stive rem ed y for d elay. That exhau stive rem edy there-
fore includ es any dam ages w hich cou ld be recovered as d am ages
for a failure to com plete. Where, as here, Biffa took reasonable
m itigating steps to avoid d elay loss then I consid er that the cost of
taking su ch steps is treated as being includ ed in the pre-estim ate of
loss w hich form s the basis of the liquid ated d am ages clause. Clause
47.1 of the Design and Bu ild Deed p rovid es that liquid ated dam ages
“shall be the only monies d u e from the Contractor for such d efau lt”
and to p erm it further d am ages to be recovered for the reasonable
costs of steps to m itigating that d efault w ould , in m y jud gm ent, be
contrary to the exp ress term s of that provision.
122. As a resu lt, Biffa cannot recover the cost of taking reasonable step s
to m itigate delay as an extra head of d am ages because those
d am ages are inclu d ed w ithin the exhaustive rem ed y of liquidated
d am ages.’
3.4 Ca n genera l da ma ges exceed liquida t ed da ma ges?
There is no fi rm legal ruling in English law that liquid ated dam ages invari-
ably act as a lim it on any general d am ages w hich m ay be aw ard ed as a
su bstitute and the cou rts take a cautious ap proach to the m atter.
In Widnes Foundry (1925) Ltd v. Cellulose Acetate Silk Co. Ltd [1933] Lord
Justice Scru tton said :
‘I d o not d ecide that a party is alw ays bound by the fi gure m entioned
from recovering a larger su m ; it turns u p on w hether the sum m entioned
can be said to be an estim ate of the d amage to be p aid for the breach.’
The ‘su m m entioned ’ in the Widnes Foundry case w as for liquid ated
d am ages at the rate of £20 per w eek for late d elivery and erection of
an acetone recovery plant. When a d ispu te arose on fi nal p aym ent, after
a 30 w eek d elay in d elivery and erection, the em ployer counterclaim ed
unsu ccessfu lly not the £600 d ue as liqu id ated d am ages bu t the su m of
£5850 as general d am ages u sing the argum ent that the liquid ated d am ages
clau se w as a penalty clau se becau se it w as d escribed as such in the
contract.
58 3.5 Under-liquidation of damages
In Rapid Building v. Ealing Family Housing (1984), w here the liquid ated
d am ages clau se w as held to have failed , neither Lord Ju stice Step henson nor
Lord Ju stice Lloyd w ou ld be d raw n on the prop osition that the qu antum of
general d am ages w as lim ited to the qu antum of liqu id ated d am ages.
Lord Ju stice Lloyd stated that:
‘Counsel has argued that although the liqu id ated d am ages clau se has
ceased , for the reasons I have m entioned earlier, to be app licable, never-
theless the d efend ants w ill not be entitled to recover m ore than the
amou nt they w ou ld have recovered u nd er Clau se 22 if Clau se 22 had
continu ed to be ap plicable. Even if that be right, as to w hich I say
nothing, . . .’
Con tin uin g u ncertain ty
It m ay w ell be that the cautious app roach of the cou rts to w hether or not
general d am ages can ever exceed liquid ated d am ages refl ects the d ifferent
and sometim es surp rising w ays in which the point can em erge bu t as the
law stand s at present it w ould seem :
(i) that an em p loyer w ill not be successful in seeking general d am ages
higher than liqu id ated d am ages on the ground s that the liquid ated
d amages are a penalty;
(ii) that a contractor has no certainty that general d am ages w ill be lim ited
to liqu id ated d am ages w hen he d efeats such dam ages.
H ow ever, until an English court follow s the exam p le of the Sup rem e
Cou rt of Canad a w hich held in Elsley v. JG Collins Insurance Agencies Ltd
(1978) that w here the stipu lated su m is held to be a penalty any general
d am ages aw ard ed cannot exceed that sum , this area of the law w ill rem ain
uncertain.
There is a fu rther com p lication in that m any stand ard form s of construc-
tion contract allow for a ceiling on the am ou nt of liqu id ated d am ages – 10%
of the contract su m or sim ilar. It is d iffi cu lt to assess how provisions su ch
as these affect the general principles of lim itation on d am ages but they
wou ld seem to ad d to the elem ent of risk that a contractor takes in challeng-
ing liqu id ated d am ages on the assum ption that general d amages can never
be greater. How ever, note the view expressed by the ju d ge in the Steria v.
Sigma (2007) case d iscu ssed in Chapter 5 that w here a capp ed liquid ated
d am ages clau se is held to be inoperable the cap d isap p ears w ith the
clau se.
3.5 Under-liquida t ion of da ma ges
The qu estion of w hether liqu id ated d am ages set at a low er level than the
em ployer ’s p re-estim ate of loss cou ld invalid ate a liqu id ated d amages clau se
3.5 Under-liquidation of damages 59
w as one of the p oints consid ered in Multiplex v. Abgarus (1992). It w as held

that liqu id ated d am ages need not provid e for the entirety of the em ployer ’s
likely loss.
The follow ing extract from the d ecision exp lains w hy an attack on
und er-liquid ated d am ages as not being ‘a genu ine pre-estim ate of loss’
m u st fail.
‘It is clear as a m atter of principle, and established by authority, that if
parties agree u pon a quantum of dam age as liqu id ated d am ages w hich
is less than the d am age w hich would be su ffered from su ch breach, no
attack can be m ad e u pon such a liquidated d am ages provision upon the
basis that it is “extravagant or unconscionable”. The attack u p on a liqu i-
d ated d am ages clau se has trad itionally been based up on it not being a
“genu ine p re-estim ate of d am age”, but such attacks are ground ed upon
the concept of equ ity interfering to prevent a party im posing a penalty
up on the other party for breach of contract in the sense that the sum
d esignated , or to be d etermined as payable on breach, is greater, and
unreasonably or inequitably so, than the tru e dam age reasonably assessed
at the tim e of contract as being the dam age w hich the innocent party
m ight su ffer. It can never be inequitable so far as the d efau lting party is
concerned for an innocent p roprietor to offer or agree to accept as liqu i-
d ated d amages a su m less than the d am ages w hich, at contract, it is
reasonably assessed it w ill suffer resulting from breach. Thus a liqu id ated
d am ages clau se p rovid ing for such a lesser paym ent can never be a
penalty. The true vice in a penal d am ages clause is not that it is not a
genu ine pre-estim ate of d am age, bu t rather that it yield s a resu lt w hich
exceed s that w hich a genu ine p re-estim ate of d am age w ould have
yield ed .’
The p ractice of und er-liqu id ation, w hen it is done intentionally, is usually
d one for the sound comm ercial reasons of attracting com p etitive tend ers or
striking a d eal w ith a p articu lar contractor. In su ch situ ations both em p loyer
and contractor know ingly d erive benefi t from the arrangem ent. When, as
som etim es hap pens, und er-liquid ation occurs as a resu lt of an error by the
em p loyer in calcu lating his pre-estim ate of loss or in his u nd erstand ing on
how the law on liqu id ated d am ages app lies, it nevertheless rem ains the case
that the em ployer is bound by the am ounts specifi ed in the contract. As the
Widnes Foundry case show s and the Temloc case show s it is not op en to
em p loyers to escape from a bad bargain by seeking to d efeat their ow n
liqu id ated d am ages clau ses.
Lim itations on liq u id ated d am ages
A practice, p articu larly com m on in process and plant contracts, is to u nd er-

liqu id ate dam ages by setting the specifi ed am ou nts for liquid ated d am ages
by reference to a p ercentage of the contract sum rather than by reference to
the em p loyer ’s p re-estim ate of loss. Typically, the am ount w ill be 0.5% of
60 3.5 Under-liquidation of damages
the contract su m p er w eek up to a m axim um am ou nt recoverable as liqui-

d ated d am ages of 10% of the contract sum .
This practice is fu lly in keeping w ith the general policy of lim itations on
the contractor ’s liability found in process and plant contracts and , because
it is su ch an effective lim itation of the contractor ’s liability for late com ple-
tion, it w ould be exceptional if it w ere challenged by a contractor as d ep art-
ing from the basic principles for pre-estim ation of loss. H ow ever, although
it is p robably safe in m ost instances for an em p loyer to use a fi gure of 0.5%
per w eek of the contract sum (or thereabou ts) as the am ou nt of liqu id ated
d am ages – becau se such a fi gure is likely to be below a prop erly m ad e p re-
estim ation of loss – there are obvious d angers in the p ractice if there are no
back-u p calcu lations to p rove the und er-liqu idation.
A d istinction should , how ever, be noted betw een the practice of lim iting
liability for d am ages by u nd er-liqu id ation and the practice of lim iting
liability by im p osing a ceiling on the total amou nt of d am ages w hich are
recoverable by the em ployer. Many construction contracts includ e the
facility for entering a ceiling on the am ount of liquid ated d am ages and ,
althou gh this is often expressed as a percentage of the contract sum , the
underlying d aily or w eekly rate is norm ally d erived from a genu ine p re-
estim ation of loss.
This later p ractice is a straightforw ard lim itation of liability and it cannot
in any w ay offend any of the princip les of liqu id ated d am ages.
Effect of nil d am ages
The d ecision of the Court of Appeal in Temloc Ltd v. Errill Properties Ltd (1987)
insofar as it relates to nil d amages can be su mm arised as:
(i) the effect of a nil entry in the ap pend ix to a liquid ated d am ages clau se
is not that the clau se is to be d isregard ed or ineffective, bu t that there
shou ld be no d am ages for late com pletion;
(ii) no claim for general d am ages can be su stained on an im p lied term since
the express p rovisions of the liquid ated d amages clause leave no room
for any su ch clau se to be im plied.
The case concerned a contract und er JCT 80 cond itions bu t it is relevant to
most other stand ard form s of constru ction contracts.
The d ecision cau sed som e surprise in the constru ction ind u stry, if not in
legal circles, becau se the p ractice of m aking a ‘nil’ entry is not uncom m on;
or w as not p rior to p ublicity of the Temloc d ecision.
N il en tries
Nil entries are m ad e w ith a variety of intentions and beliefs. Where the
em ployer and the contractor are on good term s w ith a long-stand ing
relationship the stip ulation of liqu id ated dam ages m ight ap pear u nneces-
3.6 Double damages 61
sary and inapp rop riate; alternatively the p arties m ight be u nd er the m is-
taken belief that liquidated d am ages for late com p letion are only effective
w hen there are corresp ond ing bonu s p rovisions for early comp letion; and
then it m ight be thou ght that stating nil d am ages is the proper w ay of
leaving d am ages op en. Whatever the reasons, it is unlikely that the p arties
apply their m ind s to w hether ‘nil’ d am ages w ill exclu d e general d am ages
and this w ill rarely be their intention.
In the Temloc case m ost of the above ingred ients w ere present – a long
stand ing bu siness connection, w ith four or m ore contracts su ccessfully com-
pleted earlier w ith nil d am ages and the m isund erstand ing over the need for
bonus p rovisions. As it w as said for the em p loyer, Errill Ltd:
‘By p utting “nil” in . . . w e w ou ld not expect to take the contractor to
Court. We agreed , it w as not practical to provid e a bonu s for fi nishing
early and therefore no penalty. It w as a tit for tat contract.’
Errill argu ed that the insertion of nil in the Append ix, m eant that Clause
24 of JCT 80 d ealing w ith liquid ated dam ages w as exclu d ed from the con-
tract altogether and they could , therefore, claim general d am ages for breach.
In this they w ere u nsuccessful. A harsh jud gm ent, perhaps, in term s of
natu ral justice but an inevitable one given the express term s of the contract.
This is certainly not the fi rst tim e that one or both contracting p arties have
been d ism ayed by the literal interp retation of their contract by the cou rts
and the com m ents of Lord Ju stice Brow ne-Wilkinson in Northern Regional
Health Authority v. Derek Crouch Construction Co. Ltd (1984), although on a
d ifferent m atter, shou ld be taken as a w arning by all:
‘In princip le, in an action based on contract, the cou rt can only enforce
the agreem ent between the parties; it has no pow er to m od ify that agree-
m ent in any w ay. Therefore, if the parties have agreed on a specifi ed
m achinery for establishing their obligations, the cou rt cannot substitute
a d ifferent m achinery.’
The Temloc case does not provide a fi rm ruling on contracts w here a ‘d ash’
is m ad e in the Ap pend ix or where the rate space is left blank and it is p os-
sible that in su ch cases the ruling in Temloc d oes not ap p ly.
In regard to Baese v. Bracken (1989), it has been suggested that the em p loyer
w rote ‘nil’ d am ages out of ignorance of the level of d am ages that w ould be
su ffered and m eant no m ore than a d ash or a blank. H ow ever, the ru ling
d id not hinge on this and the case is not p articularly helpfu l.
3.6 Double da ma ges
The law does not perm it the recovery of d ou ble d am ages for the sam e breach
and accord ingly it is not p ermissible to claim both liquidated d am ages and
general d am ages for late com pletion. This m ay app ear to be so obviou s that
there shou ld be no need for fu rther com m ent but construction contracts are
rarely straightforw ard and problem s w ith d ou ble d am ages d o occu r.
62 3.6 Double damages
Su b -con tractin g
The most com m on cause is the step ping d ow n into sub-contracts of the
provisions of the m ain contract for liqu id ated d am ages, w hilst at the sam e
tim e inclu d ing in the su b-contract ad d itional p rovisions for the recovery
of loss and exp ense or extra cost if the sub-contractor fi nishes his w ork
late.
This w as the situation in M J Gleeson plc v. Taylor Woodrow Construction Ltd
(1989) w here Gleeson w ere su b-contractors u nd er a m anagem ent form of
contract. Clau se 11 of the su b-contract m ad e the sub-contractor liable for the
loss and expense of the m anagem ent contractor in the event of failure to
com p lete on tim e, and Clau se 32 of the su b-contract p rovided for the paym ent
of liqu id ated d am ages at the sam e rate as in the m ain contract. Taylor
Wood row d ed ucted from am ou nts d u e to Gleeson in respect of both liqui-
d ated d amages and w hat w ere term ed ‘set-off’ claim s u nd er Clau se 11. It
was held by Jud ge Davies that:
‘Taylor Wood row Construction’s cou rse of action against Gleeson in
respect of the set-offs is for d elay in com pletion. It follows that it is
inclu ded in the set-off for liquid ated d am ages, and to allow it to stand
w ou ld result in w hat can be m etap horically d escribed as a “d ouble”
d ed uction.’
The m essage in this for contractors u sing any form of sub-contract is: d o
not state liqu id ated d am ages unless they are intended to cover all loss
arising from late com p letion by the sub-contractor.
Ph ased com p letion s
Another com m on cau se of d ouble d amage p roblem s in constru ction con-

tracts is the p ractice of stipulating p hased or sectional com pletion obliga-
tions in ad d ition to an overall com pletion d ate. Most stand ard form s of
contract end eavour to d eal w ith this in a logical m anner and contain provi-
sions for scaling d ow n rates of liquid ated d am ages to correspond w ith the
value of any w ork hand ed over, or they contain sectional com pletion d ates
and liquid ated d am ages relating thereto. H ow ever, the scope for getting it
wrong is consid erable as the follow ing cases illustrate.
In M J Gleeson (Contractors) Ltd v. London Borough of Hillingdon (1970) u nd er
a JCT 63 contract the bills of quantities set ou t detailed p rovisions for sec-
tional comp letion each w ith d am ages but the contract cond itions w ere
unam end ed and stipu lated an overall d ate for com pletion also w ith dam ages.
Relying on a clau se in the contract that nothing in the bills cou ld overrid e
the conditions, Mr Justice Mocatta held that the provisions in the bills w ere
to be ignored .
In Bramall & Ogden Ltd v. Sheffield City Council (1983) again u nd er JCT 63,
liquid ated d am ages w ere exp ressed at the rate of £20 p er w eek for each
uncom p leted d w elling, bu t the Append ix gave only one d ate for com p letion
3.6 Double damages 63
and the w orks covered not only d w ellings bu t also com m unal areas. It w as
held that, in the absence of provisions for sectional com p letion, liquid ated
d am ages could not be claim ed .
D ou b le breach / d ou b le dam ages
On this m atter there is the case of E. Turner & Sons Ltd v. Mathind Ltd (1986)
w here Lord s Ju stice Parker and Bingham , w hen hearing an appeal against
su m m ary jud gm ent, m ad e som e intrigu ing com m ent, albeit obiter, and not
therefore bind ing au thority, on double d am ages and phased com p letions. In
that case, the bills gave p hased hand over d ates bu t the Ap pend ix gave only
a fi nal comp letion d ate with d amages at the rate of £1000 per w eek. When
late com p letion of the phases occurred , the em ployer tried various app roaches
to calcu lating d am ages. Firstly, he d ivid ed the £1000 p er week by the num ber
of phases to arrive at a rate per phase bu t this had no legal basis. Second ly,
he claim ed £1000 per w eek per phase bu t this contrad icted the contract.
Finally he claim ed that the liquid ated d amages w ere a penalty and he w as
entitled to general d am ages. In consid ering the argum ent by the contractor
that liqu id ated d am ages for the w hole of the works exclud ed general
d am ages for the phases, Lord Justice Bingham said :
‘The p laintiffs m ay u ltim ately be held to be correct in ad vancing that
construction; bu t it has this od d consequence. Even though ex hyp othesi
the earlier com pletion d ates are binding on the p laintiffs, the d efend ants
w ou ld have no rem edy in d am ages for breach in those term s. To achieve
that resu lt one w ould look for a clause exclu ding any right to d am ages
for a breach w hich w ould , in the ord inary cou rse, give a right to d amages.
The p laintiffs say there is such an exclu sion in clause 22. Again, that clause
m u st be constru ed in the context of w hat is ultim ately held to be the w hole
contract betw een the parties; but it does not seem to m e, stand ing alone,
to be an effective exclusion of any right to d amages for earlier breaches.’
He w ent on to say:
‘It m ay be that, on a true constru ction of clause 22, the p rovision for liq-
uid ated d am ages at the stipu lated rate ap plies upon failure to com plete
the last su b-area by the fi nal com pletion d ate, leaving the d efend ants to
their right for general d am ages for breach of the earlier obligations.’
Lord Ju stice Parker w as even m ore forthright in his view that liquid ated
d am ages for the w hole of the w orks shou ld not necessarily exclu d e general
d am ages for late com p letion of phases. H e said :
‘It app ears to m e that there is a perfectly good business reason for app ly-
ing the liqu id ated dam ages only to the w hole w orks, bu t no reason at all
for saying that liquid ated dam ages for any breach in that resp ect consti-
tu tes a ceiling to w hat m ay be recovered for failu re to meet the successive
hand over d ates.
64 3.7 Liability for damages in tort
Sup pose, for exam p le, that the fi rst hand over d ate w as sixteen w eeks
after start. Sup p ose further that it w as not m et and that, althou gh all other
d ates w ere m et, the fi rst phase w as not read y for hand over u ntil the sam e
d ate as the last p hase. There w ou ld , in such circum stances, be no liqu i-
d ated d am ages recoverable at all for the w hole of the w orks w ou ld have
been com pleted on tim e. But the em ployer w ou ld have been d eprived of
the profi t earning cap acity of p hase I for som e forty six w eeks. Why then
it can be asked , should he be entitled to no d am ages m erely because the
w hole of the w orks w ere com pleted on tim e? If the p rovisions w ere con-
tractu al, a clear exclu sion w ould , as it seem s to m e, be requ ired to p rod uce
such a strange resu lt and it is, to say the least, arguable that there w as no
such exclu sion.
Provisions for phased hand over in the case of a large developm ent are
of prim e im p ortance and may, in m any circum stances, lead to a higher
contract price. There is every reason to sup p ose that the p arties may w ell
have intend ed those p rovisions to be contractu al and , if they d id , then,
ap art from a specifi c overrid ing p rovision, they are contractual, and
breach of them sound s in d am ages.’
Com m en t
Their Lord ship s’ com m ents w ere greeted w ith som e su rp rise but nothing
was said to su ggest that d ouble d am ages shou ld be paid for the sam e breach.
What w as und er consid eration w as w hether sep arate d am ages should ap ply
to sep arate breaches.
Even as the law stand s it m ay not be necessary for all of the d am ages for
a p articular breach to be stipulated w ithin the liquidated su m . There are
som e d am ages w hich can be pre-estim ated w ith reasonable p recision and
others w hich cannot. It shou ld be possible to d raft a liquid ated d am ages
clau se w hich w ou ld expressly liquid ate only part of the loss; provid ing that
part w as clearly specifi ed , and the liability for general d am ages for any non-
specifi ed p art w as app arent.
3.7 Lia bilit y for da ma ges in t ort
The p ossibility of an em ployer sid e-stepping the liqu id ated d am ages p ro-
visions of the contract and claim ing d am ages in negligence for late com ple-
tion w as cautiou sly canvassed in the years w hen the law of torts w as in
the ascend ancy. Lord Denning had said in Photo Production Ltd v. Securicor
Transport Ltd (1980):
‘If the facts d isclose the self-sam e du ty of care arising both in contract
and in tort and a breach of that d uty, then the plaintiff can su e in either
contract or tort.’
This ru le is subject to the lim itation that it is not perm issible to seek a w id er
rem ed y in tort than is available u nd er the contract. Lord Ju stice Cu m m ing
3.7 Liability for damages in tort 65
Bru ce in William Hill Organisation Ltd v. Bernard Sunley & Sons Ltd (1982)
said :
‘The Plaintiffs are not entitled to claim a rem ed y in tort w hich is
w id er than the obligations assu m ed by the d efend ants u nd er their
contract.’
The Privy Cou ncil in Tai Hing Cotton Mill v. Liu Chong Hing Bank (1986)
confi rm ed this:
‘Their Lord ships do not, how ever, accep t that the parties mu tu al obliga-
tions in tort can be any greater than those to be fou nd exp ressly or by
necessary im plication in their contract.’
How ever, the Privy Council in that case also threw d ou bt on the existence
of a p arallel obligation in tort. Lord Scarm an said :
‘Their Lord ships d o not believe that there is anything to the ad vantage
of the law ’s d evelop m ent in searching for a liability in tort w here the
parties are in a contractual relationship.’
Both William Hill and Tai Hing w ere consid ered by Jud ge Fox-And rew s in
Surrey Heath v. Lovell (1988) w here it w as conceded that if a contract expressly
d eals w ith the su bject of a claim there is no room for a p arallel d uty in tort
but, it w as claim ed , w here the contract d oes not so d eal there is room for a
claim in tort. The ju d ge, in fi nd ing that the contract m ad e provision for all
the claim s, held that the claim in tort could not su cceed.
Recen t cases
How ever, it shou ld be noted that the law of tort continues to d evelop and
continu es to p rod u ce surp rises. In a series of cases since 1990 the courts both
in England and the Com m onw ealth have show n an increasing tend ency to
accept concu rrent d uties in contract and tort – subject only to restrictions in
a contract exp ressly exclu ding rem ed ies in tort. Thus in one of the cases
concerning the Lloyd’s insurance loses of the late 1980s – Henderson v. Merrett
Syndicates Ltd (1994) – Lord Goff had this to say on the subject:
‘My ow n belief is that, in the p resent context, the com m on law is not
antipathetic to concurrent liability, and that there is no sound basis for a
ru le w hich autom atically restricts the claim ant to either a tortious or a
contractual rem ed y.
The result m ay be u ntid y; but, given that the tortious d u ty is im p osed
by the general law, and the contractu al d u ty is attribu table to the w ill of
the parties, I d o not fi nd it objectionable that the claim ant m ay be entitled
to take ad vantage of the rem ed y w hich is m ost ad vantageous to him ,
subject only to ascertaining w hether the tortiou s d uty is so inconsistent
w ith the ap plicable contract that, in accord ance w ith ord inary p rincip le,
the parties m u st be taken to have agreed that the tortious rem ed y is to be
lim ited or exclu d ed .’
66 3.8 The Panatow n problem
The sw ing back tow ard s concurrent liability w ould not in itself be su ffi -
cient to su ggest that d am ages for late com pletion cou ld be p ursu ed in tort
rather than in contract. The House of Lords ruling in Murphy v. Brentwood
District Council (1990) had appeared to curtail claim s in tort for p urely eco-
nom ic loss excepting those falling w ithin w hat is know n as the Hedley Byrne
v. Heller p rincip le. That is w here there is a special relationship from w hich
reliance em erges. H ow ever, that princip le w hich at fi rst seem ed to ap p ly
only to negligent ad vice is now being extend ed . Thus in Barclays Bank plc v.
Fairclough Building Ltd (1995) the Cou rt of Ap p eal held that a person w ho
undertakes skilled w ork and w ho fails to exercise the skill and care reason-
ably to be expected of one p rofessing his calling can be held liable either in
tort or in contract. It w as said that a skilled contractor u nd ertaking mainte-
nance w ork assu m es a resp onsibility w hich invites reliance no less than the
professional adviser d oes.
The consequ ences of these d evelopm ents on d am ages for late com pletion
will only be seen in tim e. But tw o obviou s points of im portance are that
actions in tort can often be brought w hen actions in contract w ou ld be out
of tim e and actions in tort can be brought against persons or parties w ith
whom there is no contract.
It w ill certainly revolu tionise the w hole of the law and p ractice of liqu i-
d ated d am ages if it is ever held that an em ployer w ho has recovered less
than the fu ll econom ic losses he has su ffered from late com pletion of the
main contract can su ccessfu lly sue a defau lting sub-contractor w ho is resp on-
sible for the d elay.
3.8 The Pan atow n problem
As a general rule of English law the losses recoverable by a party suing for
d am ages for breach of contract are restricted to losses the p arty has itself
suffered . There are long stand ing exceptions to this ru le, originating from
ship ping cases, most notably Dunlop v. Lambert (1839) and The Albazero
(1977).
H ow ever, in a series of cases in the 1990s English law m oved som e w ay
tow ard s abolishing the general rule, or at least extend ing the scop e of the
excep tions to includ e construction cases. The cases cu lm inated in tw o H ouse
of Lord s’ d ecisions w hich have been mu ch d ebated as to their app lication,
meaning and effect. The fi rst w as St Martins Property Corporation Ltd v. Sir
Robert McAlpine (1994); the second w as Alfred McAlpine Construction Ltd v.
Panatown Ltd (2000).
In the St Martins Property case it w as a sister com pany St Martins Invest-
ment (the d eveloper) w hich actually su ffered the loss u nd er the build ing
contract for w hich St Martins Property w as the em ployer. The House of
Lord s app lied the Dunlop v. Lambert exception in hold ing that the p roperty
com p any could recover from the contractor, McAlp ine, the losses suffered
by its sister com pany. H ow ever, it w as m ad e clear that the exception w ou ld
not have ap p lied if there w as a d irect contract (e.g. a collateral w arranty)

betw een McAlpine and the sister com p any.
Pan atow n
In the Panatown case sim ilar circum stances app lied except that there w as
a collateral w arranty betw een the contractor and the d eveloper although
it w as restrictive in its term s as to w hat w as recoverable as d am ages.
Panatow n’s claim against McAlpine for d am ages w as up held by the Cou rt
of Ap peal notw ithstand ing the collateral w arranty. The case w ent on app eal
to the H ou se of Lord s w hich u pheld McAlpine’s ap peal by the narrow
m argin of three to tw o.
Unfortu nately it cannot be said that the ju d gments in Panatown have
entirely clarifi ed the law on third party losses. Their Lord ships consid ered
tw o issu es, one d escribed as ‘the narrow ground ’ (w hether the general rule
su bject to its excep tions applied), the other described as ‘the broad er ground ’
(w hether Panatow n had not received the bargain it contracted for). The
unanim ous d ecision on the narrow grou nd w as to the effect that the exis-
tence of a d eed of care betw een McAlp ine and Panatow n’s sister com p any
prevented Panatow n recovering its sister com p any’s losses (the sister
comp any had its ow n rem ed ies). The d ecision on the broad er grou nd w as
evenly sp lit w ith the fi fth jud ge apparently favou ring Panatow n’s case in
principle bu t not on the facts.
Doubts rem ain therefore on the circu m stances in w hich claim s can be
brou ght in contract for third party losses. In Panatown and the cases w hich
preced ed it the ju d ges stru ggled w ith the problem of d am ages falling into
a legal black hole. That p roblem w as exam ined in som e d epth in the Biffa
Waste v. MEH (2008) case m entioned earlier in this chapter. Mr Justice
Ram sey, having consid ered the relationship betw een Biffa Waste’s sister
comp any Biffa Leicester and MEH and w arranties relating thereto said :
‘128. The p rovision of w arranties ensu res that the benefi ciary d oes not
have to rely on an action in contract against the next p arty in the
contractual chain w ho m ay have no assets or, p articu larly in the
case of a PFI contract, m ight be an associated com p any. The w ar-
ranty also avoid s the d iffi cu lties of establishing a d u ty of care
against the contractor and consultants follow ing Murphy v. Brent-
wood DC [1991] 1 AC 598. It also avoids the “legal blackhole” w hich
m ight arise if the project ow ner, lessor, occu pier or u ser suffered the
loss bu t another party retained the cause of action.
129. The resu lt of the increased u se of w arranties is that in m any cases
a p arty m ay give a num ber of warranties to d ifferent participants
in a project. When such legal rights are given to tw o or m ore parties
in relation to the sam e transaction, the arrangem ent overcom es the
p rosp ect of the “legal blackhole” or other pro blem s in obtaining a
rem edy but, as Lord Millett said in his d issenting sp eech in

McAlpine Construction v. Panatown [2001] 1 AC 518 at 595, the
existence of rights by a nu m ber of parties raises the “spectre of double
recovery” or m u ltip le recovery.
130. In this case, Biffa’s case on quantu m d em onstrates that there has
been u ncertainty as to w hether Biffa Leicester or Biffa Waste su f-
fered certain losses caused by d elay. In princip le, if Biffa Leicester
su ffered losses caused by a d elay in comp letion it cou ld bring pro-
ceed ings against MEH und er the Direct Agreem ent or it cou ld bring
p roceed ings against Biffa Waste for breach of the tim e obligations
u nd er the Works Agreem ent betw een Biffa Leicester and Biffa
Waste. If Biffa Leicester pu rsued the latter cou rse or Biffa Waste w as
concerned that it m ight be liable to Biffa Leicester then Biffa Waste
cou ld claim against MEH for both its ow n losses caused by d elay
and any su m s w hich it had paid or w as liable to pay to Biffa
Leicester und er the Works Agreem ent for that d elay.
131. In su ch circum stances, MEH cou ld face liability for overlapp ing
d am ages both to Biffa Leicester und er the Direct Agreem ent and to
Biffa Waste u nd er the Design and Bu ild Deed. That w as a problem
w hich Lord Goff of Chieveley and Lord Millett had to d eal w ith in
Panatown having reached the conclusion that both the em ployer,
Panatow n and the build ing ow ner, UIPL, had cau ses of action
against McAlpine, the contractor, and cou ld recover the cost of
rem edying the d efects.
132. Lord Goff at 560 consid ered that UIPL w ould generally leave it to
Panatow n “to enforce its m ore valu able rights und er the bu ild ing
contract, rather than have recourse to its m ore uncertain remed y
u nd er the [Duty of Care Deed ] und er w hich it has to prove negli-
gence on the p art of McAlpine.” H ow ever at 561A, he consid ered
the p osition w here UIPL suffered dam age d istinct from that covered
by Panatow n’s claim . In those circu m stances, as he pointed out at
561C “a su ccessfu l claim by UIPL against McAlp ine in respect of
su ch d am age cou ld not give rise to any d ou ble recovery.” At 561D
he said that if any su ch possibility should exist, it could be disposed
of by joind er of the relevant p arty or parties to the proceed ings in
the m anner ind icated by in the sp eech of Lord Millett.
133. Lord Millett at 595 A to C said this:
“By giving the third party a cause of action, it raises the spectre
of d ouble recovery. Even thou gh the plaintiff recovers for his
ow n loss, this obviously refl ects the loss su stained by the third
p arty. The case is, therefore, an exam ple, not unknow n in other
contexts, w here breach of a single obligation creates a liability to
tw o d ifferent parties. Since perform ance of the p rim ary obligation
to do the w ork w ould have d ischarged the liability to both p arties,
so m ust perform ance of the secondary obligation to pay d am ages.
Paym ent of d am ages to either m ust p ro tanto d ischarge the liability
to both.”
134. Lord Millett then consid ered the relationship betw een the proceed -
ings com m enced by Panatow n and proceed ings com m enced by
UIPL. H e said at 595 D to E:
“While, therefore, I d o not accep t that Panatow n’s claim to su bstan-
tial d am ages is exclud ed by the existence of the [Du ty of Care
Deed ], I think that an action like the present shou ld normally be
stayed in ord er to allow the bu ild ing ow ner to bring his ow n pro-
ceed ings. The cou rt w ill need to be satisfi ed that the bu ild ing ow ner
is not proposing to m ake his ow n claim and is content to allow his
claim to be d ischarged by paym ent to the bu ild ing emp loyer before
allow ing the bu ild ing em ployer ’s action to proceed .”
135. In the present case, the existence of a cause of action by both Biffa
Leicester and Biffa Waste against MEH gives rise to sim ilar prob-
lem s of d ou ble recovery. In the absence of a liqu id ated dam ages
p rovision, the cou rt could stay proceed ings or stay a ju d gm ent to
ensu re that there w as not d ou ble recovery by both Biffa Leicester
and Biffa Waste in relation to the sam e head s of d am age.
136. The liqu idated d am ages clau se has tw o effects on this position.
First, it d efi nes the liquid ated am ount to be paid per w eek by MEH
to Biffa Waste as an exhau stive rem ed y for d elay. Second ly, it lim its
the overall liability of MEH to Biffa Waste for d elay to 7.5% of the
Contract Price.
137. If Biffa Waste w ere perm itted to recover liqu id ated dam ages and
Biffa Leicester w ere perm itted to recover u nliqu idated d am ages
there wou ld , in m y ju dgm ent, be d ouble recovery. The fact that, as
I have fou nd, Biffa Waste and MEH have agreed that Clau se 47.1
p rovid es an exhaustive rem ed y for failu re to com p lete in accor-
d ance w ith clau se 43 m eans that any ad d itional sum recovered by
Biffa Leicester w ould amou nt to recovery of d am ages in ad d ition
to the exhau stive recovery. If Biffa Leicester recovered add itional
d am ages then MEH w ou ld have to pay tw ice for the breach of
Clause 43: once for the exhau stive rem ed y and a second tim e for a
su m in excess of the exhau stive recovery. Such a sp ectre of d ouble
recovery is no m ore accep table than it w ould have been in
Panatown.
138. In this context, clause 2.2 of the Direct Agreem ent contem plates that
the liability of MEH to Biffa Leicester shou ld be no greater than if
Biffa Leicester had been nam ed as p rovid er und er the sup ply con-
tract. If Biffa Leicester had been nam ed as the p rovid er in the su pply
contract then Biffa Leicester w ou ld have been entitled to liquidated
d am ages. Equally, if Biffa Leicester w ere nam ed as provider, either
instead of or together w ith Biffa Waste then the liability of MEH
w ou ld be lim ited to paying liqu id ated dam ages to one party or
jointly to the tw o parties.
139. Whilst Clause 2.2 is phrased as a lim it on liability, liqu id ated
d am ages are the exhaustive rem ed y and w hen read w ith clause
47.1, I consid er that this am ounts to an agreem ent both that d am ages
are lim ited to the value of the liqu id ated d am ages bu t also an
acceptance that liquidated d amages are an exhau stive remed y.
140. I therefore consid er that clau ses 2.1 and 2.2 of the Direct Warranty
give Biffa Leicester an entitlem ent to d am ages but on the basis that
any p ayment of liquidated d am ages is an exhau stive rem ed y for
the particular d elay. This does not m ean that both Biffa Leicester
and Biffa Waste can m ake a recovery for the sam e d elay. By using
the m echanism of a stay as ind icated in Panatown, I consid er that
the Court can overcom e the spectre of d ou ble recovery.
141. If MEH pays Biffa Waste the liquid ated d am ages und er Clau se 47.1
then MEH has com plied w ith the term s of the Design and Bu ild
Deed and has no rem aining liability so that Biffa Leicester can
recover nothing. Meanw hile, I consid er that Biffa Leicester ’s claim
shou ld be stayed .’
The law in Scotlan d
It should be noted , how ever, that u nder the law of Scotland there is no cor-
resp ond ing black hole. See, by w ay of exam p le and explanation, the case of
Clark Contracts Ltd v. The Burrell Co. (Construction Management) Ltd (2003)
mentioned in Chap ter 4 w here it w as held that Panatown shou ld not be fol-
low ed in Scotland .
Breach of du ty claim s
Althou gh the Panatown p roblem relates p rincipally to claim s m ad e by an

em ployer against a contractor it m ay also have app lication to claim s m ad e
by contractors against su b-contractors, su pp liers and against professionals
engaged to p rovid e d esign services and the like.
Thus if a contractor is the bu ild ing arm of a develop m ent com pany its
ability to inclu d e in breach of d uty claim s against the d esigner losses su f-
fered as a result of late com pletion of the d evelopm ent m ay d ep end not only
on w hether or not it is a separately registered legal entity bu t also on
whether or not any collateral w arranty has been provid ed by the d esigner
to the d eveloper.
Chap ter 4
Liq u id ated d am ages an d p en alties
4.1 P ena lt ies – genera l int roduct ion
For centu ries the cou rts of the United Kingd om have toiled w ith cases con-
cerning p enalties. There is a Scottish case, Home v. Hepburn, d ating from
1549; and an English case, Sloman v. Walter, d ating from 1783. Overall the
nu m ber of ju d gm ents on the subject ru ns into hund red s and yet it retains
its m ysteries. Ju d gm ents continue to fl ow from the English, Scottish,
Com m onw ealth and USA courts on a regu lar basis. N ot all relate to con-
stru ction disp utes. The range also covers property, ship p ing, com m erce and
em p loym ent. Most of the cases concern d am ages for breach of contract but
som e concern charges p ayable on the occu rrence of sp ecifi ed events. There
has long been d ebate on w hether the d istinction betw een the tw o w hich the
law presently recognises shou ld be m aintained .
The und erlying cau se of m uch of this is tension betw een concepts of
freed om of contract and of equ itable relief. Com m on law cou rts are instinc-
tively d isp osed to u phold the bargain the p arties have m ad e for them selves
but are reluctant to enforce contractual term s w hich, on exam ination, can
rightly be d escribed as penal or penalty clauses. Inevitably this lead s to
d isp utes on the tru e natu re of particu lar term s and clau ses and the need for
exam ination of their true purpose and the extent to w hich they are oppres-
sive, extravagant or u nconscionable. In d ealing w ith su ch d ispu tes the cou rts
have prod u ced a w ealth of case law bu t there is continuing necessity to give
m od ern interp retation to earlier decisions, particularly those of great im por-
tance bu t w hich are now nearly a hund red years old . Add itionally new
styles of bu siness, new p rocurem ent m ethod s and new form s of contract
bring w ith them new p roblem s for the p arties and m ore d isputes for the
courts to solve. All of which suggests, as Lord H ailsham once said on the
su bject, ‘the last w ord has not yet been spoken’.
Law s on p en alties
The com m on law ap proach to p enalties for breach is that a p laintiff who
su es for enforcem ent of a p enalty can recover only the loss he can prove. Or
as Lord Ellenborough said in Wilbeam v. Ashton (1807):
‘Beyond the penalty you shall not go; w ithin it you are to give the party
any com pensation w hich he can prove himself entitled to.’
72 4.1 Penalties – general introduction
It is not w holly clear how the jurisdiction of the courts to give relief against
penalty clau ses d evelop ed . Lord Justice Kay in the case of Law v. Local
Board of Redditch (1892) su ggested that originally the cou rts of equ ity granted
relief w here a su m of m oney w as agreed to be p aid as a penalty for non-
perform ance in circu m stances w here it w as possible to ascertain the actu al
loss suffered .
Another explanation is that a p enalty w as originally held to be in the
nature of a threat held over the other party ‘in terrorem ’. The cou rts of equ ity
took the view that since a p enalty w as d esigned to secu re p erform ance, the
prom isee w as su ffi ciently com pensated by being ind em nifi ed for his actu al
loss and he w as not entitled to dem and a sum w hich, althou gh fi xed by
agreem ent, m ight be d isp roportionate to the actual loss su ffered . Whatever
the background com m on law now applies the sam e ap proach, as d id the
cou rts of equity. Thus it w as said in Public Works Commissioner v. Hills (1906)
that a penalty covers bu t d oes not assess the dam age.
The legal effect of this, as approved in Watts, Watts & Co. Ltd v. Mitsui &
Co. Ltd (1917), is that w hen there is a penalty clause the plaintiff m ay su e
either on the p enalty clause, in w hich case he cannot recover m ore than the
stip ulated sum , or he can ignore the penalty clause and sue for breach of
contract to recover d am ages in full. In either case d amages can only be
recovered to the extent they are proved .
The com m on law ap p roach to charges w hich becom e d u e on the occu r-
rence of specifi ed events is signifi cantly d ifferent from its app roach to p en-
alties for breach. Albeit that such charges m ay som etim es be called penalties,
recovery is not d ep end ent on proof of loss or dam age and is su bject only to
observance of any statu tory rules applicable to the particular typ e of trans-
action. Relief from enforcement requires the p aying party to show that in
truth the charge is related to breach.
Variou s attem p ts have been m ad e over the years to bring the two
ap proaches closer together and m ore into line w ith the civil law s of
continental ju risd ictions. Thu s the Law Com m ission pu blished in 1975 its
Working Pap er No. 61 on Penalty Clau ses and Forfeitu re of Monies Paid
and the Scottish Law Com m ission pu blished in 1999 its Rep ort on Penalty
Clau ses.
Eu rop ean an d in tern ation al d evelop m en ts
The Scottish report has this to say of Eu ropean and international d evelop -
ments in app roaches to penalties:
‘1.7 There has been recent European and international activity in the area
of p enalty clauses. The Cou ncil of Eu rop e pu blished a report on
penalty clau ses in 1978. The Com m ittee of Ministers recom m end ed
that the governm ents of the m em ber states took into consid eration
the p rincip les in the append ix to their Resolution w hen preparing
new legislation on this subject. In 1983 UN CITRAL ad opted Uniform
Rules on Liquidated Damages and Penalty Clauses, for international
4.1 Penalties – general introduction 73
contracts and the General Assem bly of the United Nations recom -
m end ed that States should give seriou s consid eration to the ru les
and , w here ap propriate, im plem ent them in the form of either a
m od el law or a convention. The Principles of International Commercial
Contracts, prod u ced by UN IDROIT and the Principles of European
Contract Law prep ared by the Com m ission on European Contract
Law u nd er the chairm anship of Professor Ole Land o both contain
articles on ‘Agreed paym ent for non-p erform ance’. The issu e has also
been consid ered by law reform bodies in England , California, Canad a
and Australia.
1.8 There has been a convergence betw een the form erly d isparate
app roaches of civil and com m on law cou ntries. In cou ntries w hose
law w as heavily infl uenced by the English Com mon law, penalty
clauses w ere once view ed as com pletely u nenforceable. In cou ntries
w hose law w as heavily infl uenced by the Napoleonic cod e, how ever,
p enalty clauses w ere fully enforceable and w ere seen as an effective
w ay to encou rage p erform ance and thus avoid litigation. H ow ever,
m ost mod ern or recently revised civil cod es now d epart from the
general p rinciple of literal enforcem ent by allowing p enalties to be
m od ifi ed w here they are “d isp rop ortionately high” or “excessively
high” or “excessive” or “u nreasonable” or “m anifestly excessive”. In
com m on law system s the d istinction betw een p enalties and liqu i-
d ated d am ages can be used, or d eliberately blurred , to allow recov-
ery of m any su m s w hich the parties have agreed shou ld be payable
in the event of non-perform ance. Thus, in m any system s it seem s
that a d egree of com prom ise has been accepted in ord er to m inim ise
the tension betw een the d esire to enforce w hat w as agreed betw een
the p arties and the inju stice of enforcing an excessively penal
p rovision.
1.9 This convergence of approaches is refl ected in recent international
instru m ents on the subject. The Council of Europe’s Resolu tion on
Penalty Clauses, for exam ple, assum es that penalty clauses are, in
general enforceable, but provid es that
“The sum stip ulated m ay be red u ced by the cou rt w hen it is
m anifestly excessive”.
The Principles of Eu rop ean Contract Law p rovid e that
“(1) Where the contract provid es that a party w ho fails to perform is
to p ay a sp ecifi ed su m to the aggrieved p arty for such non-
p erform ance, the aggrieved p arty shall be aw arded that su m irre-
spective of his actu al loss.
(2) H ow ever, d esp ite any agreem ent to the contrary the sp ecifi ed su m
m ay be red u ced to a reasonable am ou nt w here it is grossly excessive
in relation to the loss resulting from the non-p erform ance and the
other circu m stances.”
The Unid roit Principles have a virtually id entical provision.’
74 4.1 Penalties – general introduction
Pen alties arisin g oth er th an on b reach
The above-qu oted extracts from the Scottish rep ort are concerned m ainly
with w hether or not am ou nts in contracts stip ulated as penalties, or other-
wise held to be p enalties, are excessive. H ow ever, as noted at the start of
this chap ter, that is only p art of the problem . There is also the problem of
the different app roaches in law to penalties for breach and p enalties arising
other than on breach.
Mod ern au thority for the ru le that the d octrine of penalties d oes not ap ply
to stipu lated p aym ents enforceable on the hap pening of sp ecifi ed events is
found in the H ouse of Lord s m ajority view in the case of Export Credits
Guarantee Dept Products Co. v. Universal Oil (1983). There, Lord Roskill, agree-
ing with Lord Dip lock, said :
‘I, for my part, am not prepared to extend the law by relieving against an
obligation in a contract entered into betw een tw o p arties w hich d oes not
fall w ithin the w ell d efi ned lim its in w hich the Cou rt has in the p ast
show n itself w illing to interfere.’
Lord Denning, in the m inority famou sly d isagreed .

Com m enting on the existing law, the Scottish Report on Penalty Clau ses
said:
‘4.4 Becau se the law on penalty clau ses ap plies only w hen there is a
breach of contract, the law seem s to favou r the party w ho acts in
breach rather than the party w ho com plies w ith the terms of the
contract. This is because the party in breach can seek jud icial scrutiny
of a p enalty w hilst the other p arty m ay not.
“The hirer w ho honestly ad mits that he cannot keep up paym ents
and term inates his agreem ent m ay have to pay a penalty; his less
resp onsible neighbour, w ho sim p ly goes on failing to p ay the install-
m ents u ntil the fi nance com pany is forced to take action, m ay
escape . . . I have felt m yself oppressed by that consid eration. Bu t the
rem edy is for the legislatu re.” – Mercantile Credit Co. Ltd v. McLachlan
(1962)
4.5 Take, for examp le, the instance of a contract term inated on an event
su ch as insolvency or the appointm ent of an insolvency practitioner.
As w e have seen, the rules on penalty clau ses d o not ap ply.
Potentially, claim s m ad e in the insolvency m ay therefore be out of
all proportion to any loss. Ind eed , they m ay be extravagant or u ncon-
scionable or excessive. This could severely preju d ice other cred itors
and m ight p rovid e an incentive to d raft extortionate p rovisions, and
to have a term ination w ithout a breach.
4.6 Ind eed there exists general scop e for avoid ing the rules on penalties
by d rafting contracts so that, instead of p rovid ing for one m ethod of
perform ance w ith a p enalty for breach, they provid e options for
4.1 Penalties – general introduction 75
p erform ing in d ifferent w ays, som e of w hich m ay attract heavy penal

consequ ences.’
The rep ort went on to recom m end that:
‘2 Jud icial control over contractual p enalties shou ld not be confi ned to
cases w here the penalty is d u e if the p rom isor is in breach of contract.
It shou ld extend to cases where the penalty is d u e if the p rom isor fails
to p erform , or to perform in a particular w ay, u nd er a contract or w hen
there is an early term ination of a contract.’
How ever, as things presently stand , it rem ains no m ore than a recom m end a-
tion for fu ture law reform and cases w ill continu e to arise w here there is
d ebate as to w hether a stip ulated su m is payable on a breach or payable on
occu rrence of a sp ecifi ed event.
The Law Com m ission Working Pap er (1975) consid ers the m atter in som e
d etail. It inclu des the follow ing com m ents and examp le:
‘17. In the present law, before a su m d u e can be stru ck d ow n as an invalid

p enalty there m ust be a breach of contract. Thu s, if a sum of m oney
is p ayable on an event other than a breach of contract it is not op en
to the courts to hold that the su m is a p enalty. This d istinction
betw een sum s payable on breach and su ms payable otherw ise
than on breach has em erged in a nu m ber of hire-p urchase cases
w hich w ill be referred to below, bu t it cou ld arise in other types of
agreem ent.
18. The d istinction ju st d escribed cou ld arise in any contract w hich
entitled one contracting party to p erform in alternative w ays. For
examp le, a contract to clean the w indow s of a house m ight be d raw n
in one of tw o w ays:
(a) it m ight provid e that “X hereby agrees to clean the w ind ow s on
January 1 and in d efault of so d oing to pay Y the sum of £100 as
liqu id ated d am ages for the breach”.
or
(b) it m ight provid e that “X hereby agrees to clean the w ind ow s on
January 1 or, at his option, to pay Y the sum of £100 instead, and
X shall be taken to have exercised his op tion to pay the £100 if
he d oes not clean the w ind ow s on Janu ary 1”.
Existing au thority clearly lays d ow n that the contract in form (a) en-
titles the cou rt to d ecid e w hether the su m of £100 is truly liquidated
d am ages or is an u nenforceable penalty, bu t suggests that in form (b) if
X neither cleans the w ind ow s nor p ays the £100 he is not in breach of any
obligation to clean the w ind ow s; his only breach w ou ld be in respect of
his prom ise to p ay £100 and provided there w as consid eration for this
prom ise he cou ld be su ed for the £100, the cou rt having no p ow er to grant
relief. This exam ple is deliberately an extrem e one, bu t seems to follow
from the au thorities.’
76 4.2 Liquidated damages
4.2 Liquida t ed da ma ges
‘The essence of liqu id ated d am ages is a genuine covenanted p re-estim ate of

loss.’ So said Lord Du ned in in Dunlop Pneumatic Tyre Company Ltd v. New
Garage (1915). The characteristic of liquid ated d am ages is that loss need not
be proved .
M ean in g of genu in e pre-estim ate
Interp retation of Lord Duned in’s d efi nition has not alw ays been w ithou t
d iffi cu lty. In Widnes Foundry (1925) Ltd v. Cellulose Acetate Silk Co. Ltd w hich
travelled throu gh three layers of the courts in 1930, 1931 and 1932, a su m of
£20 p er w eek w as stipu lated as a penalty for late com pletion of an acetone
recovery plant. The silk com pany su ed for their full losses of £5850 for 30
weeks of late com p letion. The fou nd ry com pany argu ed that their liability
was lim ited to £600. It w as not dispu ted that the silk com p any’s losses w ere
in the region of £5850. The jud ge at fi rst instance, Mr Ju stice Wright, took
Lord Duned in’s p hrase literally and held that becau se the stipu lated sum
was obviou sly not a genu ine pre-estim ate of loss it cou ld not be liqu id ated
d am ages. H e su ggested that a sum cou ld be a p enalty und er Lord Du nedin’s
ru les by reason of its extravagant inad equacy as w ell as by reason of its
exorbitance. H e fou nd favour of the silk com p any.
In the Court of Appeal his d ecision w as overtu rned .
Lord Ju stice Scru tton said :
‘I have com e to the conclusion that this case com es w ithin the ru le
laid d ow n by Lord Duned in, follow ing earlier cases, that if the
parties agree a fi gu re fi xing the am ou nt for breach of one stip ulation
varying w ith the time of the d elay, it is not a p enalty but is liqu id ated
d am ages.’
He went on to say:
‘H ere is one obligation – nam ely, to d eliver something by a fi xed d ate,
and there is a clause fi xing a paym ent w hich is com m ensurate w ith the
amou nt of the d elay in the d elivery. The phrase “genuine covenanted
pre-estim ate of d am age” d oes not state it in term s accu rately.’
Lord Ju stice Slesser, in the sam e case, stated :
‘To read the w ord “penalty” in this contract literally w ould lead to an
absurd ity, as it cannot be a penalty if the person is benefi ting. In fact, this
is a benefi t to the person breaking the contract, and d oes not penalise him
in any w ay. We m ay therefore properly read the expression as intend ed
to be liquid ated d am age.’
The H ou se of Lord s confi rm ed the d ecision of the Court of Ap peal on the
basis that the stip u lated su m w as by w ay of com pensation. Lord Atkin m ad e
the follow ing p ronou ncem ent:
4.2 Liquidated damages 77
‘Excep t that it is called a penalty, w hich on the cases is far from con-
clusive, it ap p ears to be an am ount of com pensation m easured by the
period of d elay. I agree that it is not a pre-estim ate of actu al d am age.
I think it m u st have been obviou s to both the p arties that the actu al
d am age w ou ld be m u ch m ore than £20 a w eek; but it was intend ed
to go tow ard s the d am age, and it w as all that the sellers w ere prepared
to pay.’
Au stralian view
In the Au stralian case of W T Malouf Pty Ltd v. Brinds Ltd (1981) it w as

said :
‘A genu ine pre-estim ate m eans a pre-estim ate w hich is objectively of that
character: that is to say, a fi gure w hich m ay properly be called so in the
light of the contract and the inherent circu m stances. It w ill not be enou gh
m erely that the p arties honestly believed it to be so.’
G en u in e p re-estim ate or lesser su m
It follow s from the Widnes Foundry case that su m s stipulated as liqu id ated
d am ages m ay be either a genuine p re-estim ate of loss or su ch sm aller su m s
as the parties m ay agree. It w ill be no barrier to liquid ated d am ages that the
stip ulated sum s are p atently inad equ ate as recovery of fu ll loss.
More recently in Multiplex Constructions Pty Ltd v. Abgarus Pty Ltd (1992)
it w as said :
‘It is clear as a m atter of principle, and established by authority, that if
parties agree u pon a quantum of dam age as liqu id ated d am ages w hich
is less than the d am age w hich w ould be su ffered from su ch breach, no
attack can be m ad e u pon such a liquidated d am ages provision upon the
basis that it is extravagant or unconscionable.’
Liq u id ated d am ages n eed n ot b e p roved
When liqu id ated dam ages are a genuine pre-estim ate of loss or a lesser sum
it is fu nd am ental that loss does not have to be proved to obtain recovery.
Provid ing they are w ithin the term s of a bind ing contract the courts w ill not
allow a challenge on the basis that loss cannot be proved .
The p arties to a contract are bound by its term s and the courts w ill enforce
those term s except w here they are p enalties or they are caught by other legal
im pedim ents. The cou rts w ill not alter the contract the p arties have mad e
for them selves.
The basic d ifference betw een general d am ages w hich d o have to be
proved , and liqu id ated d am ages w hich do not have to be proved, is w id ely
78 4.3 Liquidated damages and penalties distinguished
misu nd erstood . Perhaps it is becau se both typ es of d am ages can fl ow from

breach of contract. Bu t it com es d ow n to this: general d amages are not con-
tem plated in the contract, w hereas liquid ated d am ages are not only contem -
plated but stip ulated . There is no reason w hy sum s for liquid ated dam ages,
save for the p ossibility that they are penalties, should su ffer any m ore scru-
tiny than other sum s in the contract.
Loss n eed n ot be su ffered
It is only one step from the principle that liquid ated d am ages can be recov-
ered w ithout p roof of loss to the principle that they can also be recovered
even w hen it is app arent there has been no loss. Why shou ld the contract-
breaker be excu sed his prom ise to pay d am ages by inqu iry or reference into
the circum stances of the innocent party?
The issu e cam e u p in the case of BFI Group of Companies Ltd v. DCB Integra-
tion Systems Ltd (1987). DCB, the contractor, carried ou t alteration and refu r-
bishm ent w ork at BFI’s transport depot. BFI w ere given possession on the
extend ed d ate for com pletion but it w as another six w eeks before roller
shutter d oors w ere installed . BFI utilised this tim e to fi t ou t the prem ises
and d id not su ffer any d elay in com m issioning or any loss of revenu e.
Variou s d isp u tes w ent to arbitration and on the m atter of d elay the arbitra-
tor held there w as a d elay in com pletion bu t he declined to aw ard liqu id ated
d am ages on the grou nd s that BFI had suffered no loss. The case w ent to
ap peal w here it w as argu ed for the contractor that provisions for liquid ated
d am ages presu p posed som e loss and served only to qu antify su ch loss.
Where it was fou nd there w as no loss they shou ld not app ly. Ju d ge Davies
rejected this argu m ent and accep ted that it w as irrelevant to consid er w hether
there w as any loss; the liqu id ated dam ages p rovisions w orked au tom atically
once breach w as established .
4.3 Liquida t ed da ma ges a nd pena lt ies dist inguished
Because paym ent of liquid ated d am ages can be claim ed w ithou t p roof of
loss, and paym ent of penalties claim ed only w ith proof of loss, it is obviou sly
a m atter of consid erable fi nancial interest to the parties to a contract that
they shou ld know, preferably in ad vance of m aking their contract, w hether
the su m s they have stipulated for breach are liqu id ated d am ages or
penalties.
The term inology itself is not d ecisive and if the courts fi nd , as a m atter of
constru ction, that liqu idated d am ages are penalties or vice versa they w ill
aw ard accord ingly. Thu s, Lord Du ned in in Dunlop Pneumatic Tyre Company
v. New Garage & Motor Company Ltd (1915) said :
‘Thou gh the parties to a contract w ho u se the w ord s “penalty” or “liqu i-
d ated d am ages” m ay p rim a facie be su p posed to m ean w hat they say, yet
4.3 Liquidated damages and penalties distinguished 79
the expression is not conclusive. The Cou rt m u st fi nd ou t w hether the

payment stipu lated is in tru th a penalty or liquid ated d am ages.’
This search for ‘truth’ has not alw ays been w ithout criticism . The Lord
Cham berlain, Lord Cranw orth, in Ranger v. GWR (1854) said :
‘I am not su re that benefi t has, on the w hole, resu lted from the stru ggles
w hich cou rts, both of law and equity, have m ad e to relieve contracting
parties from p aym ents w hich they have bound them selves to m ake by
w ay of penalty. Su ch a course m ay have been very reasonable and u sefu l
w here the d am age resu lting from the violation of the contract is cap able
of being exactly m easu red , bu t w henever the qu antum of d am age is in
its natu re uncertain and the d u e p erform ance of it has been secu red , or
pu rports to have been secured , by a penalty, it might, perhap s, have been
safer and m ore convenient to have alw ays u nd erstood the parties as
m eaning w hat their langu age im ports nam ely, that on failure to p erform
the contract, the stip ulated penalty should be p aid . But this has not
alw ays been the d octrine of the cou rts. The d istinction betw een a p enalty
and a fi xed sum as the conventional am ou nt of d amages is too w ell
established to be now called in question, how ever d iffi cu lt it m ay be to
say in any p articular case und er w hich head the stip ulation is to be
classed .’
And over a century later, Lord Justice Diplock in Robophone Facilities Ltd v.
Blank (1966) m ad e the follow ing statem ent:
‘The cou rt shou ld not be astute to d ecry a p enalty clause in every p ro-
vision of a contract w hich stipu lates a su m to be payable by one party to
the other in the event of a breach by the form er. Su ch stipulation refl ects
good bu siness sense and is ad vantageou s to both parties. It enables them
to envisage the fi nancial consequences of a breach; and if litigation proves
inevitable it avoid s the d iffi culty and the legal costs, often heavy, of
proving w hat loss has in fact been su ffered by the innocent party.’
H ow th e cou rts d istin gu ish b etw een liqu id ated d am ages an d p en alties
In d ecid ing w hether, in the particular circu m stances of the cases before
them , stip ulated sum s are liquid ated d am ages or penalties there can be
m any factors for the courts to consid er, som e of them typical, som e of them
uniqu e to the case. Com m only, how ever, the courts m ay hear argum ents on
the tru e p u rpose of the p aym ent provisions, the clarity or am bigu ity of the
provisions, the reasonableness or otherw ise of the charges, the basis of cal-
culation of the charges, the relative bargaining p owers of the p arties, and
the virtu e of u p hold ing the agreem ent betw een the parties. Over the years
the courts have develop ed sets of rules to facilitate consistency in the deci-
sion m aking p rocess w hich for the m ost part d o just that. N evertheless, as
times change, d iffering interpretations of the ru les em erge and debate arises
as to their order of preced ence.
As w ill be seen from the cases w hich follow, the cou rts are not slow to
exp ress their view s on the current standing of the law. The picture w hich
em erges is that although attem pts have been m ade to shift the focus of
exam ination aw ay from w hether there is genu ine p re-estim ate of loss and
tow ard s exam ination of the comm ercial agreem ent betw een the parties there
rem ains great resp ect for the House of Lord ’s ru ling in Dunlop Pneumatic
Tyre Company v. New Garage and Motor Company Ltd given in 1915. In hierar-
chical term s only the H ou se of Lord s ru ling in the Widnes Foundry case and
the Privy Cou ncil ru ling in Philips Hong Kong v. Attorney General of Hong
Kong (1993) ap p roaches the sam e statu s. And althou gh som e interpretations
of the Privy Council ru ling su ggested a shift aw ay from the genu ine pre-
estim ate of loss test in Dunlop Tyre the recent set of Cou rt of Appeal cases
exam ined later in this chapter ind icates relu ctance to m ove too far aw ay
from the ru ling.
Early ru lin gs
Kemble v. Fa rren (1829)
A contract for the d efendant to ap p ear as p rincipal com ed ian at Covent

Gard en Theatre at the rate of £3.6s.8d p er night for four seasons, contained
a provision that if either party failed to fu lfi l the contract or any p art thereof,
such p arty should pay the other p arty by w ay of liquid ated dam ages the
sum of £1000. The d efend ant refu sed to act d u ring the second season and
was su ed .
It w as held that the sum of £1000 w as a p enalty becau se, had the p laintiff
failed to m ake a single paym ent of £3.6s.8d , he w ould have been liable to
pay £1000 and had the d efend ant contravened any regulations of the theatre,
how ever m inu te, he w ou ld have been sim ilarly liable.
That the p aym ent of a very large su m in consequ ence of the non-
paym ent of a very sm all sum shou ld not be a penalty, w as a contrad iction
in term s.
Lord Elphinst one v. Monkla nd Iron a nd Coa l Co. (1886)
It w as from the Elphinstone case that Lord Duned in took his ru ling that
a single su m can be p resum ed to be a p enalty in som e circum stances.
He said :
‘I think Elphinstone’s case, or rather the d icta in it, d o go this length, that
if there are variou s breaches to w hich one ind iscrim inate su m to be
paid in breach is app lied , then the strength of the chain m ust be taken at
its w eakest link. If you can clearly see that the loss on one particu lar
breach could never am ount to the stipu lated su m , then you m ay com e
to the conclu sion that the su m is penalty. Bu t further than this it d oes
not go.’
La w v. Reddit ch Loca l Boa rd (1892)
‘The d istinction betw een penalties and liquid ated d am ages d ep end s on
the intention of the parties to be gathered from the w hole of the contract.
If the intention is to secu re performance of the contract by the im p osition
of a fi ne or p enalty, then the su m sp ecifi ed is a p enalty; but if, on the other
hand , the intention is to assess the d am ages for breach of the contract, it
is liquid ated d am ages.’ – Mr Justice Lop es
P ublic Works Commissioner v. Hills (1906)
A contract for constru ction of a railway p rovid ed that the contractor shou ld
forfeit the retention m oneys und er the contract ‘as and for liquid ated
d am ages’ for late com pletion.
It w as held that since the am ou nt of retention m oney w ould d epend on
progress w ith the w orks it w as an ind efi nite su m and cou ld not be a genu ine
pre-estim ate of loss. It w as, therefore, to be regard ed as a p enalty.
Ford Mot or Compa ny v. Armst rong (1915)
Arm strong, a retailer, agreed not to sell any Ford car, or any part
thereof, below list price; and for every breach w as to pay £250 as agreed
d am ages.
It w as held that the £250 w as a penalty since it could becom e payable for
a breach which w ou ld cause only trifl ing d am age.
The Dunlop Tyre case (1915)
The historic d efi nitive ru ling on the d istinction betw een liqu idated d am ages
and penalties com es from the case of Dunlop Pneumatic Tyre Company Ltd v.
New Garage & Motor Company Ltd (1915). Lord Du ned in’s classic ju d gm ent
in that case rem ains the test on w hich su bsequent ju d gm ents have relied .
The p oint at issu e w as w hether a price m aintenance agreement w hich bou nd
Dunlop ’s custom er, N ew Garage & Motor Com pany, not to sell below list
prices and conclu d ed ‘w e agree to pay to Du nlop Pneu m atic Tyre Com pany
Ltd the su m of £5 for each and every tyre, cover or tube sold or offered in
breach of this agreem ent, as and by w ay of liquid ated d am ages and not as
a penalty’, w as a liqu id ated d am ages or a penalty clause. The trial m aster
fou nd the stipu lated su m to be liquidated dam ages bu t that fi nding w as
reversed by a m ajority in the Court of Ap peal. The case then w ent to the
House of Lord s.
Lord Duned in began by review ing the law :
‘I d o not think it ad visable to attem p t any d etailed review of the various
cases, but I shall content myself w ith stating succinctly the various
pro p ositions w hich I think are d ed u cible from the d ecisions w hich rank
as authoritative:
(1) Though the parties to a contract w ho use the w ord s “p enalty” or

“liqu id ated d am ages” m ay p rim a facie be su pposed to m ean w hat
they say, yet the expression used is not conclusive. The cou rt m u st
fi nd ou t w hether the paym ent stipu lated is in truth a penalty or liq-
u id ated d am ages.
(2) The essence of a p enalty is a paym ent of money stip ulated as in ter-
rorem of the offend ing party; the essence of liquid ated d am ages is a
genu ine covenanted pre-estim ate of dam age.
(3) The qu estion w hether a sum stipulated is p enalty or liquid ated
d am ages is a question of construction to be d ecided u pon the term s
and inherent circu mstances of each particular contract, jud ged of as
at the time of m aking the contract, not as at the tim e of the breach.
(4) To assist this task of construction, various tests have been suggested ,
w hich if applicable to the case u nd er consid eration m ay prove help ful,
or even conclu sive. Su ch are:
(a) It w ill be held to be a penalty if the su m stipu lated for is extrava-
gant and u nconscionable in am ou nt in comp arison w ith the great-
est loss that cou ld conceivably be p roved to have follow ed from
the breach.
(b) It w ill be held to be a penalty if the breach consists only in not
paying a sum of m oney, and the sum stipu lated is a sum greater
than the sum which ought to have been paid . This, though one of
the m ost ancient instances, is tru ly a corollary to the last test.
(c) There is a presum ption (but no m ore) that it is a penalty w hen “a
single su m is m ad e payable by w ay of com pensation, on the occur-
rence of one or m ore or all of several events, som e of w hich m ay
occasion serious and others bu t trifl ing d am age”.
(d ) It is no obstacle to the sum stip ulated being a genuine pre-estim ate
of d am age that the consequences of the breach are such as to m ake
precise p re-estim ation alm ost an im possibility. On the contrary,
that is ju st the situation w hen it is p robable the p re-estim ated
d am age w as the true bargain betw een the parties.’
Lord Du ned in then w ent on to consid er the facts:
‘Tu rning now to the facts of the case, it is evid ent that the d am age app re-
hend ed by the ap pellants ow ing to the breaking of the agreem ent w as an
ind irect and not a d irect d am age. So long as they got their price from the
respond ents for each article sold , it cou ld not m atter to them d irectly w hat
the respond ents d id w ith it. Ind irectly it d id . Accord ingly, the agreem ent
is head ed “Price Maintenance Agreem ent”, and the w ay in w hich the
ap pellants w ou ld be d am aged if prices w ere cu t is clearly exp lained in
evid ence . . . and no successful attem pt is m ad e to controvert that evi-
d ence. But thou gh the d am age as a w hole from su ch a practice w ou ld be
certain, yet d am age from any one sale w ou ld be im p ossible to forecast.
It is just, therefore, one of those cases w here it seem s quite reasonable for
parties to contract that they should estim ate that d am age at a certain
fi gure, and provid ed that fi gure is not extravagant there w ould seem no
reason to su spect that it is not truly a bargain to assess d am ages, but
rather a p enalty to be held in terrorem .’
The u nanim ou s op inion of the four Law Lord s w as that the stipu lated sum
w as by w ay of liqu id ated d am ages and the aw ard of the trial master in
favou r of Dunlop w as upheld.
The P hilips Hong Kong case (1993)
Because of its im portance the case of Philips Hong Kong Ltd v. Attorney General
of Hong Kong (1993) is consid ered here at some length.
Philip s entered into a contract w ith the H ong Kong Governm ent to design,
su pp ly, install and com m ission a com pu terised sup ervisory system for the
approach road s and tw in tunnels for a new rou te in the N ew Territories. The
contract w as one of seven contracts, six of w hich contained a fl ow chart
setting ou t the p rogram me for the progress of the w ork and also fl ow charts
for the w ork for fi ve of the other contracts. The fl ow charts id entifi ed Key
Dates at w hich Philips’ w ork interfaced w ith the p rogram m es of other con-
tracts. Clau se 27 of the Philips contract im posed an obligation on Philips to
m eet its Key Dates and Clause 29 p rovid ed that if the Key Dates w ere not
m et liqu id ated dam ages w ere payable. Ad d itional liquid ated d am ages w ere
also p ayable if the w hole of the w ork w as not com p leted w ithin a specifi ed
time.
Philip s sou ght, and obtained from the cou rt of fi rst instance, d eclarations
that clau se 29 w as u nenforceable because it was p enal and becau se it w as
uncertain. The Court of Ap peal of H ong Kong allow ed an ap peal that Clau se
29 had no ap plication because there w as no statem ent in the contract w hich
perm itted the takeover of sections before the issue of the certifi cate of taking
over of the w hole of the w orks. Philips app ealed to the Privy Council.
The Privy Cou ncil rejected the app eal and held , am ongst other things:
(1) The liquid ated d am ages provision in the contract betw een the p arties
w as a genu ine pre-estim ate and enforceable, since:
(2) The p u rpose of being able to agree beforehand the d am age recoverable
for a breach of contract w as to the ad vantage of the parties since they
should be able to estim ate w ith a reasonable d egree of certainty the
extent of their liability and the risks w hich they run. This is p articu larly
tru e of bu ild ing and engineering contracts.
(3) The court shou ld not ad opt an approach to provisions as to liqu id ated
d am ages w hich cou ld d efeat their p u rpose.
(4) To id entify that a p rovision is p enal on an objective assessm ent it w ill
not norm ally be enou gh to identify situations w here the ap plication of
the provision could resu lt in a larger su m being recovered by the
inju red p arty than his actu al loss.
(5) The test for d eterm ining w hether a p rovision for the d eduction of
liqu id ated and ascertained d am ages is a p enalty is w hether or not it
is a genu ine pre-estimate of w hat the loss is likely to be.
(6) The fact that the issu e has to be d eterm ined objectively, ju d ged at the
d ate the contract w as m ad e, d oes not m ean that w hat actually happens
su bsequ ently is irrelevant. It can provid e valu able evid ence as to w hat
cou ld reasonably be exp ected to be the loss at the tim e the contract
was m ad e.
(7) In the case of a governm ental bod y the natu re of the loss is esp ecially
d iffi cu lt to evalu ate. The Governm ent reasonably ad opted a form u la
which refl ected the loss of returns on the capital involved at a d aily
rate, to w hich w ere ad d ed fi gures for su pervisory staff costs, the
d aily actual cost of m aking any alternative p rovision and a su m for
fl u ctu ations.
(8) The Governm ent w ould not by this ap p roach receive double com pen-
sation (i.e. for the delay in not m eeting a Key Date and w hen the
contract com pletion d ate w as not m et) as d ifferent losses arose from
each.
(9) The p rovision for a m inim u m paym ent w as not penal as the Govern-
ment would inevitably have to incu r expense of a stand ing nature
irrespective of the scale of w ork ou tstand ing.
(10) Although the p rovisions cou ld have been d rafted w ith greater clarity
they w ere not so uncertain as to be u nenforceable.
Lord Woolf set ou t the basis of the Philips attack on the liqu id ated d am ages
clau se as follow s:
‘At this stage Mr N icholas Dennys QC d oes not suggest on behalf of
Philip s that the su m claim ed by the governm ent by w ay of liquidated
d am ages is in fact exorbitant in view of the very su bstantial d elay w hich
in fact occu rred in the execution of this contract by Philips. Instead he
bases his argum ent on w hat could have hap pened in a nu mber of d iffer-
ent hyp othetical situ ations. H e su ggests that if one or more of those situ -
ations had happened , the su m w hich w ou ld then be p ayable by w ay of
liquid ated d am ages w ould be w holly out of proportion to any loss w hich
the Governm ent w as likely to su ffer in that situ ation and that this is su f-
fi cient to establish that the p rovisions are penal in effect. If Philip s’
ap proach is correct this w ou ld be u nsatisfactory. It w ould m ean that it
w ou ld be extrem ely d iffi cult to devise any provision for the p aym ent of
liquid ated d am ages in the case of a contract of this sort w hich would not
be op en to attack as being penal. As is the case w ith most com m ercial
contracts, there is alw ays going to be a variety of d ifferent situations in
w hich d am age can occu r and even thou gh long and detailed provisions
are contained in a contract it w ill often be virtu ally im possible to antici-
pate accurately and provid e for all the possible scenarios. Whatever the
d egree of care exercised by the d raftsman it w ill still be alm ost inevitable
that an ingeniou s argum ent can be developed for saying that in a p ar-
ticu lar hypothetical situation a substantially higher sum w ill be recovered
than w ou ld be recoverable if the p laintiff w as required to prove his actu al

loss in that situation. Such a resu lt w ould und erm ine the w hole purpose
of p arties to a contract being able to agree beforehand w hat d am ages are
to be recoverable in the event of a breach of contract. This w ould not be
in the interest of either of the parties to the contract since it is to their
ad vantage that they should be able to know w ith a reasonable d egree of
certainty the extent of their liability and the risks w hich they ru n as a
resu lt of entering into the contract. This is particu larly true in the case of
bu ild ing and engineering contracts. In the case of those contracts provi-
sion for liqu id ated d am ages should enable the em ployer to know the
extent to w hich he is p rotected in the event of the contractor failing to
perform his obligations.
As for the contractor, by agreeing to a p rovision for liqu id ated d amages,
he is seeking to rem ove the u ncertainty as to the extent of his liability
und er the contract if he is unable to com ply w ith his contractu al
obligations.’
Lord Woolf then w ent on to consid er the qu estion:
‘Is it su ffi cient for a contractor to id entify hyp othetical situ ations w here
the effect of the ap plication of the clau se m ay be to prod uce a sum payable
to the em ployer substantially in excess of the d am age w hich the em ployer
is likely to su ffer in ord er to d efeat the intend ed effect of a clau se freely
entered into by the parties provid ing for the paym ent of liquidated
d am ages?’
After review ing the approach of the cou rts to liqu id ated d am ages clauses,
Lord Woolf conclud ed that it w as not suffi cient. H e said :
‘Excep t p ossibly in the case of situ ations w here one of the p arties to the
contract is able to d om inate the other as to the choice of the term s of a
contract, it w ill norm ally be insu ffi cient to establish that a provision is
objectionably p enal to id entify situ ations w here the ap plication of the
provision could resu lt in a larger su m being recovered by the inju red
party than his actual loss. Even in such situ ations so long as the sum
payable in the event of non-com pliance with the contract is not extrava-
gant, having regard to the range of losses that it cou ld reasonably be
anticip ated it w ould have to cover at the tim e the contract was m ad e, it
can still be a genu ine p re-estim ate of the loss that w ou ld be su ffered and
so a p erfectly valid liqu id ated d am age provision. The use in argum ent of
unlikely illu strations should therefore not assist a party to d efeat a provi-
sion as to liqu id ated d am ages.’
Regard ing the argu ment w hich had been u pheld in the case of Arnhold &
Co. Ltd v. Attorney General of Hong Kong (1989) that a prop ortioning d ow n
clau se w ith a stop fi gure w as a penalty, Lord Woolf said :
‘The second point arises d ue to the p resence of the m inim um p aym ent
provision. The argum ent is based on the jud gm ent of Sears J in Arnhold
v. Attorney General of Hong Kong (1989) 47 BLR 129 w hich Mayo J follow ed
in this case. There can conceivably be circum stances w here it is so obviou s,

before com pletion of the w orks as a w hole, that the actu al loss w hich w ill
be sustained w ill be less than a specifi ed m inim u m fi gu re that to inclu d e
that m inim u m fi gu re in a p rovision for the paym ent of liquid ated dam ages
on a red ucing slid ing scale w ill have the effect of transform ing an other-
w ise perfectly p roper liqu id ated d am ages p rovision into a p enalty, in so
far as it p revents the liquid ated dam ages from being red u ced below that
fi gure. H ow ever this is certainly not su ch a case and , so far as it is p os-
sible to ascertain the facts from the rep ort [in the Construction Law Journal]
w hich is available, nor w as Arnhold.
To conclu d e otherw ise involves m aking the error of assu m ing that,
becau se in som e hypothetical situation the loss su ffered w ill be less than
the sum qu antifi ed in accordance w ith the liquid ated d am age provision,
that p rovision m u st be a penalty, at least in the situation in w hich the
m inim u m paym ent restriction operates. It illustrates the d anger w hich is
inherent in argum ents based on hyp othetical situ ations w here it is said
that the loss m ight be less than the sum sp ecifi ed as p ayable as liquidated
d am ages. Argu m ents of this natu re should not be allowed to d ivert atten-
tion from the correct test as to w hat is a penalty provision – nam ely is it
a genu ine pre-estim ate of w hat the loss is likely to be? – to the d ifferent
question, nam ely are there possible circum stances w here a lesser loss
w ou ld be suffered ? H ere the m inim u m paym ent provision am ou nted to
abou t 28% of the d aily rate of liquid ated d am ages p ayable for non-
com p letion of the w hole w orks by Philips. The government point ou t that
if there is delay in com pletion it w ill continue inevitably to incur expenses
of a stand ing natu re irrespective of the scale of the w ork outstand ing and
that those exp enses w ill continue until the w ork is com p leted . This being
a reasonable assu m ption and there being no grou nd for su ggesting that
the m inim um paym ent lim itation w as set at the w rong percentage, its
presence d oes not create a penalty.’
And on the argu m ent that the liqu id ated d am ages clau se w as void for
uncertainty, Lord Woolf said :
‘Finally it is contend ed that the m anner in w hich the liquid ated dam ages
provisions are exp ressed in the contract resu lts in such uncertainty as to
the m anner in w hich they w ere intend ed to operate that they are unen-
forceable. This contention is also m isconceived . The effect of the provi-
sions could have been d rafted w ith greater clarity, bu t their m eaning can
be ascertained and therefore relied on by the governm ent.’
Com p arison – Dunlop Tyre / P hilips Hong Kong
Com p arison of the ru lings in Dunlop Tyre and in Philips Hong Kong reveals
the key p oint to be that in both cases the stated test for d eterm ining w hether
a provision is for liquid ated d am ages or is a p enalty is w hether or not the
stip ulated sum is a genu ine pre-estim ate of loss. Add itionally both rulings
say that the question is to be d eterm ined objectively and jud ged as at the
time the contract w as m ade.
Where Philips Hong Kong goes fu rther than Dunlop Tyre is that it em pha-
sises that the cou rt shou ld not ad op t an approach to liquid ated d am ages
w hich w ould d efeat their p urpose. It also makes the points that evid ence as
to w hat happ ened can assist in ju dgm ents on pre-estim ates; that form u lae
m ethod s of assessm ent m ay be perm issible; and that insignifi cant or hypo-
thetical d rafting problem s d o not rend er liqu id ated d am ages provisions
unenforceable.
A fu rther p oint of note is that Philips Hong Kong app arently m oves aw ay
from the ‘in terrorem ’ aspect of d istingu ishing betw een liqu idated d am ages
and penalties.
Post P hilips Hong Kong d evelop m en ts
The Philips Hong Kong case w as su bject to a great d eal of scru tiny in legal
circles and elsew here as to w hether the law had signifi cantly changed in its
approach to penalty clauses. Som e courts and com m entators seem to have
conclu d ed that there was such a change and that the u nd erlying ‘genu ine
pre-estim ate of loss’ d erived from the Dunlop Tyre case had , by Philips Hong
Kong and som e Com m onwealth cases, been su persed ed. Others w ere m ore
cautious.
The follow ing extracts from English H igh Court and Court of App eal
jud gm ents illu strate the thinking of the cou rts:
Lordsva le Fina nce v. Ba nk of Za mbia (1996)
The ju d gm ent of Mr Justice Colm an in the case of Lordsvale Finance Plc v.

Bank of Zambia (1996), although given in the H igh Cou rt on an application
for su m mary jud gm ent contains rulings w hich have clearly infl u enced deci-
sions su bsequ ently given by the Cou rt of Ap peal.
The case related to rates of interest p ayable on d efaults of com p lex fi nan-
cial instrum ents. One issu e w as w hether the interest p rovisions should be
classed as penalties. The jud ge started by stating that the issue w as of far-
reaching im p ortance in the English law of banking. H e explained this as
follow s:
‘Lond on is one of the greatest centres of international banking in the
w orld . H ere and in New York m ost of the world’s international synd i-
cated loans are set up . Such loans alm ost invariably provid e for enhanced
rates of d efau lt interest to apply. It w ou ld be highly regrettable if the
English courts w ere to refuse to give effect to su ch prevalent p rovisions
w hile the courts of N ew York are p rep ared to enforce them . In the absence
of com pelling reasons of principle or bind ing au thority to the contrary
there can be no d oubt that the cou rts of this country shou ld ad opt in
international trad e law that ap proach to the problem w hich is consistent

w ith that w hich operates in that nation w hich is the other m ajor p artici-
pant in the trad e in question. For there to be d isp arity between the law
ap plicable in Lond on and N ew York on this point w ou ld be of great d is-
service to international banking.’
After exam ining w orld -wid e case law, som e old, som e m od ern, the jud ge
conclu d ed :
‘In m y ju d gm ent, w eak as the English au thorities are, there is every
reason in princip le, for ad opting the cou rse w hich they su ggest and for
confi ning p rotection of the creditor by m eans of designation of d efault
interest p rovisions as p enalties to retrospectively-operating provisions. If
the increased rate of interest applies only from the d ate of d efault or
thereafter there is no ju stifi cation for striking d ow n as a penalty a term
provid ing for a m od est increase in the rate. I say nothing abou t excep tion-
ally large increases. In such cases it m ay be possible to dedu ce that the
d om inant fu nction is in terrorem the borrow er. Bu t nobod y cou ld seri-
ou sly suggest that a 1 p er cent rate increase cou ld be su ch. It is in m y
jud gm ent consistent only w ith an increase in the consid eration for the
loan by reason of the increased cred it risk rep resented by a borrow er in
d efau lt.
For these reasons I conclud e that clause 10.03A contains nothing in the
nature of a penalty and that the d efault interest provision m ust be fu lly
enforced .’
D iscu ssion
Interesting as the above extracts are in them selves, the part of the ju d gm ent
which has cau ght the attention of a num ber of ju d ges and Lord and Lady
Ju stices in later cases is the part w hich read s:
‘The speeches in Dunlop Pneumatic Tyre Co. v. New Garage & Motor Co.
show that w hether a provision is to be treated as a penalty is a m atter of
constru ction to be resolved by asking w hether at the tim e the contract
w as entered into the p red om inant contractual function of the provision
w as to d eter a p arty from breaking the contract or to com pensate the
innocent p arty for breach. That the contractu al fu nction is d eterrent rather
than com p ensatory can be ded u ced by com paring the am ount that w ould
be payable on breach w ith the loss that m ight be su stained if breach
occurred .’
For d iscu ssion on the qu estion of w hether or not this passage suggests that
old tests for consid ering pre-estim ates of loss shou ld be replaced by a com -
pensatory test based on com p arison of stipu lated d am ages w ith d am ages
which can be proven, see the quoted extracts from the Leisureplay case
below.
India n Airlines v. GIA Int erna t iona l (2002)
In Indian Airlines Ltd v. GIA International Ltd (2002) one of the claim s the H igh
Cou rt had to consid er in an application for su m mary jud gm ent w as a claim
by Ind ian Airlines for US$5,550,000 as liqu id ated d am ages arising from
breach of an airline leasing agreem ent. The relevant clause of the agreem ent
read :
‘If leasing of the aircraft pursuant to this agreem ent d oes not, other than
d u e to any d efault by lessee, com m ence on or by the exp ected d elivery
d ate, the lessor shall, p rom ptly on d em and , pay to the lessee as liqu id ated
d am ages the amount of $ 8,500 (the d elay p aym ent) for each d ay follow-
ing expected d elivery d ate u ntil either (1) the aircraft is d elivered to lessee
in accord ance w ith the p rovisions hereof and the lease period com m ences,
or (2) the lessee exercises its option und er clause 2.8 to term inate its obli-
gation to lease the aircraft.’
GIA failed to d eliver any of the prom ised aircraft and Ind ian Airlines term i-
nated the lease agreem ent and sou ght to app ly the provision for liqu id ated
d am ages. GIA op posed the claim on grou nd s that the provision was a
penalty clau se in that the stip ulated su m w as not a genu ine pre-estimate of
loss and w as op p ressive. It w as conced ed by Ind ian Airlines that the stipu-
lated su m w as not a calculated pre-estim ate of loss bu t it argued that it w as
a reasonable am ount in the circum stances.
Mr Ju stice Tom linson, after referring to the Dunlop Tyre, Philips Hong Kong
and Clydebank Engineering cases, said this:
‘71. The Philip s case in the Privy Cou ncil m arks, in m y ju d gm ent, som e-
thing of a sea change in the ap proach of the courts to penalty clau ses.
I note, for exam ple, that Lord Woolf, giving the ad vice of the Ju dicial
Com m ittee, cited , w ith ap proval, the view of Dixon J. in the Su p rem e
Cou rt of Canad a in Elsy v. JG Collins Insurance Agencies [1978] 83 DLR
at 15, w here he said :
“It is now evid ent that the pow er to strike d ow n a p enalty clause is
a blatant interference w ith freed om of contract and is d esigned for
the sole purpose of provid ing relief against op p ression for the party
having to pay the stipulated sum . It has no p lace w here there is no
op pression.”
72. That p assage has also received the approval of the H igh Court of
Au stralia in Isander Finance Corporation v. Plesnick [1989] ALJ 238.
Fu rtherm ore, in a pow erfu l jud gm ent d elivered by Mason J. and
Wilson J. in the H igh Court of Australia in AMEV-UDC Finance Ltd
v. Austin (1986) 162 CLR 170, those learned Ju d ges said this:
“Bu t equ ity and the com m on law have long m aintained a supervi-
sory jurisd iction not to re-w rite contracts imp rud ently m ad e bu t to
relieve against p rovisions w hich are so unconscionable or op p ressive
that their natu re is penal rather than com pensatory. The test to be
ap p lied in d raw ing that distinction is one of d egree, and w ill d ep end
on a num ber of circum stances includ ing (1) the d egree of d ispropor-
tion betw een the stipulated su m and the loss likely to be suffered by
the plaintiff, a factor relevant to the opp ressiveness of the term s of
the d efend ant, and (2) the natu re of the relationship betw een the
contracting parties, a factor relevant to the u nconscionability of the
plaintiff’s cond uct in seeking to enforce the term. The courts should
not, however, be too read y to fi nd the requisite d egree of d isp rop or-
tion lest they im pinge on the parties’ freed om to settle for them selves
the rights and liabilities follow ing a breach of contract. The d octrine
of penalties answers in situ ations of the p resent kind an im portant
asp ect of the criticism often levelled against unqu alifi ed freed om of
contracts, nam ely the possible inequ ality of bargaining pow er. In this
w ay the cou rts strike a balance betw een the com peting interests of
freed om of contract and the p rotection of w eak contracting parties
– see generally Atiyah, The Rise and Fall of Freed om of Contract
(1979).”
73. I fi nd in the reference to the requisite d egree of d isprop ortion a d is-
tinct echo of the m anner in w hich Lord Du ned in had p ut the m atter
in the Dunlop Pneumatic Tyre case, w here he su ggested that a p rovi-
sion w ou ld be held to be a p enalty if the sum stip u lated for is
extravagant and unconscionable in am ou nt in com p arison w ith the
greatest loss that could conceivably be proved to have follow ed from
the breach.’
Later in his ju dgm ent the jud ge said :
‘79. As Mr Colem an subm itted , the Cou rt w hen consid ering w hether or
not a clau se shou ld be struck d ow n as an unenforceable p enalty m u st
stand back and look at the situ ation as it w ould have ap peared to the
p arties at the tim e, and m ust ap ply the test w hich has been estab-
lished by long au thority, w hich is essentially a test of unconscionabil-
ity. Notw ithstand ing w hat is said by Mr. Basu as to his anxiety to
obtain the bu siness on behalf of GIA, I sim ply cannot regard the
situ ation w hich is revealed as being one of inequ ality of bargaining
p ow er of the sort w hich is referred to by Mason J. and Wilson J. in
their jud gm ent to w hich I have referred .
80. In m y jud gm ent, this is a case very sim ilar to the Clyd e Bank Engi-
neering case, in w hich it w as sim p ly im possible for a p recise p re-
estim ate to be m ad e of the consequences of d elay in d elivery of the
aircraft, w hich delay, I entirely accept, w ou ld have been anticipated
not to be a d elay ru nning over m any m onths, bu t to be a d elay m ea-
su red in d ays and w eeks rather than in m onths and years. If an
airline such as Ind ian Airlines had planned its sched ules and its
exp ansion on the expectation that it w ou ld have received fi ve new
aircraft w ithin a period of fou r or fi ve w eeks, it w ould be obviou s
that the d isru ption to its sched ules and the inability to earn profi ts
in consequence of d elay in d elivery w ould be considerable but inca-

p able of p recise calcu lation.’
He conclu d ed , having found that the stipu lated sum w as neither extrava-
gant nor u nconscionable in com parison w ith the greatest loss that could
conceivably be p roved to have follow ed the breach:
‘83. In m y jud gm ent, to strike d own this agreem ent m ad e betw een tw o
substantial parties operating in the international aviation m arket
w ould ind eed be a blatant interference w ith freed om of contract, and ,
bearing that in m ind that the d octrine is intend ed to p rovid e relief
against op pression, I cannot believe that there is any room for the
app lication of the d octrine here, where there m ay have been hard
bargaining bu t, in m y judgm ent, nothing w hich comes even close to
op pression.
84. For all those reasons, therefore, w hich I fear I have expressed at
u nd u e length, I have conclu ded that the Defend ants have no realistic
p rosp ect of establishing at trial that the liqu id ated d amages clau se,
clause 2.7, is an unenforceable penalty, and I therefore conclud e that
the Claim ant should be given su m m ary ju d gm ent for liquidated
d am ages in the su m of $ 5,550,000.’
Jea ncha rm v. Ba rnet Foot ba ll Club (2003)
The case of Jeancharm Limited v. Barnet Football Club Limited (2003) concerned
the supp ly of football kit and the like. The case is w orthy of note for the
m anner in w hich the Cou rt of Appeal rejected the p rop osition that the law
had m oved on from Dunlop Tyre. Mr Ju stice Jacob, after reviewing the early
law on p enalty clauses, said this:
‘10. Most recently, p enalty clauses w ere considered by the Privy Cou ncil
in Philips Hong Kong Ltd v. The Attorney General of Hong Kong [1993]
61 BLR 41. In that case the Privy Cou ncil consid ered decisions from
Au stralia and Canada. But, as I read the d ecision, it did not d ep art
from the law as laid d ow n by Lord Duned in in Dunlop.
11. Mr Kay su ggested that follow ing Philips and the Au stralian d ecision
(referred to) the law had m oved on from w hat w as stated by Lord
Du ned in to the extent that it had virtu ally aband oned it. In particu-
lar, he su ggested that one shou ld look at the contract as a w hole, look
at the risks being und ertaken by both sid es and ask w hether the
clause was an ap propriate clau se, having regard to the risk und er-
taken by the op posite party. H ere, for instance, he said that his clients
w ere at very consid erable risk if they w ere in late d elivery, having
regard to the 20 pence per garm ent per d ay clause, and that should
be balanced against the interest for late p aym ents.
12. I can fi nd nothing in the Philips case that suggests a departu re of that
gigantic nature from the law as laid d ow n by Lord Du ned in. Lord
Du ned in ind icated that the question of w hether or not a clau se w as
a penalty clau se d epend ed up on w hether it cou ld be regard ed as

a genuine pre-estim ate of the d am age caused if there w as a breach.
Mr Kay’s form u lation aband ons that entirely.
13. If one goes to Philips, a passage from the joint d ecision of Mason and
Wilson JJ in the Au stralian case, AMEV-UDC Finance Ltd v. Austin
(1986) 162 CLR 170, is qu oted by Lord Woolf in the ad vice to H er
Majesty and read s as follow s:
“Bu t equity and the com m on law have long m aintained a su pervi-
sory ju risdiction, not to rew rite contracts im p rud ently m ad e, but to
relieve against provisions w hich are so u nconscionable or op p ressive
that their natu re is p enal rather than comp ensatory. The test to be
ap p lied in d raw ing that d istinction is one of degree and w ill d ep end
on a num ber of circu m stances, includ ing (1) the d egree of d isp rop or-
tion betw een the stipulated su m and the loss likely to be suffered by
the p laintiff, a factor relevant to the opp ressiveness of the term to the
d efend ant, and (2) the natu re of the relationship betw een the con-
tracting p arties, a factor relevant to the u nconscionability of the
plaintiff’s cond uct in seeking to enforce the term. The courts should
not, however, be too read y to fi nd the requisite d egree of d isp rop or-
tion lest they im pinge on the parties’ freed om to settle for them selves
the rights and liabilities follow ing a breach of contract. The d octrine
of penalties answ ers, in situations of the present kind , an im p ortant
asp ect of the criticism often levelled against unqu alifi ed freed om of
contract, nam ely the possible inequ ality of bargaining p ow er. In this
w ay the cou rts strike a balance betw een the com peting interests of
freed om of contract and protection of w eak contracting parties: see
generally Atiya, The Rise and Fall of Freed om of Contract (1979),
esp ecially Chap ter 22.”
14. Mr Kay particu larly relies upon item (2) id entifi ed by Mason and
Wilson JJ:
“. . . the nature of the relationship betw een the contracting p arties, a
factor relative to the u nconscionability of the plaintiff’s cond u ct.”
and elevates that to the lead ing p rincip le for d ecid ing w hether or not a
clause is or is not a p enalty. But, im m ed iately follow ing that passage,
Lord Woolf said this:
“It shou ld not be assum ed that, in this passage of their ju d gment,
Mason and Wilson JJ w ere setting ou t som e broad er d iscretionary
ap p roach than that ind icated as being ap prop riate by Lord Du ned in.
On the contrary, earlier in their jud gm ent they had noted that the
‘Dunlop ap proach’ had been erod ed by recent d ecisions and they
stated that there w as m uch to be said for the view that the cou rts
shou ld retu rn to that approach.”
15. It boils d ow n to this, that since Dunlop the cou rts have continued
to ap p ly the ru le in Dunlop bu t have held that one shou ld be
carefu l before d ecid ing w hether or not a clause is a p enalty w hen
the parties are of equal bargaining pow er. There w as no aband on-
m ent of the ru le that the clau se m u st be a genu ine pre-estim ate of

d am age.’
Lord Ju stice Keene, agreeing, w ent on to say:
‘20. . . . It is qu ite clear from the au thorities that the concept of a penalty
clause is not confi ned to situations w here one p arty had a d om inant
bargaining pow er over the other, althou gh it m ay, of cou rse, often
app ly in su ch a situation: see the d ecision of the Privy Council in
Philips v Hong Kong Ltd w here the opinion w as d elivered by Lord
Woolf, in particu lar the passage at the foot of page 58:
“Except possibly in the case of situations w here one of the parties to
the contract is able to d om inate the other as to the choice of the term s
of a contract, it w ill norm ally be insu ffi cient to establish that a provi-
sion is objectionably penal to identify situations w here the ap plica-
tion of the provision could resu lt in a larger sum being recovered by
the inju red party than his actual loss.”‘ (emphasis added)
His Lord ship w ent on to explain that one can have a range of losses that
could have reasonably been contem p lated w hen the contract w as m ad e.
‘21. It is p erfectly clear from that passage that the Privy Council there
w as recognising that the situ ation w here one p arty is d om inant is
not exhau stive of those contracts w here a penalty m ay be id entifi ed .
Ind eed , w ere it otherw ise, the concep t w ou ld have little relevance in
m ost com m ercial contracts, as Mr Kay him self recognises. That case
also rightly rejected the p roposition that there is som e broader d is-
cretionary app roach to be app lied : see Lord Woolf at p age 58 in the
fi rst p aragrap h.
22. The test, in m y ju d gment, rem ains one of ascertaining w hether the
p rovision is a genu ine pre-estim ate of loss or is a p enalty for non-
p erform ance of the contractual obligation, as w as established in
Dunlop and as Philips, m ore recently, has end orsed . The fi rst typ e of
p rovision is essentially comp ensatory in natu re. The second is there
to deter the p arty in qu estion from breaking the contract by provid-
ing for a p u nitive level of payment. If one ap plies that test to the
p resent case, one is bound to conclu de that on its face an interest rate
of 260% p er annum w ould seem to be p enal in natu re. The evid ence
below d id not establish that it w as a genu ine p re-estim ate of loss,
nor d id the ju d ge m ake any such fi nd ing.
23. In those circu m stances, I cannot see how this clause can be seen as
having anything other than a deterrent function. I conclu d e that it is
u nenforceable as a penalty.’
Lord Justice Peter Gibson, also agreeing, conclu d ed his com m ents as
follow s:
‘27. The p rincip les that are relevant, in my ju dgment, for d istingu ishing
a penalty p rovision, with w hich the cou rts w ill interfere from a valid
contractu al p rovision for a paym ent or paym ents in the event of

d efau lt by a p arty are these:
(1) the cou rt looks at the substance of the m atter, rather than the
form of w ord s, to d eterm ine w hat w as the real intention of
the parties;
(2) the essence of a penalty is a requ ired paym ent in terrorem of the
party in d efault, as d istinct from being a genuine pre-estim ate of
loss resu lting from the d efau lt;
(3) the qu estion w hether a provision for paym ent on d efau lt is a
penalty is a qu estion of constru ction of the contract, and that is
assessed at the tim e of the contract and not at the tim e of the
breach;
(4) if the requ ired paym ent is extravagant and u nconscionable in
am ou nt in com p arison w ith the greatest loss that could conceiv-
ably be established as the consequence of a d efault, it is a
penalty.
28. It follow s, therefore, that the cou rt is concerned to construe the con-
tract to see w hether the intention of the parties at the tim e of the
contract w as to d eter the paying p arty from falling into d efau lt. If it
can be seen that the provision is a genu ine pre-estim ate of the loss
that w ill resu lt from the d efault, then there can be no penalty.
29. In m y ju d gm ent, it is plain from the m agnitu d e of the interest rate
that in this case there w as no genuine p re-estim ate of loss. It m ay be
that, as Mr Kay argu ed , the parties thou ght that if the pu rchaser w as
going to be allow ed a d am ages clau se for late d elivery of the good s
to be ord ered , then the vendor should be given a very large rate of
interest in the event of late paym ent. Bu t, in m y ju d gm ent, the
au thorities show that one concentrates on the relevant clause said to
be a penalty, and , on the application of the test so clearly laid d ow n
in Dunlop, in m y jud gm ent it is plain that in this case the interest
clause far exceed s anything that could be said to be a genu ine pre-
estim ate of actual loss and am ou nts to a penalty.’
Alfred McAlpine v. Tilebox (2005)
The case of Alfred McAlpine Capital Projects Ltd v. Tilebox Ltd (2005) concerned
substantial su ms alleged ly d ue as liqu idated d am ages for late com p letion
of an offi ce d evelop m ent p roject. Mr Justice Jackson, after review ing the
au thorities, m ad e these observations:
‘48. Let m e now stand back from the au thorities and m ake four general
observations, w hich are pertinent to the issues in the present case.
1. There seem to be tw o strand s in the au thorities. In som e cases
ju d ges consid er w hether there is an unconscionable or extrava-
gant d isproportion betw een the d am ages stipu lated in the con-
tract and the tru e am ount of d am ages likely to be su ffered . In
other cases the courts consid er w hether the level of d am ages
stip ulated w as reasonable. Mr Darling subm its, and I accept, that

these tw o strand s can be reconciled . In m y view, a pre-estim ate of
d am ages d oes not have to be right in ord er to be reasonable. There
m u st be a substantial d iscrepancy betw een the level of d am ages
stip ulated in the contract and the level of d am ages w hich is likely
to be su ffered before it can be said that the agreed p re-estim ate is
u nreasonable.
2. Although m any au thorities use or echo the phrase “genuine pre-
estim ate”, the test d oes not turn upon the genuineness or honesty
of the p arty or parties w ho m ad e the pre-estim ate. The test is
p rim arily an objective one, even though the court has som e regard
to the thought processes of the parties at the tim e of contracting.
3. Becau se the ru le about penalties is an anom aly w ithin the law of
contract, the courts are pred isposed , where possible, to up hold
contractu al term s w hich fi x the level of d am ages for breach. This
p red isposition is even stronger in the case of com m ercial contracts
freely entered into between parties of com p arable bargaining
p ow er.
4. Looking at the bu nd le of au thorities provid ed in this case, I note
only fou r cases w here the relevant clau se has been struck d ow n
as a p enalty. These are Commissioner of Public Works v Hills [1906]
AC 368, Bridge v Campbell Discount Co. Ltd [1962] AC 600, Workers
Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573,
and Ariston SRL v Charly Records (Cou rt of App eal 13th March
1990). In each of these fou r cases there w as, in fact, a very w id e
gu lf betw een (a) the level of dam ages likely to be suffered , and
(b) the level of d am ages stipulated in the contract.’
Mr Justice Jackson w ent on to conclud e that the p rovisions w ere not u nen-
forceable as a p enalty.
Murra y v. Leisurepla y (2005)
The case of Murray v. Leisureplay Plc (2005) concerned term ination of an

em p loym ent contract w hich provid ed for liquid ated d am ages equal to 12
m onths’ salary and benefi ts in the event of term ination w ithou t 12 m onths’
notice. How ever, having term inated the contract at short notice the em ployer
argu ed that the liqu idated d am ages clau se w as u nenforceable as a penalty
becau se it failed to take into accou nt the em ployee’s d u ty to m itigate his
losses by fi nd ing other em ploym ent and therefore it gave the em ployee
m ore than he w ould receive in an ord inary claim for d amages for breach.
The jud ge at fi rst instance agreed on the basis that an enforceable liquid ated
d am ages clau se w ou ld have to m ake signifi cant allow ance for other incom e.
On app eal that d ecision w as reversed .
The p rincip al ju d gm ent in the Court of Appeal w as given by Lad y Ju stice
Ard en. Althou gh eventually com ing to the conclu sion that the clau se w as
not a p enalty, Lad y Justice Arden said , am ongst other things:
‘39. In essence, this cou rt [the Court of App eal] held in the Cine case, that
in d eterm ining w hether p rovisions w ere a penalty the court had at
the ou tset of its enquiry to look at the aggregate am ou nt that w ould
be payable on breach u nd er the term s of the agreem ent, and com pare
that w ith w hat w ould have been p ayable if UIP had had to bring its
claim und er the com m on law. In other w ord s the alleged genuine
pre-estim ate of loss in clause 17 had to relate to the overall net
balance of losses p ayable on term ination less the cred its to w hich
Cine w ould have been entitled at com m on law.’
and
‘42. What, to m y ju d gm ent, is striking abou t the statem ent of the law in
the Cine case and its application is the w ay in w hich the court sought
objectively to rationalise its conclu sions as to w hether the p rovisions
of the agreem ent constituted a penalty. The cou rt’s reasoning turns
on a com p arison betw een the overall am ount payable und er the
agreement in the event of a breach w ith the overall am ou nt that
w ou ld have been p ayable if a claim for d am ages for breach of con-
tract had been brou ght at com mon law. The court proceed ed on the
basis that, if su ch a comp arison discloses a d iscrep ancy, w hich can
be show n not to be a genu ine pre-estim ate of d am age or to be u njus-
tifi ed , the agreement provid es for a p enalty.’
and
‘54. With the benefi t of the citation of authority given above, in my jud g-
m ent, the follow ing (w ith the exp lanation given below ) constitutes
a p ractical step by step guid e as to the qu estions w hich the cou rt
shou ld ask in a case like this:
i) To w hat breaches of contract d oes the contractual d amages p rovi-
sion ap ply?
ii) What am ou nt is payable on breach und er that clause in the
parties’ agreem ent?
iii) What am ount w ou ld be payable if a claim for d amages for breach
of contract w as brought und er com m on law ?
iv) What w ere the parties’ reasons for agreeing for the relevant
clause?
v) H as the party w ho seeks to establish that the clause is a p enalty
show n that the am ount payable und er the clause w as im posed
in terrorem, or that it d oes not constitu te a genuine pre-estim ate
of loss for the p urposes of the Dunlop case, and , if he has show n
the latter, is there som e other reason w hich ju stifi es the d iscrep -
ancy betw een i) and ii) above?’
Lord Ju stice Bu xton, agreeing that the ap peal should be allow ed , arrived
there by a d ifferent route. H e said :
‘109. I respectfully agree w ith m y Lad y in her p aragrap h 47, citing the
observations of Mance LJ in the Cine case, that the language of
stip u lations in terrorem sou nd s unu su al in m od ern ears; and par-

ticu larly w hen applied to a contract su ch as the present, w here a
com pany w ell able to look after itself em ployed to play a lead ing
and entrep reneurial role in its affairs a Chief Execu tive w ho, as his
evid ence cited by m y Lad y d em onstrates, w as m otivated by a d esire
to protect his ow n interests.
110. That insight requ ires a recasting in m ore m od ern term s of the classic
test set ou t by Lord Du ned in in Dunlop [1915] AC at p 86:
“The essence of a penalty is a payment of m oney stipulated as in
terrorem of the offend ing party; the essence of liqu id ated d am ages
is a genuine covenanted pre-estim ate of d am age.”
That recasting is to be fou nd in the judgm ent of Colm an J in Lordsvale
Finance plc v. Bank of Zambia [1996] QB 752 at 762G, a passage cited w ith
ap proval by Mance LJ in paragraph 13 of his jud gm ent in the Cine case
[2003] EWCA Civ 1699:
“whether a p rovision is to be treated as a penalty is a m atter of
construction to be resolved by asking w hether at the tim e the con-
tract w as entered into the pred om inant contractu al fu nction of the
p rovision was to deter a party from breaking the contract or to
com p ensate the innocent party for the breach. That the contractu al
fu nction is d eterrent rather than com pensatory can be d ed uced by
com p aring the am ount that w ould be payable on breach w ith the
loss that m ight be sustained if the breach occu rred .”
111. It is im portant to note that the tw o alternatives, a d eterrent p enalty;
or a genu ine pre-estim ate of loss; are ind eed alternatives, w ith no
m id d le grou nd betw een them . Accord ingly, if the cou rt cannot say
w ith som e confi d ence that the clau se is ind eed intend ed as a deter-
rent, it ap pears to be forced back u pon fi nd ing it to be a genu ine
p re-estim ate of loss. That choice illu m inates the m eaning of the
latter phrase. “Genuine” in this context d oes not m ean “honest”;
and m uch less, as the argum ent before us at one stage su ggested ,
that the sum stip ulated mu st be in fact an accu rate statem ent of the
loss. Rather, the expression m erely u nd erlines the requirem ent that
the clause shou ld be com pensatory rather than deterrent.’
Lord Justice Buxton, explaining his disagreem ent w ith Lad y Ju stice Ard en’s
approach then said :
‘113. First, Colm an J said no m ore than that the com parison w as a guid e
to the assessm ent of a p rovision as d eterrent rather than com pensa-
tory. That also, in m y view, is as far as this court w ent in the Cine
case itself. That w as a sum m ary jud gm ent case, involving no m ore
than the id entifi cation of a triable issu e: I w ou ld d raw attention in
that connexion to the observations of Thom as LJ in his paragrap h
[50] and of Peter Gibson LJ in his paragrap h [54]. The approach that
shou ld be ap plied at trial w ould be in m ore general terms than that
su ggested by my Lad y in her p aragraph 42, that alw ays requires a
com p arison betw een the liqu id ated and the com m on law d am ages
to see if the com p arison d iscloses a d iscrep ancy; and then requires
that d iscrep ancy to be justifi ed as a genuine pre-estim ate of d am ages,
or by som e other form of justifi cation.
114. I venture to d isagree w ith that ap proach because it introd u ces a
rigid and infl exible elem ent into w hat shou ld be a broad and general
qu estion. It is also inconsistent w ith w arnings by jud ges of high
authority that, at least in connexion w ith com m ercial contracts,
great cau tion should be exercised before striking d ow n a clause as
penal; and w ith the tests that they have p ostulated to that end . My
Lad y has cited in her paragrap h 66 the observations of Diplock LJ
in Robophone v. Blank [1966] 1 WLR 1428 at p 1447. I w ould ad d the
w ell-know n passage of Lord Woolf in Philips Hong Kong v. A-G of
Hong Kong (1993) 61 BLR 49 at pp 58–59:
“Except p ossibly in the case of situ ations w here one of the parties
to the contract is able to d om inate the other as to the choice of the
term s of a contract, it w ill norm ally be insuffi cient to establish that
a provision is objectionably penal to id entify situ ations w here the
app lication of the provision cou ld result in a larger su m being
recovered by the inju red party than his actual loss. Even in
su ch situations so long as the sum payable in the event of non-
com pliance w ith the contract is not extravagant, having regard to
the range of losses that it could reasonably be anticip ated it w ould
have to cover at the tim e the contract w as m ad e, it can still be a
genu ine p re-estim ate of the loss that w ou ld be su ffered and so a
perfectly valid liquid ated d am ages p rovision.”
And exclu sive concentration on the factual d ifference betw een the liqui-
d ated and the contractu al d am ages overlooks a p rincipal test form ulated
by Lord Duned in to id entify a penalty, [1915] AC at p 87, that
“It w ill be held to be a penalty if the sum stip ulated for is extrava-
gant and unconscionable in am ount in com p arison w ith the greatest
loss that could conceivably be p roved to have follow ed from the
breach.” ’
Lord Ju stice Clarke, p referring the broad er approach of Lord Justice Buxton
to that of Lad y Ju stice Ard en said :
‘106. The essential reasons w hich have led m e to the conclu sion that
clause 17.1 is not a penalty are these:
i) Given the general p rincip le that pacta sunt servanda, the cou rts
shou ld be cau tiou s before holding that a clau se in a contract of
this kind is a penalty.
ii) The m od ern app roach to Lord Duned in’s test in Dunlop
Pneumatic Tyre v. New Garage and Motor Company Ltd [1915] AC
67 at 86 is to be found in Lordsvale Finance plc v. Bank of Zambia
[1996] QB 752 per Colm an J at page 762G and Cine Bes Filmcilik
Ve Yapim Click v. United International Pictures [2003] EWCA
Civ 1699.
iii) It is p erhap s no longer entirely ap prop riate to ask w hether a

p aym ent on breach w as stipulated in terrorem of the offend ing
p arty but, as Colm an J p u t it in the Lordsvale case at page 762G
(in a p assage quoted by both Ard en and Bu xton LJJ):
“w hether a provision is to be treated as a p enalty is a m atter of
construction to be resolved by asking w hether at the tim e the
contract w as entered into the pred om inant contractu al function
of the provision w as to d eter a party from breaking the contract
or to com p ensate the innocent party for breach.”
iv) Colm an J continu ed :
“That the contractual fu nction is d eterrent rather than com pen-
satory can be d ed uced by com p aring the am ount that w ou ld be
p ayable on breach w ith the loss that m ight be sustained if the
breach occurred .”
I d o not read Colm an J as saying there that, if that com p arison
d iscloses a d iscrepancy, it follow s that the clause is a p enalty. It
seem s to m e that the com parison is relevant but no m ore than
a gu id e to the answ er to the qu estion w hether the clau se is
p enal: see e.g. Philips Hong Kong v. A-G of Hong Kong (1993) 61
BLR 49 per Lord Woolf at 58–9.
v) In p aragrap h 15 of his jud gm ent in the Cine case (set out by
Ard en LJ at p aragraph 39) Mance LJ qu oted a fu rther passage
from the ju d gment of Colm an J in the Lordsvale case (at p ages
763g–764a) w here he said that a particular clau se might be com -
m ercially ju stifi able, provid ed that its d om inant pu rp ose w as
not to d eter the other party from breach.
vi) As I see it, each case d epend s upon its circu m stances and , in
consid ering those circu m stances, the court shou ld have in m ind
the w arnings to w hich Ard en and Buxton LJJ have ad verted.
They includ e the im portance to the p arties both of know ing
w hat w ill be the fi nancial consequ ences to them of a breach of
contract (Robophone Facilities v. Blank [1966] 1 WLR 1428 p er
Dip lock LJ at 1447) and of avoid ing d ispu tes (Kemble v. Farren
(1829) 6 Bing 141 per Tind al CJ at 148). They also inclu de the
statem ents to the effect that a clau se w ill only be held to be a
p enalty if the sum payable on breach is extravagant or u ncon-
scionable: see eg the Philips Hong Kong case p er Lord Woolf at
p age 59 and Dunlop per Lord Du ned in at page 87.’
Com m en t
In short, to the extent that it m ay have ap peared from som e ju d gments that
the broad tests of genu ine pre-estim ates of loss d erived from Dunlop Tyre
and Philips Hong Kong had been supersed ed by narrow er comp arison tests
betw een stip u lated am ou nts and com mon law d am ages, the m ajority ru ling
by the Cou rt of Ap peal in Leisureplay m akes clear that the broad tests still
ap ply.
Cine v. Unit ed Int erna t iona l P ict ures (2003)
The Cine jud gm ent referred to in Leisureplay w as given by the Court of

Appeal in 2003. Its fu ll nam e is Cine Bes Filmcilik Ve Yapimcilik & Anr v. United
International Pictures & Ors.
One qu estion for the court was w hether there w as a triable issue on
whether certain clau ses of a license agreement betw een the p arties w ere
unenforceable as p enalty clauses. It w as argu ed by Cine that ap p lication of
the clau ses w ou ld over-comp ensate UIP for any losses suffered . It w as said
that the stip ulated am ou nts failed to take into account variou s benefi ts
which UIP could realise on term ination for breach by Cine.
In holding that there was a triable issu e Lord Ju stice Mance referring to
the ju d gm ent of Mr Justice Colm an in Lordsvale Finance Plc v. Bank of Zambia
(1996) said :
‘13. Althou gh the phrase in terrorem has appeared in m any cases since
Dunlop, there is force in Lord Rad cliffe’s com m ent in Campbell Dis-
count Co. Ltd v. Bridge [1962] AC 600, 622, that
“I do not fi nd that that d escription ad d s anything to the id ea con-
veyed by the w ord ‘penalty’ itself, and it obscu res the fact that pen-
alties m ay qu ite easily be und ertaken by p arties w ho are not in the
least terrorised by the p rospect of having to pay them . . .”
A m ore accessible p arap hrase of the concept of penalty is that ad opted
by Colm an J in Lordsvale Finance Plc v. Bank of Zambia [1996] QB 752, 762G,
w hen he said that Dunlop Pneumatic Tyre show ed that:
“w hether a p rovision is to be treated as a penalty is a m atter of con-
stru ction to be resolved by asking w hether at the tim e the contract
w as entered into the pred om inant contractu al fu nction of the p rovi-
sion w as to d eter a p arty from breaking the contract or to com p ensate
the innocent p arty for breach. That the contractual fu nction is d eter-
rent rather than com pensatory can be d ed uced by comp aring the
am ount that w ou ld be payable on breach w ith the loss that m ight be
su stained if breach occurred .”‘
Lord Ju stice Thom as, exam ining the balance of account point, said :
‘46. The u nu sual feature of the d ispu te in relation to these clauses arises
becau se in ad d ition to m aking the p aym ent of various specifi ed sum s
d u e on breach, includ ing the AB am ou nt, clau se 17 also expressly
provid ed for the term ination of all the rights to the fi lm s for w hich
paym ent had alread y been m ad e or w as d u e. UIP therefore w ere in
a position to exp loit the balance of the licence period of such fi lm s
for their ow n benefi t, even though they had been p aid in respect of
that period by Cine 5. UIP w ere not, how ever, u nd er the term s of the
clause required to bring into account against w hat w as to be p aid to

them (inclu d ing the AB am ou nt) any benefi t they received from that
exp loitation.
47. If d am ages w ere to be calcu lated in the ordinary w ay for the loss UIP
had su ffered from breach, it w as accep ted by UIP that any benefi ts
that UIP obtained through exp loiting the balance of the p eriod by
licensing the fi lm s to others w ou ld have to be brou ght into accou nt;
such benefi ts w ou ld be ones arising in the ord inary cou rse of bu si-
ness as a consequ ence of the term ination. How ever the contract
p rovid ed no m echanism for such benefi ts to be brou ght into account
u nd er clause 17.
48. The short issue w as w hether UIP had for the purp oses of su m m ary
ju d gm ent ap plication und er Part 24 show n that there w as no realis-
tic p rospect of Cine 5 establishing that clauses 16 and 17 w ere p enal,
even though the clauses failed to p rovid e a mechanism for bringing
the benefi ts of exploitation into account against su m s that w ere
p ayable, other than those alread y accrued d ue.
49. It is clear from the authorities to w hich reference has alread y been
m ad e by Mance LJ that a clau se m ay be penal if it cannot be ju stifi ed
as being a genu ine pre-estim ate of the loss w hich the innocent party
w ill incu r by reason of the breach. A d ecision on w hether it is penal
involves a carefu l exam ination of the circu m stances w hich is not
p ossible on a Part 24 application. There is, in my view, su ffi cient
evid ence to suggest that it w ould have been envisaged that on breach,
the term ination of the rights to the fi lm s for w hich paym ent had
been m ad e w ou ld confer benefi ts u pon UIP; how ever, the term s of
the clau ses m ake it clear that these w ere not to be brou ght into
accou nt against the sum s payable on term ination including the AB
am ou nt.
50. In those circu m stances I cannot reach a fi nal conclusion that the
clauses w ere not p enal; they m ight not be, bu t there are tw o issu es.
First, in m y view the question m u st be investigated at trial as to why
w hat ap pear to be benefi ts w hich w ou ld accru e to UIP w ere not to
be brou ght into account, if the clau ses w ere to operate as a genuine
p re-estim ate of the loss to be suffered by the innocent party on
breach. A genuine pre-estim ate w ou ld ord inarily im ply consid er-
ation being given to bringing into account the m aterial and signifi -
cant m atters that w ent to the ascertainm ent of the actu al loss suffered
by the innocent party. Becau se there was a failure to inclu d e w ithin
the clauses a provision for bringing into accou nt a benefi t to the
innocent p arty that w ou ld at fi rst sight have been obvious to the
p arties at the tim e the contract w as m ad e, there is, in m y view, a real
issu e as to w hether the clauses w ere intend ed as a genu ine pre-
estim ate of the loss. There m ight, of cou rse, be reasons w hy the
clauses were not penal, even thou gh the benefi ts w ere not to be
brou ght into account und er their term s, bu t no conclusion can be rea-
ched , in m y view, w ithout the investigation app ropriate to a trial.
51. Second , in m y view clau se 17 cannot be severed in the way sug-

gested by UIP so that the AB am ount rem ained p ayable, even if
the remaind er of the clau se was p enal. The clau se was concerned
w ith the su m s to be paid on term ination; apart from the p rovision
w hich confi rm ed the obligation to pay the su m s alread y accru ed
d u e, it shou ld be looked at as a w hole as to w hat is to be paid on
term ination. If the ap parent benefi t, arising from the term ination of
the fi lm rights, w hich w as to be d erived from the op portu nity to
exp loit the balance of the licence period of fi lm s for w hich Cine 5
had p aid , had to be brought into accou nt, it had to be brou ght into
account against the sum s w hich becam e payable on term ination
includ ing the AB am ount. That w as becau se the AB am ou nt w as but
one com p onent of the whole of the clau se the valid ity of w hich
d ep end ed on w hether it provid ed for a genuine p re-estim ate of
the loss.’
Com m en t
Given the com plexities of the Cine case perhaps the m ost that can be taken
from it is that there m ay be circum stances w here a balance of accou nt need s
to be consid ered in m aking a genu ine pre-estim ate of loss. But, as exp lained
in Leisureplay, it is not au thority for the p rop osition that a genuine pre-
estim ate of loss requ ires com parison betw een liqu id ated and com m on law
d am ages, nor shou ld it be taken as au thority that a balance of account is
alw ays necessary.
Su m m ary review
1915
The H ou se of Lord s, in the Dunlop Tyre case, states that the essence of a
penalty is p aym ent of m oney ‘in terrorem ’ and that the essence of liquid ated
d am ages is a genu ine p re-estim ate of d amage. It provid es variou s tests for
d istingu ishing penalties from liquid ated d am ages inclu d ing the rule that a
sum w hich is extravagant and unconscionable in com parison w ith the great-
est loss w hich cou ld be proved is a penalty. It confi rm s that it is no obstacle
to a su m being a genuine p re-estim ate of loss even if p recise p re-estim ation
is alm ost im p ossible.
1915 t o 1993
Different app roaches by the courts to the app lication of the Dunlop Tyre
ru les to grad ually em erge, w ith som e jud gm ents p utting em phasis on
pre-estim ate of loss consid erations and others em p hasising freed om of

contract and the u p hold ing of com m ercial agreem ents.
1993–
The Privy Council ru ling in the Philips Hong Kong case reasserts ap plication
of the Dunlop Tyre tests (in particular the genu ine p re-estim ate of loss test)
but states that the courts should not ad opt an ap proach to liqu id ated d am ages
w hich would defeat their purpose.
1993 t o 2002
App lication of the pu rp oseful app roach to liqu id ated d am ages ap proved
in the Philips Hong Kong case lead s to som e cou rts m oving aw ay from ‘in
terrorem ’ and genu ine pre-estim ate of loss tests tow ard s com p ensatory /
comp arison tests. The 1996 High court ju d gm ent in the Lordsvale case recasts
the ru le in the Dunlop Tyre case and in the 2002 Indian Airlines case the H igh
Cou rt ju dge says that the Philips case m arks ‘som ething of a sea change in
the ap proach of the cou rts to penalty clauses’.
2003
The Court of App eal in the Jeancharm case re-em phasises app lication of the
pre-estim ate of loss ru le and says there is nothing in the Philip s case ‘to
su ggest a d ep arture of gigantic nature from the law as laid d ow n by Lord
Duned in’ (in the Dunlop Tyre case).
2005
Lord Ju stices Bu xton and Clarke in the Court of Appeal ru ling in the
Leisureplay case both say that the m odern approach to the Dunlop Tyre ‘in
terrorem ’ test is the recasting of the test as stated in the Lordsvale case:
‘w hether a p rovision is to be treated as a p enalty is a m atter of constru c-
tion to be resolved by asking w hether at the tim e the contract w as entered
into the p red om inant contractual fu nction of the p rovision w as to d eter
a party from breaking the contract or to com p ensate the innocent p arty
for breach.’
They d iffer, how ever, w ith Lad y Justice Ard en on how Mr Justice Colm an’s
view, ‘That the contractu al function is d eterrent rather than com p ensatory
can be d edu ced by com paring the amount that w ould be p ayable on breach
w ith the loss that m ight be su stained if the breach occurred ’ shou ld operate
– preferring to see this as a gu id e to w hat constitutes a genuine pre-estimate
of loss rather than a ru le.
104 4.4 Pre-estimates of damage
4.4 P re-est ima t es of da ma ge
As noted in m any p laces above, the essence of liquid ated d am ages is that
they are a genuine p re-estim ate of loss. In com m ercial projects this u sually
presents no diffi cu lty; the concept of loss is easy to und erstand and the
calculations can be based on fi gures w hich can be read ily su bstantiated . In
non-com m ercial p rojects, for public sector w orks and the like, the logic is
not as straightforw ard and the argum ent is often heard that liqu id ated
d am ages cannot be ap p lied for late com p letion of a road contract or school
bu ild ing contract becau se the emp loyer has suffered no loss.
Su ch an argum ent is w rong in fact and w rong in law. In fact, because the
em ployer w ill u sually have suffered a loss if only in extra supervision costs
or fi nancing charges and , in law, because the d iffi culty of precise calcu lation
has long been recognised by the courts and provid ed that a genuine attem p t
is m ad e at p re-estim ating loss, such loss w ill be accep ted as liquid ated
d am ages. Since loss need not be proved it then m atters not w hat actual loss,
if any, has been su ffered .
N on -com m ercial loss
The p roblem of non-com m ercial loss cam e to be consid ered by Lord

Halsbu ry in the case of Clydebank Engineering & Shipbuilding Co. Ltd v. Yzqui-
erdo y Castaneda (1905) w here a contract for the bu ild ing of fou r w arships
provid ed that ‘the p enalty for later d elivery shall be at the rate of £500 per
week for each vessel’. The ships w ere d elivered late but it w as held that the
sum of £500 per w eek w as liqu idated d am ages and not a penalty. The con-
tractors argu ed that the £500 per w eek cou ld not be a genuine p re-estim ate
of loss since there w as no loss as ‘a w arship d oes not earn money’, bu t Lord
Halsbu ry, in refuting the argum ent and hold ing the su m stated to be liqui-
d ated d am ages said :
‘It is a strange and som ew hat bold assertion to say that, in the case of a
com m ercial ship , the d am ages cou ld easily be ascertained , but that the
sam e principle cou ld not be applied to a w arship as it earned nothing.
The d eprivation of a nation of its w arship m ight m ean very serious
d am age, althou gh it might not be very easy to ascertain the am ou nt. Bu t
is that a reason for saying they w ere to have no d am ages at all? It seem s
to m e hopeless to ad vance such a contention. It is only necessary to state
the assertion to show how absu rd it is.
I shou ld have thought that the fact that a w arship is a w arship , her very
existence as a w arship capable of use for su ch and su ch a tim e w ould
prove the fact of d am age if the p arty w as d ep rived of it, although the
actu al am ou nt to be earned by it, and in that sense to be obtained by the
paym ent of the p rice for it, m ight not be very easily ascertained . . .’
In the case of Multiplex Constructions Pty Ltd v. Abgarus Pty Ltd (1992) the
jud ge had this to say on non-com m ercial losses:
4.4 Pre-estimates of damage 105
‘Third ly, if the arguments add ressed by the build er are correct in relation
to w orks of a pu blic nature, such as dam s or m ajor road w orks, where
traditionally such pu blic w orks do not yield a cash fl ow, or any cost of
capital incu rred in the works, is, for instance in the case of a d am related
to a w ater sup ply, to be recouped over a defi ned period of time at a defi ned
interest rate, d elay in com pletion of construction would sim ply d efer com-
mencem ent of that recoupment period such that it could be said , on one
view, that d elay caused the proprietor no loss. Conceptually I d o not think
it is correct to say that public w orks, becau se they m ay not yield a cash
fl ow, cannot result in d am ages to the state or public authority if d elay in
construction occu rs. Whilst the exam ple m ay be perip heral to the one being
here consid ered , it d em onstrates that, at least in som e instances, an app ro-
priate m easu re of liqu id ated dam ages is the cost of capital tied u p for the
period of d elay. I regard it as an inad equate answer, in the case of a public
work, to say that if the w ork were d elayed say six months, no dam age is
su ffered , and no liqu id ated damages could be valid ly agreed , becau se there
was no d elay in receipt of cash fl ow, and there was mere d eferment of a
planned recoupment of capital and interest costs over time.’
Com m ercial losses
For com m ercial p rojects, the obvious head s of loss arising from late com ple-
tion of a build ing project are:
(i) loss of rent or d elayed profi t on sale;
(ii) ad d itional fi nancing charges;
(iii) ad d itional su pervision, ad m inistration costs.
Other costs w hich can easily arise are:
(i) rent of alternative prem ises;
(ii) ad d itional p rofessional fees;
(iii) extra p aym ents und er variation of p rice clau ses.
All of the above w ou ld ap pear to fall w ithout d iffi culty into the fi rst ru le of
Hadley v. Baxendale (1854) on rem oteness of d am age as arising naturally from
the breach. They are therefore com m only includ ed in p re-estim ates of
d am age.
A third category of costs covers item s w hich could be argu ed to fall w ithin
the second ru le of Hadley v. Baxendale as special d am ages w hich to be recov-
erable need to be w ithin the contem plation of the parties at the tim e they
m ad e the contract. Su ch item s could includ e:
(i) ad d itional costs of follow -on w orks;
(ii) loss of trad ing profi t;
(iii) bu siness d isru ption costs.
How ever, som e cau tion on how a p re-estim ate of dam age is m ade for a
comm ercial p roject need s to be exercised having regard to the follow ing
observations mad e by the jud ge in the Multiplex v. Abgarus case:
‘In a large m od ern com m ercial d evelop m ent, as a resu lt of the u ncertain-
ties relating to the tim ing of any sale or lease, the qu antum of any sale
price or rental, the extent to w hich a large m od ern developm ent com pris-
ing m ultiple tenancies for varying uses can be let, and the uncertainty
regard ing fi nal term s and cond itions of all or any su ch leases – all jud ged
or consid ered at the d ate of the construction contract som e years earlier
– it cannot be said , in m y view, that at the d ate of contract m ere know l-
ed ge of the intend ed u se of such a bu ild ing results in it being able to be
said that the d elayed perform ance by a contractor in achieving practical
com p letion results in d elayed receip t of rentals or sale price (neither in
concep t nor in sp ecifi c quantum ) being d am ages fl ow ing from su ch a
breach of contract as being “su ch as m ay fairly and reasonably be consid-
ered either arising natu rally, i.e., accord ing to the u sual cou rse of things,
from su ch breach of contract itself, or such as m ay be reasonably be sup -
posed to have been in the contem plation of both parties, at the tim e they
m ad e the contract, as the probable resu lt of the breach”: Hadley v. Baxen-
dale (at 354; 151).
N or d o I think that, w ithout m ore, know led ge of the proposed use of
such d evelop m ent satisfi es the second rule in Hadley v. Baxendale. It w ill
be a qu estion for d eterm ination in each case w hether special circu m -
stances relating to p rosp ective loss w ere suffi ciently d raw n to attention
to satisfy that rule.’
In the Multiplex v. Abgarus case the judge m ad e clear his p reference for
the hold ing costs of accu m ulated expenditure as the p re-estim ate of loss.
He said :
‘The p arties to the construction contract d o, how ever, know at the d ate
of contract that d elay in achieving p ractical com pletion w ill necessarily
result in ad d itional hold ing costs. Such d amages in m y view fall w ithin
the fi rst ru le in Hadley v. Baxendale.’
For fu rther com m ent on su ch costs see the section below on hold ing
costs.
Ap p lication of ru les of Ha dley v. Ba xenda le
Sim ply stated , the rules of Hadley v. Baxendale are com m only exp ressed as:
‘Su ch losses as m ay fairly and reasonably be consid ered as either arising:
(1st rule) “naturally”, i.e. accord ing to the u su al cou rse of things, or (2nd
ru le) “such as m ay reasonably be su p posed to be in the contem p lation of
both p arties at the tim e they m ad e the contract, as the probable resu lt of
breach of it”.’
These ru les provid e the basis of the assessm ent of d am ages at com m on
law.
There is legal au thority for the prop osition that the rules have som e appli-
cation to calcu lations of p re-estim ates of loss for the pu rposes of liqu id ated
d am ages clauses. Thus, Lord Justice Diplock in the case of Robophone

Facilities Ltd v. Blank (1996) said :
‘Thu s it m ay seem at fi rst sight that the stip ulated su m is extravagantly
greater than any loss w hich is liable to result from the breach in the ord i-
nary cou rse of things, i.e., the d am ages recoverable u nd er the so-called
“fi rst ru le” in Hadley v. Baxendale (1854) 9 Exch 341. This w ould give rise
to the prim a facie inference that the stipu lated su m w as a p enalty. But the
plaintiff m ay be able to show that owing to special circu m stances outsid e
“the ord inary cou rse of things” a breach in those sp ecial circu m stances
w ou ld be liable to cau se him a greater loss of w hich the stipulated sum
d oes represent a genuine estim ate.’
Sim ilarly the jud ge in the Multiplex v. Abgarus case w as exp licit in bringing
the rules of Hadley v. Baxendale into calculations for liquidated d am ages.
He said :
‘It is im portant, in m y view, to recognise the stages in a d evelop m ent
project and the place w hich the construction contract occu pies in that
project. That is becau se agreem ent betw een the p roprietor and the bu ilder
in the bu ild ing contract regard ing liqu id ated d am ages p ayable for tard y
perform ance need not encom pass all d am ages w hich in tru th the prop ri-
etor m ay, althou gh not necessarily w ill, suffer from such late p erfor-
m ance. An agreem ent for d am ages lim ited to a segm ent of p ossible total
d am age m ay itself ind icate an acceptance by the p arties that other aspects
of loss m ight occu r bu t w ere treated by the parties, im p licitly or exp licitly,
as not being losses w hich w ould arise in “the ord inary cou rse of things”
as contem p lated by the fi rst rule in Hadley v. Baxendale (1854) 9 Ex 341;
156 ER 145, and m ay, by d esign or d efault, not have been brought to suf-
fi cient attention of the bu ild er by the proprietor so as to satisfy the second
ru le in Hadley v. Baxendale.’
Rem oten ess of d am age
The qu estion therefore is not so m uch, d o liqu id ated dam ages au tom atically
satisfy the test of ‘w ithin the contem p lation of the p arties at the tim e they
m ad e the contract’ by virtu e of their very stipu lation? – that point seem s
d iffi cu lt to opp ose – but rather, is it p erm issible to inclu d e w ithin the stip u-
lated sum s item s w hich w ould not satisfy the tests of rem oteness in Hadley
v. Baxendale if challenged as general d am ages? In other w ord s, are liquid ated
d am ages to be a genuine p re-estim ate of forecast loss or a genuine pre-
estim ate of legally recoverable loss w ithin the rules of rem oteness? The
correct answ er it is thou ght lies in the second view, but the u ncertainty can
be avoid ed by revealing pre-contract the com position of the su m s w hich
m ake u p the liqu id ated d am ages if there are item s of d oubtful recovery.
This m ay create p roblem s in som e instances. There are situations w here
for reasons of com m ercial confi dentiality an em p loyer m ay not w ish to
d isclose the breakd ow n of the losses he will suffer from late com pletion.
How ever, if the em ployer cou ld legitim ately inclu d e confi d ential losses in
liquid ated d amages, that w ou ld result in the em ployer being able to recover
a higher level of d am ages by liqu id ating them than w ould be achievable if
they rem ained u nliquid ated . It m ight w ell be asked – w hat is w rong w ith
that if the p re-estim ate of loss is genuine and the parties have agreed the
am ou nt of liqu id ated d am ages? The answ er, if the app roach in the Multiplex
v. Abgarus case is to be taken as correct, is that the rules of Hadley v. Baxendale
should ap p ly to both liqu id ated and u nliqu id ated d am ages. H ow ever, the
answ er rem ains trou blesom e as can be seen from the follow ing extracts from
the 1975 Law Com m ission Working Pap er.
‘(ii) The “loss” w hich is to be estim ated

42. Penalty clau ses are particularly valu able in cases in w hich it is likely
to be d iffi cu lt for the plaintiff’s loss to be ad d ressed . How ever, in
cases in w hich a fairly accurate assessm ent of loss w ou ld be practi-
cable, are the parties to the contract restricted to m aking a genuine
pre-estim ate of the d am ages w hich the cou rt w ould aw ard in an
action if there w ere no penalty clause or can they agree that the loss
w hich w ill be suffered on a breach of contract shou ld be calculated
on som e other basis? Cou ld they, to ad op t the w ord s of Asquith LJ
in Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd., p rovid e a
“com p lete ind em nity of all loss d e facto resu lting from a particu lar
breach, how ever im probable, how ever u npred ictable”? In cases
of breach of contract the aggrieved party w ho su es for d am ages is
“only entitled to recover such part of the loss actu ally resu lting as
w as at the tim e of the contract reasonably foreseeable as liable to
resu lt from the breach”. Can the p arties stipulate for and thu s, in
effect, m ake foreseeable, d am ages on a scale m ore extensive than the
cou rt cou ld otherw ise aw ard ? There w ou ld seem to be no reason w hy
the p arties in Hadley v. Baxendale could not have contracted for liqu i-
d ated d amages assessed on the footing that the m ill w ou ld continu e
to be at a stand still, or those in the Victoria Laundry case for the loss
of p rofi t on the lucrative government contract. Su ch a clau se w ou ld ,
perhap s, have been d oing no m ore than exp ressly invoking the so-
called second ru le in Hadley v. Baxendale. It m ay be, how ever, that the
parties should be able to go even further and provid e not m erely for
loss w hich is foreseeable in the light of their know led ge at the tim e
of entering into the contract bu t also for loss d irectly resulting from
the breach even if a court w ou ld , in a case in w hich there w as no
exp ress provision for liqu id ated dam ages, regard such loss as u nfore-
seeable or as irrecoverable for som e other reason, for exam p le,
becau se of failu re to m itigate the loss su ffered or by reason of the
incid ence of taxation.
43. Dip lock LJ d iscussed this aspect of penalty clau ses in Robophone
Facilities Ltd v. Blank:
“The onu s of show ing that [a stipulation for p aym ent of a sum in the
event of breach of contract] is a ‘penalty clau se’ lies u p on the party
w ho is sued u pon it. The terms of the clau se m ay them selves be su f-

fi cient to give rise to the inference that it is not a genu ine estim ate of
d am age likely to be su ffered bu t is a penalty. Term s w hich give rise
to su ch an inference are d iscu ssed in Lord Duned in’s speech in
Dunlop Pneumatic Tyre Co. v. New Garage and Motor Co. Ltd. bu t it is
an inference only and m ay be rebutted . Thus it m ay seem at fi rst
sight that the stip u lated sum is extravagantly greater than any loss
w hich is liable to result from the breach in the ordinary cou rse of
things, i.e., the d am ages recoverable u nd er the so-called ‘fi rst ru le’
in Hadley v. Baxendale. This w ould give rise to the prim a facie infer-
ence that the stip u lated sum w as a p enalty. But the p laintiff m ay be
able to show that ow ing to special circu m stances outsid e ‘the ord i-
nary cou rse of things’ a breach in those special circu m stances w ould
be liable to cau se him a greater loss of w hich the stipu lated sum d oes
rep resent a genuine estim ate. In the absence of any sp ecial clau se in
the contract, this enhanced loss d u e to the existence of su ch sp ecial
circum stances w ou ld not be recoverable at com m on law from the
d efend ant as d am ages for the breach u nd er the so-called ‘second
rule’ in Hadley v. Baxendale unless know led ge of the sp ecial circum -
stances had been brought hom e to the d efend ant at the tim e of the
contract in su ch a w ay as to give rise to the inference that the d efen-
d ant im p lied ly und ertook to bear any special loss referrable to a
breach in those sp ecial circum stances: see Asqu ith LJ’s exp lanation
of British Columbia Sawmills Co. v. Nettleship contained in Victoria
Laundry (Windsor) Ltd v. Newman Industries Ltd.
The basis of the d efend ant’s liability for the enhanced loss u nder
the ‘second rule’ in Hadley v. Baxendale is his im plied u nd ertaking to
the plaintiff to bear it . . . But such an und ertaking need not be left to
im plication; it can be express . . . And so if at the tim e of the contract
the p laintiff inform s the d efend ant that his loss in the event of a
particular breach is likely to be £x by d escribing this sum as liqu i-
d ated d am ages in the term s of his offer to contract, and the d efend ant
exp ressly und ertakes to pay £x to the plaintiff in the event of su ch
breach, the clau se w hich contains the stipulation is not a ‘penalty
clause’ u nless £x is not a genu ine and reasonable estim ate by the
plaintiff of the loss w hich he w ill in fact be likely to su stain. Such a
clause is in m y view enforceable whether or not the d efend ant know s
w hat are the special circu m stances w hich m ake the loss likely to be
£x rather than som e lesser su m w hich it w ould be likely to be in the
ord inary cou rse of things;”
44. The extent to w hich the parties to a contract should be free to go
beyond invoking the “special circu mstances” rule, and app ly to the
m easurem ent of the loss caused by breach a yard stick w hich the cou rt
w ould not u se, is a question on w hich we should value view s. Ou r
p rovisional view is that the p roper yard stick by reference to w hich it
shou ld be d eterm ined w hether the stip u lated su m is a genuine pre-
estim ate is the d am ages w hich a court w ould aw ard . If a p arty w ishes
to ensu re that he can recover com pensation for a loss in excess of

recoverable d am age he should d o so by an express p rovision, not by
a p enalty clause; so, too, if he w ishes to intim ate the existence of
“special circum stances” to the other p arty he shou ld not sim ply rely
on a provision for a high stipu lated su m.’
Su m m ary
Overall the p osition seem s to be that pre-estimates of loss for am ounts

inclu d ed in contracts as liqu id ated d am ages can be m ad e having regard to
matters arising natu rally and to special circum stances bu t, in the case of the
latter, express p rovision shou ld be m ad e u nless it can be assum ed that the
special circu m stances are w ithin the contem plation of both parties.
Pu b lic sector losses
For pu blic sector projects there have trad itionally been three m ain head ings
in pre-estim ate of loss calcu lations:
(i) notional interest on capital em ployed ;
(ii) ad ditional sup ervision/ adm inistration costs;
(iii) ad ditional accom mod ation costs.
One app roach, u sed by som e central governm ent d ep artm ents and based
on gu id elines issu ed by the Treasu ry Solicitor in the 1960s, is to take the
pretend er estim ate of contract cost, d ivide by 365, and ap p ly 15% of this as
the daily rate for liquid ated d am ages. This equates to £2876 per w eek on a
£1 m illion contract. The fi gu re of 15% com p rises 12.5% notional interest on
the cap ital em ployed plu s 2.5% sup ervision.
Another form u la, recom m end ed for u se in local governm ent su ggests
three m ain head ings:
(i) interest on cap ital exp end ed ;
(ii) ad m inistrative costs;
(iii) ad ditional accom mod ation costs.
In this form ula, as w ith others in the p u blic sector, it is reasonably assum ed
that 80% of the cap ital cost of the project w ill have been incu rred at the
point of d elay, and then assum ing an interest rate of 12%, the cap italised
interest is:
80% × 12%
= 0.185% of the cap ital cost w eek
52
If ad m inistration costs are taken as 2.75% of the capital cost p er year, this
ad d s a fu rther 0.052% p er w eek, m aking a total for item s (i) and (ii) in the
form ula of 0.237% per w eek, or £2370 p er £million/ week.
The tw o fi gu res above, £2876 and £2370 p er m illion/ w eek, m ay w ell
underestim ate true loss but to this extent they are on the safe sid e and there
is no know n case w here they have been su ccessfully challenged . Ind eed ,
som e au thorities rou nd up the fi gures to £3000/ w eek p er £m illion and can
probably d o so w ith safety.
Whether or not form u lae are u sed , some record shou ld alw ays be kept of
the calculations u sed to p rod uce the liqu id ated d am ages sum s and m any
authorities and private p ractices d o so on specially d esigned tabu lation
form s.
In the case of J F Finnegan Ltd v. Community Housing Association Ltd (1993)
it w as a cond ition of the hou sing grant fi nancing the d evelopm ent by
Com m u nity H ousing that the u ltim ate fi gure for liquid ated d am ages in the
build ing contract inclu d ed a sum relating to the cap ital cost. The formu la
used prod u ced the liqu id ated d am ages p er w eek by taking:
80% × estim ated total schem e cost × H ou sing Corp oration Lend ing Rate
52
In seeking a d eclaration that the liquid ated d am ages clause w as void the
contractor argued , am ongst other things, that:
(1) the form ula w as d efective in that it, inter alia, fi xed an arbitrary fi gu re
of 85%, m aking no allow ance for any interim p aym ents of H AG, nor for
any d elay that w as likely to be incurred in obtaining and installing
ap p rop riate tenants, nor for any rent arrears that w ere likely to be
incu rred or any tax p aid thereon;
(2) the form u la w as ultra vires the term s of section 29 of the H ou sing Act
1974 and ou ght not to have been im p osed u pon the contractor nor used
by the housing association.
The ju d ge rejected these argum ents and held that the u se of the form ula w as
justifi ed and it w as not u ltra vires. He said :
‘(a) I conclud e on the evid ence I have heard that the fi gu re of £2,500 per
w eek w as a genu ine attem pt by the p arties and / or the d efend ants to
estim ate in ad vance the loss which the d efend ants w ere likely to
su ffer shou ld the plaintiffs, in breach of contract, fail to com plete the
contract w orks;
(b) I reject the plaintiffs’ assertion that the fi gu re of £2,500 p er w eek w as
extravagant and u nconscionable;
(c) I fi nd that the form u la used w as ju stifi ed at the tim e the parties
entered into the contract;
(d ) since I have conclu ded that the fi gure of £2,500 per w eek w as not a
p enalty, and / or the u se of the form u la w as justifi ed at the tim e the
p arties entered into the contract, I fi nd that the form ula w as not u ltra
vires section 29 of the H ou sing Act 1974;
(e) I am satisfi ed that the plaintiffs’ assertion that the d efend ants’
loss w as at £750.00 per week is (a) incorrect and (b) based up on an
investigation of d etail w hich in any event is one w hich the cou rt
shou ld not consid er. I am by no m eans satisfi ed that the d efendants’
loss w hich m ay be p roved in the fu ture is in fact less than £2,500;
it could even be m ore. This is, how ever, for a futu re tribu nal to
consid er.’
His conclu d ing com m ents w ere as follow s:
‘Finally, I shou ld say that I have consid ered the general question of how
can it be said that the d efend ants have m ad e a genuine estim ate of their
d am ages w hen they are requ ired by a third p arty to pu t into their calcu-
lation a form u la over w hich the defendants had no control? The reality
is that the d efend ants rely up on third parties for their sources of fund ing.
It is not in m y jud gm ent unreasonable for a third party to protect their
position by requ iring the d efend ants to inclu d e in their contracts w ith
others a clau se of the natu re w hich has been the su bject of this action. The
plaintiffs’ position is safeguard ed if the cou rt then p roceed s to examine
the “imp osed clau se” as betw een the p laintiffs and the d efend ants and to
consid er the question of penalty accord ingly.’
Em p loyer ’s losses on ly
Where form u lae are u sed som e thought should be given to w hether any
broad assum ptions m ad e are app licable. There m ay be a problem w here p art
of the cap ital cost of a p ublic sector p roject is p rovided by w ay of interest
free fu nd s. In su ch a case it w ou ld not be appropriate for the em ployer to
estim ate his loss on the fu ll capital cost. The loss stipu lated as liquid ated
d am ages m u st be the em ployer ’s loss and not that of som eone else. It is
certainly not correct to inclu d e in liqu id ated d am ages for a road works
project, estim ated costs of d elay to road users at large since w hatever costs
such road users m ight ind ivid ually incu r, or the econom y in general m ight
suffer, the costs d o not fall d irectly on the em ployer and they cannot be
brought w ithin the ru les on rem oteness of d am age.
The converse of this is that changes to fu nd ing of pu blic sector p rojects
or like p rojects m ay involve the em ployer in m ore d am ages than had previ-
ously been the case. Thu s, at one tim e the Housing Corporation recom -
mend ed to housing associations that 30% of the total capital cost of projects
was u sed in liquid ated d amages calculations as the rem aining 70% w as
interest free. This w as changed to 55% as grants altered , and then, as hou sing
associations m oved tow ard s private sector fi nancing, it w as left to individ -
ual housing associations to assess their ow n p osition on each p roject.
Losses p aid b y oth ers
The fact that som e p u blic sector projects are funded by grants, or the
em ployer m ay only be acting as agent for som e other bod y d oes not interfere
in the process. The situ ation is analogou s to insurance.
In Design 5 v. Keniston Housing Association Ltd (1986) the court w as asked
to decid e in relation to a claim for general dam ages whether paym ent of a
Housing Association Grant for the fu ll cost of a schem e prevented the

hou sing association from suing its architect over increased exp end iture. The
court held that it d id not.
Sim ilarly in Jones v. Stroud District Council (1986), the court held that it w as
not concerned w hether the cost of repair to a house had been m et by the
plaintiff or by som e other person.
Note also the d ecision in the Finnegan case m entioned above w here the
jud ge rejected the argum ent that liqu id ated d am ages shou ld not apply
becau se the hou sing association w as fu nd ed by a grant. He said :
‘In any event I d o not see how the fi nancial arrangem ents entered into by
the d efend ants w ith a third party can affect the p osition betw een the
plaintiffs and the d efend ants given the fact that interest w as being charged
on the m onies ad vanced .’
Average in terest rates
Calcu lations for liquid ated sum s w hich rely on interest rates w ill not be
invalid ated by u se of average rates. It is p robably m ore app rop riate to use
average rates than cu rrently prevailing rates w hich m ight be unusually high
or low. Thu s in the period 1981–1991 rates varied from 16% to 7%, bu t aver-
aged 11.61% over the full ten years and 12.01% over the last fi ve years.
In the Multiplex v. Abgarus case the liquid ated d am ages clau se provided
for interest to be p aid ‘at a rate per annu m equ al to the maxim u m rate of
interest then charged by Trad ing Banks on overd raft accou nts over $100,000’.
The contractor challenged this on the basis that it did not pu rp ort to refl ect
any actual rate charged to the em ployer and it w as a ‘worst case scenario’
w hich cou ld not be said to be a genuine p re-estim ate of dam age.
The ju d ge, how ever, u pheld the use of the m axim u m interest rate w ith
this reasoning:
‘It is, I think, com m on know ledge that m ost trading banks charge interest
to m ajor cu stom ers on accounts in excess of $100,000 on a base rate plus
a p ercentage. The base rates norm ally d o not d iffer signifi cantly. The
ad d ed percentage d ep ends u pon the bank’s view of the cu stom er, and
perhap s other factors. In m y view specifying a m axim u m rate charged to
such a signifi cant borrow er by a trad ing bank d oes not prescribe a rate
or loss that is “ou t of all proportion” to the d am age “likely” to be suffered
as a result of breach w here su ch rate is for the p urp ose of determ ining
hold ing charges.’
H oldin g costs of accu m u lated exp en ditu re
In the great m ajority of construction contracts liquid ated d am ages are

sp ecifi ed as an am ou nt per d ay or per w eek d erived from calcu lations
m ad e by the em ployer or otherw ise agreed betw een the parties. H ow ever,
in princip le there is no reason w hy a form ula should not be specifi ed w ith

the fi gu res of the am ou nt payable left to be precisely d eterm ined at the tim e
of the contractor ’s d efau lt.
Su ch a form u la ap plied in the Multiplex v. Abgarus case. It w as set out as
follow s:
‘16. 10.14-Liquid ated and Ascertained Dam ages.
If the Build er shall fail to bring the Works to Practical Com pletion by the
Date for Practical Com pletion then:
10.14.01 The Architect m ay give notice in w riting to the Bu ild er and to
the Proprietor not later than 20 d ays after the d ate on w hich the
Works actually reached or are d eem ed to have reached Practical
Com p letion that in his opinion the Works ou ght reasonably to
have been brou ght to Practical Com pletion at som e earlier d ate
to be stated in that notice, not being earlier than the Date for
Practical Com pletion.
10.14.02 If su ch notice is given then the Builder shall pay or allow to the
Prop rietor as liquid ated and ascertained dam ages:
A Interest at a rate per annu m equ al to the m axim um rate of
interest then charged by Trad ing Banks on overdraft accounts
over $100,000 calculated on d aily balances of the total of the
item s listed hereund er for the period com m encing on the
d ate so sp ecifi ed by the Architect d u ring which the Works
shall rem ain or have rem ained not brou ght to Practical
Com p letion:
(i) $30 million being the valu e of the Site at the d ate of this
agreem ent.
(ii) Paym ents m ad e by the Proprietor u nd er any contract
relating to the execution of the Works.
(iii) Prelim inary expenses incu rred by the Proprietor.
(iv) Rates and taxes and other statutory charges assessed
against or incurred by the Proprietor in connection w ith
the Site or the Works.
(v) Reasonable costs and exp enses incurred by the Propri-
etor in enforcing or attemp ting to enforce any contract
relating to the execution of the Works.
(vi) Reasonable costs and exp enses incurred by the Propri-
etor in insuring the Works.
(vii) Fees paid to architects, surveyors, engineers, consu l-
tants, project m anagers, and other experts engaged in
the execution of the Works.
(viii) Salaries paid to the bu ild ing clerks of w orks and
m echanical clerks of w orks.
(ix) All other costs and expenses incurred by the Prop rietor
w hich were reasonably necessary to the execu tion of
the Works.
(x) Interest at a rate p er annu m equal to the m axim u m rate
of interest then charged by m ajor Trad ing Banks on
overd raft accounts over $100,000 calculated on d aily

balances on the am ou nts referred in item s (i) to (ix)
above inclu sive from the respective dates u p on w hich
any such am ou nts w ere expend ed by the Proprietor.
Su ch interest shall be capitalised on 31 Decem ber in
each year prior to the Date for Practical Com p letion of
the Works.
B All rates statu tory charges and other reasonable ou tgoings in
resp ect of the Works and the Site assessed against or incu rred
by the Proprietor in respect of the p eriod com m encing at the
d ate so stated by the Architect and fi nishing w hen the Works
reach Practical Com pletion.’
The jud ge in Multiplex v. Abgarus review ed the au thorities at length before
conclu d ing:
‘I am satisfi ed that a clau se w hich sp ecifi es as liqu id ated d am ages in
respect of a m ajor city build ing the accum u lated costs of the prop rietor to
d ate of contractu al p ractical com pletion and d etermines the holding
charges of those costs for any p eriod of d elay occasioned by the bu ild er
constitu tes a valid , enforceable liquidated d amages clau se. If it neglects
to encom p ass ad d itional d am ages w hich the p rop rietor m ay su ffer, that
d oes not d erogate from its integrity as a valid liquidated d am ages
clause.’
Benefi ts to th e em p loyer
One of the challenges m ad e by the contractor in the Multiplex v. Abgarus case

to the liquid ated d am ages clause w as that as the formu la gave no cred it for
any benefi t w hich the em ployer m ight d erive from being able to comm ence
fi tting-ou t d uring the period of d elay to p ractical comp letion the liqu id ated
d am ages clau se failed as a genuine p re-estim ate of d am age and w as thu s a
penalty.
The ju d ge rejected the contractor ’s contention as follow s:
‘In m y view there are tw o m atters w hich suffi ciently d isp ose of this con-
tention. First, any su ch “benefi t” if it be capable of any form of fi nancial
assessm ent at the d ate of contract, which I d ou bt becau se of the m ultitud e
of varying circu m stances which m ight arise in relation to leasing to w hich
I have referred earlier, falls w ithin that area of d iscretion w hich the law
allow s to the parties in agreeing u p on a quantu m of d am age. The very
circu m stance that the liquid ated d am ages are a “pre-estim ate” involves
that it w ill not be p recise. The parties m ay elect not to refer to m atters
w hich they regard of little im portance. In m y view this circu mstance falls
w ithin that tolerance referred to in the p assages in Esanda Finance Corpo-
ration Ltd v. Plessnig (at 141–142) and in AMEV-UDC (at 190).
Second ly, the contract contem plated staged performance. Stage 1 w as
to be progressed to a level of com pletion exclu d ing certain w orks to the
ceilings, air cond itioning and chilled w ater sup plies so as to enable the
prop rietor to engage either the bu ild er or others as fi t-out subcontractors

to com m ence fi t-out tw enty-four w eeks p rior to the date of practical
com p letion (cl 15.05). By cl 15.07 the build er agreed to the p roprietor
having access “to each fl oor of the works as it becom es suffi ciently com -
plete to allow tenancy fi t ou t to proceed”. This w as w ithout preju d ice to
the rem aining clauses of the agreem ent d ealing with com pletion of stage
1 and d ate for practical com pletion. Tenancy fi t-ou t w as d ealt w ith by
cl 7.02A.
Clau se 9.10 d ealt w ith occu pation before p ractical com pletion. By cl
9.10.01, if the bu ild er failed to achieve practical com p letion by the con-
tractu al d ate, the prop rietor cou ld give a notice of intention to occu py
portions of the bu ild ing. By cl 9.10.02, any occup ation by the proprietor
und er su ch a notice, or u nd er the fi t-out provisions referred to in ell 7.02,
7.02A, 15.05 or cl 15.07 d id not result in p ractical comp letion being
achieved . Occu p ation or u se otherw ise resulted in the w orks being
d eem ed to be p ractically com p leted (cl 9.10.03).
Any occu pation of the p rem ises prior to achieving practical com pletion
for the pu rpose of fi t-out w as thus a contem plated contractual right and
w as not a ‘benefi t’ conferred u pon the proprietor by d elayed practical
com p letion su ch as to cast doubt u pon the integrity of the liquidated
d am ages clau se.’
M itigation
The qu estion of w hether a party’s d u ty to m itigate its losses should be con-

sid ered in the d rafting of liquid ated d am ages p rovisions or in the calcu lation
of stipu lated sum s, w as consid ered in the Leisureplay case m entioned in
Section 4.3 above.
In that case the ju d ge at fi rst instance held that the liquid ated d am ages
provision in an em ploym ent agreem ent w as a penalty clause becau se it took
no accou nt of the em p loyee’s duty to m itigate his losses. The Court of
Appeal reached a d ifferent conclusion. Lord Bu xton said :
‘115. N either the literal w ording of that test nor the spirit of it ap p lies
here. Mr Mu rray’s term s w ere generou s, but they w ere not u ncon-
scionable. As to the absence of any requirem ent of m itigation in
clause 17.1, to w hich as w e have seen the jud ge attached d eterm ina-
tive im portance, tw o com m ents have to be m ad e. First, it m u st have
been d iffi cu lt to say w ith confi d ence at the tim e of entering into the
contract w hat m ight happ en to Mr Mu rray w ere he to be d ism issed :
p rovisions p rotecting an em ployee in the case of wrongfu l termina-
tion m ay take the form that they d o becau se such an event can
d amage his fu tu re em ployability, at least in the short term. Second ,
in ord er to m eet this criticism a p re-estim ate of d am ages clause
w ould have to be d rafted to encom pass not only the fact of m itiga-
tion in term s of incom e from other sou rces bu t also the d u ty to seek
4.5 Particular aspects of penalty clauses 117
su ch m itigation Such a clause w ou ld d irectly invite disp u tes about

the reasonableness of Mr Mu rray’s behaviour after term ination, of
the kind that clau ses stipulating the amount of com pensation are
p recisely d esigned to avoid. As Tind al CJ put it in Kemble v. Farren
(1829) 6 Bing 141 at p 148, a d ictu m ap proved in the Dunlop case,
even w here d am ages accruing from a breach can be accurately
ascertained , a liquid ated d am ages clau se “saves the expense and
d iffi cu lty of bringing w itnesses to that p oint”. And a clause that
m ad e reference to the d uty to m itigate wou ld also inevitably post-
p one p aym ent u nd er the clause w ell beyond the term ination d ate:
again, som ething that the inclusion of such a clau se in the contract
m u st have been intend ed to avoid . This last consid eration strongly
reinforces the general im pression created by this case, that the tra-
d itional learning as to penalty clauses is very u nlikely to fi t into the
d ynam ics of an emp loym ent contract, at least w hen the p enalty is
said to be im posed on the em ployer.’
It is d ou btful that Lord Buxton’s com m ents can be taken as ind icating a
general ru le that m itigation is never a factor to be taken into account bu t
they certainly ind icate that there is no general ru le that it should be taken
into accou nt.
4.5 P a rt icula r a spect s of pena lt y cla uses
This section covers cases w hich d eal w ith unusu al asp ects of penalty clau ses
or w hich are otherw ise of interest for historic or p articu lar reasons.
Pen alties oth er th an for stated su m s
Most penalty clau ses, w hether they be exp ressly d escribed as such or
d escribed as liquid ated d am ages, concern sum s stated in money term s as
am ou nts du e on breach. H ow ever, from tim e to tim e cases reach the cou rts
w here relief is sou ght from contractual p rovisions on ground s that they are
penalties albeit that the p rovisions to be exam ined contain no stipu lated
su m s.
Thu s in Jobson v. Johnson (1988) a provision relating to transfer of p roperty
w as held to be unenforceable as a penalty. More recently in City Inn Limited
v. Shepherd Construction Limited (2001, 2003 and 2007), the cou rts of Scotland
had to consid er w hether a contractual p rovision requiring notice to be given
as a cond ition preced ent to rights of claim for loss and expense and exten-
sions of tim e w as itself a penalty clause by virtue of its consequences.
The City Inn case, of w hich m ore is said later in this book on other m atters,
concerned d isp utes relating to variations, extensions of tim e and liquid ated
d am ages. It started in the Outer H ouse, Cou rt of Session, in 2001 follow ing
an ad ju d ication, p roceed ed to the Inner H ouse for d ebate on certain legal
118 4.5 Particular aspects of penalty clauses
matters in 2003, and retu rned to the Ou ter House for proof in 2007. One of
the defences raised by the contractor to a claim for liquid ated d am ages for
late com pletion w as that there w as no relationship betw een failure to com ply
with notice provisions and the am ou nt which becam e du e if the provisions
were breached . Both H ou ses d ecid ed against the contractor on the penalty
point, the reasoning of the Inner H ou se being that the notice provisions gave
the contractor an op tion and it w as a m atter for the contractor w hether or
not it exercised that op tion. The court said :
‘(b) Whether clause 13.8.5 im poses a penalty
27. On the view that w e have taken on the p reced ing question, this ques-
tion d oes not arise. We shou ld say, how ever, that if w e w ere to treat
the d efenders’ failu re to op erate clau se 13.8 as a breach of contract,
w e cannot see how that w ould result in the payment of a p enalty in
the legal sense of that expression (e.g. Dunlop Pneumatic Tyre Co. Ltd
v. New Garage and Motor Co. Ltd, supra, Lord Dunedin at p 87). The
su m com plained of is not payable at that stage, and m ay never be
payable. What is, on this assum ption, a breach of contract m erely
gives rise to the possibility, the likelihood of w hich w ill d ep end on
the circu m stances of the case, that liqu idated d am ages w ill becom e
d u e at a later d ate. If that liability shou ld in d u e cou rse arise, it w ill
not arise as a consequence of the assu m ed breach of contract u nd er
clause 13.8, bu t as a consequence of the contractor ’s breach of clause
23 consisting in his failure, for w hatever reason, to com plete the
contract w orks on or before the com pletion d ate. We agree w ith the
reasoning of the Lord Ord inary on this point.’
Lim itation of liab ility
The general ru le is that a liquid ated d am ages clause w hich is not a p enalty
acts as a lim itation of liability in respect of d am ages for breach (see Section
3.4 above). That raises qu estions as to whether the claim ing party can seek
to avoid lim itation of d am ages by alleging the liquid ated d am ages provi-
sions to be penalty clau ses.
In the old shipp ing case of Wall v. Rederiaktiebolaget Ruggude (1915) the
charter p arty contained the clause ‘Penalty for non-perform ance of this
agreem ent provid es dam ages, not exceed ing estim ated am ou nt of freight’.
The ship ow ners, w ho had breached the agreem ent, contend ed that the
clau se provid ed lim itation of liability against a claim for general dam ages.
The cou rt held that the clau se provided a p enalty not a limitation of liability
and that it d id not p revent the party com plaining of non-performance from
recovering actu al d am ages exceed ing the am ou nt of freight.
An unu su al asp ect of lim itation of liability was consid ered by the Cou rt
of Appeal in the case of Bath and North East Somerset District Council v.
Mowlem Plc (2004). The Cou ncil had obtained an inju nction against Mow lem
restraining it from d enying access to a rep lacem ent contractor. Mow lem
argu ed that the Cou ncil had an ad equate rem edy for the p roblem s on the
contract by w ay of liqu id ated d am ages for late com pletion. The Court of
App eal d isagreed and u pheld the injunction.
D raftin g m atters
Chap ter 6 of this book d eals w ith the legal construction of liqu id ated d am ages
clau ses. H ow ever, for convenience, som e notable cases w here su ch clau ses
have been consid ered by the courts are listed here:
Bra mha ll & O gden v. Sheffi eld Cit y Council (1983)
Liqu id ated dam ages of reasonable am ou nt expressed at a rate per d w elling

per w eek w ere held to be penalties becau se a p roportioning d ow n clause in
the contract, w hich w as obviou sly not intend ed to app ly, w as not d eleted .
St a nor Elect ric Lt d v. R Ma nsell Lt d (1987)
The m ain contractor, Mansell, sou ght to d ed u ct liqu id ated d amages for late
comp letion by their electrical sub-contractor, Stanor, of w ork on tw o houses
w here liqu id ated d am ages w ere staged at £5000 per w eek. Jud ge Fox-
And rew s held that, as a matter of constru ction of the particu lar clause in the
contract where w ork w as to be d one on tw o houses, the clau se w as self
evid ently a p enalty.
Arnhold & Co. Lt d v. At t orney Genera l of Hong Kong (1989)
This w as a contract for electrical and m echanical w ork w hich w as m ore than
one year late in com p letion. Liqu id ated d am ages w ere expressed as a range
of su m s and w ere held to be void for uncertainty. They w ere also held to be
void as p enalties since:
(i) the m axim um fi gure w as recoverable for delay to the w hole of the w orks
or any portion thereof and could not be a genu ine pre-estim ate;
(ii) a provision for p rop ortionally red u cing d am ages as the w orks w ere
occu p ied had a stop fi gure w hich it w as held could not be a genu ine
p re-estim ate of loss once m ore than 85% of the w orks w ere occupied .
Comment
All the above cases p receded the Privy Cou ncil ruling in the Hong Kong
Philips case that the cou rts should not ad op t an ap proach to liquid ated
d am ages so as to d efeat their pu rpose and it is qu estionable w hether all

wou ld stand today. Recent cases ind icate that the cou rts are now m ore toler-
ant of d rafting d iscrepancies:
Impresa Ca st elli Spa v. Cola Holdings Lt d (2002)
The case arose from late com pletion of a large hotel d evelopm ent in Lond on.
The original rate of £10,000 per d ay for liquid ated d am ages w as red u ced to
£5000 per d ay as part of an agreem ent allow ing the d evelop er partial occu-
pation. Notw ithstand ing that this created certain d iffi cu lties in the legal
constru ction of the liqu id ated provisions the cou rt held the red uced rate to
be a genu ine p re-estim ate of loss and enforceable.
Nort h Sea Vent ila t ion Lt d v. Consafe Engineering (UK) Lt d (2004)
The ju d ge d ism issed variou s argu ments d erived from the d rafting of the
contract and having quoted from the Hong Kong Philips ru ling (‘Striking
d ow n a p enalty clause is a blatant interference w ith freed om of contract, and
can only be justifi ed w here there is opp ression’) w ent on to fi nd there w as
no op p ression and that:
‘The provision of grad uated sum s increasing in p roportion to the seriou s-
ness of the breach is characteristic of a liquid ated dam ages clause w hich
is com m onp lace in com m ercial contracts.’
CFW Archit ect s v. Cow lin Const ruct ion Lt d (2006)
This case follow ed a series of ad ju d ications betw een the architects and
the contractor on a design and build hou sing renovation project. One of
the issues w as w hether the am ounts claim ed by the contractor for liabilities
it had incurred as liquid ated d am ages for late com p letion should be dis-
missed on the basis that the liqu id ated d am ages w ere p enalties. The argu-
ments on this related to the m anner in w hich the d am ages becam e p ayable
on a house by hou se calcu lation. The jud ge, in fi nd ing that there w as no
penalty, said :
‘. . . the liqu id ated d amages clau se, although potentially harsh on Cow lin,
w as nonetheless enforceable. The relevant test, enunciated by Jackson J
w hich I accept correctly states the ap plicable test binding on ju d ges at
fi rst instance, is as follow s:
“In m y view, a p re-estimate of d am ages d oes not have to be right in
ord er to be reasonable. There m ust be a su bstantial d iscrep ancy betw een
the level of d am ages stipulated in the contract and the level of d am ages
w hich is likely to be suffered before it can be said that the agreed pre-
estim ate is u nreasonable.” ’
St eria Lt d v. Sigma Wireless Communica t ions Lt d (2007)
Am ongst the m any issu es consid ered by the cou rt in this case (see Chap ter
5 for som e of the details) there w ere argu m ents as to w hether there were
inconsistencies in the d rafting of the liqu id ated d am ages clauses such as to
rend er them unenforceable. The court consid ered them to be su ffi ciently
coherent to be enforceable.
Bra es of Doune Wind Fa rm (Scot la nd) Lt d v. Alfred McAlpine Business

Services Lt d (2008)
The claim ant sou ght leave to app eal an arbitrator ’s aw ard that provisions
in an engineering procurem ent and constru ction contract w ere unenforce-
able. The arbitrator had found :
‘. . . the provisions of Clau se 8.7 are not cap able of generating w ith
certainty liquid ated d am ages fl ow ing from an id entifi ed breach by the
[Contractor]. Accord ingly, in accord ance w ith established authority,
Clau se 8.7 shou ld not be enforced .’
The ju d ge w ho had the task of d eciding w hether the arbitrator w as obvi-
ou sly wrong (app lying Section 69(3) of the Arbitration Act 1996) concluded
that he w as not. The ju d ge said :
‘I have form ed the view, perhap s contrary to m y initial im pressions, that
the Arbitrator w as not obviously w rong. Althou gh m y ow n analysis
w ou ld have been d ifferent and I m ight d isagree w ith part of the Arbitra-
tor ’s reasoning, I consid er that his d ecision w as u ltim ately right. The m ost
convincing argu ment advanced by Mr Bartlett QC for the Contractor w as
that the liqu id ated d am ages clause cou ld w ell im p ose a liquidated
d am ages liability on the Contractor in resp ect of d elays to ind ividu al
w ind turbines caused by the Wind Tu rbine Contractor.’
He conclud ed :
‘E. Becau se it w as clearly intend ed that the Contractor w as not as su ch
to be resp onsible for the defau lts of the Wind Turbine Contractor or
at least those w hich good co-ord ination by the Contractor w ould have
avoid ed , the p arties nonetheless agreed a liqu id ated d am ages clause
w hich w ou ld im pose su ch dam ages u pon the contactor in certain
foreseeable circum stances.
F. In those circu m stances, there is in law a penalty w hich English Law
w ill not enforce.’
Som e caution m ay need to be exercised in taking too m u ch from the last
quoted sentence since it is not entirely clear from the ju d gm ent w hether the
circu mstances referred to by the judge w ere fau lty d rafting, inequ itable risk
allocation or possible p revention or w hether the argu m ents p ut to the ju dge
w ere hyp othetical or w ere based on fact.
Loss su ffered b y a th ird p arty
Cla rk Cont ra ct s Lt d v. The Burrell Co. (Const ruct ion Ma na gement ) Lt d (2002)
This was a Scottish case in w hich the em p loyer sou ght liquid ated d am ages
from the contractor for late comp letion of the red evelopm ent of a block of
fl ats. The tw ist in the case, as the judge put it, w as that the em p loyer w as
not the proprietor of the fl ats – they belonged to The Bu rrell Co. (Develop -
ments) Ltd .
The ju dge, having exam ined differences betw een Scottish law and English
law on losses suffered by third parties, found the liquid ated d am ages to be
a penalty and not enforceable. H e exp lained this as follow s:
‘The d efend ers d id not ow n the fl ats. The d efend ers d id not therefore
incu r lost credit interest nor did they incu r d ebit interest. There are
no ad equate averm ents to set up a contractu al relationship w hereby
the d efend ers w ere obliged to make paym ent of any such losses to
Develop m ents. All that the d efend ers say is that there w as an “und er-
stand ing” betw een the d efend ers and Develop ments that the d efend ers
“wou ld seek recovery from the bu ild ing contractors (the pursu ers) of
those losses and the su m s recovered w ou ld be payable to Develop m ents
as a d ebt by the d efend ers”. There w as no averm ent that there w as a
bind ing contract betw een the d efend ers and Develop m ents which the
latter cou ld enforce. Accord ingly, the d efend ers have su stained no loss,
and cou ld have sustained no loss, by virtue of any failu re to com p lete
the w orks by the revised com pletion d ate. The provision in the contract
is thu s not a reasonable pre-estim ate of the dam ages w hich the d efend -
ers, as op posed to Developm ents, m ight incu r in the event of there
being a d elay in the com p letion of the bu ild ing contract w orks. It thus
follow s that w hat is sou ght from the p ursu ers in the counterclaim by
w ay of liquid ated and ascertained d am ages is a p enalty and not
recoverable.’
For the p urp oses of this chap ter that is all that need be said abou t the case.
How ever, see d iscu ssion of the English case of McAlpine Construction Ltd v.
Panatown Ltd (2000) in Chapter 3 on third party losses.
Settlem en t agreem en ts as p en alty clau ses
CMC Group P lc v. Micha el Zha ng (2006)
The p arties in this case becam e em broiled in d ispu tes about fi nancial trans-
actions u ndertaken by Mr Zhang. They w ere eventu ally settled on term s
which inclu d ed the follow ing:
‘For the avoid ance of d ou bt, you hereby agree that any breach of this
settlem ent and agreem ent w ill rend er you liable to us for the su m of
4.6 Evidential matters 123
US$40,000 together w ith a claim for reim bursem ent of our legal costs
against you in ad d ition to a claim for dam ages in relation to loss of bu si-
ness. Su ch a claim cou ld be consid erable.’
CMC alleged that Mr Zhang breached the agreem ent and claim ed d am ages
inclu ding the US$40,000 stipulated su m . It also claim ed, and obtained ,
inju nctions restraining Mr Zhang’s condu ct. The m atter w hich eventually
reached the Cou rt of Appeal w as w hether the stipulated su m w as a
penalty.
The Court of Appeal u nanim ou sly held it to be a penalty w ith Sir Charles
Mansell, saying:
‘Without reference to au thority, and ju st on a read ing of the letter, it w ould
ap pear to m y eyes that the provision for the paym ent of US$40,000 w as
a penalty. It had been introduced as a d eterrent to Mr Zhang and as an
ind ucem ent not to break any of the term s of that agreem ent, w hich it is
quite u nnecessary for m e to read again.’
and
‘It is quite im p ossible, I w ould say, to read the p rovisions to w hich I have
ju st referred as being other than a penalty w ithin the term s id entifi ed by
Lord Duned in or Colm an J. This w as includ ed as a deterrent. That it w as
so is reinforced by the further observation in the letter that there could
be an ad d itional claim for d am ages, and I quote, “Su ch a claim cou ld be
consid erable”. It is, in m y view, quite im p ossible to read the letter as
containing other than a penalty clause.’
Tak e-or-p ay clau ses
M & J P olymers Lt d v. Imerys Minera ls Lt d (2008)
A sup ply contract required the purchasers, Imerys, to p ay for a m inim um

quantity of p rod ucts even if they ord ered less. It w as held in the H igh Cou rt
that Polym ers’ case that its claim w as for a d ebt and that the law of penalties
d id not arise w as too sim plistic. It w as said that as a m atter of p rincip le the
ru le against p enalties m ight apply bu t on the facts of the case the claim d id
not offend the rule.
4.6 Evident ia l ma t t ers
Burd en of p roof
It is w ell established that the burden of proving that a stipulated sum is

a penalty and not liqu id ated d amages rests on the party m aking the
challenge.
See, for exam ple:
124 4.6 Evidential matters
• Lord Ju stice Diplock’s com m ent in Robophone Facilities Ltd v. Blank (1966)
“The onu s of show ing that [a stip ulation for paym ent of a sum in the
event of breach of contract] is a penalty clau se lies u pon the p arty w ho
is su ed u p on it”
• Lad y Ju stice Ard en in the Leisureplay case: “The burd en of show ing that
a clau se for the p aym ent of d am ages on breach is a penalty clau se is on
the party w ho seeks to escape liability u nd er it.”
The above ru le shou ld norm ally hold good in cases w hich reach the courts
on app eal from arbitrator ’s d ecisions. How ever, an interesting point emerges
from the Braes of Doune case m entioned above w here the cou rt w as consid -
ering an ap p lication for leave to appeal an arbitrator ’s d ecision. The jud ge,
referring to Section 69(3) of the Arbitration Act 1996, m ad e the p oint that in
ap proaching the qu estion of leave to app eal he had to consid er if the arbitra-
tor w as “obviously w rong” in reaching his d ecision. View ed from this per-
spective there w ould seem to be some reversal of the burd en of proof.
Factu al evid en ce
One of the p oints consid ered at length in the Multiplex v. Abgarus (1992) case
was w hether evid ence concerning the circum stances in which a liqu id ated
d am ages clau se (alleged by the contractor to be a penalty clause) cam e into
existence w as relevant to u nconscionability, and therefore ad m issible.
The cou rt after extensively review ing the authorities held that it w as.
Com m enting on the ju d gm ent in the case of AMEV-UDC Finance v. Austin
(1986) the ju d ge in Multiplex said:
‘Their H onours d istinguish as a basis for striking dow n a clau se circum -
stances w hich m ay rend er it unconscionable to enforce the clause, as w ell
as a clau se w hich m ay be oppressive in consequ ence of its m onetary
im positions ind icating that it is not of a com pensatory nature. That m ust,
in m y view, rend er ad m issible evid ence concerning the circu m stances in
w hich the clause cam e into existence, and the p arties’ u nd erstand ing of
its intent in ord er to rebut any attack u p on the basis that the clau se w as
agreed in circu m stances and in a relationship betw een the parties rend er-
ing its enforcem ent u nconscionable.’
And later, com m enting on a statem ent in the jud gm ent in Esanda Finance
Corporation Ltd v. Plissing (1989) the jud ge in Multiplex said that:
‘This clause is to be construed from the point of view of the p arties at the
time of entering into the transaction. The character of a clause as p enal or
compensatory is then to be perceived as a m atter of d egree depend ing on all
the circumstances, including the nature of the subject-matter of the agreement.’
The ju d ge in Multiplex w ent on to say:
‘If one is to have regard to “all of the circu mstances, inclu d ing the nature
of the subject m atter of the agreem ent” in d eterm ining as a m atter of
4.7 Bonus clauses 125
d egree w hether a clau se is penal or com pensatory, one w ould need to

know of the relationships between the p arties at the time of contract, the
genesis of the clau se, d iscussions concerning it, the bargaining p osition
of the parties, whether they w ere each fully ad vised and w hether, in all
the circu m stances, the party now claim ing the ineffectiveness of the
clause, at the tim e of contract appreciated the likely im position u nd er the
clause in consequence of his breach yet nonetheless agreed to the clause
presu m ably because the contract w as p erceived to be benefi cial to him
notw ithstand ing the existence of the liquid ated d am ages clau se.
There is, in m y view, a qualitative d ifference of w hich the law is able
to take accou nt betw een a clau se freely negotiated betw een m ajor com -
m ercial organisations, in respect of a su bstantial contract, w here the m ajor
com m ercial organisations have available and receive com p etent legal
ad vice regard ing the m eaning, pu rpose and likely consequence of the
clause, from a clause attacked as a p enalty in a contract of ad hesion
betw een a m ajor organisation and an ind ivid ual or sm all com pany w ho
has, in reality, no opp ortunity to negotiate the contract. That is not to say
that the latter form of contract containing such a clause w ould be stru ck
d ow n: it is rather to recognise that, qu ite apart from w hether a clause fails
becau se it lacks a com p ensatory character, it m ay also fail as being penally
im posed in circum stances rend ering enforcem ent of the clause u nconscio-
nable. The d egree of contractual freed om afford ed to parties to determ ine
a m easu re of d am ages d ep arting from strict com p ensation w ill, in m y
view, be affected by those m atters constitu ting asp ects of the relationship
betw een the p arties, in particu lar in relation to the relevant clause, to
w hich I have referred . That seem s to me to be imp licit in the passage in
the ju d gm ent of Mason J and Wilson J in AMEV-UDC w here their H onou rs
said (at 193) “and (2) the natu re of the relationship betw een the contract-
ing p arties, a factor relevant to the unconscionability of the plaintiff’s
cond u ct in seeking to enforce the term ”.
For those reasons in my view the m aterial tend ered w hich show s the
relationship betw een the parties, the genesis of, negotiation concerning,
und erstand ing of, and ad vice received regard ing the relevant clau se is
m aterial and ad m issible.’
O p in ion evid en ce
Questions of w hether am ounts stated as stipu lated su ms are reasonable pre-

estim ates or extravagant and unconscionable m ay in som e circum stances
obviou sly require exp ert op inion evid ence.
4.7 Bonus cla uses
It is not u ncom m on for com m ercial and constru ction contracts to includ e
bonus clau ses to encou rage early com p letion. H ow ever, notw ithstand ing
126 4.7 Bonus clauses
any su m s w hich are payable for early com pletion, su m s w hich are claim ed
for late com p letion still have to satisfy the tests for liqu id ated d am ages if
they are to avoid being d eclared p enalties. Som e bonus clauses em phasise
this p oint by inclu d ing a statem ent to the effect that any sum s d ed ucted for
late com p letion are liqu id ated d am ages and not penalties. On this basis the
setting of recip rocal bonuses/ d am ages cannot be arbitrary but m u st follow
the ru les for pre-estim ation of liquidated d am ages.
The follow ing m aterial p rovid es an exam ple of a bonu s clau se. This p ar-
ticular clau se is taken from a m otorw ay im provem ent contract and based
on the ICE 5th Ed ition.
P a yment of cha rge for cont inued sit e occupa t ion
47(1)(a) If the contractor fails to com plete the w hole of the Works or any
section thereof w ithin the tim e prescribed by Clause 43 or any
extension thereof granted u nd er Clau se 44 the Contractor shall
p ay the Em p loyer the sum stated in the Ap pend ix to the Form of
Tend er u nd er the head ing ‘Bonu s for Early Com pletion / Charge
for Continued Site Occupation’ for every Working Day w hich
shall elapse betw een the d ate on w hich the prescribed tim e or
any extension thereof expired and the d ate of com p letion of the
w hole of the Works or the relevant Section thereof. The Em ployer
m ay d ed uct the sum s so du e as paym ents from su m s otherw ise
d u e to the Contractor und er the Contract or any other Contract
w hich the Em ployer or his Agents have w ith the Contractor.
Bonus for ea rly complet ion
47(1)(b) If the Contractor com pletes the w hole of the Works or any Section
thereof within a shorter tim e than that prescribed by Clause 43
or any extension thereof granted u nd er Clause 44 the Em ployer
shall ad d to the su ms otherw ise d u e to the Contractor the su m
stated in the Ap pendix to the Form of Tend er u nd er the head ing
‘Bonu s for Early Com pletion / Charge for Continu ed Site Occu-
pation’ for every Working Day by w hich the d ate of com pletion
of the w hole of the Works or the relevant Section thereof preced es
the du e tim e (or extend ed tim e) for com p letion of the Works or
the relevant Section thereof.
Addit ion t o / deduct ed from fi na l a ccount set t lement
47(2) Where follow ing a review und er Clau se 44(3) and Clau se 44(4) the
Engineer has issued the Certifi cate of Com pletion of the w ork
together w ith the accom panying certifi ed statem ent of the overall
extension of tim e (if any) to w hich the Engineer considers the Con-
tractor to be entitled in respect of the w hole of the Works or any
4.7 Bonus clauses 127
Section thereof the Em ployer shall add to or d ed u ct from any

paym ent du e in settlem ent of the fi nal accou nt such su m w hich is
equal to the su m stated in the Ap pend ix to the Form of Tend er for
every Working Day by w hich the Contractor m ay com plete the
Works or the relevant Section thereof earlier or later as the case m ay
be in accord ance w ith the respective provisions of su b-clause (1)(a)
and (1)(b) of this clause.
Nil effect on ret ent ion money ca lcula t ion
47(3) In the calculation of the am ount to be d ed ucted for each Working

Day that the com pletion of the Works or any Section thereof exceed s
the d ue d ate for com pletion in accord ance w ith Clau se 43 su ch
am ou nt shall have no effect on the calculation of the retention
m oney in accord ance w ith the p rovisions of Clauses 60(2) and
60(4).
Reimbursement of cha rge for cont inued sit e occupa t ion
47(4) If u p on a su bsequent or fi nal review of the circu m stances cau sing

d elay the Engineer shall grant an extension or further extension of
tim e or if an arbitrator app ointed u nd er Clause 66 shall d ecid e that
the Engineer should have granted su ch an extension or fu rther
extension of tim e the Em ployer shall no longer be entitled to charges
for continued site occupation in resp ect of the p eriod of su ch exten-
sion of tim e. Any sum s in resp ect of su ch p eriod w hich m ay have
been d ed u cted from p aym ents d ue to the Contractor or p aid by him
shall be reim bu rsable forthw ith to the Contractor together w ith
interest at the rate provid ed for in Clause 60(6) from the d ate on
w hich su ch charges for continued site occupation w ere paid or
d ed ucted . In the event that su ch a review show s the Contractor w as
rightfu lly entitled to a bonu s p aym ent then it shall be calcu lated in
accord ance w ith Clause 47(1)(b) and p aid forthw ith w ith the ad d i-
tion of interest at the rate provid ed for in Clause 60(6).
Da ma ges not a pena lt y
47(5) All sum s d ed u cted as paym ent by the Em ployer pursu ant to this
clause from sum s otherw ise d u e to the Contractor shall be paid as
liqu id ated d am ages for delay and not as a penalty.
Com m en t
The above clau se is includ ed in form s w ith conventional provisions

for extensions of tim e bu t there are no general rules that extension of the
128 4.8 Site occupation charges
d ate for com pletion to allow paym ent of bonuses shou ld take accou nt of
the sam e circum stances w hich w ou ld apply to extension of the d ate to
avoid p aym ent of d am ages. Each case d epend s on the w ord ing of the
contract.
Thus in Ware v. Lyttleton Harbour Board (1882) w here contractors fi nished
six weeks early and received a £600 bonus based on £100 / w eek, it w as
held that they cou ld not claim a further bonu s in resp ect of tim e taken on
extra w orks w hich p revented them fi nishing earlier since the extension of
tim e clau se app lied only to save them from liqu id ated d am ages.
4.8 Sit e occupa t ion cha rges
As an alternative to bonu s / d am ages clauses, som e contracts require the

contractor to p ay a d aily charge for occu p ation of the site.
Am ongst the best know n are the lane rental contracts u sed by the H igh-
ways Agency and other highw ay authorities for road w orks rep airs and
im provem ents. These contracts state a cost p er d ay per lane and the contrac-
tor inserts in his tend er the total su m required for lane rental accord ing to
his p rogramm e. The costs of lane rental are then d edu cted from paym ents
d ue to the contractor w ith d ue allow ance being m ade for extensions of
tim e.
An examp le of lane rental p rovisions is as follow s:
Appendix t o form of t ender
La ne rent a l cha rges 47(1)
(i) The d aily Lane Rental Charge shall be £3500 per lane occupied and
£1000 per hard should er occu pied su bject to (ii) & (iii).
(ii) The d aily charge for Contra Flow shall be £25,000 p er d ay. Contra Flow
is the closu re of one com plete carriagew ay and the operation of tw o
w ay traffi c on the other carriagew ay.
(iii) The charge for occu pation of any lane or hard shou ld er d uring the
period betw een 2100 hou rs and 0600 hours the next d ay shall be £1000
per lane or hard shou ld er per period . This charge shall not be ad d itional
to (i).
Da ily la ne rent a l cha rges cla use 47
(1) The Contractor shall p ay to the Em p loyer Lane Rental Charges in su ch

su m s as are stated in the Append ix to the Form of Tend er for each d ay
or p art of d ay that any lane or hard shou ld er, or com bination of lanes
and / or hard should er (or p arts thereof) is occup ied for the pu rp oses of
4.8 Site occupation charges 129
carrying ou t the Works from and inclu d ing the Date of Com m encem ent
of the Works u ntil and includ ing the d ate certifi ed in the Certifi cate of
Com pletion of the Works and shall also p ay to the Em p loyer Lane Rental
Charges in such su m s as are stated in the Append ix to the Form of
Tend er for each d ay or part of d ay that any lane or hardshou ld er, or
com bination of lanes and / or hard shou ld er (or parts thereof) is occupied
by the Contractor for work required und er Clause 49. On any d ay w hen
d ifferent traffi c m anagem ent system s are em ployed the charge shall be
the highest of the ind ivid u al charges. Paym ents shall be effected by
m eans of d ed u ctions in accord ance w ith Clau se 60.
Provid ed that:
(a) if und er Clau se 49(3) the valu e of such w ork shall be ascertained and
p aid for as if it w ere add itional w ork the Contractor shall not pay to
the Em p loyer a Lane Rental Charge in respect of the lane occu pation
relating thereto; and
(b) if und er Clau se 44 the Engineer shall grant an extension of lane
occu p ation to the Contractor, the Contractor shall not pay to the
Em ployer a Lane Rental Charge in respect of the period of su ch
extension.
(2) The Bill of Qu antities includ es an item sp ecifi cally provid ed for the
p u rpose of ind icating the total su m of the lane rental charges w hich at
the tim e of tend ering the Contractor expected he w ould incur for his
occu p ation of the site d uring the execu tion of the Works includ ing the
Works required u nd er Clause 49. All other items in the Bill of Qu antities
are d eem ed to be exclusive of lane rental charges.
Deduct ion of la ne rent a l cha rges from ot her cont ra ct s
(3) The Em p loyer m ay d ed uct and retain from any sum otherw ise p ayable
by the Em p loyer to the Contractor und er the Contract or any other
Contract w hich the Em ployer or his Agents have w ith the Contractor
any charges d ue u nd er sub-clause (1) of this Clause.
Final Review
(4) If up on a su bsequent or fi nal review of the circum stances cau sing an
extension of lane occu pation the Engineer shall grant an extension or
fu rther extension of lane occu pation or if an arbitrator ap p ointed u nd er
Clau se 66 shall d ecid e that the Engineer shou ld have granted such an
extension or further extension of lane occu pation, the Em ployer shall no
longer be entitled to lane rental charges in resp ect of the p eriod of su ch
extension of occup ation. Any sum s in resp ect of su ch period w hich m ay
have been recovered pu rsuant to this Clause shall be reim bu rsable forth-
w ith to the Contractor together w ith interest at the rate p rovid ed for in
Clau se 60(6) from the d ate on w hich such lane rental charges w ere recov-
ered from the Contractor.
130 4.8 Site occupation charges
Not ifi ca t ion of cha nges in la ne occupa t ion
(5) The Engineer shall inform the Contractor in w riting w ithin 24 hours after
any change in lane occupation of the relevant new lane occup ation
charge app licable from the date of the change.
Com m en t
The ad vantage of site occupation charges over conventional liquid ated

d am ages charges is that account can be taken of m atters beyond the em p loy-
er ’s ow n costs. Thus lane rental charges on road w orks can includ e for
notional traffi c d elay costs.
Chap ter 5
Preven tion
5.1 P rinciple of prevent ion
The p rinciple of p revention is of general application in contracts and is to

the effect that one party cannot im pose a contractual obligation on the other
party w here he has im p ed ed the other in the perform ance of that obligation.
It is a long-stand ing p rinciple going back as far as Comyns’ Digest of the Laws
of England (1822). In Perini Pacific Ltd v. Greater Vancouver Sewerage and Drain-
age District (1966), it w as said ‘Since the earliest tim es it has been clear that
a party to a contract is exonerated from perform ance of a contract w hen that
perform ance is p revented or rendered im possible by the w rongful act of the
other p arty.’
The p rinciple can be expressed in m any w ays as evid ent from the cases
below, p articu larly the SMK Cabinet case, bu t note that som e defi nitions
focu s on prevention arising from breach of contract and others focu s on
prevention arising from contractu ally legitim ate acts (e.g. ord ering of varia-
tions) w hereas the p rinciple itself covers both.
There is d ebate as to w hether the p rinciple is fou nd ed on a rule of law or
a rule of constru ction w hich is of interest to the operation of cond itions
preced ent and tim e-bars (consid ered later in this chap ter) bu t that ap art it
is the effect of the principle w hich is im portant rather than its stand ing.
Effects of p reven tion
There is a distinction to consid er betw een p revention as it affects the inno-

cent party and prevention as it affects the guilty p arty. An act of p revention
w hich is a breach of contract gives the innocent p arty the right to sue for
d am ages or d eterm ine the contract d epending on whether the breach is of
a w arranty or a cond ition. This is quite clearly a ru le of law. H ow ever, the
restrictions on the gu ilty p arty in lim iting enforcem ent of contractual rights
seem to arise m ore from imp lied term s than any fi rm ru le of law.
Thu s, Lord Blackburn in Mackay v. Dick (1881) said that:
‘Where in a w ritten contract it appears that both p arties have agreed that
som ething shou ld be d one w hich cannot effectively be d one u nless both
concu r in d oing it, the construction of the contract is that each agrees to
d o all that is necessary to be d one on his p art for the carrying ou t of that
thing thou gh there m ay be no express w ord s to that effect.’
132 5.1 Principle of prevention
Lord Ju stice Vau ghan William s in Barque Quilpue Ltd v. Bryant (1904) said :
‘There is an im plied contract by each party that he w ill not d o anything
to prevent the other p arty from perform ing a contract or to d elay him in
performing it. I agree that generally such a term is by law im ported into
every contract.’
How ever, w hether or not the principle of p revention d erives from a ru le of
law or from im plied term s, there is no d oubt of its general effect on an
em ployer ’s right to recover liquid ated d am ages for late com pletion. The
princip le p roves perhap s the m ost effective and m ost used d efence against
Holme v. Guppy (1838)
The p rincip le of p revention has long been applied to construction contracts.

An early case is Holme v. Guppy (1838) w here contractors failed to com plete
their w ork at a brew ery w ithin the stip ulated tim e but avoid ed liquid ated
d am ages as p art of the cau se of late com pletion w as d elay by the em ployer
in giving p ossession and d elay by the emp loyer ’s own w orkm en.
Dodd v. Churt on (1897)
A later, m uch-qu oted case is Dodd v. Churton (1897) w here a tw o-w eek d elay
caused by the em ployer lost him the right to 25 w eeks’ liquid ated dam ages.
In Dodd v. Churton the contract provid ed for the w hole of the w orks to be
com p leted by 1 June 1892, und er a penalty of £2 per w eek for every w eek
that any part of the w ork rem ained u nfi nished after that d ate as liquid ated
d am ages. There w as a provision that any alteration or ad d ition in or to the
works w as not to vitiate the contract. There w as ap p arently no provision for
extend ing the time for com p letion if ad d itional w ork w as ord ered . Ad d i-
tional w orks w ere ord ered which involved a d elay in the comp letion of the
works beyond the specifi ed d ate. The w orks w ere not com pleted until 5
Decem ber 1892. Evid ence w as given on the part of the d efend ant to the effect
that a fortnight w as a reasonable tim e for the ad d itional w ork, and the
d efend ant, allow ing a fortnight’s ad ditional tim e for the comp letion of the
works, claim ed £2 p er w eek in respect of the d elay of 25 w eeks. The county
cou rt ju d ge held that by giving the ord er for ad ditional w orks the d efend ant
had waived the stipu lation for penalties in respect of non-com p letion of the
work by 1 Ju ne. H is d ecision w as upheld in the Cou rt of Ap p eal. Lord Esher,
Master of the Rolls said this:
‘The principle is laid d ow n in Comyns’ Digest, Cond ition L(6) that, w here
one p arty to a contract is prevented from performing it by the act of the
other, he is not liable in law for that d efault; and , accord ingly, a w ell
recognised rule has been established in cases of this kind beginning w ith
Holme v. Guppy (1838), to the effect that, if the bu ild ing ow ner has ord ered
5.2 Need for extension of time provisions 133
extra w ork beyond that specifi ed by the original contract w hich has nec-
essarily increased the tim e requ isite for fi nishing the w ork, he is thereby
d isentitled to claim the p enalties for non-com pletion provid ed for by the
contract.’
Trollope & Colls Lt d v. NWMRHB (1973)
Lord Denning in the Court of App eal hearing of Trollope & Colls Ltd v. North
West Metropolitan Regional Hospital Board (1973) referred to Dodd v. Churton
w hen com m enting that the princip le of prevention ap plies to legitimate
cond uct as w ell as to breach. H e said :
‘It is w ell settled that in build ing contracts – and in other contracts too
– w hen there is a stipu lation for w ork to be d one in a lim ited tim e, if one
party by his cond u ct – it may be quite legitim ate cond u ct, su ch as ord er-
ing extra w ork – rend ers it im possible or im practicable for the other p arty
to d o his w ork within the stipulated time, then the one w hose cond u ct
caused the trouble can no longer insist u pon strict ad herence to the tim e
stated . H e cannot claim any penalties or liqu id ated d am ages for non-
com p letion in that tim e.’
Lord Denning d id go on to say that Dodd v. Churton established that:
‘The tim e becom es at large. The work m u st be d one w ithin a reasonable
tim e – that is, as a ru le, the stip ulated tim e p lus a reasonable extension
for the d elay caused by his cond uct.’
Whilst Lord Denning w as corrected by Lord s Pearson and Cross w hen the
House of Lord s cam e to hear the Trollope & Colls case for saying that Dodd
v. Churton w as authority for the prop osition that time becom es at large as a
result of prevention – that case is au thority only for the p roposition that
liqu id ated d am ages cannot be d ed u cted – he w as not in error in the state-
m ent itself that tim e becom es at large as a resu lt of prevention.
5.2 Need for ext ension of t ime provisions
In practical and fi nancial term s for the parties it am ou nts to m u ch the sam e
thing – w hether prevention has invalid ated liqu id ated d am ages or w hether
prevention has p u t tim e at large. The only rem ed y left for the em p loyer is
to prove and sue for general d am ages for su ch late com pletion as can be
established and the liability left on the contractor is to com p lete w ithin a
reasonable tim e or face general d am ages for failure.
Given the com plexity of constru ction projects, large or sm all, the likeli-
hood of extras or variations, the d iffi cu lties of co-ord ination and the pro-
blem s of the unforeseen, it is, unless som e relief is available, alm ost
im possible for the em ployer to avoid falling into the trap of p revention. That
relief is p rovid ed by extension of tim e clauses.
134 5.2 Need for extension of time provisions
In the early cases m entioned above, Holme v. Guppy and Dodd v. Churton,
there w ere no provisions in the contracts to extend tim es for com p letion,
and the em p loyers in both cases w ere caught by strict p rovisions for
com p letion w hich they had prevented being fulfi lled . Consequ ently, the
liquid ated d am ages clauses failed . To avoid this legal p red icam ent, exten-
sion of tim e provisions are inclu d ed in construction contracts w ith the
prim ary p u rpose of keep ing liquid ated d amages clauses alive in the event
of prevention.
There is nothing new about extension of tim e clau ses – Hudson gives the
case of Legge v. Harlock (1848) – but w hether drafted as one-offs or includ ed
in stand ard form s of contract, they have su ffered in the courts from strict
interp retation. So notw ithstanding the best efforts of contract d raftsm en
over the last tw o centu ries, p revention remains a live obstacle to liqu id ated
d am ages and extension of tim e clauses are effective only insofar as the
cou rts hold them to operate or to apply.
P ea k v. McKinney (1970)
The classic exposition of the d iffi cu lties facing em ployers w as given by Lord
Ju stice Salm on in Peak Construction (Liverpool) Ltd v. McKinney Foundations
Ltd (1970) w hen he said :
‘In m y jud gm ent, how ever, the plaintiffs are not entitled to anything at
all u nd er this head , because they w ere not liable to p ay any liquidated
d am ages for d elay to the corporation. A clau se giving the em ployer liq-
uid ated d am ages at so m uch a w eek or m onth which elapses betw een the
d ate fi xed for com p letion and the actual d ate of com pletion is u sually
cou pled , as in the present case, w ith an extension of tim e clau se. The
liquid ated d am ages clause contem plates a failu re to com plete on tim e d ue
to the fau lt of the contractor. It is inserted by the em p loyer for his ow n
protection; for it enables him to recover a fi xed su m as com p ensation for
d elay instead of facing the d iffi culty and expense of p roving the actu al
d am age w hich the d elay m ay have cau sed him . If the failure to comp lete
on tim e is d ue to the fault of both the em p loyer and the contractor, in m y
view, the clause d oes not bite. I cannot see how, in the ord inary cou rse,
the em p loyer can insist on comp liance w ith a cond ition if it is partly his
ow n fault that it cannot be fu lfi lled : Wells v. Army & Navy Co-operative
Society Ltd (1902); Amalgamated Building Contractors v. Waltham Holy Cross
UDC (1952); and Holme v. Guppy (1838). I consid er that unless the contract
expresses a contrary intention, the em ployer, in the circum stances postu -
lated , is left to his ordinary rem ed y; that is to say, to recover such dam ages
as he can prove fl ow from the contractors’ breach.
N o doubt if the extension of time clau se p rovid ed for a postponem ent
of the com pletion d ate on account of d elay caused by som e breach of fau lt
on the part of the em p loyer, the position w ou ld be d ifferent. This w ould
m ean that the p arties had intend ed that the em ployer could recover
5.2 Need for extension of time provisions 135
liqu id ated d am ages notw ithstand ing that he w as partly to blam e for the
failu re to achieve the com pletion d ate. In su ch a case the architect w ould
extend the d ate for com pletion, and the contractor w ould then be liable
to p ay liquid ated d am ages for d elay as from the extend ed com pletion
d ate.
The liqu id ated dam ages and extension of tim e clauses in printed form s
of contract m ust be construed strictly contra proferentem. If the em ployer
w ishes to recover liqu id ated d am ages for failu re by the contractors to
com p lete on tim e in spite of the fact that som e of the d elay is d ue to the
em p loyers’ ow n fau lt or breach of contract, then the extension of tim e
clause shou ld p rovid e, exp ressly or by necessary inference, for an exten-
sion on accou nt of su ch a fault or breach on the part of the em ployer.
I am unable to sp ell any such provision ou t of clau se 23 of the contract
in the present case. In any event, it is clear that, even if clause 23 had
provid ed for an extension of tim e on account of the d elay caused by the
contractor, the failu re in this case of the architect to extend the tim e w ould
be fatal to the claim for liqu id ated d am ages. There had clearly been som e
d elay on the p art of the corporation. Accord ingly, as the architect has not
m ad e ‘by w riting u nd er his hand such an extension of tim e’, there is no
d ate u nd er the contract from w hich the defendants’ liability to p ay liqu i-
d ated d amages for d elay cou ld be m easured . And therefore none can be
recovered : see Miller v. London County Council (1934).’
Wells v. Army & Na vy (1902)
In the case of Wells v. Army & Navy Co-operative Society (1902) referred to in
the Peak case, there w as a one-year d elay in com pleting a one-year contract.
It w as held that the phrase ‘other cau ses beyond the contractor ’s control’ in
the extension of tim e clau se d id not cover breaches by the em ployer in
giving late p ossession and late inform ation. Lord Ju stice Vaughan William s,
in m aking an interesting observation on tim e as a benefi t as w ell as an obli-
gation, said this:
‘. . . in m y m ind that lim itation of tim e is clearly intend ed , not only as an
obligation, bu t as a benefi t to the bu ild er . . . In m y ju dgm ent w here you
have a tim e clause it is alw ays im p lied in such clau ses that the penalties
are only to apply if the build er has, as far as the bu ild ing ow ner is con-
cerned and his cond u ct is concerned , that tim e accord ed to him for the
execu tion of the w orks w hich the contract contem plates he should
have.’
Bilt on v. GLC (1982)
Lord Fraser of Tu llybelton in Percy Bilton Ltd v. Greater London Council (1982)
also referred to Wells in this exposition on p revention in a case w here a
136 5.3 Defining an act of prevention
nom inated su b-contractor had gone into liquid ation and re-nom ination had
caused d elay. He said :
‘1. The general ru le is that the m ain contractor is bound to com p lete the
w ork by the d ate for com pletion stated in the contract. If he fails to
d o so, he w ill be liable for liquid ated d am ages to the em ployer.
2. That is su bject to the exception that the em ployer is not entitled to
liqu id ated d am ages if by his acts or om issions he has prevented the
m ain contractor from com pleting his w ork by the com p letion d ate –
see for exam p le Holme v. Guppy (1838) and Wells v. Army & Navy Co-
operative Society (1902).
3. These general ru les m ay be am ended by the express term s of the
contract.’
Ra pid Building v. Ea ling Fa mily Housing (1984)
The au thority of the Peak d ecision w as cited in another case, Rapid Building
Group Ltd v. Ealing Family Housing Association Ltd (1984), by Lord Ju stice
Stephenson. H e said :
‘In m y ju d gment that authority is bind ing up on us; it quite clearly
sup p orts the d ecision of the learned jud ge that no counterclaim for liqu i-
d ated d am ages und er clause 22 of this contract can su cceed . Presu m ably
if the em ployer is responsible for any d elay w hich d oes not fall w ithin
the de minimis ru le, it cannot be reasonable for him to have com pleted the
w orks on the com pletion d ate. Whatever the reasoning u nd erlying the
d ecision of this cou rt it bind s u s and ju stifi es the ju dge’s d ecision that
the cou nterclaim for liquid ated d am ages is no answ er to the plaintiff’s
claim .’
In that case the contractor w as som e 43 w eeks late in com p leting the w orks,
of w hich ap p roxim ately three w eeks w as d u e to late p ossession of the site
which at the d ate for com m encem ent w as occup ied by squatters. The archi-
tect p u rp orted to grant an extension of tim e for this d elay but the cou rt
found that the extension of tim e clau se m ad e no p rovision for breach of
contract in failing to give p ossession of the site. Accordingly, the em ployer
was barred from counterclaim ing liquid ated d am ages althou gh a cou nter-
claim for u nliqu id ated d am ages w as p erm itted .
5.3 Defi ning a n a ct of prevent ion
One point w hich clearly em erges from the preced ing cases is that an act of
prevention m ay vary from an om ission on the part of the em ployer, a fau lt,
or even the ord ering of variations and extras w hich m ight be fully contem -
plated by the contract.
In an Au stralian case, SMK Cabinets v. Hili Modern Electrics Pty (1984), Mr
Ju stice Brooking sum m arised the law as follow s:
5.3 Defining an act of prevention 137
‘A w id e variety of expressions have been used to d escribe the act of pre-

vention w hich w ill excuse perform ance. At tim es w ord s are em p loyed
w hich suggest that any act or om ission p reventing perform ance will
suffi ce: Dodd v. Churton (1897) w here all three mem bers of the Court speak
of an act: Bruce v. The Queen (1866) w here the Court refers sim p ly to p re-
vention: Percy Bilton Ltd v. Greater London Council (1982). Hudson Building
and Engineering Contracts (10th ed .) p. 631 (acts or om issions) speaks of
acts, w hether au thorised by or breaches of the contract but at p . 700 refers
to w rongfu l acts. In Perini v. Greater Vancouver Sewerage and Drainage Dis-
trict (1966) Bull JA w ith w hose ju dgm ent Lord JA agreed , sp oke of a
w rongful act. The expressions used by Salm on LJ and Phillim ore LR in
Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd (1970) are
“fau lt” and “fault or breach of contract”. Another phrase to be found is
“act or d efau lt” Amalgamated Building Contractors Ltd v. Waltham Holy
Cross Urban District Council (1952). Word s u sed by Lord Denning (“his
cond u ct – it m ay be quite legitim ate cond u ct, such as ord ering extra
w ork”) ap pear in a passage cited w ith approval in the lead ing speech in
the H ou se of Lord s: Trollope & Colls Ltd v. North West Metropolitan Regional
Hospital Board (1973). I interpolate the observation that any form u lation
m u st accom m od ate the case of the ord ering of extras, w hether or not in
the exercise of a p ow er conferred by the contract. In the w ell know n case
of Roberts v. Bury Improvement Commissioners (1870) tw o different state-
m ents ap pear.
Blackburn and Mellor JJ, at p . 526, say that no p erson can take ad van-
tage of the non-fu lfi lm ent of a condition the perform ance of w hich has
been hind ered by him self, w hile Kelly CB and Channell B at p. 329 w ould
ask w hether p erform ance has been prevented by a w rongful act; both
statem ents are cited by Lord Thankerton in d elivering the p rincipal
speech in Panamena Europa Navigacion (Compania Limitada) v. Frederick
Leyland & Co. Ltd (1947). It is w orth noting the form ulation of Davis J of
the Sup rem e Cou rt of Canad a in Ottawa Northern and Western Railway Co.
v. Dominion Bridge Co (1905).’
Building La w Report s sum m ary
The ed itors of Building Law Reports w hen com m enting on the Court of
App eal d ecision in Percy Bilton v. GLC (1982) exp ressed the m atter in m ore
general term s:
‘ “Act of Prevention” is not easy to d efi ne bu t historically it has com e to
m ean “virtually any event not expressly contem p lated by the Contract
and not w ithin the Contractor ’s sphere of responsibility” – See Hudson’s
Building Contracts 10th ed n, page 624 w here the subject is treated fully.
From the cases illu strated it m ay be seen that it is generally fi rst necessary
to d eterm ine w hether there has been a breach of contract on the part of
the em ployer or som e other positive act or omission thereby preventing
138 5.4 Prevention after the completion date
the contractor from com pleting the contract w ork by the du e d ate and
second ly, w hether the contract did not m ake any express p rovision for
extend ing tim e in such circum stances.
The old er cases w ere largely decid ed in relation to contract w here little
or no provision w as m ad e for extend ing the tim e for com p letion so as to
keep alive the Contract Com pletion Date and thus p reserve the right to
liquid ated d am ages. Contracts now adays generally contain extensions of
tim e clau ses d rafted so as to cover the eventualities likely to constitu te
“acts of prevention” and are in m any cases m eticulou s in their d efi nition
of the risks and resp onsibilities assum ed by each party.
It is su bm itted that in a m od ern contract su ch as the Stand ard Form of
Build ing Contract the correct analysis of events w hich m ay d elay com p le-
tion shou ld not be betw een “acts of prevention” and “other acts” bu t
rather betw een m atters for w hich the contractor in law assum es the risk
and m atters for w hich he d oes not assu m e the risk. Such an approach is
based u p on the p rop osition that by undertaking to com p lete the w ork
w ithin the tim e stated a contractor assu m es the resp onsibility of su r-
m ou nting all risks other than those constituting breaches of contract or
fau lt by the em ployer. It is som etim es usefu l to consider this ap p ortion-
m ent of risk in term s of the “fault” of one p arty or the other, although
“fau lt” is an em otive w ord .’
5.4 P revent ion a ft er t he complet ion da t e
The SMK case offered gu id ance on the d iffi cu lt issu e of w hat is the em p loy-
er ’s position if his p revention occurs w hen the contractor is in cu lpable d elay
– that is after the tim e for com pletion has expired and the contractor has still
not com p leted .
In SMK it w as said that:
‘the ord ering of variations after the com pletion d ate w hich su bstantially
d elays com p letion w ill, unless the contract p rovid es otherw ise and in the
absence of an app ropriate extension of tim e clause, prevent the em ployer
from recovering or retaining liquid ated dam ages w hich m ight otherwise
have accrued after the giving of the ord er, althou gh the em ployer ’s right
in resp ect of am ounts alread y accrued w ould not be affected .’
The d ecision in SMK w as com m ented on in the case of Balfour Beatty Build-
ing Ltd v. Chestermount Properties Ltd (1993).
Mr Ju stice Colman said :
‘Finally [the contractor] ad vanced an argum ent that the emp loyer m ay
not recover liqu id ated d am ages for the p eriod after the d ate of the varia-
tion instru ction, although he remains entitled to liqu id ated d am ages up
to that d ate. He relied in support on the N ew Zealand d ecision in Baskett
v. Bendigo Gold Dredging Company (Ltd) (1902) 21 N ZLR 166 and the d eci-
sion of the Su p rem e Cou rt of Victoria in SMK Cabinets v. Hili Modern
5.4 Prevention after the completion date 139
Electrics Pty Ltd [1984] VR 391. Both w ere cases w here it w as contend ed
that the emp loyer ’s acts of prevention had d ischarged the liquidated
d am ages obligation w here there w as no contractu al p rovision for exten-
sion of tim e in the event of su ch acts of prevention. In both cases it w as
held that w here the act of prevention took place d u ring a p eriod of cu l-
pable delay the liqu id ated dam ages alread y accrued rem ained u naffected
bu t that no su ch d am ages w ere recoverable in resp ect of the d elay after
the act of prevention.’
And later in his ju d gm ent he said :
‘In view of m y d ecision upholding the aw ard on the fi rst question, this
issue d oes not arise for decision in relation to this aw ard . The arbitrator
expressed no view on the m atter. The essential issue betw een the parties
on this ap p eal w as w hether, if the em p loyer ’s act of p revention in the
cou rse of the period of cu lp able d elay d ischarged the contractor ’s obliga-
tion to com p lete by the com pletion d ate and to p ay liquid ated d am ages
shou ld he fail to d o so, the contractor rem ained liable for su ch liqu id ated
d am ages as had accru ed u p to the d ate of the act of p revention and for
general d am ages for failu re thereafter to com p lete w ithin a reasonable
tim e or w hether the obligation to pay su ch liqu id ated d am ages as had
accru ed w as also d ischarged . In other w ord s, w as the solution to this
problem that w as arrived at in New Zealand in Baskett v. Bendigo Gold
Dredging Company and in Victoria in SMK Cabinets v. Hili Modern Electrics
Pty Ltd, to w hich I have alread y referred ?
Althou gh that solu tion is on the face of it a very p ractical one, it raises
conceptu al d iffi cu lties w hich suggest that the correctness of these d eci-
sions m ay have to be further review ed . It w ou ld not be ap prop riate for
this cou rt to cond u ct that exercise in a case su ch as this w here on the
prop er constru ction of the contract in qu estion the p oint does not arise. I
therefore think it best to express no conclu d ed view on this issue.’
Com m en t
It need s to be noted that the SMK case and the above-qu oted extracts from
Chestermount relate to situ ations w here the contractu al provisions are d efi -
cient in d ealing w ith prevention after the com p letion date. The reason the
jud ge in Chestermount d eclined to express any conclu d ed view on SMK w as
that he found that JCT 1980 was not so defi cient.
Ba lfour Bea t t y v. Chest ermount (1993)
The key issu e in the Chestermount case w as the long-stand ing qu estion of
w hether an extension of tim e granted in resp ect of relevant events occurring
d uring a p eriod of culp able d elay should be aw ard ed on a gross basis or
a net basis. That is to say w hether the extension should includ e for the
140 5.4 Prevention after the completion date
contractor ’s cu lp able d elay prior to the variation or w hether the extension

should allow only for the tim e required for the variation itself such that only
this extra tim e shou ld be ad d ed on to the tim e p reviou sly fi xed .
H ow ever, to get to that issue (referred to in the case as the second ques-
tion) the jud ge had fi rst to d ecid e w hether clau se 25 of JCT 1980 conferred
jurisd iction on the architect to grant an extension (the fi rst qu estion). The
jud ge conclu ded that it d id , saying:
‘It w as com m on grou nd that if the contract failed to p rovid e for p ow er

to grant an extension of tim e on accou nt of d elays cau sed by an act of
prevention, the effect of the act of prevention w as to p revent the em ployer
relying on the com p letion d ate / liquid ated d am ages provisions in the
contract. The obligation to com p lete the w orks w as to be perform ed
w ithin a reasonable time, there cou ld be no extensions on accou nt of
relevant events and the em ployer ’s only hop e of com pensation would be
to recover unliqu id ated d am ages for d elay: see Peak Construction
(Liverpool) Ltd v. McKinney Foundations Ltd (1970) 1 BLR 111. The remark-
able consequences of the application of this princip le cou ld therefore be
that if, as in the p resent case, the contractor fell w ell behind the clock and
overshot the com pletion d ate and w as unlikely to achieve practical com -
pletion u ntil far into the futu re, if the architect then gave an instru ction
for the m ost trivial variation, representing perhap s only a day’s extra
w ork, the em p loyer w ou ld thereby lose all right to liqu id ated dam ages
for the entire period of culp able d elay u p to practical com pletion or, at
best, on the respond ent’s su bm ission, the em ployer ’s right to liquidated
d am ages w ou ld be confi ned to the p eriod up to the act of prevention. For
the rest of the d elay he w ould have to establish u nliquid ated d am ages.
What m ight be a trivial variation instruction w ould on this argu-
m ent d estroy the w hole liquid ated d am ages regim e for all subsequ ent
pu rp oses.
So extrem e a consequ ence for the fu ture operation of the contract could
hard ly refl ect the com m on intention, particu larly having regard to the
very specifi c d istribution of risk p rovisions w hich are agreed to be appli-
cable in resp ect of relevant events occu rring before the com pletion d ate.
It is certainly a construction w hich is m ost im p robable in the absence of
som e other express provision su pporting it.’
And in su m m arising his view s later, the ju d ge said:

‘In conclu sion therefore, on the fi rst qu estion, in m y jud gm ent the con-
stru ction for w hich the [Contractor] contend s involves legal and com -
m ercial results w hich are so inconsistent w ith other exp ress provisions
and w ith the contractu al risk d istribu tion regim e app licable to pre-com -
pletion d ate relevant events that, in the absence of exp ress w ord s com pel-
ling that construction, it cannot be right. In this respect the contract is not
ambiguous or so u nclear as to call for application of the contra proferentem
ru le or the resolu tion of nicely-balanced issu es of constru ction in favour
of the em p loyers for whose benefi t the liqu id ated d amages regim e is
5.4 Prevention after the completion date 141
introd u ced . The ap parently anom alous consequ ence of the application of
the arbitrator ’s construction that the architect could refi x a com p letion
d ate before the issu e of the variation instruction is in m y view entirely
consistent w ith the basic pu rpose of the liqu id ated d am ages regim e for
reasons w hich I have alread y explained . Moreover the retrosp ective p ost-
ponem ent of the com p letion date to a date before the event causing d elay
w as an eventuality contem plated w ith equ anim ity by Lord Denning MR
in Amalgamated Building Contractors Ltd v. Waltham Holy Cross UDC [1952]
All ER 452 at 454.’
On the second qu estion as to w hether a net extension or gross extension w as
d ue, the jud ge said :
‘the fu nction of the com pletion d ate is to id entify the end of the period
of tim e com m encing w ith the date of possession w ithin w hich the con-
tractor m u st com p lete the w orks, inclu d ing su bsequent variations, failing
w hich he m ust p ay liqu idated d am ages. The m eans by w hich that period
is ad ju sted is by ad vancing or postp oning the com pletion d ate w hich can
be d one p rospectively or retrospectively. If it is ad vanced by reason of an
om ission instruction the consequence m ay well be that the ad ju stm ent
required by w ay of red u ction of the tim e for com pletion is suffi ciently
substantial to ju stify re-fi xing the com pletion d ate before the issue of the
instru ction. Sim ilarly, in the case of a variation w hich increases the w orks,
the fair and reasonable ad ju stm ent requ ired to be m ad e to the period for
com p letion m ay involve m ovem ent of the com p letion d ate to a point of
tim e w hich m ay fall before the issue of the variation instru ction or after
it, d epend ing on the extent to w hich the variation w orks have delayed
com p letion of the w orks as a w hole. The com pletion d ate as ad ju sted
retrosp ectively is thus not the d ate by w hich the contractor ought to have
achieved or ought in fu tu re to achieve p ractical com pletion but the d ate
w hich m arks the end of the total nu m ber of w orking d ays starting from
the d ate of possession within w hich the contractor ou ght fairly and rea-
sonably to have com pleted the w orks.’
And , later in his ju d gm ent, the ju d ge said :
‘Accord ingly I conclu de on the second qu estion that it w ould be w rong in
principle to ap ply the “gross” method , and that the “net” m ethod repre-
sents the correct ap p roach. I therefore uphold the aw ard on this point.’
How ever, the ju d ge d id go on to ad d a w ord of cau tion on the question of
w hether all relevant events w ould necessarily have the sam e app lication
after the comp letion d ate had passed . In p articu lar, w hether the contractor
could claim an extension for neutral events w hich occu rred d u ring his cul-
pable d elay. On this, the jud ge said :
‘Before leaving this issu e it is right to ad d that the application of the “net”
m ethod to relevant events occu rring w ithin the period of a culp able d elay
m ay give rise to particu lar problem s of cau sation. These w ere d iscussed
at som e length in the course of argum ent. In each case it is for the
142 5.5 Effect of late variations on unliquidated damages
architect exercising his pow ers und er clause 25.3.3 to d ecid e w hether an
ad ju stm ent of the com pletion d ate is fair and reasonable having regard
to the incid ence of relevant events. Fu nd am ental to this exercise is an
assessm ent of w hether the relevant event occu rring d uring a p eriod of
culp able d elay has cau sed delay to the com pletion of the w orks and , if
so, how m uch d elay. There m ay w ell be circum stances w here a relevant
event has an im pact on the p rogress of the w orks d u ring a p eriod of
culp able d elay bu t w here that event w ould have been w holly avoid ed
had the contractor com pleted the w orks by the p reviou sly-fi xed com ple-
tion d ate. For exam ple, a storm w hich fl ood s the site d uring a period of
culp able d elay and interrupts progress of the w orks w ou ld have been
avoid ed altogether if the contractor had not overru n the com pletion d ate.
In such a case it is hard to see that it w ou ld be fair and reasonable to
postp one the com pletion date to extend the contractor ’s tim e. Ind eed ,
w here the relevant event w ould not be an act of prevention it is hard to
envisage any extension of tim e being fair and reasonable u nless the con-
tractor w as able to establish that, even if he had not been in breach of
overshooting the com p letion d ate, the particu lar relevant event w ould
still have d elayed the progress of the w orks at an earlier d ate. Such cases
are not likely to be of com m on occu rrence.’
Althou gh the case w as brought und er a JCT 80 contract its outcom e is of
wid er ap plication and is of relevance to m ost stand ard form s of construction
contracts. In short on the fi rst question the ju d ge held that the extension
provisions of JCT 80 w ere w id e enough to apply to any relevant events and
the architect w as em p ow ered to grant an extension of tim e after the d ue d ate
for com p letion had passed . In respect of the second question the ju d ge held
that the net m ethod of calculation should ap p ly.
For fu rther comm ent on this case see Chap ter 14.
5.5 Effect of la t e va ria t ions on unliquida t ed da ma ges
The effect of variations issued after the com p letion d ate w as also consid ered
in the case of McAlpine Humberoak Ltd v. McDermott International Inc. (1992).
In that case there w as a cou nterclaim for unliquid ated dam ages for late
com p letion. The contractor argu ed that no d amages w ere d ue for the p eriod
of d elay preced ing the ord er for extra w orks.
The Cou rt of Ap peal rejected the contractor ’s argu m ent. Lord Justice
Lloyd said :
‘[The contractor] su bm its that, since the extra w ork is covered by the
d efi nition of “the Work” in clau se 1 of the contract, and since the extra
w ork w as not ord ered u ntil 11 June, the d ate for com pletion of the con-
tract cannot p reced e that d ate. Accordingly the d efend ant’s claim for
d am ages cannot ru n from 1 May.
We d o not agree. Even if the defendants w ere in a position to
claim liqu idated d am ages (w hich they are not) w e d ou bt if the argum ent
5.6 Prevention and time at large 143
w ou ld p revail, at any rate so far as the p eriod prior to 11 June is con-

cerned : see SMK Cabinets v. Hili Modern Electrics [1984] VR 391 at 398;
Keating on Building Contracts 5th Ed n page 231 fn 18 [now 6th Ed n p age
250]. H ere, as w e have said , the d efend ants are claim ing u nliquidated
d am ages. Obviou sly they cannot recover d am ages for any ad d itional
d elay caused by the extra w ork. Bu t this w as taken care of by the three
w eeks allow ed by Mr McLaughlan, and by the ten and a half w eeks
w hich w e are allow ing ourselves. If a contractor is alread y a year late
throu gh his culp able fau lt, it w ou ld be absu rd that the em p loyer should
lose his claim for unliqu id ated dam ages just becau se, at the last m om ent,
he ord ers an extra coat of paint. On the facts of this case and the cond i-
tions of this contract the ord ering of extra w ork on 11 June d id not
have that effect. The defend ants w ere not d ep rived of their right to
d am ages.’
5.6 P revent ion a nd t ime a t la rge
In relation to tim e for com pletion prevention clearly has the potential to set
time at large. Whether or not it d oes so on any p articular constru ction project
d epend s on w hether the act of prevention is causative of d elay to com pletion
and w hether the p rovisions in the contract for extend ing tim e cover the
preventive act.
Mr Justice Jackson in the case of Multiplex Constructions (UK) Ltd v.
Honeywell (2007) u sefully sum m arised the law as follow s:
‘56. From this review of authority I derive three propositions:
(i) Actions by the em ployer w hich are perfectly legitim ate und er a
construction contract m ay still be characterised as prevention, if
those actions cause d elay beyond the contractu al com pletion
d ate.
(ii) Acts of p revention by an em ployer d o not set tim e at large if the
contract provid es for extension of tim e in resp ect of those
events.
(iii) In so far as the extension of tim e clause is am bigu ous, it should
be constru ed in favour of the contractor.
57. The third proposition m ust be treated w ith care. It seem s to m e that,
in so far as an extension of tim e clau se is am bigu ou s, the court should
lean in favour of a construction w hich perm its the contractor to
recover appropriate extensions of tim e in respect of events causing
d elay. This app roach also accord s with the principle of construction
set ou t by Lewison in “The Interp retation of Contracts” (3rd ed ition,
2004). That princip le read s as follow s:
“Where tw o constructions of an instru m ent are equ ally plausible,
u pon one of w hich the instrum ent is valid and upon the other of
w hich it is invalid , the court should lean tow ard s that constru ction
w hich validates the instrum ent.” ’
144 5.7 Conditions precedent and time-bars
5.7 Condit ions precedent a nd t ime-ba rs
It is increasingly com mon for stand ard form s of construction contracts, and
even m ore so for ad -hoc construction contracts, to includ e notice require-
ments w hich effectively am ount to cond itions preced ent to obtaining exten-
sions of tim e and to inclu de tim ing requirem ents w hich effectively tim e-bar
late notices.
Variou s qu estions can then arise. What is the p osition if the contractor is
prevented by the em ployer ’s breach or som e legitim ate preventive act (e.g.
ord ering variations) from com pleting on tim e bu t is d ebarred from obtaining
any extension of tim e by app lication of cond itions p reced ent or tim e-bars?.
Can the contractor rely on the prevention principle to avoid liquid ated
d am ages for d elay or can the em ployer enforce liquid ated d am ages – appar-
ently benefi ting thereby from his ow n preventive act? In short, d oes the
prevention p rinciple have p rim acy over the contractu al p rovisions w hen it
com es to exam ining w hether tim e is at large.
Som e of these qu estions w ere consid ered by Mr Ju stice Jackson in the
Multiplex v. Honeywell case und er the head ing of ‘The Gaym ark Point’:
Part 6. Th e G aym ark Poin t
‘95. H oneyw ell contend s that, even if com p liance w ith clause 11 rem ained
possible, nevertheless H oneyw ell’s failu re to com ply w ith that clause
w as su ffi cient to p ut tim e at large. If it w ere otherw ise, says H oney-
w ell, then Multip lex w ould be able to recover dam ages for a period
of d elay w hich Mu ltip lex had cau sed . The legal basis for this argu-
m ent is the Au stralian d ecision in Gaymark Investments Pty Ltd v
Walter Construction Group Ltd [1999] N TSC 143; (2005) 21 Construction
Law Journal 71.
96. I m ust therefore begin by review ing the Gaymark decision. In that case
the em p loyer claimed liqu id ated d am ages against the contractor for
d elay in constru cting an hotel in Darw in. Clause 19.1 of the Special
Cond itions of Contract im posed cond itions in resp ect of giving notice
of delay. Clause 19.2 of the Sp ecial Cond itions p rovid ed:
“The Contractor shall only be entitled to an extension of tim e for
Practical Com p letion w here . . . (b)(i) the contractor has com plied
strictly w ith the p rovisions of su b-clause SC19.1 and in particular has
given the notices required by sub-clau se SC19.1 strictly in the m anner
and w ithin the tim es stip ulated by that sub-clau se.”
97. The Arbitrator mad e the follow ing fi ndings:
(1) That the contractor w as d elayed in com pleting the w ork, includ -
ing a d elay of 77 d ays by causes for w hich the em p loyer w as
resp onsible, bu t the contractor ’s application for an extension of
time w as barred becau se of its failure strictly to com ply w ith the
notifi cation requ irements for the extension of tim e clause.
5.7 Conditions precedent and time-bars 145
(2) That the 77 d ays’ delay constituted acts of prevention by the

em p loyer w ith the resu lt that there w as no d ate for practical
com p letion and the contractor w as then obliged to com plete the
w ork w ithin a reasonable tim e (w hich the Arbitrator found that
it in fact d id ) w ith the consequence being that Gaym ark w as
p revented from recovering liquid ated d am ages for d elay.
98. The Su prem e Court of the N orthern Territory of Au stralia refused
leave to app eal and u pheld the Arbitrator ’s aw ard . Bailey J said this
at paragraphs 69–71 of his jud gm ent:
“69. Acceptance of Gaym ark’s subm issions w ould result in an
entirely u nm eritorious aw ard of liqu id ated d am ages for d elays
of its ow n m aking (and this in ad d ition to the avoid ance of
Concrete Constructions’ d elay costs becau se of that com pany’s
failu re to com ply w ith the notice p rovisions of SC19). The effect
of re-d rafting GC35 of the contract (to d elete GC35.4 and su b-
stitu te SC19) has been to rem ove the p ow er of the su perinten-
d ent to grant of allow extensions of tim e. SC19 m akes provision
for an extension of tim e for d elays for which Gaymark d irectly
or ind irectly is responsible bu t the right to su ch an extension is
d epend ent on strict com p liance w ith SC19 (and in p articular the
notice p rovisions of SC19.1). In the absence of su ch strict com -
pliance (and w here Concrete Constructions has been actu ally
d elayed by an act, om ission or breach for w hich Gaym ark is
responsible) there is no provision for an extension of time
because GC35.4 w hich contains a p rovision w hich w ould allow
for this (and is expressly referred to in GC35.2 and GC35.5) has
been d eleted .
70. In Peak Construction (Liverpool) Limited v McKinney Foundations
Limited [1970] 1 BLR 111, Salm on LJ held :
‘The liquid ated d am ages and extension of tim e clau ses and
p rinted form s contract m ust be construed strictly contra profe-
rentu m . If the emp loyer w ishes to recover liqu id ated d am ages
for failu re by the contractors to com p lete on tim e in sp ite of the
fact that som e of the d elay is d ue to the em ployer ’s ow n fault
or breach of contract, then the extension of tim e clau se should
p rovid e, exp ressly or by necessary inference, for an extension
on accou nt of such a fau lt or breach on the p art of the
em p loyer ’.
71. In the circu m stances of the present case, I consid er that this
p rincip le p resents a form id able barrier to Gaym ark’s claim for
liquid ated d am ages based on d elays of its ow n m aking. I agree
w ith the arbitrator that the contract betw een the parties fails to
p rovid e for a situ ation w here Gaym ark cau sed actu al d elays to
Concrete Construction’s achieving practical com pletion by the
d ue d ate coupled w ith a failure by Concrete Constructions to
com ply w ith the notice provisions of SC19.1. In such circu m -
stances, I d o not consid er that there w as any ‘m anifest error of
law on the face of the aw ard ’ or any ‘strong evid ence’ of any
error of law in the arbitrator hold ing that the ‘prevention prin-
ciple’ barred Gaym ark’s claim to liquid ated d am ages.”
99. In reaching this conclusion Bailey J took a different view from that
expressed obiter by Cole J in Turner Corporation Limited (Receiver
and Manager Appointed) v Austotel Pty Limited (2nd June 1994); 1997
13 BCL 378 at 12. In that earlier ju d gm ent Cole J had said :
“If the Build er, having a right to claim an extension of tim e fails
to d o so, it cannot claim that the act of prevention w hich w ould
have entitled it to an extension of time for Practical Com pletion
resu lted in its inability to com plete by that tim e. A p arty to a
contract cannot rely up on p reventing the contract of the other
p arty w here it failed to exercise a contractu al right w hich w ould
have negated the effect of that preventing cond u ct.”
100. The correctness of the Gaymark d ecision has been a m atter of
som e debate. The ed itors of Keating on Building Contracts (8th
ed ition 2006) note that there is no English au thority on the m atter
but incline to the view that Gaymark w as correctly d ecid ed (see
p aragrap h 9-025). The ed itor of H ud son on Build ing Contracts,
the late Ian Du ncan Wallace QC, argu es that Gaymark was
w rongly d ecid ed (see paragraph 10.026 of the fi rst supplem ent
to the 11th ed ition of Hud son). Professor Wallace (a form id able
com m entator on construction law, w ho is now sadly missed )
also wrote a trenchant article on this subject. See “Prevention and
Liqu id ated Dam ages: a Theory Too Far” (2002) 18 Build ing and
Constru ction Law, 82. In that article Professor Wallace refers to
the Turner case, w hich I have p reviously m entioned , and certain
other authorities. He points out the u seful p ractical pu rpose
w hich contractual provisions requ iring a contractor to give
notice of d elay serve. Professor Wallace argues that both the
arbitrator and the jud ge cam e to the w rong conclusion in Gaymark.
In Professor Wallace’s view, Gaymark extend s the prevention
theory too far.
101. In Peninsula Balmain Pty. Limited v Abigroup Contractors Pty.
Limited [2002] N SWCA 211, the New Sou th Wales Court of
Ap p eal d eclined to follow Gaymark and preferred the reasoning
of Professor Wallace. H odgson JA gave the lead ing jud gm ent
w ith w hich other m embers of the court agreed . At paragraph
78 H od gson JA said this:
“I accept that, in the absence of the Su perintend ent’s p ow er to
extend tim e, even if a claim had not been mad e w ithin tim e,
Abigrou p w ou ld be preclud ed from the benefi t of an extension
of tim e and liable for liquid ated d am ages, even if d elay had
been cau sed by variations required by Peninsu la and thu s
w ithin the so-called ‘p revention princip le’. I think this d oes
follow from the tw o Turner cases and the article by Mr. Wallace
referred to by Mr. Rud ge.”
102. A year after Peninsula, the Second Division of the Inner Hou se
of the Cou rt of Session gave jud gm ent in City Inn Limited v
Shepard Construction Limited 2003 SLT 885. In that case the
em p loyer contend ed that the contractor w as not entitled to any
extension of tim e, because the Contractor had not com plied
w ith clause 13.8 of the contract in relation to notices. The cou rt
held that the contractor cou ld not obtain an extension of tim e if
it d id not com ply w ith that provision (see paragrap h 23 of the
Op inion of the court). It appears, how ever, that the Australian
cases w ere not cited .
103. I am bound to say that I see considerable force in Professor
Wallace’s criticism s of Gaymark. I also see consid erable force in
the reasoning of the Australian cou rts in Turner and in Peninsula
and in the reasoning of the Inner Hou se in City Inn. Whatever
m ay be the law of the Northern Territory of Australia, I have
consid erable d oubt that Gaymark represents the law of England .
Contractu al term s requiring a contractor to give p romp t notice
of delay serve a valuable pu rpose; su ch notice enables m atters
to be investigated w hile they are still cu rrent. Fu rtherm ore, su ch
notice som etim es gives the em p loyer the opportunity to w ith-
d raw instructions w hen the fi nancial consequences becom e
ap p arent. If Gaymark is good law, then a contractor cou ld d isre-
gard w ith im p unity any p rovision m aking prop er notice a con-
d ition preced ent. At his op tion the contractor cou ld set tim e at
large.
104. Althou gh I have consid erable d ou bts that Gaymark rep resents
the law of England , nevertheless that is not a question w hich I
am requ ired fi nally to decid e. This is becau se Gaymark shou ld
read ily be d istinguished from the present case. In Gaymark non-
com p liance w ith the notice clause exposed the contractor to an
autom atic liability for liquid ated d am ages (if the liquid ated
d am ages clau se w ere up held ). In the p resent case, non-
com p liance with clause 11.1.3 has no such autom atic conse-
qu ences. Even if (contrary to Mr. Thom as’ su bm issions)
Honeyw ell forfeits any entitlem ent to extension of tim e, that
d oes not au tom atically m ake H oneyw ell liable to pay d am ages
for d elay. Und er clau se 12 of the Su b-Contract Cond itions, Mul-
tip lex can only recover in respect of loss or d am age “cau sed by
the failu re of the Sub-Contractor”. If in reality the relevant d elay
w as cau sed by Multiplex, not H oneyw ell, then (w hatever the
position und er clause 11) Mu ltip lex cannot recover against H on-
eyw ell und er clause 12.
105. Let m e now d raw the thread s together. If the facts are that it
w as p ossible to com ply w ith clause 11.1.3 but H oneyw ell sim ply
failed to d o so (w hether or not d eliberately), then those facts d o
not set tim e at large. H oneyw ell is not entitled to the relief
w hich it seeks in resp ect of the Gaymark p oint.’
The City Inn reasoning referred to by Mr Ju stice Jackson in his jud gm ent
com es from the second jud gm ent in the case of City Inn Ltd v. Shepherd Con-
struction Ltd (the 2003 app eal ruling). Mention has alread y been mad e to this
jud gment in Chap ter 4 above in relation to w hether the cond ition p reced ent
provisions in the constru ction contract acted as a penalty clau se. The cou rt
d oubted that they d id . A m ore signifi cant aspect of the case, and apparently
that referred to by Mr Justice Jackson, w as w hether the conditions preced ent
d ep rived the contractor of the opportunity to obtain an extension of tim e
– thereby im posing on the contractor liability to p ay liqu id ated d am ages
and thereby turning the cond itions preced ent into a penalty for breach. The
cou rt held that they d id not. Its reasoning w as as follow s:
‘a. Whether failu re by the contractor to take action und er clau se 13.8.1
constitu tes a breach of contract
[22] This issu e arises becau se, in ord er to have clau se 13.8.5 construed as
a penalty clau se, the defenders have to argue that w here they d o not
operate the proced ures laid d ow n in clause 13.8.1, they them selves
com m it a breach of contract. In hold ing that in that case the contrac-
tor com m its a breach of contract, the Lord Ord inary consid ered that
the breach consisted in the contractor ’s failu re to form an op inion
on the question raised by the instru ction and d efi ned in the clause
and to intim ate the relevant estim ates based on that opinion. In the
argum ent before u s, how ever, cou nsel for the d efend ers argu ed that
the breach consisted in the contractor ’s proceeding to carry ou t the
w ork.
[23] In our op inion, the contractor w ou ld not com m it a breach of contract
in either resp ect. Clause 13.8 d oes not im pose any obligation on the
contractor w hen he receives an architect’s instru ction. If the contrac-
tor receives su ch an instru ction, he has to consid er its likely effects,
and in p articu lar its likely effect on the d u ration of the build ing
p eriod . H e may, for reasons of his ow n, d ecid e to accept the instruc-
tion w ithou t resistance and hop e that he w ill be able to com plete the
w ork, as varied by the instru ction, w ithin the build ing period . Bu t
if he w ishes an extension of tim e, he m u st com p ly w ith the cond i-
tions preced ent that clause 13.8 provid es for in these specifi c circum -
stances (cf. cl. 13.8.5). In p articular, he m u st serve notice on the
architect of his estim ate of inter alia the probable cost. In the light of
that the emp loyer m ay take the op portunity to w ithd raw the instruc-
tion. Bu t if the contractor fails to take the step s specifi ed in clause
13.8.1, then u nless the architect w aives the requirem ents of the clause
u nd er clau se 13.8.4, the contractor w ill not be entitled to an extension
of tim e on accou nt of that particu lar instruction.
[24] In short, clau se 13.8 provides the contractor w ith an ad d itional right,
in the specifi c case to w hich it applies, that w ou ld not be available
to him in the case of an instru ction issued u nd er the general provi-
sions of clau se 4. But clause 13.8 d oes not oblige the contractor to
invoke its p rotection. It m erely p rovid es the contractor w ith an

op tion to take certain action if he seeks the protection of an extension
of tim e in the circu m stances in w hich the clause applies. The provi-
sions of clau se 13.8, in our view, are m erely cond itions preced ent to
his d oing so.
[25] If the contractor fails to take action in accord ance w ith clause 13.8.1,
it is a false analysis to d escribe him as being in breach of contract. The
u ltim ate effect of that failu re may be that he is unable to com plete the
w orks, as varied by the instruction, by the com pletion d ate; althou gh
that cannot be assum ed at that stage. Bu t the breach of contract that
that wou ld constitute would not be a breach of clause 13.8. It wou ld
be a breach of clause 23 (supra), of w hich the u ltim ate cause m ay be
the contractor ’s failure to take ad vantage of clause 13.8.
[26] For these reasons, w e consid er that the clause d oes not oblige the
contractor to resp ond to the instru ction in accord ance w ith the clau se
and thereby to give the architect the opp ortunity to reconsid er the
instru ction. If the architect issues an instruction that m ay have su ch
consequ ences, the chance that the contractor will not contest it is just
one of the risks that the architect takes. If therefore the contractor
goes ahead w ith the w ork in accord ance w ith the instruction, he d oes
not com m it any breach of contract. In this respect w e d isagree w ith
the Lord Ord inary’s reasoning.’
Com m en t
All three jud gm ents in the City Inn case attracted consid erable interest –
particu larly for the w ay the fi rst and second jud gm ents d ealt w ith w hat
m ight be d escribed as prevention type argu m ents. In hold ing that the condi-
tions p reced ent d id not render the liquid ated d am ages provisions u nen-
forceable the Scottish courts seem ed to be provid ing a lead in an area of law
previously lacking legal authority (save for the Com m onw ealth cases).
How ever, although the reasoning in City Inn is certainly interesting, som e
caution m ay need to be exercised before assum ing that the ru ling is of
general application. The constru ction contract contained ad -hoc provisions
on variations and the giving of notices and the d isp u te arose from clauses
requ iring the contractor to provid e estim ates of extra cost and tim e before
acting on any instru ction or the like which, in the opinion of the contractor,
constitu ted a variation. In su ch circu m stances it is not d iffi cult to see w hy
the Scottish cou rts took the view that it w as at the contractor ’s op tion
w hether or not it gave notice and / or acted on an instruction.
It is qu estionable w hether the courts w ou ld have reached the sam e view
if the contract had requ ired the contractor to act on all instru ctions valid ly
given by the contract ad m inistrator and qu estionable as to w hat relevance
it has to the effects of cond itions preced ent w hen the act of prevention is
em p loyer ’s breach (e.g. failure to give tim ely possession of the site).
150 5.8 Steria Ltd v. Sigm a Wireless Com m u nications Ltd (2007)
5.8 St eria Lt d v. Sigma Wireless Communica t ions Lt d (2007)

The Steria case concerned d elays in com pletion of a su bcontract on a com -
puter-assisted m obilisation and com m u nications p roject. The sub-contract
was based on a heavily revised version of the m od el form for electrical and
mechanical w orks, MF/ 1. Sigm a, the m ain contractor, sought to recover by
way of set-off and / or counterclaim , liqu id ated or alternatively general
d am ages for Steria’s d elay in com pleting its w orks.
The 92-p age jud gm ent of Judge Step hen Davies covers a w ide range of
interesting m atters relating to extensions of tim e and liquid ated d am ages
– albeit that som e p arts of the ju d gm ent are clearly stated to be view s rather
than d ecisions. The p rincip al m atters relate to app lication of the p revention
princip le on w hich the jud ge fi rm ly states, follow ing Mr Ju stice Jackson in
Multiplex, that the p revention p rinciple d oes not m ean that failu re to com p ly
with notice provisions puts tim e at large. Other m atters concern:
interp retation
notices
p enalty clau ses.
The p reven tion p rin cip le
Rejecting Steria’s argum ents on prevention and tim e at large the jud ge
said:
‘78. The fi rst issue is whether or not the requirem ent in clau se 6.1 for
Steria to give w ritten notice of the circum stances giving rise to the
d elay w ithin a reasonable period is a cond ition p reced ent to its right
to an extension of tim e. Whilst Steria contend s princip ally that clause
6.1 is not a cond ition p recedent, or if it is that: (a) it com p lied w ith
that requ irem ent; alternatively (b) Sigm a has w aived the requirem ent
for com p liance / is estopped from com p laining of non-com pliance;
the fu rther issu e of law w hich arises if those argum ents are unsu c-
cessfu l is Steria’s contention that if d elay has been caused d ue to acts
of p revention by Sigm a (includ ing for this pu rp ose CAMP East and /
or Mason) and if Steria has failed to give notice in com p liance w ith
clause 6.1, then the resu lt is that the tim e for com pletion is set at
large. This argu m ent relies on w hat has becom e know n as the “p re-
vention princip le”.
AN D
‘The application of the ‘prevention’ p rincip le
93. It is convenient at this stage also to ad d ress the prevention p rinciple
argu m ent, even thou gh again the p oint w ill only arise for d ecision if
I fi nd fi rst that Steria had failed to give the requ isite notices and
second that Sigm a had not w aived , or w as not estop ped from relying
on the absence of, the requ isite notices.
5.8 Steria Ltd v. Sigm a Wireless Com m u nications Ltd (2007) 151
94. I am extrem ely fortunate in that I have the benefi t of the analysis of
Jackson J. in the Multiplex case of the confl icting Australian authorities
(Turner, Gaymark and Peninsula), the d ecision of the Cou rt of Session
in City Inn v Shepard Construction 2003 SLT 885, and the view s
exp ressed both by the ed itors of Keating on Building Contracts and by
the late Professor Wallace QC. In su m mary, Jackson J. conclu d ed in
p aragraph 103 that:
“I am bou nd to say that I see consid erable force in Professor Wallace’s
criticism s of Gaymark. I also see consid erable force in the reasoning
of the Au stralian cou rts in Turner and in Peninsula and in the reason-
ing of the Inner H ouse in City Inn. Whatever m ay be the law of the
N orthern Territory of Australia, I have consid erable d ou bt that
Gaymark represents the law of England . Contractu al terms requiring
a contractor to give prom pt notice of d elay serve a valuable pu rpose;
su ch notice enables m atters to be investigated w hile they are still
cu rrent. Fu rtherm ore, such notice som etim es give the em p loyer the
op portu nity to w ithd raw instructions w hen the fi nancial conse-
qu ences becom e ap parent. If Gaymark is good law, then a contractor
cou ld d isregard w ith im punity any provision m aking p rop er notice
a cond ition preced ent. At his option the contractor could set tim e at
large.”
95. Althou gh on the facts of that case Jackson J. d id not, d u e to the par-
ticu lar w ord ing of the extension of tim e and liqu id ated d am ages
clauses em p loyed , need to express a fi nal d ecision on the p oint, none-
theless I gratefu lly ad opt his analysis and agree w ith his prelim inary
conclu sion. Generally, one can see the com m ercial absu rd ity of an
argu ment w hich w ould result in the contractor being better off by
d eliberately failing to comp ly w ith the notice cond ition than by com -
p lying w ith it. Fu rtherm ore, w hen ap plied to the facts of this case,
p articularly acu te d iffi culties arise w hen consid ering how the app lica-
tion of the p revention principle should w ork in p ractice. Thu s clause
6.1 p erm its an extension of tim e in 3 relevant circum stances, one of
w hich is “any circum stance w hich entitles the contractor to an exten-
sion of tim e u nd er the m ain contract”. Clau se 33.1 of MF/ 1 (the m ain
contract term relating to extension of tim e), allow s an extension of
tim e in 4 specifi ed circu m stances, one of w hich is “any ind u strial
d ispu te” and the other of w hich is “circu m stances beyond the reason-
able control of the contractor arising after acceptance of the w orks”.
Does the prevention princip le ap ply to su ch circu m stances? It is d if-
fi cult to see w hy they should , since these circu m stances cannot readily
be characterised as acts of prevention by the em p loyer. If not, how ever,
is the effect that the notice procedu re is a cond ition p reced ent in rela-
tion to d elays cau sed by those events, bu t not to d elays caused by
other events? That w ould prod uce an inconsistent and u nd esirable
result. Fu rtherm ore, in ad d ition to conferring a right to an extension
of tim e, clause 6.1 also confers a right on Steria to recover “all extra
costs incu rred in relation to [the delay] together w ith a reasonable
allow ance for p rofi t”. Does the p revention princip le m ean that Steria
could obtain these benefi ts even if it had not com plied w ith the
notice cond ition p reced ent? Again, that w ould ap pear to involve the
contractor obtaining a benefi t from his ow n breach, w hich is the con-
verse of the p revention principle and hence m ight be said to be
equally objectionable, but to construe the clause such that Steria w as
entitled to an extension of tim e even if it d id not com ply w ith the
notice cond ition, bu t not to an extra paym ent, w ou ld again in my
jud gm ent be inconsistent and u ndesirable.
96. In its closing submissions [§134] Steria invites m e to d istinguish Mul-
tiplex on the ground s that it contained a clear and unam bigu ou s
notice cond ition p reced ent clause, u nlike that found here. It does not
seem to m e that strictly speaking any qu estion of d istingu ishing
Multiplex arises since, as I have alread y noted, in that case Jackson J.
d id not need to reach an actual decision on the point. H ow ever I m u st
confess that I cannot see that the p articular form of the clau se used
in that case is relevant to the analysis of the authorities and the pro-
visional conclu sion reached . In any event I am , as I have alread y said ,
resp ectfu lly in agreem ent w ith Jackson J. Gratefully ad opting there-
fore the reasons which he gives in that case, together w ith the further
reasons set out above in relation to the p articu lar clau se in this case,
I conclu d e that the p revention p rincip le d oes not m ean that failure to
com ply w ith the notice requirem ent of clau se 6.1 puts the tim e for
com pletion at large.
97. A sep arate bu t connected argum ent ad vanced by Steria w as that one
cau se of d elay, nam ely d elay d ue to negotiations between the DFB
and its em ployees’ trad es union in relation to the introd u ction of the
new system 5, fell outsid e the scope of the relevant circu m stances
provid ed for by clause 6.1 and thus, in the event that d elay w as
cau sed by this circum stance, w ould am ou nt to prevention for w hich
Sigm a w as resp onsible for w hich an extension of tim e w as not avail-
able, w ith the resu lt that tim e for com p letion w as set at large. Although
ingenious, in m y jud gm ent the argu m ent fails becau se that cause of
d elay w ould either fall w ithin the defi nition of “circu m stances beyond
the reasonable control of the contractor arising after accep tance of the
w orks” (and thus w ithin clause 33.1 MF/ 1), or a “breach by the con-
tractor” (becau se the effect of delay caused by su ch ongoing negotia-
tions w ou ld am ou nt to breaches by Sigma of its p ositive obligations
in Sched u le 11 of the su b-contract).’
In terpretation
On interp retation of the contractual requ irem ents for notice the ju d ge said :
‘90. Tu rning to the word ing of the clau se, in m y ju d gm ent the phrase
“p rovid ed that the su b-contractor shall have given w ithin a reason-
able p eriod w ritten notice to the contractor of the circu m stances

giving rise to the delay” is clear in its m eaning. What the sub-
contractor is requ ired to d o is give written notice within a reasonable
p eriod from w hen he is d elayed , and the fact that there m ay be scop e
for argum ent in an ind ividu al case as to w hether or not a notice w as
given w ithin a reasonable period is not in itself any reason for argu ing
that it is unclear in its m eaning and intent. In m y op inion the real
issu e w hich is raised on the w ord ing of this clau se is w hether those
clear w ord s by them selves su ffi ce, or w hether the clause also needs
to inclu d e som e express statem ent to the effect that u nless w ritten
notice is given w ithin a reasonable tim e the su b-contractor w ill not
be entitled to an extension of tim e.
91. In my ju dgm ent a further express statem ent of that kind is not neces-
sary. I consider that a notifi cation requ irem ent m ay, and in this
case d oes, op erate as a cond ition p reced ent even though it d oes
not contain an exp ress w arning as to the consequ ence of non-
com p liance. It is tru e that in many cases (see for exam ple the contract
in the Multiplex case itself) careful d rafters w ill inclu d e such an
exp ress statem ent, in ord er to put the m atter beyond d ou bt. It d oes
not how ever follow, in m y op inion, that a clau se – su ch as the one
u sed here – w hich m akes it clear in ord inary langu age that the right
to an extension of tim e is cond itional on notifi cation being given
shou ld not be treated as a cond ition preced ent. This is an ind ivid u -
ally negotiated su b-contract betw een tw o su bstantial and experi-
enced com panies, and I w ou ld be loathe to hold that a clearly w ord ed
requirem ent fails d u e to the absence of legal “boilerp late”.’
N otices
Regard ing Steria’s case that it could rely on m inutes of m eetings or its plead -
ings the jud ge said :
‘82. I also consid er that the w ritten notice m u st em anate from Steria. Thus
for exam p le an entry in a m inute of a m eeting prep ared by Mason
w hich record ed that there had been a d elay by CAMP East in app rov-
ing the FDS, and that as a result the su b-contract w orks had been
d elayed , w ou ld not in m y jud gm ent by itself am ou nt to a valid notice
u nd er clau se 6.1. The essence of the notifi cation requirem ent in m y
ju d gm ent is that Sigm a m ust know that Steria is contend ing that
relevant circu m stances have occurred and that they have led to d elay
in the su b-contract w orks.’
Pen alty clau se p oin ts
In rejecting various argu m ents by Steria that the provisions for liqu id ated
d am ages am ounted to penalty clauses, the jud ge said:
‘98. I m u st now d eal w ith Steria’s contention that clause 7.1 is a penalty
clause.
99. Steria has referred m e to Murray v Leisureplay [2005] EWCA Civ 963,
a case in w hich the Cou rt of Ap peal su bjected the law on penalty
clauses to a detailed scru tiny in the context of a clause requ iring the
d efend ant em ployer to pay the claim ant em p loyee a year ’s gross
salary in the event of w rongful term ination w ithou t notice. Steria
has also referred m e to Alfred McAlpine Capital Projects v Tilebox
[2005] EWH C 281 (TCC), in w hich Jackson J. consid ered the law on
p enalty clau ses in the context of a d isp u te arising u nd er a construc-
tion contract. Sigm a has referred m e to the Tilebox case and also to
the case of Philips Hong Kong v AG for Hong Kong (1993) 61 BLR 49,
a d ecision of the Privy Council w hich w as d iscu ssed in both
cases.
100. So far as I can d iscern there is no signifi cant d isp ute betw een the
p arties as to the legal p rinciples w hich I shou ld ap ply. Thu s Sigm a
contend ed that the question for me, in the light of Mu rray, w as
w hether Steria cou ld show that the liqu id ated dam ages p rovision
in clau se 7.1 w as ‘extravagant, unconscionable and not a genuine
p re-estim ate of loss’ (see the jud gm ent of Clarke L.J. at §106(vii)).
Steria referred m e to the sam e jud gm ent at §106(iv) w here Clarke
L.J., referring to the decision of Colm an J. in Lordsdale Finance v Bank
of Zambia [1996] QB 752, conclu d ed that the real qu estion for the
cou rt w as w hether the contractual function of the clause w as d eter-
rent or com p ensatory, and that one gu id e to answ ering this question
w as to com p are the am ou nt w hich w ou ld be payable on breach w ith
the loss that m ight be sustained if the breach occu rred. In Tilebox
Jackson J. consid ered that there m u st be a substantial d iscrep ancy
betw een the level of d am ages stip ulated in the contract and the level
of d am age w hich is likely to be su ffered before it can be said that
the agreed p re-estim ate is unreasonable. I m u st how ever also bear
in m ind that this is only a guid e, and d oes not necessarily alw ays
p rovid e the answ er by itself, becau se – as w as em phasised by
Bu xton L.J. in Mu rray at §111 and by Jackson J. in Tilebox at §48.3
– the question is a broad and general qu estion, and that in com -
m ercial contracts the courts should exercise great caution before
striking dow n a clause as penal.’
And later in the ju d gment, having exam ined the d etails of the liqu id ated
d am ages clauses of the m ain contract and the sub-contract, the jud ge
conclu d ed :
‘106. In such circum stances, in m y jud gm ent: (i) there is no su bstantial
d iscrep ancy betw een the liquidated d am ages provisions of the sub-
contract and the level of d am ages likely to be su ffered by Sigm a;
(ii) on the facts of this case I am u nable to conclud e that the clause
w as – objectively consid ered as at the d ate the contract w as entered
into – intended to be deterrent rather than com pensatory. Overall,
this being a com mercial contract entered into betw een tw o su bstan-
tial and experienced com panies w ith know led ge of the d iffi cu lties
w hich can occu r w here after the event one party seeks to recover
general d am ages from the other for d elay, I am not p rep ared to
strike d ow n the clau se as penal.’
Cap p in g p oin t
On the question of w hether a stated cap on the am ount of liqu id ated d am ages
(in this case 10% of the su bcontract price) acts as a lim it on the am ount of
recoverable general d am ages w hen the liqu id ated d am ages p rovisions are
held to be inoperable, the jud ge m ad e these observations:
‘114. Having u pheld the liquid ated d am ages p rovisions of clau se 7.1 and
Sched u le 6, it is u nnecessary for m e to consid er the further argu -
m ent as to w hether the cap in those provisions w ou ld also ap ply to
cap the alternative claim for general d am ages. It is clear in m y ju d g-
m ent from the concluding w ord s of clau se 7.1 that the entitlem ent
to liqu id ated d amages is Sigm a’s sole rem ed y for delay by Steria,
so that it is not p ossible for Sigm a to ad vance its claim s for general
d am ages as an alternative. If I had need ed to d ecid e the point, I
w ou ld have inclined to the view that if the liqu id ated d am ages
p rovision is held to be p enal, then it prevents either party from
relying on it, so that the cap also d isapp ears.’
Chap ter 6
Legal con stru ction of liq u id ated
d am ages clau ses
6.1 Rules of const ruct ion
The object of the cou rts in constru ing w ritten contracts is to d iscover the
intentions of the parties. The cou rts w ill ap ply rules of construction to the
exp ress term s to resolve am bigu ities or inconsistencies; they m ay add
im plied term s to a contract to provide bu siness effi cacy; but they w ill not
make a contract for the p arties or re-make a contract w hich the p arties have
mad e for them selves w hich turns ou t to have u nexpected results. Lord
Pearson in Trollope & Colls Ltd v. North West Metropolitan Regional Hospital
Board (1973) pu t it this w ay:
‘The basic p rincip le is that the court d oes not m ake a contract for the
parties. The court w ill not even im p rove the contract w hich the parties
have m ade for them selves, how ever d esirable the im p rovem ent m ight be.
The cou rt’s fu nction is to interpret and ap ply the contract w hich the
parties have m ad e for them selves. If the express term s are perfectly clear
and free from am bigu ity, there is no choice to be mad e betw een d ifferent
possible meanings: the clear term s m u st be applied even if the cou rt
thinks som e other term w ou ld have been m ore suitable. An u nexp ressed
term can be im plied if and only if the court fi nd s that the p arties m u st
have intend ed that term to form p art of their contract; it is not enough
for the court to fi nd that su ch a term w ou ld have been ad op ted by the
parties as reasonable m en if it had been su ggested to them : it m u st have
been a term that went w ithout saying, a term necessary to give bu siness
effi cacy to the contract, a term w hich, though tacit, form ed p art of the
contract w hich the p arties m ad e for them selves.’
The ru les of constru ction are briefl y as follows:
In ten tion to b e fou nd from th e con tract itself
In constru ing w ritten contracts, the courts w ill not go outsid e the w ritten
d ocum ents and su bstitu te the presum ed intentions of the p arties. The inten-
tions m u st be ascertained from the contract itself.
6.1 Rules of construction 157
O rd in ary/p lain m ean in g
Word s are to be given their ord inary or p lain m eaning as generally

und erstood . This rule is d eparted from only to avoid absurdity or inconsis-
tency. In trad e or technical contracts, the cu stom ary m eaning of w ord s
applies.
Valid m ean in g
Word s, phrases or clau ses capable of d ifferent meanings w ill be construed

to m ake a contract valid rather than void or ineffective.
Con tract to b e read as a w h ole
The intention of the parties is to be d erived by constru ing a contract as a

w hole and , as far as p racticable, giving effect to each of its p rovisions. To d o
this, the cou rt m ay fi rst have to d ecid e w hich d ocum ents form the contract
and to d iscover w hat ord er of p reced ence the parties m ay, or m ay not, have
given to the various docu m ents.
Particu lars prevail over stan d ard s
Unless the d ocu m ents expressly provid e otherw ise, w ritten w ord s on a
printed form w ill have greater effect than the printed w ord s and the provi-
sions in a w ritten docu m ent will prevail over provisions in any incorporated
d ocu m ents. Thu s, sp ecial or particu lar cond itions w ill generally prevail over
stand ard cond itions.
‘Expressio unius’
Exp ress m ention of a certain thing w ill exclu de other things of a sim ilar
natu re. Thu s, a contract for the sale of a found ry p lus two houses, together
w ith the fi xtu res in the hou ses, w as held to exclu d e the fi xtu res in the
fou nd ry.
‘Ejusdem generis’
Where w ord s of a p articu lar class are follow ed by general w ord s, the general
w ord s are taken to ap ply to things of the sam e class. Thu s, in a charter con-
tract it w as held that the w ord s ‘any other cau se’ in the phrase ‘w ar, d istu r-
bance or any other cau se’ did not inclu d e ice, but w ere restricted to events
of the sam e kind as w ar and d isturbance.
158 6.1 Rules of construction
‘Cont ra proferent em’
Where there is am bigu ity in a d ocum ent, the w ord s are to be construed
against the p arty w ho p ut forw ard the d ocu ment.
Rules of con stru ction / ru les of law
Before consid ering the last rule in m ore d etail, it is w orth noting the d istinc-
tion betw een ru les of construction and ru les of law. Ru les of construction
are applied to enable the cou rts to ascertain the intentions of the parties, as
exp ressed , and to give effect to those intentions. Rules of law are app lied to
bring the parties w ithin the fram ew ork of established legal ru lings and these
ru les ap ply even thou gh the p arties m ay have expressed , and intend ed ,
som ething contrary.
The West Bromw ich case (1997)
Mod ern au thority on the interpretation of contracts is fou nd in the House

of Lords ruling in the case of Investors Compensation Scheme v. West Bromwich
Building Society (1997) – a ru ling concerning the m eaning of a clau se in a
hom e incom e p lan. Lord H offm an set ou t fi ve p rinciples for constru ing
contract d ocu m ents:
‘(1) Interp retation is the ascertainm ent of the meaning w hich the d ocu-
m ent w ou ld convey to a reasonable p erson having all the backgrou nd
know led ge w hich w ould reasonably have been available to the
p arties in the situation in w hich they w ere at the time of the
contract.
(2) The backgrou nd w as fam ou sly referred to by Lord Wilberforce as the
“matrix of fact”, bu t this phrase is, if anything, an u nd erstated
d escription of w hat the background m ay inclu d e. Su bject to the
requirem ent that it should have been reasonably available to the
p arties and to the exception to be m entioned next, it inclu d es abso-
lu tely anything w hich w ou ld have affected the w ay in w hich the
langu age of the d ocum ent w ou ld have been und erstood by a reason-
able m an.
(3) The law exclud es from the ad m issible backgrou nd the p revious
negotiations of the p arties and their d eclarations of subjective intent.
They are ad m issible only in an action for rectifi cation. The law m akes
this d istinction for reasons of practical policy and , in this resp ect only,
legal interpretation d iffers from the w ay w e w ou ld interpret u tter-
ances in ord inary life. The bound aries of this excep tion are in som e
respects unclear. Bu t this is not the occasion on w hich to exp lore
them .
(4) The m eaning w hich a docu m ent (or any other utterance) w ould
convey to a reasonable m an is not the sam e thing as the m eaning of
its w ord s. The m eaning of w ord s is a matter of d ictionaries and gram -
6.1 Rules of construction 159
m ars; the m eaning of the d ocum ent is w hat the parties u sing those
w ord s against the relevant backgrou nd w ou ld reasonably have been
u nd erstood to m ean. The backgrou nd m ay not m erely enable the
reasonable m an to choose betw een the possible m eanings of w ord s
w hich are ambigu ous bu t even (as occasionally happens in ord inary
life) to conclud e that the parties m u st, for w hatever reason, have used
the w rong w ord s or syntax. (See Mannai Investments Co. Ltd. v. Eagle
Star Life Assurance Co. Ltd. [1997] 2 WLR 945.)
(5) The “ru le” that word s should be given their “natural and ord inary
m eaning” refl ects the com m on sense prop osition that w e do not
easily accept that p eople have m ad e lingu istic mistakes, particularly
in form al d ocu ments. On the other hand , if one w ould nevertheless
conclu d e from the background that som ething m ust have gone w rong
w ith the language, the law d oes not require jud ges to attribu te to the
p arties an intention w hich they plainly cou ld not have had . Lord
Dip lock m ad e this point m ore vigorously w hen he said in The Antaios
Compania Neviera S.A. v. Salen Rederierna A.B. (1985) 1 AC 191, 201:
“. . . if d etailed sem antic and syntactical analysis of w ord s in a
com m ercial contract is going to lead to a conclu sion that fl ou ts
bu siness com m onsense, it m u st be mad e to yield to bu siness
com m onsense.” ’
The com m ents of Lord H offm an w hich im m ed iately preced ed and follow ed
the above-quoted statem ent of principles are w orth noting – if only for their
levity and their bluntness in reference to ‘old intellectual baggage’:
‘In the Cou rt of App eal, Leggatt LJ said , on the authority of Alice Through
the Looking Glass, that the ju d ge’s interp retation w as “not an available
m eaning of the w ord s”. “Any claim (w hether sou nd ing in rescission for
und ue infl uence or otherw ise)” could not m ean “Any claim sound ing in
rescission (w hether for u nd u e infl uence or otherw ise)” and that w as that.
H e w as u nim p ressed by the alleged comm ercial nonsense of the alterna-
tive construction.
My Lord s, I w ill say at once that I prefer the ap proach of the learned
ju d ge. Bu t I think I should preface m y explanation of m y reasons w ith
som e general rem arks about the p rinciples by w hich contractu al docu -
m ents are now ad ays constru ed . I d o not think that the fund am ental
change w hich has overtaken this branch of the law, p articu larly as a result
of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 WLR
1381, 1384–1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen
[1976] 1 WLR 989, is alw ays suffi ciently app reciated . The resu lt has been,
subject to one im portant exception, to assim ilate the w ay in w hich su ch
d ocum ents are interp reted by jud ges to the com m on sense princip les by
w hich any seriou s utterance w ou ld be interpreted in ord inary life. Alm ost
all the old intellectual baggage of “legal” interp retation has been d is-
card ed . The p rinciples m ay be sum m arised as follow s.
[The fi ve princip les as quoted above]
If one applies these principles, it seems to me that the ju d ge m ust be
right and , as w e are d ealing w ith one bad ly d rafted clau se w hich is
160 6.2 Contra proferentem rule
hap pily no longer in u se, there is little ad vantage in m y repeating his

reasons at greater length. The only rem ark of his w hich I w ould respect-
fully qu estion is w hen he said that he w as “d oing violence” to the natural
m eaning of the w ord s. This is an over-energetic w ay to describe the
process of interpretation. Many people, includ ing p oliticians, celebrities
and Mrs. Malaprop , m angle m eanings and syntax but nevertheless com -
m unicate tolerably clearly w hat they are u sing the w ord s to m ean. If
anyone is d oing violence to natural m eanings, it is they rather than their
listeners.’
Lord H offm an w ent on to say:
‘Finally, on this part of the case, I m ust m ake some com m ents u pon the
jud gm ent of the Cou rt of Appeal. Leggatt LJ said that his constru ction
w as “the natu ral and ord inary m eaning of the w ord s used”. I d o not think
that the concept of natu ral and ord inary meaning is very helpful w hen,
on any view, the w ord s have not been used in a natural and ord inary w ay.
In a case like this, the court is inevitably engaged in choosing betw een
com p eting unnatural m eanings. Second ly, Leggatt LJ said that the jud ge’s
constru ction w as not an “available m eaning” of the w ord s. If this m eans
that jud ges cannot, short of rectifi cation, decid e that the p arties m u st have
m ad e m istakes of m eaning or syntax, I resp ectfully think he w as w rong.
The proposition is not, I w ould su ggest, borne ou t by his citation from
Alice Through the Looking Glass. Alice and H um pty Du m p ty w ere agreed
that the w ord “glory” d id not m ean “a nice knock-d ow n argu ment”.
Anyone w ith a d ictionary could see that. H u m pty Dum pty’s point w as
that “a nice knock-d ow n argum ent” w as w hat he m eant by u sing the
w ord “glory”. H e very fairly acknow led ged that Alice, as a reasonable
you ng w om an, cou ld not have realised this until he told her, but once he
had told her, or if, w ithou t being expressly told , she cou ld have inferred
it from the background , she w ou ld have had no d iffi cu lty in und erstand -
ing w hat he m eant.’
6.2 Con tra p roferen tem rule
Of the variou s ru les of construction, the contra proferentem rule has histori-
cally p roved the m ost signifi cant in connection w ith cases on liqu id ated
d am ages and extensions of tim e.
The ru le itself com es from the Latin m axim : ‘verba chartarum fortius
accipiuntur contra proferentem’ – the w ord s of w ritten d ocum ents are con-
structed more forcibly against the p arty offering them .
There is an abu nd ance of cases going back to the early nineteenth centu ry
where the cou rts have show n a traditional hostility to liquid ated d am ages
clau ses and have consistently construed contracts against their app lication.
Mod ern au thority for the strict application of the rule to liqu idated d am ages
and extension of clau ses of construction contracts com es from the ju d gm ent
of Lord Ju stice Salm on in Peak v. McKinney (1970) w here he said :
6.2 Contra proferentem rule 161
‘The liqu id ated d am ages and extension of tim e clauses in p rinted form s
of contract m u st be construed strictly contra proferentem.’
Ra pid Building v. Ea ling (1984)
Many jud gm ents in construction cases have referred to the rule in Peak –
albeit not alw ays w ith enthusiasm .
Thu s Lord Ju stice Lloyd in the Rapid Building case mentioned in Chap ter
3 and elsew here in this book said :
‘Like Phillim ore J L in Peak Construction (Liverpool) v. McKinney Founda-
tions Ltd (1970), I w as som ew hat startled to be told in the course of the
argu m ent that if any part of the d elay w as caused by the em ployer, no
m atter how slight, then the liquid ated d am ages clau se in the contract,
clause 22, becom es inoperative.
I can w ell u nderstand how that m ust necessarily be so in a case in
w hich the d elay is ind ivisible and there is a d ispute as to the extent of the
em p loyer ’s responsibility for that d elay. But w here there are, as it w ere,
tw o sep arate and d istinct period s of d elay w ith tw o sep arate causes, and
w here the d isp ute relates only to one of those tw o cau ses, then it w ould
seem to m e ju st and convenient that the em p loyer should be able to claim
liqu id ated d am ages in relation to the other period .
In the present case the relevant d ispu te relates to the d elay, if any,
caused by the p resence of squatters. At the m ost, that cou ld not account
for m ore than the period from 23 June 1980 to 17 July 1980, a p eriod of
som e 24 d ays. It ought to be possible for the em ployers to conced e that
there is a d isp ute as to that period , and then d ed u ct the 24 d ays from the
total d elay from 22 Sep tem ber 1982 (w hen, accord ing to the architect’s
certifi cate, the w ork ou ght to have been com pleted ) and 23 Ju ly 1983, (that
being the d ate of practical com p letion) and claim liqu id ated d am ages for
the balance. But it w as com m on grou nd before u s that that is not a p os-
sible view of clau se 22 of the contract in the light of the d ecision of the
Court of App eal in Peak’s case, and therefore I say no m ore about it.’
Stan d ard form s
It may seem a little od d that stand ard cond itions of contract w hich are pro-
d uced by bod ies with representatives of em ployers’ and contractors’ organ-
isations should fall w ithin the contra proferentem ru le. Moreover in 1963, in
Tersons Ltd v. Stevenage Development Corporation (1963) som e seven years
before the Peak case, Lord Justice Pearson exp ressed w hat m u st surely be
the com m on sense view of the situ ation, w hen he said :
‘[Counsel for Tersons] has contend ed that the maxim verba accipiuntur
fortius contra proferentem shou ld be ap plied in this case in favou r of
the contractor against the Corporation on the ground that the General
162 6.2 Contra proferentem rule
Cond itions w ere inclu ded in the invitation to tend er sent by the Corp ora-
tion to the contractor. In m y view the m axim has little, if any, application
in this case. The General Cond itions are not a p artisan d ocum ent or an
“im posed stand ard contract” as that p hrase is som etim es used . It w as not
d raw n up by one party in its ow n interest and im posed on the other party.
It is a general form , evid ently in com m on use, and prepared and revised
jointly by several representative bod ies inclu d ing the Fed eration of
Civil Engineering Contractors. It w ould naturally be incorp orated in a
contract of this kind , and should have the sam e m eaning w hether the one
party or the other hap pens to have m ad e the fi rst m ention of it in the
negotiations.’
Ap p lication of th e cont ra proferent em ru le
It might w ell be asked , given that op eration of the contra proferentem ru le can
lead to som e u nexp ected results, w hy the cou rts app ly the ru le with su ch
vigour? The explanation seem s to be that there is, and perhaps alw ays has
been, a m odifi cation of the rule so that it is applied not only against the p arty
who offered the cond itions but also because of the very natu re of certain
cond itions. So w here the courts have a hostile or even cautionary ap proach
to m atters before them , w hether these be liquidated d am ages, forfeiture or
exemp tions, they are not slow to u se the contra proferentem rule to arrive at
just solutions.
In Monmouthshire County Council v. Costelloe & Kemple Ltd (1965), a case
which concerned the issu e of an engineer ’s clau se 66 decision und er ICE
Cond itions of Contract, Lord Justice Harm an revealed such thinking in these
word s:
‘The other consid eration w hich m oves m e is this. This is a process by
w hich the d efendants can be d eprived of their general rights at law and
therefore one m ust construe it w ith som e strictness as having a forfeiting
effect. It is not a penal clause, but it m u st be construed against the person
pu tting it forward w ho is, after all, trying to shu t ou t the ord inary citizen’s
right to go to the courts to have his grievances ventilated. Therefore, I
think it w ou ld requ ire very clear w ord s and a very clear d ecision by the
ap pointed p erson, nam ely the engineer, to shu t the d efend ants out of
their rights.’
Presen t th in k in g
Following the gu id ance in the West Bromwich case as to how contracts shou ld
generally be constru ed and the ru ling in Philips Hong Kong that the cou rt
should not ad op t an ap proach to liquid ated d am ages clauses w hich w ou ld
d efeat their pu rp ose it is d ou btful if the contra proferentem rule w ill retain in
the futu re the infl u ence it had in the past. But for the tim e being it rem ains
6.3 Restrictions on implied terms 163
an im portant force in d ebate on the ap plicability of liquid ated d am ages

provisions.
6.3 Rest rict ions on implied t erms
The law on the im p lication of terms w as sum m arised by Lord Sim on in BP

Refinery (Westernport) Property Limited v. Shire of Hastings (1978) w here he
said :
‘for a term to be im p lied , the follow ing cond itions (w hich m ay overlap )
m u st be satisfi ed : (1) it m u st be reasonable and equitable; (2) it mu st be
necessary to give bu siness effi cacy to the contract, so that no term w ill be
im plied if the contract is effective w ithou t it; (3) it m ust be so obvious
that “it goes w ithou t saying”; (4) it m ust be capable of close expression;
(5) it mu st not contrad ict any exp ress term of the contract.’
The ru les of construction are rarely used by the courts to im ply term s w hich
w ou ld perm it extensions of tim e to be granted to keep alive provisions for
liqu id ated d amages. Nor are they u sed to im ply term s to introd uce or clarify
liqu id ated d am ages p rovisions. In m atters concerning extensions of tim e
and liqu id ated d am ages, the courts stick fi rm ly to the ru le that im plied
term s are introd u ced only to give a contract bu siness effi cacy and since
general d am ages can be sought w hen liqu id ated d am ages provisions fail
there is no lack of business effi cacy.
The effect of this is that liquid ated d am ages provisions in contracts shou ld
be com plete and consistent. If they are not, they m ay fail. They m ay be
d eclared p enalties, as for examp le in Stanor Electric v. Mansell (1988), w hen
there w as no p rovision for prop ortioning d ow n d am ages, or they m ay
be d isallowed , as in Peak for prevention or as in Bramall & Ogden for
inconsistency.
Exactly the sam e ru les and p rinciples ap ply to extension of tim e provi-
sions because of their legal link w ith liqu id ated d am ages. H ow ever, the
point is not alw ays recognised , possibly because the contract d raftsm en have
m ore in m ind the benefi ts to contractors than to em ployers in extension
clau ses, and so the lessons of Holme v. Guppy (1838), Dodd v. Churton (1897)
and Peak, that the courts w ill not provid e or im p rove extension of tim e
clau ses, continue to be re-learned in m od ern cases. Thus JCT 80 w as fou nd
w anting in the Rapid Building case w hen the absence of a specifi c provision
in the extension of tim e clau se covering late possession of the site p revented
the em p loyer from recovering liquid ated d am ages and was am end ed in the
light of the case.
6.4 ‘Ca t ch a ll’ phra ses
One d evice used by contract d raftsm en to avoid the problem of d efi ciencies

in extension of tim e clauses is to insert ‘catch all’ phrases of the typ e:
164 6.4 ‘Catch all’ phrases
‘all cau ses beyond the contractor ’s control’

or
‘any other circu m stances of any kind w hatsoever ’.
The courts have shown reluctance to accep t such phrases as includ ing
unsp ecifi ed breaches of contract by the em ployer. This m ay be because, as
a m atter of constru ction, app lying the ejusdem generis ru le, the p hrases are
taken to inclu d e only m atters of the sam e class as preced ing w ord s, and not
uncom m only these relate to neutral events such as w eather or strikes and
not to breach events. Alternatively, it m ay be that the courts apply the contra
proferentem ru le to stop the em p loyer benefi ting from lack of clarity in the
d ocum ents.
In Wells v. Army & Navy Co-operative Society Ltd (1902) the contract w as for
com p letion w ithin one year ‘unless d elayed by alterations, strikes, sub-
contractors or other cau ses beyond the contractor ’s control’. The cou rt held
that the w ord s ‘other cau ses beyond the contractor ’s control’ could not
inclu d e for breaches of contract or other acts of the em p loyer in failing to
give possession of the site and d raw ings on tim e.
The ru ling in Wells w as follow ed in Perini Pacific Ltd v. Greater Vancouver
Sewerage (1966) w here the em ployer caused delay by d elivering m achinery
in a d efective cond ition such that it requ ired rep air. The extension of tim e
clau se provid ed for ‘extras or d elays occasioned by strikes, lock-ou ts, force
majeu re or other cau se beyond the control of the contractor ’. The cou rt ruled
that these w ord s did not cover the em p loyer ’s breach.
In Fernbrook Trading Company Ltd v. Taggart (1979) it w as held that the
word s ‘any sp ecial circu m stances of any kind w hatsoever ’ w ere not wid e
enou gh to em p ow er the engineer to extend tim e for d elays cau sed by
the em ployer ’s breaches of contract in m aking late p ayments on interim
certifi cates.
In the Peak case, Lord Ju stice Edm u nd Davies ruled that the extension of
tim e provisions w hich read ‘by reason of any enlargem ents or other ad d i-
tions to the w orks, or in consequence of any local com bination of w orkm en
or general strikes or lock-ou ts, force m ajeure or other unavoid able circum -
stances’ d id not extend to delay cau sed by the em ployer. H e said : ‘Delay
d ue to the em ployer cannot be said to have been an unavoidable circum -
stance to anyone save the contractor.’
Su rp risingly ICE Cond itions of Contract continu ed to u se the p hrase
‘other sp ecial circum stances of any kind w hatsoever w hich m ay occur ’
without inclu sion of a fu rther provision for d elay cau sed by the em ployer ’s
breach until the ad vent of ICE 7th ed ition in 1999.
Beyon d th e con tractor ’s con trol
Althou gh the p hrase ‘beyond the contractor ’s control’ has been given
restricted ap plication by the courts in relation to extensions of tim e for
6.4 ‘Catch all’ phrases 165
d elays cau sed by the em p loyer ’s breach, it w as given an u nexpected ly w id e

m eaning by the H ouse of Lord s in Scott Lithgow Ltd v. Secretary of State for
Defence (1989) on another m atter. In that case it w as ruled that a p rovision
that the contractor should be p aid for the effect of ‘excep tional d islocation
and d elay arising d uring the construction of the vessel d u e to alterations,
su sp ensions of w ork or any other cau se beyond the contractor ’s control’,
extend ed to failu re by sup pliers or su b-contractors in breach of the contrac-
tu al obligations to the contractor. Lord Keith said :
‘In m y op inion the fi rst d ivision reached the correct conclusion. The term s
of clau se 20A.3 d o not reveal any genu s capable of restricting the broad
m eaning of the w ords “any other cau se beyond the contractor ’s control”.
Scott Lithgow d id not fail in their contractu al obligation to d eliver sub-
m arines fi tted w ith sou nd cables. They su ffered excep tional d islocation
and d elay in d oing so becau se BICC d elivered faulty cables. Whether or
not this w as a m atter w ithin the control of Scott Lithgow is a qu estion of
fact. Prim a facie it is not w ithin the p ow er of a contracting party to
prevent quality breaches of contract on the p art of a supp lier or sub-
contractor su ch as lead to delay.
The contractor has no m eans in the ord inary case of sup ervising the
m anu facturing proced u res of his su pplier. H e sp ecifi es his requ irem ents
bu t has no m eans of securing that they are m et and the circu m stance that
he m ay have a claim against the su pp lier for breach of contract is irrele-
vant to the question whether d elay consequ ent on the breach w as d u e to
a cau se w ithin his control. If the contractor failed to stipulate a tim e for
d elivery, consequ ent delay would be his ow n resp onsibility, but if he
d id so stip ulate and d elivery w as late the position w ou ld be d ifferent. In
this case the contract provid ed for a w id e variety of equ ipm ent to be
pu rchased by Scott Lithgow from m any nominated su pp liers or sub-
contractors, inclu ding in som e instances the Australian N avy. Failures by
such sup p liers or su b-contractors, in breach of their contractual obliga-
tions to Scott Lithgow are not m atters w hich, accord ing to the ord inary
use of langu age can be regard ed as w ithin Scott Lithgow ’s control.’
The d ecision in the Scott Lithgow case has been the subject of m u ch critical
analysis. By ap plying a factual test to the question of control the decision
appears at fi rst sight to u nd erm ine the general ru le that, in contract, the
contractor is responsible for the perform ance of his su b-contractors. H ow ever,
it is m ost u nlikely that the decision has any im pact at all on the general ru le.
The p oint at issu e in the case w as the d eterm ination of the contractor ’s
entitlem ents not his resp onsibilities. And that d eterm ination rested on the
express inclu sion in the contract of the phrase ‘beyond the contractor ’s
control’. Consequ ently it is d iffi cult to see how, in the ord inary ru n of things,
a contractor can rely on the Scott Lithgow d ecision to escap e resp onsibility
for a d efau lting sub-contractor.
Nevertheless, w here a contractual entitlem ent is expressed in term s of
‘beyond the Contractor ’s control’ w hether it be for m oney as in Scott Lithgow
or for extra time as in m any stand ard extension of tim e clauses then the
166 6.5 Inconsistencies in drafting
correct app roach, follow ing Scott Lithgow, m u st be to ap ply a factual test.
For fu rther com m ent on this see Chapter 13.
D u ty of care
With regard to the broad er qu estions on the resp onsibility of m ain contrac-
tors for the p erform ance of sub-contractors it m ay be w orth add ing here a
few w ord s on the im portant case of D & F Estates Ltd v. Church Commission-
ers for England (1988) w hich concerned , am ongst other things, a contractor ’s
liability in tort for d efective w ork und ertaken by a su b-contractor. The Cou rt
of Ap peal held that Wates, the contractor, had d ischarged their d uty of care
by ap pointing a su b-contractor they believed to be reasonably com petent,
and if there w as any d u ty to su pervise the sub-contractor it w as solely in
contract. The H ou se of Lord s upheld the d ecision of the Cou rt of Ap peal
and on the m atter of a du ty of care Lord Brid ge likened the position of a
contractor and his sub-contractor to that of em ployer and contractor. He
said:
‘If the m ere fact of em ploying a contractor to u nd ertake bu ild ing w ork
au tom atically involved the assu mp tion by the em ployer of a d uty of care
to any p erson w ho m ay be inju red by a d angerous d efect cau sed by the
negligence of the contractor, this w ou ld obviously lead to absurd resu lts.
If the fact of em p loying a contractor d oes not involve the assum ption of
any su ch d u ty by the em ployer, then one w ho has him self contracted to
erect a bu ild ing assum es no such liability w hen he em ploys an apparently
com p etent ind ep end ent sub-contractor to carry out part of the w ork for
him .’
Later, Lord Brid ge d id go on to say:
‘If in the cou rse of su pervision the m ain contractor in fact comes to know
that the sub-contractor ’s w ork is being d one in a d efective and foresee-
ably d angerou s w ay and if he cond ones that negligence on the p art of the
sub-contractor, he w ill no d oubt m ake him self p otentially liable for the
consequ ences as a joint tortfeasor.’
How ever, it m u st be em p hasised that the D & F case concerned negligence
and its d ecision does not in any w ay relieve contractors of their contractu al
obligations to em ployers in respect of the w ork of su b-contractors.
6.5 Inconsist encies in dra ft ing
In m any of the cases mentioned earlier the cou rts have taken the view that
inconsistencies or om issions in d rafting have rend ered liquid ated d am ages
provisions inop erable u nder the principles of prevention or p enalties.
The case of Bramall & Ogden Ltd v. Sheffield City Council (1983) is p articu-
larly instru ctive, how ever, becau se the ru ling against the em ployer ’s right
6.5 Inconsistencies in drafting 167
to d ed u ct liqu id ated d amages w as based not on a penalties argum ent, w hich

w as put forw ard for the contractor and apparently accepted , bu t on the
broad er argum ent that the inconsistencies them selves rend ered the provi-
sions inoperable. The case is im portant becau se Sheffi eld w ere follow ing
w hat m any regard ed as norm al and p rop er practice of the tim e and few had
seen the p otential legal d iffi cu lties of construction.
Bra ma ll & O gden (1983)
The contract w hich w as und er JCT 63 w as for the erection of 123 d w ellings
and in the ap pend ix liqu idated d amages w ere stated to be at the rate of £20
per w eek for each u ncom p leted d w elling.
This w as, and still is, a comm on enough way of expressing liquid ated
d am ages for m u ltiple u nits and there w as no d ou bt that the em ployer ’s
intention w as that they should be able to recover £20 per w eek for each
d w elling rem aining incom plete after the d ue d ate for com p letion of the
contract. The problem for the em ployer w as that they failed to com p lete the
provisions for sectional com pletion contained in the contract and they failed
to delete the p rovision for red ucing the su m stip ulated in the app end ix in
prop ortion to the valu e of w ork com p leted w ithin tim e.
The follow ing passages (i)–(iii) are som e extracts from the ju dgm ent of
Jud ge H aw ser:
(i) ‘[Cou nsel for Bram all & Ogd en] has su bm itted that there are errors
of law on the face of the aw ard in the arbitrator ’s reasons. H is prin-
cipal argu m ent, though he also d eveloped the others, w as that the
contract d oes not provide for sectional com p letion, as ind eed it d oes
not and as the arbitrator fou nd it d id not. The arbitrator ’s fi nd ing is
in p aragrap h 8.02: “There w as no p rovision for sectional com p letion
in the Articles of Agreem ent.” Therefore, accord ing to its term s the
respond ents w ou ld have been entitled to d edu ct liqu id ated dam ages
on all the d w ellings and ind eed on all the w orks as d efi ned in cond i-
tion 1(1) and as fou nd by the arbitrator, up to the d ate of p ractical
com p letion of the w orks, irresp ective of w hether they had taken p os-
session of d w ellings d uring the cou rse of the w ork. The resu lt, he
said, w ou ld be that liquid ated d am ages w ould turn into a penalty,
since they cou ld exceed su bstantially the actu al loss su stained . The
fact that the resp ondents chose not to exercise their rights and only
to ded u ct the liquid ated d am ages after the extension d ate of 4 May
1977 and u ntil the tim e w hen they took p ossession of the last house
on 29 N ovem ber 1977 in resp ect of houses not taken into p ossession
d u ring that period d oes not and cannot affect the position in law. H e
subm itted that they m ay w ell have op erated the provisions in a rea-
sonable m anner bu t this cannot affect their valid ity. H e said that the
liquid ated d am ages provisions here have to be constru ed strictly and
contra proferentem – a proposition w hich seem s to be borne ou t by
168 6.5 Inconsistencies in drafting
the d ecision of the Court of App eal in Peak Construction (Liverpool)

Ltd v. McKinney Foundations Ltd (1969).’
(ii) ‘The w ay in w hich the liqu id ated d am ages are d ealt w ith is set ou t
in the Append ix. This d oes not allow for the calcu lation to be m ad e
w hich is requ ired by cond ition 16(e), and one cannot op erate the
Ap pend ix and conditions 16(e) in the circum stances of this case. The
inconsistency can only be reconciled if p rovision is m ad e in the con-
tract for sectional com pletion of those parts w hich are taken over and
to w hich sp ecifi c liquid ated d am ages provisions are ap plied . In
M J Gleeson (Contractors) Ltd v. London Borough of Hillingdon (1970),
Mocatta J cam e to the conclusion that, as there w ere no sectional
com p letion provisions in the contract before him , cond ition 12(1) of
the RIBA cond itions prevented the provisions of the contract bills
from overrid ing the contract itself and that therefore sectional com -
pletion cou ld not be relied upon to justify the d ed u ction of liquid ated
d am ages.’
(iii) ‘There is no d ou bt that partial possession w as taken by the respon-
d ents from tim e to tim e of com pleted houses, and this ind eed is how
the liquid ated d am ages w ere com pu ted . Accord ingly, it seem s to m e
that the resp ond ents operated und er cond ition 16 and it cannot be
said now that it is cond ition 22 and not cond ition 16 w hich app lies.
I d o not think one can avoid the conclusion that cond ition
16(2) w ou ld ap p ly to the present situ ation, and it d oes not seem
to be consistent w ith the liqu id ated d am ages as set ou t in the
Ap pend ix.’
O n goin g p rob lem
The d ecision in Bramall & Ogden v. Sheffield (1983) cam e as an unw elcom e
surprise to the m any em ployers w ho fou nd them selves in the sam e position
as Sheffi eld and yet, even now, despite the w id e p u blicity of the case, con-
tracts are still being com piled w ith sim ilar defi ciencies. See, for exam ple, the
cases m entioned in Chap ter 4 und er the head ing ‘Drafting m atters’. See also
the ju d gm ent in Avoncroft Construction Ltd v. Sharba Homes (CN) Ltd (2008)
where Ju d ge Frances Kirkham said :
‘4. The claim ant’s case is that there is no underlying entitlem ent to LADs
on the p art of the d efend ant. This is becau se the LADs clau se fails
accord ing to the p rinciple in Bramall & Ogden v Sheffield City Council
(1983) 29 BLR 73.
5. There ap p ears to be no d oubt that the d efendant took partial p osses-
sion of som e of the w ork. That is clearly stated by Mr Loftus, the
d efend ant’s solicitor, in his w itness statem ent. Fu rther, by its letter
d ated 15 Febru ary 2007, the defend ant in effect acknow led ges (by its
calcu lation of w hat it claim s to be entitled to by w ay of LADs) that
it took p artial p ossession of som e elem ents of w ork. There is no
6.5 Inconsistencies in drafting 169
p rovision in the build ing contract for sectional comp letion. Accord-
ingly, the principle in Bramall & Ogden ap plies.
6. The d efend ant’s case is that it w ou ld be w rong to allow the claim ant
to rely on that principle because of w hat it contend s are the u nusu al
circu m stances of this case. In his statem ent, Mr Loftus states that the
claim ant threatened to barricad e a show hom e if the d efend ant refused
to pay £20,000; the d efend ant refu sed ; on the evening of 14 Sep tem ber
2007, the claim ant p roceed ed to barricad e a show home and p revent
p u blic access to it. There w as no challenge to that evid ence. Mr
Magu ire, for the d efend ant, subm its that those m atters should be
tried , and that the grant of partial p ossession w as fru strated by the
claim ants’ actions. The d efence to p aym ent of LADs follow ing Bram all
& Ogd en is a technical argum ent. The cou rt shou ld take into accou nt
the cond u ct of the claim ant. To perm it the claim ant to rely on that
d efence, the claim ant m u st be blam eless.
7. I am not persuad ed by that su bm ission. It is a question of law w hether,
p artial possession having been obtained , LADs are payable at all. The
claim ant’s d efence to a claim for LADs is not an equ itable d efence bu t
one available p ursu ant to the contract.’
For another recent case on the legal constru ction of liquid ated d am ages
clau ses see Steria Ltd v. Sigma Wireless Communications Ltd (2007) w hich is
covered in som e d etail in Chapter 5.
Chap ter 7
Effects of d eterm in ation
7.1 The quest ion of cont inuing responsibilit y
Liqu id ated d am ages p rovisions are patently m ad e on the assum ption that
it is the contractor w ho w ill com plete the w orks. Provid ing there is no d efect
in the p rovisions, then, in the eyes of the law, the contractor and em ployer
have agreed and settled the rate of d am ages for late comp letion. Bu t w hat
is the position if the contractor d oes not com plete the w orks either becau se
the forfeitu re or d eterm ination clau se in the contract is exercised , or because
either party alleges repu d iation and term inates u nder com m on law ? Do the
provisions for liquid ated d am ages still app ly?
The qu estion is far from straightforw ard . Where breach rather than bank-
ru ptcy is the cau se of the d efault, it m ight seem that the party exercising
d eterm ination, w hether u nd er the contract or at com m on law, is m aking a
choice to forgo his right to liqu id ated d am ages. The p oint being, how can
the em p loyer enforce liqu id ated d am ages w hen by his action, albeit law ful,
he has prevented the contractor from com pleting? Bu t if the liqu id ated
d am ages clause d oes fall on determ ination, w ou ld legal su ccessors of the
original contractor face claim s for general d am ages for late com pletion
whether or not they took on the burd en of com pleting the w orks? Then
there is this consideration, has the d eterm ination taken place before or after
the du e com pletion d ate? This is clearly a m atter of som e im portance since
som e liqu id ated d am ages may have alread y been d ed u cted . Finally there
is the qu estion, and this m ay be of d ecisive im portance, w hat d oes the
contract say?
Althou gh d eterm ination is a com m on enough featu re of the construction
ind ustry there are few legal au thorities on the subject as it affects liquid ated
d am ages. This is p robably because m ost d eterm inations follow fi nancial
failure, u sually of the contractor, and p ursu it of dam ages is pointless. There
are, how ever, a few p ointers.
7.2 British G lan zstoff
The case of British Glanzstoff Manufacturing Company Ltd v. General Accident

Assurance Corporation Ltd (1912) provid es the fi rm est rule. That is, in the
absence of exp ress p rovisions in the contract, the contractor is not liable for
any liqu id ated d am ages accruing after the d ate of d eterm ination. In British
7.3 Contractual provisions 171
Glanzstoff the contract p rovid ed that if the contractor su sp end ed the

w orks, the em ployer w as entitled to engage another contractor to com plete
them . As a resu lt of bankru ptcy, the contractor did in effect su sp end and
the em ployer engaged another contractor w ho com p leted the w orks six
w eeks after the d u e d ate. The em ployer claim ed liqu id ated dam ages for
d elay from the gu arantor of the original contractor, but the Hou se of Lord s
held that the liquid ated d am ages clause applied only w here the contractor
him self com p leted and w as ineffective w here control w as taken ou t of
his hand s.
The ru le in British Glanzstoff has alternatively been stated to the effect that
futu re obligations cannot arise w hen a contract has been term inated , excep t
w here the exp ress term s of the contract so p rovid e.
7.3 Cont ra ct ua l provisions
Most stand ard form s of construction contract includ e in their forfeitu re

provisions som e reference to the fi nancial liabilities of the parties in the
event of forfeitu re. Even then there can be problem s. Ind eed in som e cases
the forfeitu re clauses them selves have been held to be u nenforceable as
penalties. Thus in Ranger v. G W Railway (1854) a clau se that p aym ents
alread y m ad e w ere to be taken as full satisfaction of all w ork com pleted and
all ou tstand ing m oneys, tools and m aterials w ere to becom e the p rop erty of
the em p loyer w as held to be a penalty and the entitlem ent of the em p loyer
w as to d o no m ore than recoup his actual losses.
Provision s in JCT form s
In none of the com m only used stand ard form s is the position totally clear
on w hether liqu id ated d am ages survive d eterm ination. Clau se 8.12 of
JCT 2005 p rovid es that in the event of d etermination of the contractor ’s
em p loym ent by the em p loyer, the contractor shall pay ‘the am ou nt of
any d irect loss and / or d am age caused to the em ployer by the d eterm ina-
tion’. This brings ou t the point that there are tw o sources of cost for the
em p loyer arising from d eterm ination – the cost of actually com p leting the
w orks and the cost of late com pletion. Clau se 8.12 m ay relate to both
sou rces, in w hich case they are both clearly u nliqu id ated, bu t there is a view
that it m ay relate only to the costs of com pleting the w orks and that clause
2.32 on liquid ated d amages rem ains operative for the costs of late com ple-
tion. This view relies on the argu m ent that it is only the em ploym ent of the
contractor w hich has been d etermined u nder the contract, not the contract
itself, and clause 2.32 says that the contractor is resp onsible for liquid ated
d am ages up to the d ate of practical com p letion. It m ight actually suit a
d efau lting contractor or his legal su ccessors to argu e that this w as the case
rather than face general d am ages u nd er the head ing loss and exp ense in
clau se 8.12.
172 7.4 Novations
Provision s in ICE form s
Clau se 65 of ICE 7th Ed ition requires the amou nt p ayable by either party
on termination to inclu d e ‘d am ages for d elay’. It is not entirely clear w hether
these are liquid ated or u nliquid ated . An argum ent can be m ounted for liq-
uid ated d am ages on an earlier p art of clau se 65 w hich states that d eter-
mination occu rs ‘w ithout thereby avoid ing the contract or releasing the
contractor from any of his obligations or liabilities u nd er the contract’, and
clau se 47 supp orts the argu m ent that dam ages are liquid ated w ith its state-
ment that the contractor is liable for liqu id ated d am ages until the w hole of
the w orks are com p leted .
7.4 Nova t ions
Assignments of constru ction contracts are com p aratively rare since it is a

general ru le of law that liabilities u nd er a contract cannot be assigned . In
any event, the norm al intention of assignm ent in construction contracts is
that one p arty, u sually the contractor, should be relieved of his resp onsi-
bilities and another contractor shou ld take his p lace. In law, the tripartite
agreem ent w hich this p rocess involves is term ed a novation. In effect, the
contract betw een the fi rst tw o parties is rescind ed in consid eration of a new
contract being m ad e betw een one of the parties and a third party. The term s
of the tw o contracts w ill norm ally be the sam e bu t it is op en to the p arties
to vary them by agreem ent if they so w ish.
N ovations com m only occu r w hen one fi rm is taken over by another
and in su ch circu m stances the term s of the fi rst contract are alm ost invari-
ably carried throu gh w ithou t change into the new contract. If a contracting
fi rm is in d elay w hen it is taken over, the new fi rm takes on the bu rd en of
any liqu id ated d am ages arising from su ch d elay. When, how ever, the nova-
tion follow s a bankru p tcy or receivership , w hich itself has led to d eterm ina-
tion of the fi rst contractor ’s em ployment, it is normal practice for the
replacem ent contractor to seek som e relief from liqu id ated d amages by
negotiating w ith the em ployer a revised d ate for com pletion w hich w ill, in
whole or in part, cover the tim e lost by the d eterm ination itself and any
earlier delay by the fi rst contractor. It is a m atter of com m ercial jud gm ent
for the em ployer how far he allow s su ch relief but some p ressu re to be fl ex-
ible m ay com e from the need to m itigate loss in respect of any d ealings w ith
the receiver.
Except to the extent that he obtains revised term s the replacem ent
contractor in a novation is fully responsible for obligations and liabilities
of the fi rst contractor and he takes on the full burd en of liquid ated
d am ages for d elay. Thu s in Re Yeadon Waterworks Company & Wright (1895)
a contract w as term inated and one of the contractor ’s su reties took
an assignm ent to com plete the w orks but failed to fi nish on tim e. It w as
held that the w ord s ‘w ithout thereby affecting in any other resp ects the
liabilities of the said contractor ’ in the term ination clau se kept alive the
7.5 Summary on liquidated damages 173
em p loyer ’s right to d ed uct liquid ated d am ages from the rep lacem ent
contractor.
7.5 Summa ry on liquida t ed da ma ges
The p oints arising from the above can be su m m arised as follow s:

(i) d am ages arising from d eterm ination w ill in the norm al course of
things be u nliqu id ated but the express term s of the contract m ay say
otherw ise;
(ii) liquid ated d am ages d educted p rior to d eterm ination w ill not norm ally
be affected by the determ ination;
(iii) w here the contractor ’s em ploym ent is d eterm ined before the d u e d ate
for com p letion, the contractor w ill not be liable for liquid ated d am ages
u nless there is an exp ress clau se to that effect;
(iv) w here the contractor ’s em ploym ent is d eterm ined after the d u e d ate
for com p letion, the contractor w ill only be liable for liqu idated d am ages
u p to the tim e of d eterm ination u nless exp ress p rovisions say other-
w ise;
(v) a replacem ent contractor, brought in by novation, w ill assu m e full
responsibility for liquid ated d am ages, w hether or not the d elays
occu rred before or after he took control, unless the novated contract
contains revised term s;
(vi) a replacem ent contractor brought in by the em ployer after d eterm ina-
tion will only assu m e such resp onsibilities for liqu id ated d am ages as
his new contract stipulates.
7.6 Det ermina t ion a nd limit a t ion on lia bilit y
A qu estion w hich arises from point (i) above that d am ages from d eterm ina-
tion w ill norm ally be u nliquidated is w hether a d efaulting contractor can
rely on the lim iting effect of liquid ated d am ages for late com p letion to avoid
the fu ll effects of unliqu id ated d am ages. The answ er to that is p robably that
he cannot.
A sim ilar qu estion w as ad d ressed by the H ouse of Lord s in Bovis Construc-
tion (Scotland) Ltd v. Whatlings Construction Ltd (1995). In that case a package
su b-contract w as terminated on the basis that the sub-contractor w as not
proceed ing diligently and in response to a claim for £2,741,000 for breach of
contract the sub-contractor attem pted to rely on a clause in the su b-contract
lim iting its liability in respect of tim e-related costs to £100,000.
The House of Lord s rejected the su b-contractor ’s d efence, hold ing:
‘(i) A clau se lim iting liability should state clearly and unam biguously the
scop e of the lim itation and w ill be construed w ith a d egree of strict-
ness albeit w ith the sam e extent as an exclu sion or indem nity
clau se.
174 7.6 Determination and limitation on liability
(ii) The exclusion clau se relied up on w as not fram ed to cover dam ages
fl ow ing from a repud iatory breach of contract lead ing to term ination
and hence non-p erform ance of the contract.’
Lord Jau ncey explained the position w ith these w ord s:
‘Tim e is relevant to the p erform ance of a contract d uring its existence but
once the contract is d eterm ined by a repu d iatory breach of whatever
nature tim e ceases to have relevance. Dam ages thereafter fl ow from the
rep u d iation resu lting in non-perform ance and the need to p rovid e for
substitu te performance.’
Chap ter 8
Prob lem s w ith section al com p letion
8.1 Discovering t he pa rt ies’ int ent ions
There are good reasons in construction contracts w hy the parties m ight w ish
to have com p letion in phases or in sections. The benefi ts to the em ployer
are that he gets earlier occupation and use of the p arts, rather than w aiting
for fu ll com pletion; and the benefi ts to the contractor are that he is relieved
of som e of his contractu al obligations – insu rance of the w orks being an
obviou s exam p le. There are also good reasons w hy, if the p arties have
thought it approp riate to liquid ate the d am ages p ayable for late com pletion
of the w hole of the w orks, they m ight w ish to see the sam e p rinciple applied
to p hases and sections. How ever, w henever the parties d epart from the
straightforw ard ru le that a contract has a single d u e d ate for com pletion and
that liqu id ated d am ages should be payable from that d ate, or a p roperly
extend ed later d ate, they ru n the risk of invalid ating the liqu id ated d am ages
provisions.
The term inology itself is not im portant but it certainly helps to red uce the
risk if the parties are clear in their und erstand ing of the phrases used and
the contractu al im portance they w ish to attach to them . A section usu ally
m eans a p art of the w orks separately id entifi ed in the ap p end ix to the form
of tend er and to w hich is given a stipu lated d ate for com p letion. A phase
m ay be a requirem ent exp ressed elsew here in the tend er docu m ents, w hich
m ay or m ay not be incorp orated into the contract, or it m ight be som ething
arising ou t of the contractor ’s program m e.
The d iffi culties arise either because the contract d ocum ents d o not m ake
clear w hat, if any, are the contractor ’s liabilities for failure to m eet phased
or sectional com p letion d ates, or becau se on technical grou nd s the exp ressed
provisions for liqu id ated d am ages fall foul of the contra proferentem or penalty
ru les.
8.2 P roport ioning dow n cla uses
The fi rst point to consid er is, to w hat extent d o p rovisions w hich p erm it the
em p loyer to take possession of p arts of the w orks w ith the consent of, or by
application from the contractor, d iffer from provisions w hich stip ulate that
the contractor shall com plete in phases or in sections?
The key factor is the consent elem ent; the contractor has no obligation to
comp lete early and the em ployer has no obligation to occup y early. Unless,
176 8.2 Proportioning down clauses
therefore, the contract p rovid es a m echanism for the issu e of partial com ple-
tion certifi cates and a correspond ing mechanism for proportioning d ow n
liquid ated d am ages, the contractor rem ains liable for full d am ages up to the
d ate of total com p letion – as in BFI v. DCB (1987) m entioned in Chapter 4,
where the em p loyer avoid ed loss by taking partial possession but still
obtained fu ll d am ages.
H ow ever, w here a contract d oes m ake provision for the issu e of p artial
com p letion certifi cates, albeit on a consent basis, then it is essential to
have corresp ond ing p rovisions for proportioning dow n liquid ated dam ages.
The cou rts w ill not im p ly su ch a term if it is m issing and the liquid ated
d am ages clau se w ill then fall for uncertainty or as a p enalty. Thu s, in Stanor
Electric v. Mansell (1988) when there w as a single sum for dam ages for
tw o hou ses and one w as com p leted late, the absence of any contractu al
machinery for prop ortioning d ow n the d amages led to them being d eclared
penalties.
Stan d ard form s
Most stand ard form s of construction contracts have proportioning d ow n

clau ses. That in JCT 2005 is to be fou nd in clause 2.37 – Partial Possession
by the Em ployer – w hilst that in ICE 7th Ed ition is to be found in the liqui-
d ated d am ages clau se itself – clause 47. Word ing is typ ically to the effect
that if any part of the w orks is certifi ed as com plete before com pletion of
the whole of the w orks, the stipulated su m for liqu id ated d am ages shall be
red uced p rop ortionately to the value of the w ork com pleted com pared w ith
the valu e of the w ork as a w hole.
N o d ou bt attemp ts could be mad e in u nu su al cases to show that this
method of scaling d ow n liqu id ated d am ages resulted in technical penalties,
bu t generally p roportioning dow n clau ses serves the indu stry w ell and are
a strong incentive for contractors to fi nish and hand -over as m u ch w ork as
they can prior to fu ll com p letion.
In the few cases w here p rop ortioning d ow n clauses have ru n into trou ble
with the courts they have been d one so on fairly narrow technical ground s.
The best know n is Bramall & Ogden v. Sheffield (1983) where in a JCT 80
contract it w as fou nd that clau se 16 allow ing for d am ages to be p rop ortioned
d ow n w as incom patible with d am ages expressed in the ap p end ix at a rate
per w eek p er d w elling. There is no objection to d am ages being exp ressed at
a rate p er w eek p er u nit or sim ilar but that in itself is intend ed to provid e
a scaling d ow n m echanism and any other scaling d ow n m echanism in the
contract shou ld then be d eleted or amend ed .
For com ment on the practice of inserting a stop fi gure or m inim um
paym ent into proportioning dow n clauses see the cases of Arnhold & Co. Ltd
v. Attorney General of Hong Kong (1989) and Philips Hong Kong Ltd v. Attorney
General of Hong Kong (1993) d iscu ssed in Chap ter 4.
8.3 Provisions for sectional completion 177
8.3 P rovisions for sect iona l complet ion
Where there are exp ress requirem ents for sectional or phased com pletion,
any corresp ond ing requ irem ents for liqu id ated d am ages need to be exp ressed
w ith both certainty and consistency if they are to be effective.
In M J Gleeson (Contractors) Ltd v. London Borough of Hillingdon (1970) on a
JCT 63 contract the bills of quantities set out d etailed requirem ents for sec-
tional com pletion w ith related liqu id ated d am ages. There w as, how ever, a
stand ard provision in the contract that nothing in the bills shou ld overrid e
the Articles of Agreem ent or the Cond itions of Contract. Mr Justice Mocatta
held that the requ irem ents in the bills could not be relied on to justify the
d ed uction of liqu id ated d am ages. The em p loyer had sou ght to d ed uct liq-
uid ated d am ages at the rate of £5 per d w elling p er w eek as stated in the
append ix from the sp ecifi ed sectional com pleted d ates, but his entitlem ent
w as to d ed uct only from the fi nal com p letion d ate.
Su bsequ ent to the Gleeson case the Joint Contracts Tribu nal issued in 1975
a sectional com pletion sup plem ent for u se w ith later JCT form s.
ICE form s ap proach the precedence of d ocu m ents differently from JCT
form s. Clause 7 of ICE 7th Ed ition em pow ers the engineer to explain and
ad just am bigu ities or d iscrepancies and says that ‘the several d ocum ents
form ing the Contract are to be taken as m u tu ally explanatory of one
another ’.
It shou ld therefore be possible under ICE form s to set ou t requirem ents
on sectional com pletion elsew here than in the app end ix p rovid ing the inten-
tion is m ade clear enough. But in fact, w ith ICE 7th Edition, this should never
be necessary – the app end ix deals w ith sectional comp letion in the sim p lest
of w ays. Tim es for com pletion and rates of d am ages are stated either for the
w hole of the w orks or for any num ber of sections; and liquid ated d am ages
for sections can ru n concu rrently w here circu m stances so d ictate.
8.4 Requirement s not fully specifi ed
Som e of the problem s d iscussed above are a w arning against over specifi ca-
tion of contractu al requ irem ents and the incom patibility which is likely to
result. Bu t w hen it comes to liquid ated d amages it is equally fatal to fall
short of the requ irements necessary to p rod uce certainty. The princip le
enu nciated by Lord Pearson in Trollope & Colls v. North West Metropolitan
Regional Hospital Board (1973) that the cou rts w ill not m ake a contract for the
parties nor w ill the cou rts im prove a contract how ever d esirable that
im provem ent m ight be, w ill leave any d efi ciency exposed . The cou rts w ill
not im p ly terms for sectional com p letion w here none exist and the cou rts
w ill not im ply that liqu id ated d am ages are d u e w here none are stated .
In Bruno Zornow (Builders) Ltd v. Beechcroft Developments Ltd (1989) a con-
tract w as negotiated for a hou sing d evelop m ent on the basis of a fi rst tier
tend er w hich show ed a d etailed p rogram m e to com plete in sixteen m onths
178 8.4 Requirements not fully specified
and second stage agreem ents for comp letion of the work in tw o overlap p ing
phases. The architect calcu lated liqu id ated d am ages of £40,000 based on
the stip u lated rate of £200 per w eek p er block from the d ate show n on the
original w orks p rogram m e and the contractor su ed for the retu rn of this
am ou nt. It w as held by Jud ge Davies, after consid ering Lord Pearson’s dicta
in Trollope & Colls and the very com p licated facts of the case:
‘(i) the contract d id not incorp orate docu m ents which sp ecifi ed d ates
for sectional com p letion but only phased p rovisions for the transfer
of possession;
(ii) a claim for liqu id ated d am ages could only be m ad e in resp ect of
failure to m eet sp ecifi ed com pletion d ates and not failure to m eet
transfer of p ossession d ates – w hich operated on a consent basis;
(iii) no term w ould be im plied for any sectional d ates for com p letion.’
A sim ilar situation arose in Turner v. Mathind (1986) w here there w as a clear
requirem ent in the bills for phased com p letion bu t the sectional com pletion
supp lem ent w as not used and the append ix contained only a rate for liqu i-
d ated d am ages for late com pletion of the w hole of the w orks of £1000 p er
week. All attem p ts by the em ployer to ju stify d ed u ction of liquid ated
d am ages for failu re by the contractor to m eet the phasing d ates failed . It
was not app rop riate that the em ployer shou ld either p ro-rata the stip ulated
d am ages to the nu m ber of phases or ap ply the stip u lated rate to each
phase.
These cases illustrate that neither program m es nor phasing requirem ents
linked to program m es w ill ever create, by them selves, any liability for
Finally, reverting to Trollope & Colls, w hich w as a case in w hich the tim e
rem aining for p hase III of a hospital build ing contract after extensions
granted on phases I and II w as 16 m onths instead of the 30 m onths originally
intend ed . The em ployers fi nd ing them selves unable to nom inate su bcon-
tractors for phase III w ho could com plete in the shorter tim e, argu ed for an
im plied term in the contract that an extension shou ld be granted to p hase
III to accom m od ate the d elays in phases I and II. The contractors opposed
the granting of any su ch extension. They w ere, in the word s of Lord
Pearson:
‘tu rning the situation to their ow n ad vantage, becau se, if the contract
cou ld not be carried ou t, a new arrangem ent w ou ld have to be m ad e for
the w ork to be d one at the prices prevailing in or abou t 1971, w hich w ere
consid erably higher than the contract p rices. The d ifference betw een the
contract p rices and the p rices prevailing in or about 1971 is said to be in
the region of one m illion pounds.’
The Court of App eal fou nd that the contract w as clear and free from am bi-
gu ity in stating that the d ate for com p letion of p hase III w as 30 April 1972.
Accord ingly, and in any event, no term cou ld be im plied.
Chap ter 9
Ap p lication to su b -con tractors
9.1 Effect of ‘st epping-dow n’ provisions
To m inim ise fi nancial risk it is regard ed as good business in m any com m er-
cial transactions to d eal w ith sub-contractors and the like on essentially the
sam e term s as in m ain contracts; the m ain contractor having, one would
expect, the benefi t of a m argin in the fi gu res. In constru ction, it is particularly
comm onp lace for the term s of m ain contractors to be ‘step p ed d ow n’ into
su b-contracts and accord ingly m any stand ard form s of sub-contract incor-
porate the provisions of corresp ond ing form s of m ain contract. This w orks
perfectly w ell in covering the m ajority of contractual obligations bu t if it is
applied to liqu id ated dam ages, the effect is not to ind em nify the contractor
against loss cau sed by late com pletion of a su b-contractor, but is to restrict
the contractor ’s recovery to the am ount of liqu id ated d am ages.
Gleeson v. Ta ylor Woodrow (1989)
The case of M J Gleeson plc v. Taylor Woodrow Construction Ltd (1989) illus-
trates the p roblem . Taylor Wood row, as m anagem ent contractors for w ork
at the Im p erial War Mu seu m , entered into a su b-contract w ith Gleeson. The
m anagem ent contract p rovid ed for liquid ated d am ages at £400 per day
and clause 32 of the sub-contract provid ed for liquid ated d am ages at the
sam e rate. Clau se 11 (2) of the sub-contract also provid ed that if the sub-
contractor failed to com p lete on tim e the su b-contractor should p ay:
‘. . . a su m equ ivalent to any d irect loss or d am age or exp ense su ffered or
incu rred by (the m anagem ent contractor) and caused by the failu re of the
sub-contractor. Such loss or d am age shall be d eem ed for the p urpose of
this cond ition to inclu d e for any loss or d am age su ffered or incurred by
the authority for w hich the m anagem ent contractor is or m ay be liable
und er the m anagem ent contract or any loss or d am age suffered or incurred
by any other su b-contractor for w hich the m anagem ent contractor is or
m ay be liable u nd er the relevant sub-contract.’
Gleeson fi nished late and they received from Taylor Wood row a letter as
follow s:
‘We form ally give you notice of ou r intention under clause 41 to recover
m oneys d u e to ou rselves cau sed by you r failu re to com plete the w orks
180 9.2 Can there be a genuine pre-estimate of loss?
on tim e and disru ption cau sed to the follow ing su b-contractors. The fol-
low ing sum s of m oney are calcu lated in accord ance w ith clause 11(2) for
actu al costs w e have incurred or m ay be liable u nd er the managem ent
contract.’
Then followed a sum m ary of accounts show ing d ed uctions of £36,400 for
liquid ated d am ages, being £400 per d ay from 31 May 1987 to 31 August 1987,
and £95,360 in resp ect of ‘set-off’ claim s from ten other su b-contractors.
Gleeson ap p lied for su m m ary ju d gm ent und er Ord er 14 in respect of the
sum of £95,360 and w ere successful. Ju d ge Davies fou nd that Taylor
Wood row had no d efence:
‘On the evid ence before m e, therefore, TWL’s cou rse of action against
Gleeson in respect of set-offs is for d elay in com p letion. It follow s that
it is inclu d ed in the set-off for liqu id ated d am ages, and to allow it to
stand w ou ld result in w hat can be m etaphorically d escribed as a d ou ble
d ed uction.’
Com m en t
There is a salu tary lesson here for all m ain contractors for Taylor Wood row
were d oing nothing m ore in their sub-contract than trying to p ass on losses
they could su ffer from the sub-contractor ’s d efault and they w ere d oing so
in a rou tine w ay with com p rehensively d rafted p rovisions. Bu t they had
failed to recognise that liquidated d am ages for late com pletion are the w hole
of the su m p ayable and not just part of the sum . Insofar as a claim und er
clau se 11(2) of the sub-contract was m ad e for late com p letion, it had no effect
as it d up licated clau se 32.
H ow ever, had the claim under clau se 11(2) been for d isru ption, the d eci-
sion w ou ld alm ost certainly have been d ifferent.
9.2 Ca n t here be a genuine pre-est ima t e of loss?
The Gleeson case reveals prim arily the restricting effect of stating liqu id ated
d am ages in sub-contracts but it also reveals the d iffi cu lty for a m ain contrac-
tor in m aking a genu ine p re-estim ate of loss cau sed by his sub-contractor ’s
late com p letion.
That loss has three main elem ents:
(i) contractor ’s ow n costs of d elay;
(ii) contractor ’s liability for liqu id ated dam ages;
(iii) claim s arising from d elay to other sub-contractors and sup pliers.
At fi rst sight, items (i) and (ii) appear straightforw ard . The contractor can
calculate w ith som e p recision his ow n costs of d elay – site costs, su p ervision,
overhead s and fi nancing charges; the contractor also know s the rate of liq-
uid ated d am ages in the m ain contract. The problem app ears to be only w ith
9.3 Commercial considerations 181
item (iii) in that the effect of one sub-contractor ’s d elay on the progress and
costs of others is virtu ally imp ossible to pre-estim ate.
This, how ever, is only part of the problem . Few sub-contractors requ ire
the w hole of the m ain contract period for their w ork and it d oes not auto-
m atically follow that sub-contractor ’s d elay lead s to m ain contractor ’s
d elay. Even if it can be show n that a sub-contractor ’s w ork is a critical p ath
activity there is m ain contractor ’s fl oat tim e to consid er. Then there is the
problem of du plication – can the m ain contractor, if he has stipu lated liqui-
d ated d am ages, recover from m ore than one su b-contractor for the sam e
loss?
Not su rprisingly in view of these d iffi cu lties in m aking a genu ine pre-
estim ate of loss, and in view of the lim iting effect of that p re-estim ate if
stip ulated as liqu id ated d am ages, m ost of the better know n stand ard form s
of su b-contract u sed in the construction ind u stry om it provisions for liqu i-
d ated d am ages payable by the sub-contractor and d o no m ore than d raw
attention to the rate of such d am ages in the m ain contract.
9.3 Commercia l considera t ions
The com m ercial interests of m ain contractors and su b-contractors are in

opp osition w hen it com es to d am ages for late com p letion. Main contractors
benefi t, althou gh they d o not alw ays see it that w ay, from the certainty and
lim itation that liqu id ated d am ages bring to their contracts w ith em p loyers.
How ever, in their d ealings w ith sub-contractors they w ant to rem ove
that lim itation and to recover in full any losses they have su ffered . Sub-
contractors w ould like the benefi ts of certainty and lim itation but w ithout
liqu id ated d am ages clauses in sub-contracts they face uncertainty and
potentially ru inou s d am ages.
The com m only u sed form s of dom estic su b-contract favou r m ain contrac-
tors. Thus the stand ard form of d om estic su b-contract know n as DOM 1,
once p robably the m ost used form in the bu ilding ind u stry, states in clau se
12, which is head ed ‘Failu re of Sub-Contractor to com plete on tim e . . .’:
‘the Su b-Contractor shall pay or allow to the Contractor a su m equivalent
to any loss or d am age suffered or incurred by the Contractor and cau sed
by the failu re of the Sub-Contractor as aforesaid .’
The Civil Engineering Contractors’ Association form of su b-contract, gener-
ally know n as the Blu e Form and w id ely used w ith ICE Cond itions of
Contract, states in clau se 3(4):
‘The sub-contractor hereby acknow led ges that any breach by him of the
sub-contract m ay result in the contractor ’s com m itting breaches of and
becom ing liable in d amages und er the m ain contract and other contracts
m ad e by him in connection w ith the m ain w orks and may occasion
further loss or exp ense to the contractor in connection w ith the m ain
w orks and all su ch d am ages loss and expense are hereby agreed to be
182 9.4 Nominated sub-contracts
w ithin the contem plation of the parties as being p robable resu lts of any
such breach by the su b-contractor.’
The intention in this latter clause in bringing all loss w ithin the contem pla-
tion of the p arties is to ensu re that the sub-contractor cannot d efend a claim
which includ es the m ain contractor ’s liqu id ated d amages liability or other
sub-contractors’ claim s by reference to rem oteness w ithin the ru les of Hadley
v. Baxendale (1854). If they fail the fi rst test, they have, by exp ress term s, been
inclu d ed as sp ecial d am ages und er the second rule, i.e. w ithin the contem -
plation of the p arties. This is w hy the sub-contract w ill norm ally state the
level of liquid ated d am ages in the m ain contract.
Lim itation of liab ility
Where the su b-contractor has bargaining pow er w hich he can exert to

im prove the term s of the sub-contract in his favour, he m ay w ell insist on
the inclusion of a conventional liquid ated d am ages clause or of som e other
lim itation p rovisions. For exam p le, a clause m ight be includ ed to lim it
the liability of the sub-contract in respect of all claim s arising from late
com p letion to a p ercentage of the sub-contract su m w ith particular refer-
ence, for the avoid ance of d ou bt, that this percentage fi gu re inclu d ed for any
liability of the m ain contractor for liquid ated d am ages. See, for exam ple, the
case of Pigott Foundations Ltd v. Shepherd Construction Ltd (1993) d iscussed in
Chapter 3.
9.4 Nomina t ed sub-cont ra ct s
With d om estic sub-contracts the m ain contractor rem ains fu lly responsible
for the acts, neglects and d efaults of his sub-contractors and the contractu al
chain of liability from em p loyer to m ain contractor to sub-contractor is
intact. The ruling by the House of Lord s in Scott Lithgow v. Secretary of State
for Defence (1989) (m entioned in Chap ter 6) that failures by sub-contractors
were beyond the contractor ’s control tu rned on the particular w ord ing of
the contract in respect of the contractor ’s rights of claim and the ru ling d oes
not establish any general ru le of law that m ain contractors are not respon-
sible for their sub-contractor ’s perform ance.
With nominated su b-contracts there has alw ays been som e relu ctance to
place the w hole bu rd en of responsibility on the m ain contractor, on the not
unreasonable prop osition that if the em ployer w ants to im p ose his choice
of su b-contractor he should bear som e if not all of the responsibility for that
sub-contractor ’s perform ance. So m ain contracts have in varying d egrees
and variou s w ays given ind emnities to m ain contractors in respect of loss
and exp ense, or excu sed them in respect of breach caused or com m itted
by nom inated sub-contractors. But tim e after tim e, the ap plication of the
ru les of law to su ch consid erations has show n that any d istu rbance of
9.4 Nominated sub-contracts 183
the chain of contractual liability has seriou s and frequently u nexpected

consequ ences.
Bickert on (1970)
The case w hich fi rst d rew wid espread attention to the d efects of nom inating
su b-contracting w as North West Metropolitan Regional Hospital Board v. T A
Bickerton & Sons Ltd (1970). In that case a nom inated heating su b-contractor
w ent into liqu id ation before the w orks com m enced . The m ain contractor
und ertook the w ork him self, but contend ed that the em ployer w as bou nd
to nom inate a second su b-contractor and pay the am ou nt of that price,
w hereas the em p loyer m aintained there w as no d uty to re-nom inate or pay
m ore than the fi rst price. The H ouse of Lord s found that there w as a d u ty
to re-nominate. Em inent construction law yers of the d ay agreed that by
extension of reasoning em ployers w ould be obliged to re-nom inate and
stand the costs of any rep u d iation by a nom inated sub-contractor. The con-
sequ ence of this w ould be that a d efaulting nom inated su b-contractor would
go scot-free since he cou ld not be sued by the m ain contractor who, as a
result of p aym ent by the emp loyer, w ou ld su ffer no loss and he cou ld not
be su ed by the em ployer since he had no contract w ith him .
Bilt on (1982)
The alarm created by Bickerton m ay to som e extent have been exaggerated

and the H ou se of Lord s in Percy Bilton Ltd v. Greater London Council (1982)
exam ined the d octrine and , refuting that Bickerton had established au tom atic
liability of the em p loyer in the event of nom inated su b-contractor w ith-
d raw al, restated the general law that the m ain contractor takes the risk
unless there is fau lt by the em ployer. Passages (i)–(iii) below are extracts
from the ju d gm ent of Lord Fraser:
(i) ‘This ap p eal is concerned w ith the legal consequ ences of failure by
the m ain contractor to com plete w ork u nder a bu ild ing contract by
the d u e d ate, w here the d elay has been partly cau sed by the w ith-
d raw al of a nom inated su b-contractor at a tim e w hen w ithd raw al
inevitably d elays com pletion of the w orks. In particu lar, the qu estion
is w hether such a w ithd raw al w hich causes delay in com pletion
of the w orks by the m ain contractor, prevents the em ployer from
relying u pon a clau se in his contract w ith the m ain contractor giving
the em ployer the right to ded uct liqu id ated d am ages for d elay in
com p letion.’
(ii) ‘It is com m on grou nd betw een the parties that the d elay w hich
follow ed the d rop ping ou t of Low d ells should be d ivid ed into tw o
p arts – fi rst, the p art arising d irectly from the w ithd raw al, and sec-
ondly, that arising from the failu re of the respond ent to nom inate a
rep lacem ent w ith reasonable prom ptness. The resp ond ent w as clearly
resp onsible for the second part, and there is no d oubt that, if it had
been the only d elay, the appellant w ould have been entitled to a rea-
sonable extension of time to allow for it in accord ance w ith clause
23(f). The d isp ute centres on the consequ ence of the fi rst p eriod of the
d elay w hich, as parties are agreed , does not fall w ith any of the pro-
visions of clau se 23. The app ellant contend s that the loss d irectly
caused by the w ithd rawal of the nom inated sub-contractor m u st fall
on the respond ent, on the ground that it has a responsibility not only
to nom inate the original sub-contractor and any necessary rep lace-
m ent, bu t to m aintain a sub-contractor in the fi eld so long as w ork of
the kind allotted to him need s to be d one. This is said to fl ow from
the d ecision of your Lord ships’ H ouse in Bickerton . . . What w as actu -
ally d ecid ed in that case w as that, w here the original nom inated su b-
contractor has gone into liquid ation and d ropp ed ou t, the m ain
contractor had neither the right nor the d u ty to d o any of the su b-
contractor ’s w ork him self, and that it was the d u ty of the em p loyer
to m ake a new nom ination. Consequently (so it w as argu ed for the
ap pellant), if the nom inated sub-contractor w ithd raws at a tim e w hen
his w ithd raw al m u st inevitably cau se d elay, the m ain contractor is
d isabled from perform ing his obligations for w ant of a sub-contractor
w hom only the em ployer can p rovid e, and the m ain contractor is thu s
“im peded ” from w orking . . . In these circu m stances it w as said that
the contractual tim e lim it ceases to app ly, the tim e for com p letion
becomes at large, and the em ployer cannot rely on the p rovisions for
liqu id ated d am ages in clause 22.
If the argum ent is correct, its effect w ould be to tu rn the em ployer ’s
d u ty of nom inating a sub-contractor, and if necessary a rep lacem ent,
into a d uty to ensu re that the m ain contract is not im ped ed by w ant
of a nom inated sub-contractor. That w ou ld be virtu ally a w arranty
that a nom inated su b-contractor wou ld carry on w ork continu ou sly,
or at least that he would be available to d o so.
Bu t I see nothing in clau ses 22 or 23, or elsew here in the cond itions
of contract, to im p ose such a high d u ty on the em p loyer. Such a w ar-
ranty w ould , in m y opinion, place an unreasonable burd en on the
em p loyer, particu larly as he has no d irect contractual relationship
w ith a nom inated su b-contractor, and no control over him . When the
nom inated su b-contractor w ithd rew, the d u ty of the em ployer, acting
throu gh his architect, was in m y op inion lim ited to giving instruc-
tions for nom ination of a replacem ent within a reasonable tim e after
receiving a specifi c application in w riting from the m ain contractor
u nd er clause 23(f). In this case, the em p loyer failed to perform that
d u ty. It d id not give instru ctions w ithin a reasonable tim e, and the
second p art of the d elay occu rred , with the resu lt that the ap p ellant
becam e entitled to an extension of the tim e for com p letion to cover
the second p art. Bu t they never becam e entitled to any extension to
cover the fi rst part of the d elay.’
(iii)
‘(1) The general rule is that the m ain contractor is bou nd to com p lete
the w ork by the d ate for com p letion stated in the contract. If he
fails to d o so, he w ill be liable for liquid ated d am ages to the
emp loyer.
(2) That is su bject to the exception that the em p loyer is not entitled
to liqu id ated d am ages if by his acts or om issions he has pre-
vented the m ain contractor from com pleting his w ork by com ple-
tion d ate – see for exam p le Holme v. Guppy (1838) and Wells v.
Army & Navy Co-operative Society (1902).
(3) These general rules m ay be am ended by the express term s of the
contract.
(4) In this case, the express term s of clause 23 of the contract do affect
the general rule. For exam ple, w here com pletion is d elayed “(a)
by force m ajeu re, or (b) by reason of any excep tionally inclem ent
w eather” the architect is bou nd to m ake a fair and reasonable
extension of tim e for com pletion of the w ork. Without that express
p rovision, the m ain contractor w ould be left to take the risk of
d elay cau sed by force m ajeure or exceptionally inclem ent w eather
u nd er the general rule.
(5) Withd raw al of a nom inated sub-contractor is not caused by the
fau lt of the em ployer, nor is it covered by any of the express
p rovisions in clause 23. Paragraph (g) of clause 23 exp ressly
ap p lies to “d elay” on the part of a nom inated su b-contractor but
su ch “d elay” d oes not inclu de com p lete w ithd raw al; (this w as
accepted in argum ent by counsel for the ap pellant, rightly in m y
op inion).
(6) Accord ingly, w ithd raw al falls und er the general rule and the
m ain contractor takes the risk of any d elay d irectly caused
thereby.
(7) Delay by the em ployer in making the tim eou s nom ination of a
new su b-contractor is w ithin the exp ress term s of p aragrap h (f)
of clause 23, and the m ain contractor, the ap pellant, w as entitled
to an extension of tim e to cover that d elay. Such an extension has
been given.’
Fa irclough v. Rhuddla n (1985)
Both Bickerton and Bilton w ere cases concerning nom inated su b-contractors
w ho had w ithd raw n after going into liqu id ation and there w as som e d ou bt
as to how far they ap p lied to w id er issues. That w as tested by the Cou rt of
App eal in Fairclough Building Ltd v. Rhuddlan Borough Council (1985) w here
a nom inated sub-contractor, Gunite, repu d iated its contract w hen eight
w eeks late and w ith extensive remed ial w ork necessary. Clause 23 of the
contract giving the contractor entitlem ent to extension for d elay on the
part of a nom inated su b-contractor w as am end ed by the ad d ition of ‘but
such d elay w ill only be considered for those reasons w hich the contractor
cou ld obtain an extension of tim e for u nder the contract’. The architect
re-nom inated bu t the re-nom ination d id not cover the rem ed ial w ork. The
issues before the Cou rt of Appeal w ere stated as follow s:
(i) Did the tim e provid ed in the prop osed su b-contract entitle the contrac-
tor to refu se the nom ination?
(ii) Was the nom ination invalid by reason of the fact that the p roposed
su b-contract d id not cover rem ed ial w orks?
(iii) Was the contractor entitled to an extension for the eight w eeks’ d elay
incu rred by Gunite before they w ithdrew ?
(iv) Was the em p loyer entitled to charge the contractor w ith the full costs
of rem ed ial w ork or only obtain cred it for the amou nt w hich it had
alread y p aid in resp ect of Gu nite’s work before their w ithd raw al?
It was held :
(i) The architect’s instru ction nom inating su b-contractors w ho w ou ld not
com plete w ithin the tim e allow ed u nd er the m ain contract w as invalid
and the contractor w as therefore entitled to refuse the nom ination.
(ii) The instru ction nom inating a new sub-contractor w as also invalid
because the p rop osed sub-contract did not inclu d e rem ed ial work.
(iii) The contractor w as not entitled to an extension of tim e for the d elay
incu rred by Gu nite before they w ithd rew becau se clau se 23(g) as
am end ed only ap p lied if the sub-contractor ’s d elay w as itself d u e to
one or other of the causes of the d elay specifi ed in the other su b-clauses
of clau se 23.
(iv) There w as no basis up on which the em ployer could charge the contrac-
tors w ith the fu ll costs of the rem ed ial w ork w hen the obligation to
re-nom inate includ ed the obligation to inclu d e rem ed ial w ork in the
w ork to be d one by the re-nom inated sub-contractor, and the contractor
w as neither entitled nor obliged to d o such w ork.
Stan d ard form s
Stand ard form s of contract issued since Bickerton have end eavou red to pre-
serve the chain of liability as far as practicable, or as far as com prom ise in
the drafting com m ittee will allow. Thus ICE cond itions go m ost of the w ay
to p lacing fu ll resp onsibility for nom inated sub-contractors on the m ain
contractor w ith no extensions of tim e allow ed for nom inated su b-contractor
d elay, w ith a statement in clau se 59 of the 7th Ed ition saying:
‘Except as otherw ise p rovided in Clau se 58(3) the Contractor shall be
responsible for the w ork carried out or good s m aterials or services
sup p lied by a N om inated Sub-contractor em p loyed by him as if he
had him self carried out such w ork or sup plied such good s, m aterials or
services.’
Som e other stand ard form s d o not go as far as this and still p erm it the
granting of extensions of tim e for d elay on the part of nom inated
su b-contractors.
Note, how ever, that ‘on the p art of’ is not the sam e as ‘d elay cau sed by’.
In Westminster Corporation v. J Jarvis & Sons Ltd (1970) the contractor cou ld
not get an extension for d elay cau sed w hen it w as found , after the d ate
of com p letion of nom inated sub-contract piling w ork, that the piles w ere
d efective.
Effect of in d em n ities
Although Bilton and Fairclough m ay have clarifi ed the law as far as main
contractor and em p loyer relationships are concerned , problem s w ill con-
tinue to arise u nd er su b-contracts w henever ind em nities are given to the
contractor. To this extent Bickerton lives on and the recovery of d am ages is
im peded accord ingly.
In Mellowes PPG Ltd v. Snelling Construction Ltd (1989) Mellow es w ere
su pp lying w ind ow s u nd er a nom inated su b-contract to Snelling main con-
tractor for new cou nty council offi ces in H amp shire. The architect issued a
certifi cate of d elay against Mellowes w hich entitled Snelling to claim from
Mellow es w hatever losses they had suffered . In a set-off from p aym ents
d ue to Mellow es, Snelling inclu d ed for liqu id ated d am ages. Mr Record er
Fernyhough had this to say:
‘Of cou rse that certifi cate of d elay entitles Snelling to claim w hatever
losses they can p rove they suffered from Mellow es, bu t of course those
losses cannot includ e liquid ated and ascertained d am ages becau se if the
m ain contract w orks have been d elayed on the part of Mellow es, Snelling
w ere entitled to an extension of tim e to the sam e extent of that d elay so
they w ill not have su ffered any liquid ated d am ages from that cau se.’
Chap ter 10
Recovery of liq u id ated d am ages
10.1 When do liquida t ed da ma ges become pa ya ble?
When a contract provid es that liqu id ated d am ages are p ayable for late
com p letion, it w ou ld ap pear to be self-evid ent that they becom e p ayable on
late com pletion. But the m atter is by no m eans as straightforw ard as this:
fi rstly, because cond itions of contract frequ ently m ake the issue of certifi -
cates on extensions of tim e or non-com p letion conditions p reced ent to the
d ed uction of liquid ated d am ages; second ly, becau se the em ployer m ay be
required to give p rior notice of his intention to ded uct liquid ated d am ages
under the term s of the contract or und er statu te and third ly, becau se there
is wid e scop e for d isp u te on w hat constitutes ‘lateness’ and w hat constitu tes
‘com pletion’.
With a contract in sim ple form the em ployer m ight w ell take the view that
once the d ue d ate for com p letion had p assed he cou ld d ed u ct d am ages at
the app rop riate rate from any further sum s d ue to the contractor. He w ou ld
probably not consid er it necessary, or com m ercially sensible, to w ait u ntil
the w orks w ere com pleted u ntil m aking his d ed uction. Constru ction con-
tracts, how ever, are rarely sim ple so it is necessary in every case to analyse
the w ord ing of the particular cond itions of contract to see w hat cond itions
preced ent they im p ose and w hen they p erm it d am ages to be d ed ucted .
Ad d ed to w hich the requirem ents for w ithhold ing notices und er the
Hou sing Grants, Constru ction and Regeneration Act 1996 m ay need to be
consid ered .
D ed u ction b y a sin gle su m
Uncertainty on these m atters often exists in w ell used form s. For exam ple,
clau se 24 of JCT 80, prior to am end ment, stated that the contractor shall
pay or allow to the em p loyer: ‘the w hole or su ch p art as m ay be specifi ed
in w riting by the em ployer of a sum calculated at the rate stated in the
Append ix . . . for the period betw een the com pletion d ate and the date of
practical com pletion.’ This could be taken as app lying to a single once and
for all fi gure becom ing d u e only w hen its fu ll extent w as know n – that is,
after p ractical comp letion and w hen all extensions had been granted . If so,
any d ed u ctions from interim certifi cates prior to p ractical com pletion w ould
be invalid . Law yers argu ed the point for ten years before the u ncertainty
was rem oved by am end m ent 9 to JCT 80 su ch that the clau se read :
10.1 When do liquidated damages become payable? 189
‘Su bject to the issu e of any certifi cate und er clau se 24.1, the contractor
shall as the em ployer m ay requ ire in w riting bu t not later than the d ate
of the fi nal certifi cate p ay or allow to the em ployer liqu id ated and ascer-
tained d am ages at the rate stated in the Append ix (or su ch lesser rate as
m ay be sp ecifi ed in w riting by the em ployer) for the period betw een the
com p letion d ate and the d ate of p ractical com pletion and the em ployer
m ay d ed u ct the sam e from any m oneys d u e or to becom e d u e to the
contractor u nd er this contract . . .’
This am end m ent, by rem oving the reference to ‘of a sum ’, m ade it clear
that liquid ated d am ages becam e d u e after the issue of a certifi cate of non-
comp letion and there w as no need for the em ployer to w ait until practical
comp letion before m aking his d ed uction.
Most ICE contracts clearly envisage d ed u ctions p rior to the fi nal review
since they m ake p rovision for reim bursem ent of su m s p reviou sly d ed ucted .
Moreover the w ord ing of recent sets of cond itions such as ICE 6th Edition
and ICE 7th Ed ition m ake the p osition even clearer in that liquid ated
d am ages becom e d ue: ‘if the contractor fails to com p lete the w hole of the
w orks w ithin the tim e so prescribed . . .’ The em ployer m ay then: ‘d ed u ct
and retain the am ount of any liquid ated d am ages becom ing d u e . . . from
any su ms d u e to the contractor.’
D ed u ction s b efore com p letion
Although there m ay be scope for argu m ent in som e cases on w hether liqu i-
d ated d am ages becom e du e imm ed iately after the d u e d ate for com p letion
has p assed , or at som e later d ate w hen com pletion is achieved , there is no
legal case for argu ing the proposition that liquidated d am ages can be
d ed ucted in ad vance of the d ue d ate even if it is apparent that com pletion
w ill not be achieved on tim e. There may w ell be good com m ercial grou nd s
for argu ing su ch a p rop osition, since the em ployer w ho goes on p aying
interim certifi cates in fu ll m ay have nothing left other than the retention
fund from w hich to m ake his d ed u ctions for d am ages. H e w ou ld then, if
this w as insuffi cient, be p ut to the exp ense of su ing for recovery.
In the eyes of the law, how ever, the p osition is clear. Dam ages follow
breach of contract, they d o not anticipate it, and w here liquid ated d am ages
are stipu lated for failu re to com plete by a sp ecifi ed d ate, they becom e du e
only w hen that failu re has m aterialised and the d ate has passed .
The m atter is so obviou s that it has rarely trou bled the cou rts bu t it w as
a feature, althou gh not a contentious point, in the case of Lubenham Fidelities
& Investments Co. Ltd v. South Pembrokeshire District Council (1986). There the
architects had m ad e a num ber of errors, inclu ding m aking d ed uctions for
liqu id ated d am ages on the face of interim certifi cates and m aking su ch
d ed uctions p rior to the date for com pletion. In su m m arising the backgrou nd
to the case in his ju d gm ent, Lord Ju stice May said :
‘In seeking to m ake these dedu ctions it is now com m on ground that the
architects erred and , su bject to the qu estion of cau sation, which pays a
190 10.2 Meaning of completion
substantial part in this case, w ere negligent toward s each of the other
tw o p arties . . . In so far as any d elay w as concerned , any liability on
Lubenham ’s p art to pay liquid ated d am ages in resp ect of it could not
have arisen at least u ntil 3 Septem ber 1977, w hich w as the d ate for
com p letion set ou t in the usu al append ix to these tw o contracts.’
The Lubenham case show s the d anger of contract adm inistrators m aking
up their ow n rules throu gh ignorance or by d esign. As a resu lt of the archi-
tects’ errors, the contractor purported to d etermine his ow n em p loym ent
alleging breach of und er-paym ent; the em ployer treated the contractor ’s
action as repu d iation and , rightly as the cou rt so fou nd , d eterm ined
the contractor ’s em p loym ent. Both end ed up su ing each other and the archi-
tects. In rejecting a claim by the contractor that the architects had intended
to interfere w ith the p erform ance of the contracts, Lord Ju stice May
com m ented :
‘This w as a straightforw ard case of negligence by professional m en. In
issuing the tw o certifi cates and in su bsequently m aintaining their stance
as to the correctness of those tw o certifi cates, they w ere not intend ing to
interfere w ith the perform ance of the contracts. On the contrary, albeit in
a m isguid ed m anner, they w ere seeking to fu rther the perform ance of
those contracts. As the jud ge correctly said, they w ere d oing their incom -
petent best.’
D elay on p rogram m e or in p rogress
In add ition to the prem ature d ed uction p oint w hich arose in Lubenham, two
other p oints are w orth noting. Firstly, the error by the architects in assu m ing
that failu re by the contractor to proceed to program m e w as a breach of
contract, and from this to d educe w rongly that such a breach gave liability
for liquid ated d amages; and second ly, the p oint that the em ployer is obliged
to pay only the am ou nt show n on the face of a certifi cate – even if he know s
or susp ects that it is incorrect. The course for the contractor in su ch a case
is to invoke arbitration, not to determ ine the contract.
As for failing to proceed to program m e, or failing to proceed w ith du e
exp ed ition, regu larly and d iligently, or w hatever other such phrases a con-
tract m ay contain, the em ployer ’s remed y for each breach (and failing to
proceed to program m e w ill rarely be a breach), w ill not lie in liquid ated
d am ages bu t in such alternative contractu al provisions as exist.
In m ost stand ard form s these u sually am ount to d eterm ination, so in effect
the em p loyer has a choice of rem ed ies to exercise on comm ercial ju dgment:
to remove the d ilatory contractor and sue for general d am ages; or to let the
contractor p roceed at his ow n pace and face liqu id ated d am ages.
10.2 Mea ning of complet ion
Variou s phrases are used in constru ction contracts to d efi ne com p letion:

10.2 Meaning of completion 191
• com pletion
• p ractical comp letion
• su bstantial com p letion.
Build ing contracts have trad itionally u sed the term ‘p ractical com p letion’
w hereas civil engineering contracts have trad itionally u sed the term ‘sub-
stantial com pletion’.
The signifi cance of com pletion in construction contracts, how ever
expressed , is generally that it m arks:
• the transfer of risks for care of the w orks from the contractor to the
em p loyer
• the com mencem ent of the d efects liability p eriod
• the end of the em p loyer ’s entitlem ent to d am ages for late com p letion
• the em ployer ’s entitlem ent to repossess the site.
Disp u tes on com p letion are com m onplace. Contractors m ay w ant early
comp letion to red u ce liabilities for liqu id ated d am ages and insu rances and
perhap s to secu re part p aym ent of retention m onies. Em p loyers m ay w ant
later com p letion to ensu re that the w orks are better fi nished or because they
w ish to d elay occu p ation.
Com pletion in en tire con tracts
In its p recise legal sense ‘com pletion’ m eans strict fulfi lm ent of obligations
und er the contract, and w hen used in the context of ‘entire contracts’ w hich
attract the doctrine of substantial perform ance failure to com plete p rod uces
the app arently harsh resu lt that no paym ent is d ue. Thus in the case of Cutter
v. Powell (1795), w hen the second m ate on a ship bou nd to Liverpool from
Jam aica d ied before the ship reached Liverp ool, his w id ow w as unsu ccess-
ful in a claim for a prop ortion of his lu m p su m w ages of 30 gu ineas.
Fortu nately for contractors, construction contracts rarely fall into the cat-
egory of ‘entire contracts’. Ind eed , if they d id the risks for contractors would
be im mense since an em p loyer u nw illing to pay anything w ould only have
to p oint to a m od est d efault or item of u nfi nished w ork to escape the obliga-
tion of m aking p aym ent.
The cou rts take a p ractical view of constru ction contracts as illustrated by
this extract from the ju d gm ent of Lord Justice Denning in the case of Hoenig
v. Isaacs (1952) w hich concerned the d ecorating and fi tting-out of a one-room
fl at:
‘In d eterm ining this issu e the fi rst question is w hether, on the tru e con-
struction of the contract, entire perform ance w as a cond ition preced ent
to paym ent. It w as a lu m p sum contract, bu t that d oes not m ean that the
entire p erform ance w as a condition p reced ent to paym ent. When a con-
tract p rovides for a sp ecifi c sum to be p aid on com pletion of specifi ed
w ork, the cou rts leap against a construction of the contract w hich w ould
d ep rive the contractor of any paym ent at all sim p ly because there are
som e d efects or om issions. The p rom ise to com plete the work is, there-
fore, construed as a term of contract, bu t not as a cond ition. It is not every
breach of that term w hich absolves the em ployer from his p rom ise to p ay
the price, bu t only a breach w hich goes to the root of the contract, su ch
as aband onm ent of the w ork w hen it is only half d one. Unless the breach
d oes go to the root of the m atter, the em ployer cannot resist paym ent of
the p rice. H e m ust p ay it and bring a cross-claim for the d efects and om is-
sions, or alternatively, set them up in d im inution of the p rice. The m easure
is the am ou nt w hich the w ork is w orth less by reason of the d efects and
om issions, and is u sually calculated by the cost of m aking them good .’
And in Bolton v. Mahadeva (1972) Lord Ju stice Cairns m ad e this com m ent on
substantial p erform ance:
‘In consid ering w hether there w as a substantial p erform ance I am of
the opinion that it is relevant to take into accou nt both the natu re of the
d efects and the proportion betw een the cost of rectifying them and the
contract p rice. It w ould be w rong to say that the contractor is only entitled
to paym ent if the d efects are so trifl ing as to be covered by the de minimis
ru le.’
In cases concerned w ith su bstantial perform ance the issu e is generally the
em ployer ’s p aym ent obligation and little else. Und er m ost stand ard form s
of constru ction contracts the issues are likely to be w id er – liability for liq-
uid ated d am ages, release of retention, etc. Generally, therefore, su bstantial
perform ance is not relevant to the m eaning of ‘com pletion’ as m entioned in
constru ction contracts or to d eterm ination of term s such as ‘p ractical com -
pletion’ and ‘substantial com pletion’ used in su ch contracts.
Practical com p letion
Practical com pletion is the phrase com m only used in build ing contracts
to d efi ne the point at w hich the w orks are fi t to be taken over by the
em ployer.
It is also u sed in the ICE Minor Works Cond itions w here it is stated :
‘Practical com pletion of the w hole of the Works shall occu r w hen the
Works reach a state when notw ithstand ing any d efect or ou tstand ing
item s therein they are taken or are fi t to be taken into u se or p ossession
by the Em ployer.’
In the case of Emson Eastern Ltd v. EME Developments Ltd (1991) the cou rt
had to d ecid e w hether the issue of a certifi cate of practical com pletion u nd er
a JCT 80 contract constituted ‘com pletion of the w orks’ as m entioned in the
d eterm ination clause of the contract. Jud ge N ew ey QC held that it d id . He
said:
‘In m y op inion there is no room for “com p letion” as d istinct from “prac-
tical com p letion”. Because a build ing can seld om if ever be built precisely
as requ ired by d raw ings and sp ecifi cation, the contract realistically refers
to “p ractical comp letion”, and not “com pletion” but they m ean the
sam e.’
From the cases of H W Neville (Sunblest) Ltd v. William Press & Sons Ltd
(1981) and Westminster Corporation v. J Jarvis & Sons Ltd (1970) the follow ing
ru les to d eterm ine p ractical com pletion have been d evelop ed :
• p ractical com pletion m eans the com pletion of all the constru ction w ork
to be d one
• the contract ad m inistrator m ay have d iscretion to certify practical com -
pletion w here there are m inor item s of w ork to com p lete on a de minimis
basis
• a certifi cate of practical com pletion cannot be issued if there are patent
d efects
• the w orks can be p ractically com plete notw ithstand ing latent d efects.
Both Westminster v. Jarvis and Nevill v. Press concerned latent d am age. In
the Jarvis case the qu estion w as, could the contractor get an extension of time
for carrying ou t replacem ent of fau lty piling und ertaken by a nom inated
su b-contractor bu t not d iscovered until after that su b-contractor had been
given a certifi cate of com p letion of his w ork? The House of Lord s ru led that
he could not. Viscou nt Dilhorne said :
‘From these provisions there are, in m y opinion, tw o conclusions to be
d raw n: fi rst that the issue of the certifi cate of p ractical com pletion d eter-
m ines the d ate of com p letion, w hich m ay of cou rse be before or after the
d ate sp ecifi ed for that in the contract; and second ly, that the d efects liabil-
ity period is provid ed in ord er to enable defects not apparent at the d ate
of practical com pletion to be rem ed ied . If they had been then app arent,
no su ch certifi cate w ou ld have been issu ed .
It follow s that a practical com p letion certifi cate can be issued w hen,
ow ing to latent d efects, the w orks d o not fu lfi l the contract requ irem ents;
and that u nd er the contract, works can be com pleted d esp ite the presence
of su ch defects. Com pletion und er the contract is not postponed u ntil
d efects w hich becam e app arent only after the w ork had been fi nished
have been rem ed ied .’
In Nevill v. Press a p roblem arose from d efective grou nd w orks in a pre-
lim inary w orks contract. Jud ge N ew ey, consid ering w hether the rem ed ies
in respect of d efective w ork found after the issu e of a certifi cate of practical
comp letion und er a JCT 63 contract were restricted to clau se 15, m ad e this
comm ent:
‘I think that the w ord “practically” in clau se 15(1), gave the architect a
d iscretion to certify that William Press had fu lfi lled its obligation u nder
clause 21(1), w here very m inor de minimis w ork had not been carried
ou t, bu t that if there w ere any p atent d efects in w hat William Press
had d one the architect cou ld not have given a certifi cate of practical
com p letion.’
From these ru les, and from basic legal principles, it has to be taken that the
d iscovery of latent d efects after the issu e of a certifi cate of com pletion d oes
not re-activate the em ployer ’s right to liquidated d am ages, even if the con-
tractor has to return to the site and the em ployer has to give up possession.
The em p loyer ’s rem ed y is in general d am ages.
Su b stan tial com p letion
The p hrase ‘su bstantial com pletion’ is probably a m ore fl exible concep t than
‘practical com p letion’ and the provisions for d ealing w ith outstand ing w orks
in ICE form s suggest that it is not the de minimis princip le w hich applies to
such w orks bu t whatever is acceptable to the engineer.
It is w orth noting that u nder ICE forms the initiative for the issue of a
com p letion certifi cate com es from the contractor – he ap plies to the engineer
when he consid ers one d ue. Und er JCT form s, the initiative is sup posed ly
to be taken by the architect w ho is to issu e a certifi cate w hen in his opinion
it is d u e. In p ractice the contractor will, of course, norm ally m ake his view s
know n and make an ap plication.
Effects of occu p ation
Questions som etim es arise as to w hether the test for com pletion inclu d es
occupation by the em ployer. The answ er seem s to d ep end on the w ord ing
of the contract. In the JCT case of BFI Group of Companies Ltd v. DCB Integra-
tion Systems Ltd (1987) the em ployer, BFI, w as able to recover liquid ated
d am ages notw ithstand ing that it took p ossession on the extend ed d ate for
com p letion. The point w as not even argued before the court and the case
turned on w hether BFI had su ffered any loss.
H ow ever, the position u nd er ICE form s is d ifferent since they generally
make occupation or u se by the em ployer of any su bstantial part of the works
ground s for the issue of a certifi cate of substantial comp letion. ICE Minor
Works form pu ts the m atter beyond any d oubt in stating:
‘Practical com p letion of the w hole of the w orks shall occu r w hen the
w orks reach a state w hen notw ithstanding any d efect or ou tstand ing
item s therein they are taken or are fi t to be taken into u se or p ossession
by the em ployer.’
In the case of Skanska Construction (Regions) Ltd v. Anglo-Amsterdam Cor-
poration Ltd (2002) the m atters consid ered by the cou rt in an app eal against
an arbitrator ’s aw ard concerned the im pact of a partial p ossession clau se on
practical p ossession. The clause w as of the stand ard JCT typ e read ing:
‘17.1 If at any tim e or tim es before Practical Com p letion of the Works
the Em p loyer w ishes to take possession of any part or p arts
of the Works and the consent of the Contractor (which consent
shall not be unreasonably w ithheld ) has been obtained , then,
notw ithstand ing anything expressed or im plied elsew here in this

Contract, the Em ployer m ay take p ossession thereof.
17.1.1 For the p u rp oses of clauses 16.2, 16.3 and 30.4.1.2 Practical Com -
p letion of the relevant part shall be d eemed to have occu rred and
the Defects Liability Period in respect of the relevant part shall be
d eem ed to have com m enced on the relevant d ate . . .’
Before p ractical com pletion was achieved Skanska, the contractor, was obliged
to allow a fi tting-out contractor, ICL, on to site. That raised issues as to
whether clause 17 w as activated and, if so, w hether clause 17 applied only
in resp ect of possession of p arts of the works as op posed to possession of the
whole of the w orks. The ju dge, in reversing the aw ard , found that the clau se
was activated and that it could apply to the w hole of the w orks saying:
‘55. . . . The irresistible conclusion is that Skanska hand ed possession of
the w hole of the Works to ICL on 12 February 1996 at the request
of Anglo-Am sterd am ’s agent. Thereby, Skanska gave u p possession
of the w orks. H ow ever, Skanska w as perm itted back to the site by
ICL on the occasions it retu rned to site on the express cond ition
im posed by Anglo-Am sterd am that Skanska itself m ad e ad equ ate
security arrangem ents for such visits.
56. It follow s that Skanska gave u p possession of the w hole of the Works
on 12 Febru ary 1996 and that, w hilst out of possession, was granted
a sub-licence by ICL for relevant parts of the Works for the pu rp ose
of fi nishing off w ork left incomp lete or in a d efective state on 12
Febru ary 1996. This sub-licence had been granted to Skanska by ICL
once ICL had been granted p ossession of the w orks by Skanska fol-
low ing Skanska’s giving u p p ossession to Anglo-Am sterd am on
Anglo-Am sterd am ’s instructions.’
and
‘58. The ord er that should be m ad e is that the aw ard shou ld be varied so
as to provid e that Skanska is entitled to the repaym ent of the liqu i-
d ated d am ages it has p aid ou t. This is becau se d eem ed Practical
Com pletion u nder clause 17.1 of the w hole of the Works occurred on
12 February 1996 on account of partial p ossession of the w hole of the
Works being taken by Anglo-Am sterd am and , through it, ICL on that
d ate . . .’
See also the d ecision in the Multiplex case, d iscussed in Chap ter 4, regard ing
the effect of early occupation by the em ployer for fi tting ou t p urposes on
the m aking of a p re-estim ate of loss. The cou rt held the benefi t to the
em p loyer to be insignifi cant and capable of being d isregard ed .
Practical com p letion an d su b stan tial p erform an ce
In Big Island Contracting (HK) Ltd v. Skink Ltd (1990), a contractor w as entitled
to 25% of the contract price on practical com pletion. The em ployer occu p ied
196 10.3 Certificates and conditions precedent
the bu ild ing but refu sed to pay because there w ere defects. It was held ,
d ism issing the contractor ’s claim :
(i) p ractical com p letion cou ld not be distinguished from substantial perfor-
m ance: the qu estion w as w hether the w ork contracted for w as ‘fi nished ’
or ‘d one’ in the ord inary sense;
(ii) on the facts practical com pletion had not been achieved .
Com m enting on the jud gm ent, the ed itors of Building Law Reports say this
at page 112, 52 BLR:
‘It m ay be d oubted w hether cases concerned w ith su bstantial perfor-

m ance are relevant to the d eterm ination of practical comp letion as the
term is used in the stand ard form contracts w here the event is not d irectly
related to a p aym ent obligation (as in the contract consid ered by the H ong
Kong court) bu t rather w ith consequences such as liability for liqu id ated
d am ages, re-possession and the release of retention.
The plaintiffs d id not in this case rely u pon the fact that the d efend ants
had taken possession of the build ing as constituting a w aiver of the con-
d ition p reced ent to the p aym ent of the 25% instalm ent. They d id , how ever,
rely up on that fact as su pporting an argum ent that p ractical com pletion
w as achieved and that fact w as acknow led ged w hen the d efend ants w ent
into occu p ation. This argum ent seem s to have had less im p act than the
plaintiffs expected .
In p rincip le re-taking possession is not an acknow led gem ent that the
w orks are practically com plete. In p ractice w here the em p loyer has gone
into p ossession w ithou t reservation of rights it m ay be d iffi cu lt to contend
there has not been p ractical com pletion because there w ill usu ally be
benefi cial occu pation. Where there is no exp ress provision for p artial or
other p ossession to be taken by the em ployer before practical com pletion
it w ou ld be p ru d ent to clarify the p osition before occu pation by the
em p loyer is resum ed .’
10.3 Cert ifi ca t es a nd condit ions precedent
Stand ard form s of contract often contain cond itions p reced ent to the d ed uc-
tion of liqu id ated d amages. These w ork p rincip ally to the benefi t of the
contractor in forew arning him of likely d ed u ctions from am ou nts d u e, bu t
they are also of benefi t to the em ployer in d raw ing attention to his entitle-
ment to d am ages. As a m echanism for p lacing key facts on record they w ork
to the benefi t of both parties.
JCT 2005 has three stated cond itions preced ent:
(i) the contractor shall fail to com plete on tim e;
(ii) the architect shall issue a certifi cate to that effect;
(iii) the em ployer shall give w ritten notice of his intention to d edu ct
d amages.
10.3 Certificates and conditions precedent 197
How ever, und er recent versions of ICE contracts, ICE 7th Ed ition and
NEC 3, d am ages are stated to be payable sim ply on failure to com plete
on tim e.
These are the cond itions preced ent to be fou nd in the liqu idated d am ages
provisions them selves, but it m ay not be possible to operate those provisions
w ithou t the architect or engineer having fi rst given attention to any sp ecifi ed
obligations placed on him , elsew here in the contract, to consid er the con-
tractor ’s entitlem ent to extensions of tim e.
When such obligations exist, as they d o in m ost stand ard forms, these
also can operate as cond itions preced ent to the d ed uction of liqu id ated
d am ages.
Failu re to com ply w ith cond itions p recedent w ill rend er the d ed u ction of
liqu id ated d am ages u nlaw ful and the contractor w ill be able to sue for their
return.
In Token Construction Co. Ltd v. Charlton Estates Ltd (1973) clau se 16 of the
contract read:
‘If the contractor fails to com plete the w orks by the d ate stated in Appen-
d ix C to this contract or w ithin any extend ed tim e fi xed und er clau se 2(e)
of these conditions and the architect certifi es in w riting that in his opinion
the same ou ght reasonably so to have been com p leted , the contractor shall
pay or allow to the em p loyer a su m calcu lated at the rate stated in Ap pen-
d ix C as liqu id ated and ascertained dam ages for the period du ring w hich
the sam e w orks shall so rem ain or have rem ained incom plete and the
em p loyer m ay d ed u ct su ch dam ages from any m oneys otherw ise payable
to the contractor u nd er this contract.’
Som e tw o years after the w orks were com pleted the architect m ad e an
interim certifi cate in favour of the contractor for £16,374 but w rote at the
sam e tim e to the em ployer saying that the works had been com pleted 24
w eeks late, that he w as consid ering an extension of tim e for 13 w eeks and
that u nd er clau se 16, the em ployer w as entitled to d ed uct 24 w eeks’ d am ages.
At £800 p er w eek these cam e to m ore than the amount certifi ed and the
em p loyer refused to p ay on the certifi cate. It w as held :
(i) There is no reason w hy liquid ated d am ages for d elay shou ld not be
d ed ucted from an interim certifi cate if the contract exp ressly gave that
right.
(ii) Und er the contract the right to d ed uct is subject to the cond ition prec-
ed ent that there shall be a valid certifi cate by the architect.
(iii) On the facts there w as no valid extension of tim e und er clau se 2(e) and
there was no certifi cate of d elay u nd er clau se 16.
(iv) While no set form of certifi cate is p rovid ed , the d ocu m ent relied up on
m ust be the p hysical expression of a certifying p rocess.
(v) The architect cannot certify for d elay u ntil he has fi rst ad jud icated u pon
the contractor ’s ap p lications for extension of tim e.
(vi) The bu rd en of p roof that there has been certifi cation of d elay rests u pon
the one who alleges it.
198 10.3 Certificates and conditions precedent
Tw o similar cases are consid ered in Chapter 12: Miller v. London County
Council (1934); and Amalgamated Building Contractors Ltd v. Waltham Holy
Cross UDC (1952).
Repeat certifi cates
On the m atter of rep eat certifi cates the case of A Bell & Son (Paddington) Ltd
v. CBF Residential Care and Housing Association (1989) is of interest. The con-
tractor w as granted extensions of tim e and , w hen he failed to comp lete by
the extend ed d ate, the architect issued a certifi cate of non-comp letion and
the em ployer gave w ritten notice of his intention to d ed u ct liquid ated
d am ages.
The architect su bsequ ently gave a fu rther extension of tim e and the
em ployer d ed u cted d am ages from this later d ate to the eventu al d ate of
practical com pletion. The issu es before the court w ere, und er clau se 24 d oes
the architect have to issu e fresh certifi cates of comp letion after every grant
of extension in a d elay period , and does the em ployer have to issu e fresh
written notices of intention to d ed u ct? The court held that when certifi cates
of non-com pletion or notices of intention to d ed uct have been su perseded
by extensions w hich fi x later com pletion d ates, then new certifi cates and
extensions are requ ired . Ju d ge N ew ey said :
‘Construing clause 24.1 strictly, and in accord ance w ith its plain and
ord inary m eaning, it d em and s issue of a certifi cate w hen a contractor has
not com pleted by “com p letion date”. A “com p letion d ate” is one fi xed by
the architect u nd er clause 25.3.2. I think that w hen a new comp letion d ate
is fi xed , if the contractor has not com pleted by it, a certifi cate to that effect
m ust be issu ed and it is irrelevant w hether a certifi cate had been issued
in relation to an earlier, now sup ersed ed , com p letion d ate. I think that
this constru ction accord s w ith the setting of the contract: contractors and
em p loyers using it need above all certainty and the issue of a fresh cer-
tifi cate w ill provid e it.
Constru ing clau se 24.2.1 in a sim ilar m anner to clau se 24.1, since the
giving of notice is m ad e subject to the issu e of a certifi cate of non-
com p letion, if the certifi cate is supersed ed , then logically the notice should
fall w ith it. H ere the setting of the contract m ay p oint in the op posite
d irection, for once an em ployer has inform ed a contractor of his intention
to recover liqu id ated d am ages he is u nlikely to change his m ind . H ow ever,
I think that once again certainty is the greatest need and that if a new
com p letion d ate is fi xed any notice given by the em p loyer before it, is at
an end .’
Am endm ent 9 of JCT 80 d ealt w ith the issu es raised in Bell by clarifying the
need for fresh certifi cates of non-com pletion and by elim inating the need for
fresh notices of intention to d ed u ct. In a case subsequ ent to Bell on the sam e
form of contract, Jarvis Brent Ltd v. Rowlinson Construction Ltd (1990), the
em ployer before d ed ucting liquid ated d am ages sent to the contractor, ‘for
10.3 Certificates and conditions precedent 199
inform ation only’, a copy of a letter from his qu antity su rveyor show ing the
calculation of the d am ages. The contractor som e tim e before the issu e of the
fi nal certifi cate, w hich in this form lim its the tim e for d ed uctions, becam e
aw are that he cou ld challenge the d ed uctions bu t he w aited u ntil after the
issu e of the fi nal certifi cate before comm encing p roceed ings for their recov-
ery. Ju d ge Fox-And rews held, in a jud gm ent w hich cannot be reconciled
w ith Bell:
(i) the em p loyer ’s letter w as an ad equ ate request in w riting as it got the
m essage across to the contractor;
(ii) in any event:
(a) the em p loyer ’s w ritten requ est was not a condition preced ent to his
right to d ed u ct liqu id ated d am ages;
(b) the contractor by his cond uct had led the em ployer to believe that
strict contractual rights w ou ld not be insisted up on and he w as
thereby estopp ed from m aking the challenge.
The confl icting d ecisions of Jarvis Brent and Bell have subsequ ently been
consid ered in the case of J F Finnegan Ltd v. Community Housing Association
(1995) by the Cou rt of Appeal.
The ap peal concerned only the p roced u ral asp ects of the liqu id ated
d am ages p rovisions in the contract betw een Finnegan and Com m u nity
Housing. The rulings of the ju d ge at fi rst instance (discussed in d etail
in Chapter 4 above) that the dam ages clause w as not p enal w ere not
challenged.
The Cou rt of Ap peal, app roving Bell and d isapp roving Jarvis Brent (in
part) held :
1. Written notice from the em ployer und er clau se 24.2.1 is a cond ition prec-
ed ent to the d ed u ction of liquid ated and ascertained d am ages.
2. Su ch a notice need not preced e the d ed u ction, bu t can accom pany the
d ed u ction.
3. The notice need only m ake clear tw o things: w hether the em ployer
is m aking any d ed u ction of liquid ated and ascertained d am ages,
and w hat sum is being d ed ucted , the w hole or only part of the liqu i-
d ated and ascertained d am ages. The notice m ust be such as w ou ld
m ake these tw o things clear to a reasonably literate and nu merate
contractor.
Effect of fi n al certifi cates
A point w orth noting here is that und er the w ord ing of som e stand ard form s
the issu e of a fi nal certifi cate is stated to be conclusive evid ence of the fu lfi l-
m ent of the contractor ’s obligations. The effect of this, su bject to any qu ali-
fi cations w hich are ap plicable, is that w hether or not there has been a
previously issu ed certifi cate of com p letion the contractor cannot be held
liable for any su bsequent d efau lt.
200 10.4 Methods of recovery
Only in exceptional cases will a fi nal certifi cate be issu ed at su ch a tim e

that it has the effect of prem aturely cu tting off the contractor ’s liability for
liquid ated d am ages bu t, in the au thor ’s exp erience, it has been know n to
occur as a result of erroneou s ad m inistration of a contract.
Of m ore concern is the effect of fi nal certifi cates on p rem aturely cutting
off the contractor ’s liability for latent d efects. In tw o cases, Colbart Ltd v. H
Kumar (1992) and Crown Estate Commissioners v. John Mowlem & Co. Ltd (1994)
the courts held that, on the w ord ing of the contracts, the issu e of the fi nal
certifi cates had that effect. As a resu lt of these cases changes w ere m ad e to
the drafting of some standard form s, includ ing JCT 80.
10.4 Met hods of recovery
For em ployers, the p referred m ethod of recovery of liquid ated d amages is

by d ed u ction from su m s d ue to the contractor. This avoids the trouble and
exp ense of suing for recovery and it avoid s the problem of the insolvent
contractor w ho is not w orth suing.
Stand ard form s of contract usually m ake exp ress provision for d edu ction.
Note, how ever, there m ay also be need for the service of w ithhold ing notices
– a p oint covered later in this chapter.
The Token v. Charlton (1973) case referred to in section 10.3 confi rm ed that
d ed uctions can be m ad e from interim certifi cates w here the contract expressly
gives that right and there seem s little d ou bt that phrases su ch as ‘from any
moneys d u e’ will be taken to confer it.
Restriction s on d ed u ction
How ever, it is by no m eans certain that w ord ing su ch as that in ICE Minor
Works Cond itions: ‘. . . the contractor shall be liable to the em p loyer in the
sum stated . . .’ gives any right to ded u ct from interim certifi cates or, ind eed ,
any contractu al right to d ed u ct at all. In such cases it is necessary to look at
the paym ent p rovisions to see w hether they are restrictive on the em ployer
or w hether they contem plate ded u ctions of any kind .
The JCT Agreem ent for Minor Build ing Works avoid s these d iffi cu lties
with w ord ing sim ilar to the m ain JCT form s:
‘. . . The emp loyer m ay d ed u ct such liquidated d am ages from any m oneys
d ue to the contractor und er this contract or he m ay recover them from
the contractor as a d ebt . . .’
D ed u ction essen tial in som e form s
Hudson at section 10.056 m akes the com m ent that som e rare form s of con-
tract m ake p rovision for deductions w hich can be constru ed as m and atory
10.4 Methods of recovery 201
and exclusive so that failure to m ake d ed uctions m ay d isentitle the em ployer

from recovering d amages. The case of Baskett v. Bendigo Gold Dredging Co.
(1902) is qu oted w here the phrase ‘. . . w ill be d ed u cted from any m oneys
d ue to the contractor . . .’ w as held to p revent the em ployer from recovering
w hen m oneys had been paid w ithout d ed uctions.
Su in g for recovery
When the em ployer fi nd s it necessary to su e for recovery of liquid ated

d am ages or fi nd s him self d efend ing a claim for fu ll paym ent on a certifi cate
w here they have been d ed ucted , the em ployer has available the alternative
claim or alternative counter-claim for general d am ages. In Temloc v. Errill
(1987) the alternative claim failed because the liquid ated d am ages provi-
sions w ere valid and exclu d ed general d am ages. In Rapid Building v. Ealing
Family Housing Association (1984) the alternative cou nterclaim succeeded
w hen the liquid ated d am ages provisions w ere ru led invalid and there w as
therefore no exclu sion.
D ed u ction s from reten tion s
There has long been argu m ent on w hether em p loyers are entitled to d ed u ct
liqu id ated d am ages from sum s held as retention m oneys. The p rinciple that
the em ployer ’s interest in retention m oney is fi d u ciary as trustee for the
contractor is expressed in the m ain bu ild ing form s and probably im plied
into other form s. Many of the d isputes w hich reach the courts on retention
are on w hether or not the em ployer is obliged to set aside retention m oney
in a sep arate tru st fu nd , and in a series of cases from Rayack Construction Ltd
v. Lampeter Meat Co. Ltd (1979) to Wates Construction (London) Ltd v. Frantham
Property Ltd (1991) the cou rts have held that the em ployer ’s interest in reten-
tion is as a trustee and not as a benefi ciary and that a trust fu nd is im p lied .
That even app lied in Wates w here an express p rovision for retention to be
placed in a separate bank accou nt had been d eleted .
Nevertheless, this d oes not prohibit the em ployer from ded u cting sum s
d ue und er the contract. Mr Justice Vinelott in Rayack said :
‘Lastly, [Counsel for Lam peter Meat Co.] said that there had been d elay
in com pleting the contract and that liquidated d am ages w ere likely to
exceed the retention m oneys. H ow ever, the contention that d elay w ould
give rise to a claim for liquid ated dam ages rests on speculative grou nd s
and in any event, if su ch a claim w ere m aintainable, the d efend ants
w ou ld be entitled u nd er cond ition 30(4)(a) to w ithd raw the equivalent
sum from the tru st account.’
Rayack w as follow ed in Henry Boot Building Ltd v. The Croydon Hotel and
Leisure Co. Ltd (1985) w here it w as held that althou gh the em p loyer w as
obliged to set asid e retentions in a separate fund , the obligation could not
202 10.5 Time limits on recovery
be enforced by injunction at a tim e w hen the em p loyer w as entitled to

d ed uct a greater sum as liquid ated d am ages.
In the later case of J F Finnegan Ltd v. Ford Sellar Morris Developments Ltd
(1991) an inju nction that retention shou ld be placed in a sep arate accou nt
was granted to the contractor, but in this case the contractor had a d efence
to the claim for liqu id ated d am ages, and there w as no d isp u te on the prin-
ciple of d ed u cting from retention m oney.
10.5 Time limit s on recovery
Legal lim its
English law requ ires that actions for breach of contract are brou ght w ithin
six years of the cause of action for contracts u nd er hand , and within 12 years
for contracts u nd er seal or execu ted as a d eed .
Unless there are exp ress provisions in the contract to the contrary, these
lim its ap ply to actions for the recovery of liquid ated d am ages either as a
main claim or a cou nterclaim . It is less clear w hether these tim e lim its also
ap ply to recovery of liqu id ated d amages by d ed uctions from su m s d ue to
the contractor. Were it not for the extraord inary d elays in the settlem ent of
som e fi nal accou nts, the question w ould ap pear to be acad em ic, but there
are ind eed cases w here signifi cant su m s are still outstand ing to contractors
many years after the w ork has been com pleted .
The p robability is that w here the contract perm its recovery from sum s due
to the contractor, su ch recovery can be m ad e at any tim e after the su m s
becom e d ue unless there is som e contractu al restriction.
Con tractu al lim its
There are good reasons for im posing su ch restrictions, not least to bring
certainty to fi nal account settlem ents w hich may only have been achieved
after years of protracted negotiations and com prom ise. It w ou ld be inequi-
table, and possibly a case for arguing w aiver or estopp el, if an em ployer
stayed silent through negotiations on his intention to d ed u ct d am ages from
the fi nal paym ent to secure a better d eal on the fi nal accou nts.
JCT 2005 end eavou rs to elim inate the p roblem of continuing u ncertainty
by stating in clause 1.10.3 the effect of the fi nal certifi cate to be: ‘conclusive
evid ence that all and only such extensions of tim e, if any, as are u nd er clause
2.28 have been given’ and by stating in clause 2.32.2 that the em ployer ’s
notice of intention to require the p aym ent or allow ance of liqu id ated d am ages
mu st be given not later than the d ate of the fi nal certifi cate.
H ow ever, becau se the architect is functus officio after the issue of the fi nal
certifi cate – a point confi rm ed in H Fairweather Ltd v. Asden Securities Ltd
(1979) – and it is not p art of the architect’s d uty to d eal w ith d ed u ctions of
d am ages in certifi cates, and all his certifi cates inclu d ing those for extensions
10.6 Interest on repayment 203
of tim e can, in any event, be op ened up in arbitration, the p osition of the

parties is not as restricted by the issue of the fi nal certifi cate as m ight fi rst
appear.
ICE 7th Ed ition requires the em ployer to pay the balance on the fi nal
account, less any d ed u ctions for liquid ated d am ages, w ithin 28 d ays of the
issu e of the engineer ’s fi nal certifi cate. The w ord ing, how ever, is not restric-
tive enou gh to p revent later claim s from the em p loyer for such d am ages,
although both contractor and em ployer can be caught und er these
cond itions w ith the tight timing restrictions in the arbitration agreem ent –
clau se 66.
Paym en t in fu ll – n o b arrier to recovery
The general rule that the courts will not bar a claim for liquidated d am ages
simp ly becau se p aym ent has alread y been mad e in full, w as established in
Clydebank Engineering v. Yzquierdo y Castaneda (1905) and contractual w ord ing
to exclu d e this principle w ould have to be very p recise.
10.6 Int erest on repa yment
Provid ed liquid ated dam ages are d ed ucted legitim ately u nd er the contract,
there is no breach of contract if a review of the contractor ’s entitlem ent to
extensions of tim e lead s to a revised date for com pletion and such d am ages
have to be repaid in w hole or in part to the contractor.
JCT 2005 provid es for the repaym ent of liqu id ated d am ages w hen a
later com p letion d ate is fi xed but there is no m ention of p aym ent of interest
on the su m s so repaid . Were it not for the m u ch-criticised d ecision of
the H igh Cou rt of N orthern Ireland in Department of the Environment for
Northern Ireland v. Farrens (Construction) Ltd (1981) it is unlikely that any
argu m ent in favou r of interest could be su stained . There is no com mon
law right of interest on su m s d u e, so if there is no contractu al right, there
is no case other than to claim special d amages u nd er the second lim b of
Hadley v. Baxendale. But if there is no breach how can there be su ch
a claim ?
In Farrens, w hich concerned a JCT 63 contract, Mr Ju stice Mu ncy appeared
to take the view that the architect could issue only one certifi cate of non-
comp letion and if the em ployer d ed u cted d am ages on the basis of a certifi -
cate w hich w as su bsequ ently su persed ed , he d id so at his ow n risk. This
w ou ld then am ount to breach of contract and interest w ould be payable as
sp ecial d am ages u nder the second lim b of Hadley v. Baxendale as the foresee-
able consequ ences of the em ployer ’s failure to p ay on the d ue d ate, follow-
ing the d ecision in Wadsworth v. Lydall (1981).
Legal com mentators su ggested that Farrens w as w rongly d ecid ed on JCT
63 bu t in any event it w ou ld not apply to later ed itions of JCT becau se of
d ifferences in w ord ing. How ever, there rem ains a view that interest is not
204 10.7 Withholding notices
payable on refu nd ed liqu id ated d am ages u nd er form s w here there is no

exp ress m ention of interest.
The position is d ifferent u nd er form s such as ICE Cond itions w hich have
exp ress provisions for interest to be paid on the reim bu rsem ent of liquid ated
d am ages.
10.7 Wit hholding not ices
The H ou sing Grants, Construction and Regeneration Act 1996, requires at

Section 111 the service of a w ithhold ing notice before d ed uctions can be
mad e from su m s d ue u nd er construction contracts covered by the Act. Most
UK constru ction contracts are so covered .
Section 111 of the Act reads:
‘111. (1) A p arty to a constru ction contract m ay not w ithhold paym ent
after the fi nal date for paym ent of a sum d ue u nd er the contract
unless he has given an effective notice of intention to w ithhold
paym ent.
The notice mentioned in section 110(2) m ay su ffi ce as a notice of
intention to w ithhold paym ent if it com plies w ith the requ irem ents
of this section.
(2) To be effective such a notice m u st specify –
(a) the am ount proposed to be w ithheld and the grou nd for
w ithhold ing paym ent, or
(b) if there is m ore than one ground , each ground and the
am ou nt attributable to it,
and m u st be given not later than the p rescribed p eriod before the
fi nal d ate for p aym ent.
(3) The p arties are free to agree what that prescribed period
is to be.
In the absence of such agreem ent, the p eriod shall be that p ro-
vid ed by the Schem e for Construction Contracts.
(4) Where an effective notice of intention to w ithhold p aym ent is
given, bu t on the m atter being referred to ad jud ication it is
d ecid ed that the w hole or part of the am ou nt should be paid ,
the d ecision shall be construed as requ iring p aym ent not later
than –
(a) seven d ays from the d ate of the d ecision, or
(b) the d ate which apart from the notice w ould have been the
fi nal d ate for paym ent,
w hichever is the later.’
Sch em e for Con stru ction Con tracts
The p eriod referred to in Section 111 of the Act as that p rovid ed by the
Schem e for Construction Contracts is the 7-d ay period stated in Paragraph
10.7 Withholding notices 205
10 of Part II – Paym ent – of the Schem e for Construction Contracts Regu la-
tions 1998 w hich read s:
‘N otice of intention to w ithhold paym ent
10. Any notice of intention to w ithhold paym ent m entioned in section
111 of the Act shall be given not later than the prescribed period ,
w hich is to say not later than 7 d ays before the fi nal d ate for p aym ent
d eterm ined either in accord ance w ith the constru ction contract, or
w here no su ch provision is m ade in the contract, in accord ance w ith
p aragrap h 8 above.’
Ap p lication to liq uid ated d am ages
The rule w hich can be d erived from the Act is that ded uctions cannot be
m ad e from su m s d ue und er the contract unless a w ithhold ing notice has
been served in com pliance w ith the term s of the contract or, in the absence
of any su ch term s, in com pliance w ith the 7-d ay p eriod stated in the statu-
tory Scheme.
It is evid ent from a string of the cases, the m ost recent being Avoncroft
Construction Limited v. Sharba Homes (CN) Limited (2008), that the rule applies
to ded u ctions for liquid ated d am ages.
What is m ore, as the Avoncroft case m akes clear, is that a valid notice is
necessary if the d ed uction is to be m ad e from a paym ent ord ered by an
ad jud icator. Dealing w ith argum ents on this the jud ge in Avoncroft said :
‘Valid ity of w ithhold ing notice
14. Given m y conclu sions on these points, it is not necessary to d eal w ith
the fu rther point w hich Mr Thom pson raises, but I d o so becau se it
is a p oint of interest and w hich m erits consideration. Mr Thom son
su bm its that the d efendant’s w ithhold ing notice dated 15 Febru ary
2008 w as not served in tim e.
15. Tw o clau ses in the contract m ake exp ress p rovision for service of a
w ithhold ing notice, nam ely clau se 30.1.1.4 (w hich d eals w ith p aym ent
of Interim Certifi cates) and clau se 30.8.3 (w hich d eals w ith p aym ent
d u e pu rsuant to the Final Certifi cate.) N either of these is relevant
here. The su m w hich the adjud icator has d ecid ed is d u e to the claim -
ant is not and d oes not refl ect an entitlem ent to an interim paym ent,
nor d oes this su m arise out of the provisions of Clause 30.8: the Final
Certifi cate has not been issued so the m echanism provid ed by Clau se
30.8 has not com e into operation.
16. I accep t Mr Thom p son’s su bm ission that the d ecision provid es for a
su m du e u nd er the contract. The adju dicator d ecid ed that a sum w as
p ayable; by reason of the obligation contained in clau se 41A.7.2, the
p arties m u st com p ly w ith the d ecision reached by the adjud icator;
accord ingly, the su m is d ue u nd er the provisions of the contract
ie und er the contract. The su m w hich the ad jud icator aw ard ed is
not d ue p u rsuant to the contractual p aym ent m echanism s. The
206 10.8 Decisions of adjudicators
ad ju d ication p rovisions of the bu ild ing contract d o not p rovid e for a

notice of w ithhold ing to be served against a d ecision. Section 111 of
the 1996 Act requ ires provision to be m ad e for service of a w ithhold -
ing notice against “a sum d ue u nd er the contract”. As the contract
has m ad e no p rovision for service of a w ithhold ing notice against the
d ecision of an ad ju d icator, one m ust look to section 111(3) of the Act.
This provid es that the prescribed p eriod for service of a w ithhold ing
notice shall be that p rovid ed by the Schem e for Constru ction Con-
tracts Regu lations 1998. Pursuant to p aragrap h 10 of Part 2 of the
Scheme, that p eriod is “not later than 7 days before the fi nal d ate for
p ayment”.
17. The ad ju d icator ’s d ecision required the defend ant to p ay £56,380
“p erem ptorily” and by no later than 4 pm on 21 Febru ary 2008.
Accord ingly, the fi nal d ate for payment w as 21 February 2008. The
notice w as served only six days before 21 Febru ary 2008 and w as thus
ou t of tim e. Accord ingly, the d efend ant w ould be p rohibited , in any
event, from w ithhold ing any money from the su m aw ard ed by the
ad ju d icator ’s d ecision.
18. In response, Mr Maguire su bm itted that the effective and ap plicable
w ithhold ing notice w as that dated 19 Septem ber 2007. I reject that
su bm ission: the notice d ated 19 Septem ber 2007 is exp ressly stated to
ap ply to su m s to be w ithheld from the claim ant’s App lication for
Paym ent nu m ber 13, and not to sum s to be w ithheld from the paym ent
d u e p ursuant to the adjud icator ’s d ecision.
19. Mr Magu ire also su bmitted that, as the d ecision w as m ad e on 14
Febru ary, it w ou ld be im possible for the d efend ant to satisfy the
p rovisions of the Scheme. H e subm its that the court should recog-
nise that im p ossibility and m ake an allow ance in favou r of the
d efend ant for later service of the notice eg on the follow ing d ay. I
reject that su bm ission also: m any authorities in this fi eld stress
the im p ortance of strict com pliance w ith the tim e lim its p rovid ed
by the Act, and I see no reason here to d ep art from that general
ap proach.
20. The d efend ant has no real prospect of su ccess. N o other reason has
been ad vanced w hy su m m ary ju d gm ent shou ld not be given. It
follow s that ju d gm ent should be entered for the claim ant for the fu ll
su m claim ed .
10.8 Decisions of a djudica t ors
The introd u ction, by the H ousing Grants, Construction and Regeneration

Act 1996, of a statu tory right to adjud ication of d isp utes in construction
contracts led inevitably, although perhaps not intend ed , to a vast increase
in the num ber of d ispu tes referred for third p arty d eterm ination. Disp u tes
relating to extensions of tim e and liqu id ated d am ages have been high on
the list of those so referred .
10.8 Decisions of adjudicators 207
For the m ost p art decisions of ad ju d icators rem ain confi d ential to the
parties and w here they are exposed to pu blic scru tiny it is usu ally in relation
to enforcem ent p roceed ings. These are principally p roceed ings seeking cou rt
ord ers on sum s fou nd d ue by ad jud icators. Little of su bstance has been
ad d ed to the general bod y of construction law by the hu nd reds of rulings
given by the cou rts in enforcem ent actions but there is alread y a signifi cant
bod y of ad ju d ication-related law of great interest to the constru ction ind u s-
try – part of w hich covers the recovery of am ounts claim ed as liqu id ated
d am ages.
One of the issues d ealt w ith by the cou rts, as can be seen from the
previously m entioned Avoncroft case, is w hether a valid w ithhold ing
notice has been served. A sim ilar issue w as consid ered in Edmund Nuttall
Ltd v. Sevenoaks District Council (2000) w here the cond itions of contract
stated conditions p reced ent to the em p loyer ’s right to d ed u ct liquid ated
d am ages bu t d id not cover d ed uctions from am ou nts found d u e in
ad jud ication. The em p loyer argu ed for an im plied term that w ould have
allow ed set-off but this w as rejected by the court, w ith Mr Ju stice Dyson
saying:
‘[Em ployer ’s counsel] contend s that a term of the contract shou ld be
im plied that, w here an Adjudicator has mad e an award in favou r of the
contractor, the em ployer shou ld be able to d ed u ct liqu id ated and ascer-
tained d am ages from the am ount of the aw ard . H e su bmits that such a
term is necessary to give business effi cacy to the contract. Without it the
contract is u nw orkable w here an Ad ju d icator ’s aw ard is issued in favour
of a contractor, and the em ployer w ishes to m ake a d edu ction, for exam p le
of liqu id ated and ascertained d am ages.
I cannot accept this subm ission. It seem s to m e that the contract w orks
perfectly satisfactorily w ithout su ch a term . Moreover, I think I ou ght to
be extrem ely w ary about im plying a term as to the circum stances in
w hich liqu id ated and ascertained d am ages m ay be d ed u cted from a sum
d u e to the contractor w hen the contract contains d etailed express provi-
sions w hich d eal p recisely w ith that issue.
It m ay be that those w ho d raft these stand ard form s of contract w ill
d ecid e to enlarge the scope of clau se 2.7, so as to ad m it the d eduction of
liqu id ated and ascertained d am ages by em p loyers from su m s aw ard ed
by Ad ju d icators to contractors. That how ever is not a m atter for m e. There
m ay w ell thou ght to be good p olicy reasons for rejecting this su ggestion
in any event.’
Broad er issu es w hich have troubled the courts concern the position w here
the ad ju d icator has d eterm ined the app rop riate extension of tim e but has
not d ealt w ith liqu id ated d amages. The early ju d gm ents on this appeared
to be at od d s w ith VHE Construction plc v. RBSTB Trust Co. Ltd (2000) ind icat-
ing that set-off w as not p erm issible and David McLean Housing Contractors
Ltd v. Swansea Housing Association Ltd (2002) indicating that it w as. H ow ever,
these w ere explained by Mr Justice Jackson as reconcilable in Balfour Beatty
Construction v. Serco Limited (2004) w here he said :
208 10.8 Decisions of adjudicators
‘50 There is, in m y ju d gm ent, no inconsistency betw een the reasoning in

VH E Constru ction and David McLean. In each case the d ecision fl ow s
from an analysis of w hat the ad jud icator had decid ed and from the
particular circum stances of the case.
51 The manner in w hich VH E Constru ction and David McLean can be
reconciled has been d iscu ssed by H is H onour Jud ge Seym ou r QC in
Solland International Ltd v Daraydan Holdings Ltd [2002] EWH C 220
(TCC); 83 CON LR 109 at paragrap hs 30 to 32. The sam e m atter has
been d iscu ssed by H is H onour Jud ge Thornton QC in Bovis Lend Lease
Ltd v Triangle Development Ltd [2003] BLR 31 at p aragraphs 35 to 36.
I note next the d ecision of the Court of App eal in Parsons Plastics
(Research and Development) Ltd v Purac Ltd [2002] BLR 334. In that case
the contract contained a specifi c claim as to set off w hich d eterm ined
the outcom e.’
Having then review ed fu rther authorities, Mr Justice Jackson w ent on
to say:
‘53 I d erive tw o p rincip les of law from the au thorities, w hich are relevant
for p resent p urposes.
(1) Where it follow s logically from an ad ju d icator ’s d ecision that the
em ployer is entitled to recover a specifi c sum by w ay of liqui-
d ated and ascertained d am ages, then the emp loyer m ay set off
that sum against m onies payable to the contractor pu rsuant to the
ad ju d icator ’s d ecision, p rovid ed that the em p loyer has given
p rop er notice (insofar as requ ired ).
(2) Where the entitlem ent to liquid ated and ascertained d am ages has
not been d eterm ined either expressly or im plied ly by the ad jud i-
cator ’s d ecision, then the qu estion whether the em p loyer is enti-
tled to set off liquid ated and ascertained d am ages against sum s
aw ard ed by the ad jud icator w ill d ep end up on the term s of the
contract and the circum stances of the case.’
These ru les have been follow ed in subsequent cases inclu d ing William Verry
Ltd v. London Borough of Camden (2006) and the Avoncroft v. Sharba Homes
(2008) case m entioned previou sly.
Chap ter 11
D efen ces / ch allen ges to
liq u id ated d am ages
11.1 Benefi t s of precedent s
Contractors faced w ith the d ed uction of liqu id ated d am ages or an action to

recover the sam e d o not alw ays accept that d ed uctions are ju stifi ed or d ue.
This m ay be becau se of extension of tim e d ispu tes; because of perceived
legal fl aw s in the contractu al provisions for liqu id ated dam ages; or because
of alleged m alad m inistration by the contract ad m inistrator.
Althou gh it w ill often be the case that the u nd erlying d isp ute betw een the
parties is factu al in natu re, particu larly where the d efence or challenge to
liqu id ated d am ages is the am ou nt of extension of tim e d u e, there w ill fre-
quently be som e aspect of a d ispu te w here legal p reced ent can offer som e
gu id ance to the p arties on the likely outcom e of any form al dispute resolu -
tion p roceed ings.
Trad itionally arbitration w as the princip al m ethod of d isp ute resolu tion
in the construction indu stry bu t currently, along w ith litigation, it is m ore
of a back-stop after med iation or ad jud ication proceed ings. Bu t of these only
litigation provides legal preced ents.
There has been d ebate as to w hether the hu ge am ount of legal argu m ent
and analysis on m atters of interest to the construction ind ustry w hich goes
into arbitration proceedings cou ld , in som e w ay, be harnessed to general
benefi cial effect and accorded second ary statu s. H ow ever, for a variety of
reasons, som e legal, som e practical, it seems unlikely that m uch w ill com e
of this – although it has been know n for redacted arbitration aw ard s and
ad jud ication d ecisions to be pu t forw ard in m ed iations as provid ing rulings
w hich might sensibly, if not legally, be accord ed som e w eight.
Consequ ently, as things presently stand and are likely to rem ain, it is nec-
essary to look to the cases for legal guid ance and p reced ents on the d efences
and challenges to claim s for liquid ated d amages – save for those d efences
w hich fou nd on the facts. In the follow ing analysis sum m aries only are given
w here the su bject has been covered in d epth in other chapters.
11.2 Ext ension of t ime due
Probably the com m onest plea put forw ard by contractors w hen faced w ith
liqu id ated d am ages is that extensions of tim e are still d u e. This is u sually
210 11.2 Extension of time due
because the contract ad m inistrator has not recognised any ju stifi able d elay
or has recognised too little. If negotiation fails to prod uce a satisfactory result
the contractor has little choice bu t to p roceed to ad jud ication, arbitration or
litigation.
Review in ad ju d ication
As noted in the previou s chap ter, there is a statu tory right in the United
Kingd om for disp u tes in construction contracts to be referred to ad ju dica-
tion. The effect of this is that all d isp u tes, includ ing those on extensions of
tim e and liqu id ated d am ages, can be referred by either p arty to ad jud ication
under the contractu al schem e, or und er the statu tory schem e if there is no
contractu al schem e or if it is not com p liant w ith statutory requirem ents.
An ad jud icator ’s d ecision is bind ing on the p arties unless and until the
d ispu te is referred to arbitration or litigation. This w as exp lained by Mr
Ju stice Ram say in the case of William Verry Ltd v. The Mayor and Burgesses of
the London Borough of Camden (2006) as follow s:
‘Whilst ad ju d ication is not arbitration, in my jud gm ent, the phrase “the
d ecision of the ad ju d icator is bind ing” is intend ed to provid e a sim ilar
d egree of com p liance by the p arties, excep t that in the case of an ad jud i-
cator ’s d ecision, the d ecision is not “fi nal” but is “interim ” unless the
parties agree to accep t it as fi nally d eterm ining the d isp u te. The intention
of Parliament m u st be that the d ecision is binding and enforced at interim
stage. If the d ecision w ere no m ore than another contractual obligation,
w hich cou ld be breached or could be red uced or d im inished by other
contractu al obligations, then the fu nd am ental purpose of provid ing
cash fl ow in the construction ind ustry w ou ld be u nd erm ined . As Lord
Ju stice Mantell said in Ferson v. Levolux at p ara. 30, “the contract m u st
be construed so as to the give effect to the intention of Parliament,
rather than to d efeat it”. In m y ju d gm ent, that can only be d one by
giving prop er effect to the w ord “bind ing” by enforcing the d ecision of
ad ju d icators.’
The ju d ge w ent on to say later in his jud gm ent:
‘Equ ally, Mr. Matthias relies on the d ecision of H is H onou r Jud ge Lloyd
QC in David McLean Housing Limited v. Swansea Housing Association Limited
[2003] BLR 125 in w hich he held that the em ployer w as entitled to d edu ct
liquid ated d am ages from the adjudicator ’s d ecision w here the ad ju d ica-
tor had d eterm ined the app ropriate extension of tim e, bu t had not d ealt
w ith liqu id ated d am ages.’
That particu lar qu estion has been the su bject of a subsequ ent d ecision by
Mr Ju stice Jackson in Balfour Beatty Construction Ltd v. Serco Limited [2004]
EWHC 3336 in w hich, having consid ered the relevant decisions includ ing
David McLean, Bovis Lend Lease, Parsons Plastics and Fersons v. Levolux, he
d erived the follow ing tw o principles:
11.2 Extension of time due 211
‘(i) Where it follows logically from an ad jud icator ’s d ecision that the
emp loyer is entitled to recover a specifi c sum by w ay of liqu i-
d ated and ascertained d am ages, then the emp loyer m ay set off
that su m against m onies p ayable to the contractor, pu rsuant to
the ad ju d icator ’s d ecision provid ed that the em ployer has given
p roper notice (insofar as required ).
(ii) Where the entitlem ent to liqu id ated and ascertained dam ages has
not been d eterm ined either exp ressly or im pliedly by the ad ju d i-
cator ’s d ecision, then the qu estion w hether the em ployer is
entitled to set off liqu id ated and ascertained d am ages against
su m s aw ard ed by the ad jud icator w ill d epend upon the term s of
the contract and the circum stances of the case.
29 The p articular issu e of w hether liqu id ated d am ages can be d ed ucted
w hen the ad jud icator ’s d ecision deals w ith extensions of tim e but
d oes not d eal w ith the consequ ential effect on an u nd isp uted or
ind isp utable claim for liqu id ated d am ages raises, I consid er, a d istinct
qu estion of the m anner and extent of com pliance w ith the ad jud ica-
tor ’s d ecision. It d oes not, in m y jud gm ent, raise a question as to the
ability to set-off su m s generally against an ad ju dicator ’s d ecision.’
One of the p articu lar problem s of extension of tim e disp utes is that the deci-
sion of the ad jud icator is not of itself enforceable in court p roceed ings in the
sam e w ay that an ord er for paym ent of a su m of m oney can be enforced .
Nevertheless, w hat is clear from the above qu otation in the Verry case and
other ad ju d ication related cases is that the d ecision is bind ing on the parties.
Som e contracts require the contract ad m inistrator to recognise the effect of
ad jud ication d ecisions and to certify accord ingly but even if there is no su ch
provision or there is no am ending certifi cate the d ecision is still effective.
In the event that one or both of the p arties is d issatisfi ed w ith the d ecision,
the norm al w ay to d ep rive it of effect on substantive ground s (as d istinct
from jurisd ictional or other procedu ral grou nd s) is for one party to refer the
d isp ute to arbitration or litigation. N either of these is an app eal p rocess.
Both entail a new review of the dispu te in w hich the ad jud icator ’s decision
plays no p art. There is another w ay by w hich, in som e circu m stances, a
referring party can seek to im prove on an adjud icator ’s d ecision. This
involves com m encing a second ad judication and being able to su ccessfully
argu e that the second referred d ispute is d ifferent from the fi rst referred
d isp ute.
This m atter w as consid ered by the Cou rt of App eal in Quietfield Ltd v.
Vascroft Construction Ltd (2006). Lord Ju stice May had this to say:
‘21. The ju dge conclud ed in paragraph 42 of his ju d gm ent that there w ere
four relevant p rinciples w here there are su ccessive ad ju dications
abou t extension of tim e and the d ed uction of d amages for d elay, as
follow s:
“(i) Where the contract perm its the contractor to m ake su ccessive
app lications for extension of tim e on d ifferent ground s, either
p arty, if d issatisfi ed w ith the decisions m ad e, can refer those
m atters to su ccessive ad ju dications. In each case the d ifference

betw een the contentions of the aggrieved party and the d ecision
of the architect or contract ad m inistrator w ill constitute the
‘d ispu te’ w ithin the m eaning of section 108 of the 1996 Act.
(ii) If the contractor m akes successive ap plications for extension of
time on the sam e ground s, the architect or contract ad m inistra-
tor w ill, no d ou bt, reiterate his original d ecision. The aggrieved
party cannot refer this matter to su ccessive ad jud ications. H e is
d ebarred from d oing so by paragraphs 9 and 23 of the Schem e
and section 108(3) of the 1996 Act.
(iii) Subject to p aragraph (iv) below, w here the contractor is resisting
a claim for liquidated and ascertained dam ages in resp ect of delay,
pu rsu ed in ad ju d ication p roceed ings, the contractor m ay rely by
w ay of d efence u pon his entitlem ent to an extension of tim e.
(iv) How ever, the contractor cannot rely by way of d efence in ad ju-
d ication proceed ings up on an alleged entitlem ent to extension
of tim e w hich has been consid ered and rejected in a p reviou s
ad ju d ication.”
In m y jud gm ent, these p rinciples are a correct analysis for the p urposes
of the p resent case. Mr H olt, for the ap pellant, attem pted to p ersuad e u s,
unsu ccessfu lly in m y view, that the jud ge’s paragrap h (i) w as w rong – see
later in this ju d gm ent.’
and
‘31. Section 108(3) of the 1996 Act and p aragrap h 23 of the Schem e provid e
for the tem p orary bind ing fi nality of an ad ju d icator ’s decision. More
than one ad ju d ication is perm issible, provid ed a second ad jud icator
is not asked to d ecid e again that w hich the fi rst adju d icator has
alread y decid ed . Ind eed p aragrap h 9(2) of the Schem e obliges an
ad ju d icator to resign w here the d ispute is the sam e or su bstantially
the sam e as one w hich has previou sly been referred to ad ju d ication
and a decision has been taken in that ad ju d ication.
32. So the qu estion in each case is, w hat d id the fi rst ad jud icator d ecid e?
The fi rst source of the answ er to that question w ill be the actu al d eci-
sion of the fi rst ad ju d icator. In the present ap peal, Mr Holt d id not
even take u s to the fi rst ad ju d icator ’s d ecision, although he w as
invited m ore than once by the court to d o so. He w as consciou s, no
d oubt, that it w ou ld show, as it d oes, that the d ecision w as lim ited
to the ground s for extension of tim e in the tw o letters.
33. The scop e of an ad jud icator ’s d ecision w ill, of course, norm ally be
d efi ned by the scop e of the disp u te that w as referred for ad jud ica-
tion. This is the p lain expectation to be d erived from section 108 of
the 1996 Act and p aragraphs 9(2) and 23 of the Schem e. That is also
the plain expectation of paragraph 9(4) of the Schem e, w hich refers
to a d isp ute w hich varies signifi cantly from the d ispute referred to
the adju d icator in the referral notice and w hich for that reason he is
not com petent to d ecide. There m ay of cou rse be som e fl exibility, in
that the scop e of a d ispute referred for ad jud ication m ight by agree-
m ent be varied in the cou rse of the ad ju d ication.’
Lord Ju stice Dyson said :
‘41. The contract contains no express provision lim iting the nu mber of
such w ritten notices that m ay be given by the contractor in respect
of any particular Relevant Event or the num ber of tim es that the
contractor m ay, in respect of any Relevant Event, give particu lars of
the expected effects or make estim ates of the exp ected d elay to the
com p letion of the Works beyond the Com pletion Date. N evertheless,
I w ould hold that, upon the true constru ction of the contract or by
necessary im plication, the contractor cannot give successive notices
of the sam e m aterial circum stances includ ing the sam e cause or
cau ses of d elay or id entify the sam e Relevant Event as he has given
and inclu ded in a previous w ritten notice. N or can he successively
give the sam e particulars of the exp ected effects of the sam e Relevant
Event or m ake the sam e estim ates of the exp ected delay to com p le-
tion as he has previously given or m ad e. In other w ord s, the contrac-
tor cannot m erely repeat him self, hoping that the architect m ay, on
a reconsid eration of substantially the sam e m aterial that he has
alread y consid ered reach a d ifferent conclusion. In p ractice, of cou rse,
the contractor is rarely likely to consid er that there is any p oint in
d oing this.
42. In m y ju d gm ent, therefore, the contractor m ust p resent som e new
m aterial w hich cou ld reasonably lead the architect to reach a d iffer-
ent conclu sion from that on w hich he based his earlier d ecision or
d ecisions. The ju d ge d id not explain w hat he m eant by “d ifferent
grou nds” in his fi rst princip le. I can see no reason to construe clause
25 so as to p rohibit the contractor from relying on the sam e Relevant
Event as he relied on in supp ort of a previou s app lication for exten-
sion of tim e, giving m aterially d ifferent particulars of the exp ected
effects and / or a d ifferent estim ate of the extent of the expected d elay
to the comp letion of the Works. If the p osition w ere otherw ise, the
contractor could not m ake good shortcom ings of one application
by a later app lication, and w ould be obliged to refer the m atter to
arbitration. That cannot have been intend ed by the contract. There
is nothing in the express langu age w hich prevents the contractor
from m aking good the d efi ciencies of an earlier ap plication in a later
app lication.
43. So m uch for the p osition und er clau se 25. The jud ge’s fi rst principle
m ay app ear to suggest that every d isp ute arising from the rejection
of an ap plication for an extension of tim e m ay be referred to ad ju d i-
cation. I do not consid er that that is necessarily the case. The qu estion
w hether a contractor m ay make successive applications for exten-
sions of tim e d ep end s on the true construction of clause 25 and any
term necessarily to be im plied . The qu estion w hether dispu tes arising
from the rejection of su ccessive ap plications for an extension of tim e
m ay be referred to adjudication depend s on the effect of section

108(3) of the 1996 Act and p aragrap h 9(2) of the Schem e.
44. There are obvious d ifferences betw een su ccessive applications for
extensions of tim e u nd er the contract and su ccessive referrals of
d ispu tes to ad jud ication. In the real w orld , there is often a regu lar
d ialogue betw een contractor and architect in relation to issues arising
from clause 25. If an architect rejects an ap plication for an extension
of tim e p ointing ou t a d efi ciency in the application w hich the con-
tractor su bsequently m akes good , it w ou ld be absurd if the architect
cou ld not grant the application if he now thou ght that it w as ju stifi ed .
To d o so w ould be p art of the architect’s ordinary function of ad m in-
istering the contract. Bu t referrals to ad ju d ication raise d ifferent con-
sid erations. The cost of a referral can be su bstantial. N o d ou bt that
is one of the reasons w hy the statutory schem e p rotects resp ond ents
from su ccessive referrals to ad jud ication of w hat is su bstantially the
sam e d isp ute.
45. Paragrap h 9(2) p rovid es that an adju d icator m u st resign w here the
d ispu te is the sam e or substantially the sam e as one w hich has previ-
ou sly been referred to ad ju d ication and a d ecision has been taken in
that ad ju d ication. It m ust necessarily follow that the p arties may not
refer a d isp u te to ad jud ication in such circum stances.
46. This is the m echanism that has been ad opted to protect resp ond ents
from having to face the expense and trou ble of su ccessive ad ju d ica-
tions on the same or substantially the same d ispu te. There is an
analogy here, albeit an imp erfect one, w ith the ru les d eveloped by
the comm on law to prevent successive litigation over the sam e
m atter: see the d iscu ssion about Henderson v. Henderson (1843) 3 H are
100 abu se of p rocess and cause of action and issu e estop pel by Lord
Bingham of Cornhill in Johnson v. Gore Wood & Co. (a firm) [2002] 2
AC 1, 30H –31G.
47. Whether disp ute A is su bstantially the sam e as d ispute B is a ques-
tion of fact and d egree. If the contractor id entifi es the sam e Relevant
Event in su ccessive applications for extensions of tim e, but gives
d ifferent particu lars of its expected effects, the differences m ay or
m ay not be suffi cient to lead to the conclu sion that the tw o d isputes
are not su bstantially the sam e. All the m ore so if the particulars of
exp ected effects are the sam e, but the evid ence by w hich the contrac-
tor seeks to p rove them is d ifferent.
48. Where the only d ifference betw een d isp utes arising from the rejec-
tion of tw o successive applications for an extension of tim e is that
the later ap plication m akes good shortcom ings of the earlier ap plica-
tion, an ad ju d icator w ill u sually have little d iffi culty in d eciding that
the tw o disp u tes are su bstantially the sam e.’
In the case of H G Construction Ltd v. Ashwell Homes (East Anglia) Ltd (2007)
Mr Justice Ram say, after referring to the ru les on Quitefield, sum m arised the
position as follow s:
‘(1) the p arties are bou nd by the d ecision of an ad ju d icator on a d ispute

or d ifference u ntil it is fi nally d eterm ined by court or ad ju dication
p roceed ings or by an agreem ent m ad e su bsequ ently by the parties.
(2) The p arties cannot seek a further decision by an adju d icator on a
d ispu te or d ifference if that d ispute or d ifference has alread y been
the subject of a d ecision by an Ad jud icator.
(3) As a m atter of practice, an ad jud icator shou ld consid er (based either
on an objection raised by one of the p arties or on his ow n volition)
w hether he is being asked to d ecid e a matter on w hich there is
alread y a bind ing d ecision by another Ad jud icator. If so he should
d ecline to d ecid e that m atter or, if that is the only m atter w hich he is
asked to d ecid e, he should resign.
(4) The extent to w hich a decision or a d ispu te is bind ing w ill d epend
on an analysis of
(a) the term s, scope and extent of the d isp ute or d ifference referred
to adju d ication and
(b) the term s, scope and extent of the d ecision m ad e by the
ad jud icator.
(5) In consid ering the term s, scop e and extent of the d isp ute or d iffer-
ence the approach has to be to ask w hether the d ispu te or d iffer-
ence is the sam e or substantially the sam e as the relevant d ispu te or
d ifference.
(6) In consid ering the term s, scop e and extent of the d ecision, the
ap proach has to be to ask w hether the Ad ju d icator has d ecid ed a
d ispu te or d ifference w hich is the sam e or fund am entally the same
as the relevant d isp ute or difference.’
See also the case of Emcor Drake & Scull Ltd v. Costain Construction Ltd &
Skanska Central Europe AB (2004) d ealing w ith the overlap betw een succes-
sive ad ju d ication d ecisions.
Review in arb itration
Most stand ard form s of contract u sed in constru ction contain arbitration
agreem ents w hich em pow er the arbitrator to op en up and review any cer-
tifi cates. So, quite apart from referrals to ad jud ication, there is no absolu te
fi nality in extensions of tim e aw ard ed by the contract ad m inistrator. Even
statem ents in som e contracts that the architect’s fi nal certifi cate is conclusive
evid ence that all su ch extensions as are du e have been given, is u su ally
su bject to the p roviso of review in arbitration or other p roceedings. H ow ever,
in som e contracts, there are tim e lim its on the com m encem ent of arbitration
or other proceedings and failure to com m ence on tim e leaves the certifi cates
unchallengeable. Then no further review of extensions of tim e can be
m ad e.
Usually w here arbitration agreem ents are w ritten into contracts, those
agreem ents bind the parties to settling their d ifferences by arbitration. If one
party starts an action in the cou rts it is open to the other p arty to ap ply for
a stay of proceed ings on the ground s that there is an effective arbitration

agreem ent. Of cou rse if both p arties prefer litigation to arbitration they m ay
choose to ignore their arbitration agreem ent and go to cou rt. This, how ever,
is not w ithout its d iffi cu lties.
Review in litigation
In Northern Regional Health Authority v. Derek Crouch Construction Co. Ltd

(1984), a d ispute u nd er a JCT 63 contract w hich concerned in the fi rst instance
the suffi ciency of extensions of tim e granted by the architect, the Court of
Appeal ruled that the cou rts have no pow er to open up and review certifi -
cates w here the contract gives the d uty of certifi cation to an architect or
engineer. If the p arties have in their arbitration agreem ent conferred the
pow er of op ening u p and review ing on an arbitrator, that is effective, bu t
the pow er is not transferred to the cou rts.
The d ecision in Crouch was follow ed in Oram Builders v. M J Pemberton
(1985) on a JCT Agreem ent for Minor Build ing Works form .
The Crouch d ecision w as the cau se of som e alarm if not d ism ay to those
with actions ru nning at the tim e, but its effect has now been d im inished
by section 100 of the Courts and Legal Services Act 1990 w hich enables
the parties, by agreem ent, to confer the pow ers of their arbitrator on the
cou rts.
More recently the Crouch d ecision has com e u nd er scrutiny in tw o cases
of consid erable interest to the subject of extensions of tim e.
In Balfour Beatty Civil Engineering Ltd v. Docklands Light Railway Ltd (1996)
the Cou rt of App eal consid ered a d ispu te on the am ount of tim e d u e to
the contractor u nd er an am end ed version of the ICE 5th Ed ition w here the
em ployer acted as the engineer and the arbitration clau se was om itted . The
jud ge at fi rst instance had d ecided , follow ing Crouch, that the court had no
general p ow er to op en up and review the d ecisions and certifi cates of the
em ployer and the p ow ers of the cou rt w ould be lim ited to special circum -
stances w here su ch d ecisions and certifi cates w ere p roved to have been not
in accord ance w ith the p rovisions of the contract.
The Cou rt of Ap peal held that the parties’ rights and obligations w ere
governed by the contract they had m ad e. Und er the term s of the contract,
the contractor ’s entitlem ents w ere to be su ch as the em ployer consid ered
d ue in the em p loyer ’s jud gm ent. Whilst that jud gm ent w as not exp ressed
to be bind ing and conclusive there w as no agreed m eans of challenging it.
Sir Thom as Bingham , Master of the Rolls, said this:
‘It is not for the cou rt to d ecid e w hether the contractor m ad e a good
bargain or a bad one; it can only give effect to w hat the parties agreed .’
How ever, the d ecision m ad e clear that the em p loyer w as bound to act hon-
estly, fairly and reasonably in arriving at his ju d gm ent (even though there
was no express obligation in the contract to d o so) and if the contractor cou ld
prove a breach of this d u ty it w ould be entitled to a rem edy in d am ages.
In John Barker Construction Ltd v. London Portman Hotel Ltd (1996) the cou rt
w as asked to consid er w hether it had ju risdiction to entertain a contractor ’s
claim in relation to extensions of tim e granted by the architect and , if it had
su ch jurisd iction, w hat w as the prop er d eterm ination of the claim . The
applicable cond itions of contract w ere JCT 80 but w ith the arbitration clau se
d eleted and rep laced by the w ord s ‘The proper law of the agreem ent shall
be English and the English cou rt shall have ju risd iction’. The jud ge, review -
ing the Crouch decision, said :
‘The essential points of the Crouch d ecision, read ing the ju d gments as a
w hole, ap p ear to m e to be the follow ing:
1. The contractu al m achinery established by the parties p rovid ed in the
fi rst instance for d eterm ination of w hat w as a fair and reasonable
extension of tim e by the architect.
2. That agreed allocation of responsibility to the architect w as subject to
tw o safeguard s:
(a) im p licitly, an obligation on the architect to act law fu lly and fairly,
and
(b) explicitly, the p ow er of review by an arbitrator, who w as entitled
to substitu te his opinion for that of the architect.
3. If safegu ard (a) failed , the court cou ld d eclare the architect’s d ecision
invalid , but it cou ld not su bstitu te its d ecision for that of the architect
solely because it w ou ld have reached a d ifferent d ecision, for that
w ould be to u surp the role of the arbitrator.
4. If safegu ard (b) failed because the arbitration m achinery broke d ow n,
the cou rt could su bstitu te its ow n machinery to ensure enforcem ent of
the parties’ su bstantive rights and obligations that a fair and reason-
able extension should be given.’
The jud ge then w ent on to say:
‘In the present case it seem s to m e that both parties’ argum ents go too
far. Clau se 25 p rovid ed for the d eterm ination of w hat w as a fair and
reasonable extension of tim e by the architect. If the architect m ad e his
d eterm ination fairly and law fully, the p arties wou ld get w hat they had
bargained for, and I w ould not accep t, as a m atter of constru ction of the
contract, that either p arty w ould be entitled in those circum stances to ask
the court to substitu te its opinion for that of the architect. By law fully I
m ean acting w ithin his power and p roperly d irecting him self as to the
term s of the contract.
Nor w ou ld I agree, on the other hand , w ith the Defend ants’ argu m ent
that the grou nd s on w hich a d ecision of the architect u nd er clau se 25 m ay
be challenged are lim ited to bad faith or m anifest excess of jurisd iction.
I fi nd quite u naccep table the suggestion that the p arties can have intend ed
that a d ecision on a m atter of su ch potential im portance shou ld be
entrusted to a third person, w ho w as him self an agent of one party,
w ithou t that person being u nd er any obligation to act fairly. It seem s
to m e to go w ithout saying that the p arties m ust have intended the
218 11.3 Completion achieved earlier than certified
d ecision-m aker to be und er su ch an obligation, the im p osition of w hich

is necessary to give effi cacy to the contract.’
Later on in his ju d gm ent, the jud ge w ent on to ru le that the extension of
tim e granted by the architect w as fund am entally fl aw ed in that it w as based
on an im pressionistic assessm ent rather than a logical analysis of d elay.
Consequ ently the contractu al m achinery had broken d ow n to the extent that
the court w as required to d eterm ine on the evid ence w hat w as a fair and
reasonable extension of tim e.
For fu rther com m ent on this aspect of the ju d gm ent see the comm ent in
Chapter 12.
11.3 Complet ion a chieved ea rlier t ha n cert ifi ed
Such a d efence, as w ith extensions of tim e, am ou nts to a challenge of a cer-

tifi cate. There are tw o m ain lines of argum ent. One that the em ployer occu-
pied or u sed the w orks prior to the d ate on the com pletion certifi cate; the
other, that the w orks w ere com p leted and read y for hand -over bu t the archi-
tect or engineer w as over-zealou s in d em and ing perfection or absolu te
com p letion.
Both are m atters w hich can be d ecid ed on fi nd ings of fact bu t regard w ill
be given to the w ord ing of the particular contract and , as m entioned in
Chapter 10, w hilst occup ation and use d oes not constitute com pletion u nd er
JCT form s, there is a strong presum p tion that it d oes so und er the word ing
of ICE form s.
As to the over-zealou s architect or engineer the problem for contractors
is that m ost stand ard form s incorporate in clau ses on com p letion the p hrase
‘in the opinion of’ the architect or engineer. Provid ing the architect or engi-
neer is ap p lying his professional judgm ent, is d oing so fairly and law fu lly,
and is not subject to interference or pressure from the em p loyer, then it w ill
take good evid ence and clear facts to overtu rn his d ecision.
Action against certifi ers b y con tractors
It is not u nknow n for contractors w ho feel aggrieved by the content and

consequences of certifi cates to question w hether they have any course of
action against the certifi er. In the absence of a contractual link, this w ould ,
of course, be in tort. The p ossibility of su ch action was given som e life by
the com m ents of Lord Salm on in Arenson v. Arenson (1977) w hen he said :
‘. . . The architect ow ed a d uty to his client, the build ing ow ner, arising
ou t of the contract betw een them to u se reasonable care in issu ing
his certifi cates. H e also, how ever, ow ed a sim ilar d u ty of care to the con-
tractor arising out of their proxim ity: see Hedley Byrne & Co. Ltd v. Heller
& Partners Ltd (1964). In Sutcliffe v. Thackrah (1974) the architect negli-
gently certifi ed m ore money w as du e than was in fact du e, and he w as
11.4 Certificates not valid 219
successfully sued for the d am age w hich this had caused his client. H e
m ight, how ever, have negligently certifi ed that less m oney w as payable
than w as in fact d ue and thereby starved the contractor of m oney.
In a trad e in w hich cash fl ow is esp ecially im portant this m ight have
caused the contractor serious dam age for w hich the architect could have
been successfu lly su ed . . .’
In Michael Salliss & Co. Ltd v. Calil (1987) Ju d ge Fox-And rew s also held that
a sup ervisory offi cer held a duty of care to the contractor w hen certifying
although he d id ap p ear in these com m ents to be ind icating bias as a reason
rather than contrary opinion. H e said :
‘. . . it is self-evid ent that a contractor w ho is p arty to a JCT contract looks
to the architect or su p ervising offi cer to act fairly as betw een him and the
bu ild ing em p loyer in m atters such as certifi cates and extensions of tim e.
Without a confi d ent belief that that reliance w ill be ju stifi ed, in an ind us-
try w here cash fl ow is so im portant to the contractor, contracting w ould
be a hazard ous op eration. If the architect unfairly prom otes the building
em p loyer ’s interest by low certifi cation or m erely fails properly to exer-
cise reasonable care and skill in his certifi cation it is reasonable that the
contractor shou ld not only have the right as against the ow ner to have
the certifi cate review ed in arbitration but also should have the right to
recover d am ages against the unfair architect . . .’
How ever, the Cou rt of Appeal in Pacific Associates v. Baxter (1988) d eclined
to follow either of the above and ruled that in consid ering a d u ty of care, it
w as necessary to look at all the circu m stances, inclu d ing the provisions of
the relevant contract. On the w ord ing in that case, and the fact that the
contract had an arbitration clause for d ealing w ith d ispu tes on certifi cates,
there w as no d u ty of care. See, how ever, the com m ents in Chapter 12 on the
liability of certifi ers.
11.4 Cert ifi ca t es not va lid
If it can be show n that certifi cates for extension of tim e or com p letion are
not valid , the courts w ill hold , applying the contra proferentem ru le, that there
is no d ate from w hich liqu id ated d am ages can ru n and the em ployer w ill
be left to sue for w hatever general d am ages he can prove.
Thu s in Miller v. London County Council (1934) the court held that the
phrase ‘to assign su ch other tim e or tim es for com pletion’ invalid ated an
extension of tim e granted after com pletion by the engineer and the exercise
of the p ow er too late p revented the emp loyer from recovering liquid ated
d am ages.
A certifi cate w ill not be invalid if the fau lt am ou nts to no m ore than
incom petence by the certifi er – a point borne out by Lubenham v. South
Pembrokeshire (1986) d iscu ssed in Chap ter 10 – but if there is d isregard for
the express ru les of the contract or there is evid ence of collusion w ith the
220 11.4 Certificates not valid
em ployer, frau d or sim ilar w rongd oing, the em p loyer w ill not be able to rely
on the certifi cate.
Breach of express rules
There are various challenges to valid ity u nd er this head ing:

(i) certifi cates not given on tim e;
(ii) certifi cates not in correct form ;
(iii) certifi cates given by w rong person;
(iv) no nam ed certifi er;
(v) d ecisions im properly d elegated;
(vi) certifi cates not given fairly;
(vii) contractu al machinery not ap plied .
Certifi cates n ot given on tim e – cert ifi er funct us offi cio
Stand ard form s of contract usually have som e point after w hich the certifi er
becom es functus officio. In JCT 2005 it is the issu e of the fi nal certifi cate; in
ICE 7th Ed ition it is, on any particular issu e, the giving of a clause 67 d eci-
sion. Clearly any certifi cate w hich is issu ed after this p oint is invalid .
See H. Fairweather Ltd v. Asden Securities Ltd (1979) for a build ing case
and Monmouthshire County Council v. Costelloe & Kemple Ltd (1965) and ECC
Quarries Ltd v. Merriman Ltd (1988) for civil engineering cases.
Certifi cates n ot given on tim e – sp ecifi ed tim e req u irem en ts
Failure to m eet tim e requirem ents sp ecifi cally stated in extension of tim e
clau ses is not a straightforw ard issue. In Temloc v. Errill (1987) it was ruled
that the 12-w eek period specifi ed in JCT 80 for the architect’s review of
extensions after com p letion w as d irectory only as to tim e, and failu re d id
not invalid ate the liqu id ated dam ages provisions. Where the tim e require-
ments ap ply before comp letion – for exam ple, 12 w eeks from the contrac-
tor ’s ap p lication in JCT 2005 and ‘forthw ith’ in ICE 7th Ed ition – it is thought
even less likely that failu re by the certifi er w ould invalid ate liquid ated
d am ages having regard to the obligation on certifi ers to cond u ct fi nal
reviews. The contractor ’s rem ed y in su ch circu m stances w ou ld app ear to lie
in a claim for constru ctive acceleration.
On balance it seem s that the functus officio rule hold s good bu t other con-
tractu al tim e requ irements are less signifi cant. This perhap s follow s the line
d eveloped by Lord Denning in Amalgamated Building Contractors Ltd v.
Waltham Holy Cross UDC (1952) w hen he declared that Miller v. London
County Council (1934) tu rned on the very sp ecial word ing of the contract and
upheld an extension granted after com p letion.
Certifi cates n ot given in correct form
Disp u tes on this u su ally centre on w hether a certifi cate has been given in
w riting and served in the specifi ed m anner. In the Token v. Charlton (1973) it
w as held that an architect’s letter to the em p loyer d id not constitute a cer-
tifi cate and general ad vice is that certifi cates and notices shou ld have clear
id entity as to their purp ose. It is d oubtful that m inu tes of m eetings could
be said to constitu te ‘notices in w riting’ in them selves but it is p ossible, but
not recom m end ed , that if d elivered w ith an accom panying letter of app ro-
priate w ord ing they cou ld serve as notices.
In connection w ith the problem s posed by m od ern technology, it is w orth
noting the d efi nition in ICE 7th Ed ition of com m unications in w riting:
‘Com m u nications which u nder the contract are required to be “in w riting”
m ay be hand -w ritten, type-w ritten or p rinted and sent by hand , post,
telex cable or facsim ile or other m eans resulting in a p erm anent record .’
Certifi cates given b y w ron g p erson
It is fu nd am ental that where a contract names an ind ividu al or a p ost-hold er

as the architect, engineer or contract ad m inistrator w ho has the d u ty of
certifying, then that p erson or post-hold er only can exercise that d uty.
Hudson gives tw o old cases in supp ort of this, ESS v. Truscott (1837) and
Lamprell v. Billericay Union (1849), so the p roblem is by no means a new one
and the local governm ent reorganisation of 1974, w hich coincid ed w ith a
high level of constru ction activity, show ed how easy it is for w rong nam es
to end u p on certifi cates.
In Hounslow London Borough Council v. Twickenham Garden Developments
Ltd (1971) one of the attacks on the architect’s certifi cate w as that it w as not
given by the architect. The nam ed architect in the contract w as a fi rm ,
Matthew Ryan Simp son. Certifi cates w ere issued and signed by Mr
Matthew s, the senior partner, and p hrased throughout in terms ‘I’ and not
‘w e’. It w as said that one partner is not the fi rm . Mr Justice Megarry, after
observing that there w as nothing in the contract w hich required the certifi -
cate to be signed , held that:
‘a p artner w ho has pow er to bind the fi rm has pow er to give a notice on
behalf of the fi rm .’
N am ed in d ivid u al
Where there is a nam ed individ u al in the contract and he retires or is

prop erly replaced then a new ind ivid ual w ill have to be app ointed by the
em p loyer. There is no need to re-app oint in the case of a d esignated post-
hold er w here there is a change by su ccession unless, of course, the fi rst
post-hold er w as also nam ed as an individ u al. Where there is a take-over or
am algam ation of fi rms or a m anagem ent stru cture re-organisation su ch that

d esignated posts d isappear – the chief architect, perhap s becom ing d ep uty
d irector of technical services – then the em p loyer shou ld alw ays clarify the
position w ith a new app ointm ent.
Power to re-ap p oin t
It is essential that the contract should give the em p loyer p ow er to re-ap point
with w ords su ch as ‘or other such person so app ointed from tim e to tim e
by the em ployer and notifi ed in w riting as su ch to the contractor ’ or sim ilar.
Without such a p ower the em ployer m ay suffer the em barrassm ent of being
unable to change a nam ed ind ivid ual even after he had been d ismissed or
retired . In the event of d eath there w ould p robably be an im plied term per-
mitting a new ap pointm ent to give the contract business effi cacy.
For a legal view on the renom ination of certifi ers Croudace Ltd v. London
Borough of Lambeth (1986) is instructive. Here, the chief architect of Lam beth
retired and no one w as app ointed in his place. This, in part, led to d elay in
d ealing w ith the contractor ’s claim . When the case w ent to the Court of
Appeal this is how Lord Justice Balcom be su m m arised the fi nd ings of Jud ge
New ey w hich were app roved :
‘(1) Crou dace’s ap plication for paym ent for loss and expense u nd er
Cond itions 11(6) and 24 w as m ad e w ithin a reasonable tim e.
(2) If “the Chief Architect” could be regard ed as if he w ere a sort of cor-
p oration sole, then in the absence of any ind ivid u al bearing the title
any qualifi ed m em ber of Lam beth’s Architect’s Departm ent might
act as su ch. If that w ere the correct view, then the Chief Architect by
the Dep artm ent failed to com ply w ith the obligation to ascertain
Croud ace’s loss and expense and , since he or they w ere acting as
Lam beth’s agent, Lam beth w ere liable for the breach of contract.
(3) If, on the other hand , the Chief Architect m ust be an ind ivid u al,
Lam beth’s failu re since 1 Ju ne 1983 to nom inate one had p revented
p erform ance of Lam beth’s contract with Crou d ace, since there had
been no one legally entitled to ascertain or d irect ascertainm ent. The
agreem ent gave Lambeth the p ower to nominate a successor to the
“Chief Architect” if he should cease to act and there m ust be im plied
a recip rocal obligation requ iring them to d o so. On that alternative
view Lam beth w ere again in breach of contract.’
N o nam ed certifi er
This is a com m on problem w ith small w orks form s of contract w hen the
em ployer for reasons of econom y has attem p ted to avoid the services of a
contract ad m inistrator. It is a m atter of argu m ent how the p rovisions of the
contract w ork in su ch circu m stances when there is app arently no one to
certify extensions, variation, paym ents, comp letion and the like.
On one view it is su ggested that the contractor by entering into the con-
tract w ith no certifi er has im plicitly accep ted that the em ployer w ill carry
ou t the certifi er ’s fu nctions. Another view is that those sp ecifi c provisions
of the contract relying on a certifi er no longer ap ply. The consequences of
this, if correct, w ould be that no extensions of tim e cou ld be granted ; vari-
ations w ould be ou tsid e the contract; and the contractor ’s entitlem ent to
interim p ayments w ould be in jeopard y.
Contractors and em p loyers w ho enter into contracts w hich requ ire a cer-
tifi er, bu t d o not have one, d o so at their p eril.
D ecision s im p rop erly d elegated
Som e form s of contract such as ICE Conditions exp ressly p erm it the engi-
neer to d elegate som e of his fu nctions u nd er the contract w hilst m aking it
clear that he cannot d elegate his functions as the contract certifi er. Other
form s, su ch as JCT 2005, d escribe the pow ers of the architect w ithou t any
reference to d elegation.
The general rule is that the contract ad m inistrator cannot d elegate any of
his fu nctions u nd er the contract unless he is expressly em pow ered to d o so
and the issu e of any certifi cate w hich is im p rop erly d elegated is invalid .
N atu re of d elegation
There is often thou ght to be a problem in that unoffi cial ‘delegation’ appears
to be com m onp lace in so far as architects and engineers rely on their sub-
ord inate staff to analyse d isp utes, prepare rep orts and d raft letters. This is,
however, to m isu nd erstand the nature of d elegation. A p ow er w hich has
been d elegated has been passed to another; it no longer resides w ith the
original pow er hold er. The process of arriving at a d ecision w ith the assist-
ance of others is not d elegation.
The p oint w as consid ered in Anglian Water Authority v. RDL Contracting
Ltd (1988) w here an arbitrator had found that an Engineer ’s d ecision u nd er
clau se 66 of ICE 5th Ed ition had been invalid ly given. In his aw ard, the
arbitrator gave his reasons as follow s:
‘12. The Engineer ’s d ecision letter of the 5th Sep tem ber 1986 states that
the m atter is being hand led by Bob Baxter, w hose initials are given
in the reference to the letter.
13. Mr. Baxter w as the Project Engineer not the Engineer u nd er the con-
tract, and notw ithstand ing the fact that the letter w as signed by Mr.
Rouse, having been ad d ressed on this su bject, I d o not consid er this
letter is his d ecision und er the contract, but has been form u lated by
Mr. Baxter. I therefore fi nd the d ecision given in his letter invalid .’
In allow ing an ap plication to appeal against the aw ard , Ju d ge Fox-Andrew s
said this:
‘. . . In the com m ercial world m any d ecisions are m ad e by peop le

such as Mr. Rou se, w ho append their signatures to letters d rafted
by others. It w ould require com p elling evid ence to establish in su ch
circu m stances that the decision was not that of the signatory. The
facts that Mr. Baxter w as the Project Engineer and had taken an
active p art previously in the contract had no p robative value. Som e,
albeit lim ited , gu id ance is to be found on this aspect in Clemence v.
Clarke (1880).
I fi nd the arbitrator erred in law in hold ing that such d ecisions (if any)
m ad e in the letter of 5 Septem ber w ere not those of Mr. Rou se . . .’
In Clemence v. Clarke (1880) a contract provid ed for extras to be certifi ed
by the architect. The architect em ployed a m easu ring surveyor and w hen
certifying the extras stated ‘as certifi ed by the m easu ring su rveyors’. The
em ployer d eclined to p ay on the ground s that the certifi cate w as invalid . It
was held that the architect had not abd icated his d uties.
It shou ld p erhaps be ad d ed that in both the above cases the correct sig-
nature w as used on the relevant d ocum ent. The p osition w ould be signifi -
cantly d ifferent if a su bord inate pu rp orted to u se the name of the proper
certifi er by signing ‘for and behalf of’ or sim ilar since there cou ld , in su ch
circum stances, be genu ine d oubt w hether the view s of the proper certifi er
coincid ed w ith those expressed on the certifi cate.
Certifi cates in valid b ecau se of p ressu re or frau d
It goes w ithou t saying that frau d on the part of the certifi er invalid ates his
certifi cates. As Lord Ju stice Denning said in Lazarus Estates Ltd v. Beasley
(1956):
‘Fraud unravels everything . . . It vitiates ju d gments, contracts and all
transactions w hatsoever.’
But fraud in a d eliberate sense is, or app ears to be, fortunately rare. A far
more com m on p roblem is alleged bias, interest or lack of ind epend ence
because of the certifi er ’s close relationship w ith the em ployer. Som etim es
the divid ing line betw een w hat is proper and im p rop er w ill be fi ne, in other
cases less so.
In Hickman & Co. v. Roberts (1913) an em ployer in fi nancial d iffi cu lties
instru cted his architect not to issue any fu rther interim certifi cates. It w as
held that the architect had lost his ind epend ence by allow ing himself to be
infl uenced by the em p loyer.
In Ranger v. Great Western Railway (1854) it w as held that the contractor
cou ld not object to the engineer ’s d ecisions on grou nds of bias w here the
engineer w as the em p loyers’ servant since he had been aware of the situa-
tion w hen he entered into the contract. N or could he object on the fact,
unbeknow n to the contractor at the time of tend ering, that the engineer w as
also a sharehold er of the em ploying com pany.
Com m ercial interest
The p roblem of sharehold ing is a d iffi cu lt one and p robably com es dow n to
a m atter of scale. Mod est hold ings of shares in a public com pany w ould not,
it is suggested , normally cast d oubt on the ind ep end ence of a p rofessional
acting for that com pany but substantial ow nership in a private com p any
w ou ld be a d ifferent p roposition, w hether the share ow nership be in the
contractor ’s bu siness or the em ployer ’s business.
Various p roperty boom s in the 1980s and 1990s d id give rise to som e
unorthod ox situations w here professional p ractices and ind ivid uals w ere
closely involved as entrepreneurs in d evelopm ent p rojects and at the
sam e tim e w ere acting as architects or engineers und er the d evelopm ent
contracts.
Paid offi cials
A m ore com mon situation is that of the paid offi cial. The d iffi culties of his
ind epend ence have long been recognised . H e has to act as agent of the
em p loyer in d esigning and controlling the project, includ ing ad m inistration
of the contract bu t he has to act ind epend ently as certifi er und er the contract.
He is a man w ith tw o hats w ith the d iffi cu lty that they m ust both be w orn
at once.
The relationship of p aid offi cials to their em p loyers w as consid ered at
length in the Au stralian case of Perini Corporation v. Commonwealth of
Australia (1969), particularly in regard to w hose interests the engineer shou ld
consid er in granting extensions of tim e. A succinct sum m ary of the long and
comp lex jud gm ent of Mr Ju stice Macfarlan is given by the ed itors of Building
Law Reports at page 82 of 12 BLR:
‘(1) The Director of Works was a certifi er und er the contract and as su ch
had certain d uties im posed on him by the contract.
(2) The Director of Works had a discretion as to w hether or not he wou ld
grant an extension of tim e.
(3) The Director of Works cou ld rely on other persons to su pply him w ith
the inform ation on which he w ou ld exercise his d iscretion.
(4) The Director w as bound to give his d ecision on any application for
extension of tim e w ithin a reasonable tim e which in the circum -
stances plainly m eant that he shou ld give a d ecision as soon as his
investigation into the facts w as com pleted and was not entitled to
d efer his decision.
(5) In m aking his d ecision, the Director w as entitled to consid er d ep art-
m ental p olicy bu t w ould be acting w rongfully if he w ere to consid er
him self as controlled by d epartm ental p olicy.
(6) There w as an im plied term in the contract that the Com m on-
w ealth w ou ld not interfere w ith the Director of Works’ duties as
certifi er.
226 11.5 Conditions precedent not observed
(7) There w as also an im p lied term in the contract that the Comm on-
w ealth w ou ld ensu re that the Director of Works d id his d uty as
certifi er.’
Certifi cates n ot given fairly
It is w ell settled that the valid ity of a certifi cate w hich is not given fairly is
open to challenge. See, for exam ple, the various legal references and extracts
from jud gm ents given u nd er the heading ‘Review in litigation’ in Section
11.2 above.
The effect of a successful challenge could be not only to d eprive
the em ployer of any rights to liquid ated d am ages w hich m ight other-
wise be d u e but also to leave the em ployer liable to the contractor for
d am ages.
Con tractu al m ach in ery n ot ap p lied
Com p laints from contractors that certifi ers have either been d ilatory in
d ealing w ith extensions of tim e or casu al in assessing the am ou nt of tim e
properly d u e are comm onplace. Many certifi ers m ight w ell ad m it to taking
a broad brush app roach to their task – a practice w hich som e years ago w as
com m only consid ered acceptable.
H ow ever, attitu d es have changed and d etailed delay analysis is now a
skill w hich anyone u nd ertaking the assessm ent of extensions of tim e w ill
have to apply. The legal consequences of failu re to d o so are evid ent from
the case of John Barker Construction Ltd v. London Portman Hotel Ltd (1996)
d iscussed und er the head ing ‘Duty of certifi ers’ in Chap ter 12.
It is clear that if it can be show n that the certifi er has failed to p rop erly
operate the m achinery of the contract, by, for examp le, m aking an im pres-
sionistic assessm ent of d elay instead of a logical analysis, then the valid ity
of the certifi cate can be challenged .
11.5 Condit ions precedent not observed
The effectiveness of challenging liquidated d am ages by claim ing non-

observance of cond itions p reced ent to their d ed uction d ep end s exclusively
on the w ord ing of the particular contract.
In Aoki Corporation v. Lippoland (Singapore) Pte Ltd (1994) there w as a con-
tractu al requirem ent that the architect shou ld reply w ithin one m onth of an
ap plication for extension giving a d ecision in principle on the contractor ’s
right to an extension. The court d ecided that the architect’s failure to d o so
d id not affect the em p loyer ’s right to d ed uct liquid ated d amages but su g-
gested that the contractor could claim dam ages arising from the failu re
which cou ld inclu d e costs of accelerated w orking.
11.6 No date for commencement 227
If there are express requirem ents m aking the consid eration of extensions
of tim e, the issu ing of certifi cates of comp letion or non-com pletion, and the
giving of notices of intention to d ed uct, cond itions preced ent, they m ay be
effective, as show n in a previous chapter. But this is not an area w here the
courts are likely to im p ly term s. It m ight seem inequ itable that liquid ated
d am ages should be d ed u cted before extensions of tim e have been consid -
ered bu t this is not p rohibited by som e stand ard form s and the cou rts w ill
not im prove the contract for the parties.
Challenges on cond itions precedent w ill norm ally arise after d ed u ction of
liqu id ated d am ages have been m ad e and there is a strong p robability that
an action to recover d amages w ould fail if the d efau lt in proced u re w as
rectifi ed before the action cam e to trial. Moreover, if there is an argu able
alternative d efence for w ithhold ing d am ages that m ight succeed .
11.6 No da t e for commencement
Most argu m ents on tim e relate to the d ate for comp letion w ith the d ispu te
betw een the p arties being w hether su ffi cient extensions of tim e been granted .
It is easy enou gh therefore to overlook the p oint that to have a d ate for
comp letion from a sp ecifi ed tim e it is fi rst necessary to have a d ate for
comm encem ent.
In Kemp v. Rose (1858) w here the d ate for com m encem ent w as om itted
from a w ritten contract, the court d eclined in the face of confl icting oral
evid ence to set a d ate.
Sim ilar circu mstances still occur w ith su rprising regu larity with m od ern
stand ard form s. With ICE Cond itions, where the date for com m encem ent is
left to be set by the engineer ‘a reasonable tim e after the date of accep tance
of tend er ’, it is u su al for the contractor and engineer to agree at a p re-start
m eeting w hat the d ate for com m encem ent shou ld be and it is not u n-
comm on for w ritten confi rm ation of the d ate to be overlooked.
JCT contracts p rovid e in the append ix for both the d ate for possession and
the d ate for com p letion to be stated but at tender stage these are often left
blank since the date for possession has not been d ecid ed and the contractor ’s
ow n proposals on tim e for comp letion are to be consid ered . It only need s a
slip then in ad m inistrative proced ure in d ocum entation to set the contract
ru nning with no form al d ate for com m encem ent and p ossibly none for
comp letion.
Letters of in ten t
One p articular cause of confusion are letters of intent w hich in variou s w ays
lead to w ork starting on site before a form al contract d ate has been estab-
lished or could legally ap ply. It is not unknow n for the contract w orks to be
comp leted on a su ccession of such letters. The p roblem for the em ployer is
how to retain the tim e requirem ents originally envisaged and the liquid ated
228 11.7 Prevention
d am ages provisions w hen part of the w ork has been com p leted before the
d ate for com m encem ent.
11.7 P revent ion
The princip le of p revention has been d iscu ssed at length in other chapters.
In short it acts as a d efence to liquid ated d am ages w here there is no con-
tractu al p rovision to extend tim e for any act or breach by the em ployer
which has im p ed ed the contractor in his obligation to fi nish w ithin tim e.
Prevention d efences fall into tw o categories:
(i) w here the contract has no provision to extend tim e;
(ii) w here there are contractual provisions bu t they d o not cover the p ar-
ticular alleged p revention.
The follow ing is a list of some of the better know n cases:
(i) Holme v. Guppy (1838) – d elay in possession and by em ployer ’s
w orkforce;
(ii) Dodd v. Churton (1897) – ad ditional w orks;
(iii) Wells v. Army & Navy Co-operative Society (1902) – d elay in p ossession
and late information;
(iv) Miller v. London County Council (1934) – extras and interference by
em p loyer ’s contractors;
(v) Neodox Ltd v. Borough of Swinton & Pendlebury (1958) – late su pp ly of
information;
(vi) Perini Pacific Ltd v. Greater Vancouver Sewerage (1966) – em ployer ’s
su pp ly of d efective m achinery;
(vii) Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd (1970) –
em p loyer ’s d elay in re-nom ination;
(viii) Percy Bilton Ltd v. Greater London Council (1982) – em ployer ’s d elay in
re-nom ination;
(ix) Rapid Building Group Ltd v. Ealing Family Housing Association (1984) –
late p ossession of site;
(x) SMK Cabinets v. Hili Modern Electrics Pty (1984) – ad d itional w orks and
em p loyer ’s contractors;
(xi) McAlpine Humberoak Ltd v. McDermott International Inc. (1992) – instru c-
tions given after the com pletion d ate;
(xii) Balfour Beatty Building Ltd v. Chestermount Properties Ltd (1993) – instru c-
tions given after the com pletion d ate;
(xiii) Multiplex Constructions (UK) Ltd v. Honeywell Control Systems Ltd (2007)
– u seful su m m ary of the law on p revention.
11.8 P ena lt ies
Liqu id ated d am ages held by the courts to be p enalties w ill not be

enforced .
11.8 Penalties 229
Penalties, as show n in Chapter 4, are not confi ned to su m s w hich are p at-
ently stip ulated in terrorem. Lord Duned in in Dunlop Pneumatic Tyre v. New
Garage (1915) stated tw o p ropositions:
(i) the essence of a penalty is a paym ent of m oney stip ulated as in terrorem
of the offend ing p arty;
(ii) the essence of liqu id ated d am ages is a genuine covenanted pre-estimate
of dam age.
Lord Duned in went on to suggest three tests for penalties:
(i) extravagant in com p arison w ith loss;
(ii) a su m greater than an am ount d u e;
(iii) a single sum covering several events.
The cou rts have tend ed to d escribe as p enalties any stipulated sum w hich
is either a p enalty in the light of the above tests or can otherw ise be show n
not to m eet the ru le for liquidated d am ages as a genu ine pre-estim ate of
d am age. In both cases the effect is the sam e and the em ployer can recover
only the loss he can prove and probably only up to the am ount of the
stip ulated sum .
Most of the lead ing cases on challenges to liquid ated d am ages as penalties
have been covered in d etail in other chap ters, but for sum m ary p urp oses
som e of the best know n are listed here:
(i) Kemble v. Farren (1829) – non-paym ent of a single sum ;
(ii) Ranger v. The Great Western Railway Co. (1854) – retention of all m oneys
d u e to contractor;
(iii) Clydebank Engineering Co. Ltd v. Yzquierdo y Castaneda (1905) – pre-
estim ate of d am age;
(iv) Public Works Commissioner v. Hills (1906) – retention m oney as liqu i-
d ated d am ages;
(v) Dunlop Pneumatic Tyre Co. Ltd v. New Garage & Motor Co. Ltd (1915) –
ru les for p enalties;
(vi) Ford Motor Company (England) Ltd v. Armstrong (1915) – single sum for
d ifferent breaches;
(vii) Widnes Foundry (1925) Ltd v. Cellulose Acetate Silk Co. Ltd (1933) –
u nder-liqu id ation;
(viii) Stanor Electric Ltd v. R. Mansell Ltd (1987) – single sum for tw o
hou ses;
(ix) BFI Group Ltd v. DCB Integration Systems Ltd (1987) – loss need not be
su ffered ;
(x) Arnhold & Co. Ltd v. Attorney General of Hong Kong (1989) – stop fi gu re
on proportioning d ow n;
(xi) Multiplex Constructions Pty Ltd v. Abgarus Pty Ltd (1992) – review of
the law on liqu id ated d am ages and penalties and rejection of variou s
challenges;
(xii) Philips Hong Kong Ltd v. Attorney General of Hong Kong (1993) – rejec-
tion of challenge based on hypothetical calcu lations and restatem ent
of general case for uphold ing liqu id ated d am ages;
230 11.9 Provisions void for uncertainty
(xiii) Finnegan (JF) Ltd v. Community Housing Association Ltd (1993) – rejec-
tion of challenges relating to the use of a form ula for pre-estim ation
of loss and the effects of fu nd ing on the em p loyer ’s actu al loss;
(xiv) Lordsvale Finance Plc v. Bank of Zambia (1996) – interest rate for d efault
in synd icated loan contract not a p enalty;
(xv) Alfred McAlpine Capital Projects Ltd v. Tilebox Ltd (2005) – stip ulated
su ms for late com p letion not a penalty;
(xvi) Murray v. Leisureplay Plc (2005) – provisions for p aym ent on term ina-
tion of an em ploym ent contract not a penalty.
D am ages p er w eek or p art th ereof
It is argu able that d amages expressed as ‘p er w eek or part thereof’ could

fall fou l of the penalty rules on the basis that loss for one d ay m ust be less
than loss for seven d ays. This is not necessarily true bu t the trap should be
avoid ed by stating d am ages as p er w eek or per d ay.
Where d am ages are exp ressed per w eek it is probable that they app ly only
to each fu ll w eek late and cannot be apportioned on a d aily basis.
11.9 P rovisions void for uncert a int y
By app lication of the contra proferentem ru le, p rovisions for liqu id ated
d am ages w hich can be show n to be uncertain or inconsistent will be held to
be u nenforceable. Consid er Bramall & Ogden v. Sheffield City Council (1983)
and Arnhold v. Attorney-General of Hong Kong (1989), as d iscu ssed in Chapters
4 and 6.
Where the fi gure for liquid ated d am ages is not clearly stated in the app en-
d ix, the em p loyer w ill not be able to correct this after the contract is m ad e.
Nor w ill the em ployer be able to correct the om ission of any sum in the
ap pend ix except by agreem ent w ith the contractor before the breach
occurs.
11.10 Wa iver / est oppel
Contractors frequ ently fi nd that liquid ated d amages are enforced notw ith-
stand ing som e assurance or und erstand ing given to the contrary. The ques-
tion then is, how good are the defences of w aiver or estop pel?
Waiver
The law on w aiver is exceed ingly com p lex and the term inology confused
enou gh to strain the best law yers. In Tool Metal Manufacturing Co. Ltd v.
Tungsten Electric Co. Ltd (1955) Lord Ju stice Denning said :
11.10 Waiver / estoppel 231
‘. . . If the d efend ant, as he d id , led the plaintiffs to believe that he w ould

not insist on the stip ulation as to tim e and that if they carried ou t the
w ork he w ou ld accep t it, and they d id it, he cou ld not afterw ards set u p
the stipu lation as to tim e against them . Whether it be called w aiver or
forbearance on his p art, or an agreed variation or su bstituted p erform -
ance, d oes not m atter. It is a kind of estopp el. By his cond uct he evinced
an intention to affect their legal relations. H e m ad e, in effect, a prom ise
not to insist on his strict legal rights. That prom ise w as intend ed to be
acted on, and w as in fact acted on. H e cannot afterw ard s go back on
it . . .’
Many years earlier in Birmingham and District Land Co. v. London and North
Western Rail Co. (1888) Lord Ju stice Bow en had given this view on the
d octrine of w aiver:
‘. . . If persons w ho have contractual rights against others ind uce by their
cond u ct those against w hom they have such rights to believe that su ch
rights w ill either not be enforced or w ill be kep t in su spense or abeyance
for som e particu lar tim e, those persons w ill not be allow ed by a cou rt
of equ ity to enforce the rights until su ch tim e has elapsed , w ithou t at
all events p lacing the parties in the same p osition as they w ere in
before . . .’
Waiver, therefore, occurs w hen one party exp ressly or im p licitly, ind icates
to the other his intention to forgo certain rights u nd er a contract and it is
effective in law w hen the other party changes their p osition in reliance on
the w aiver.
Estop p el
Estop pel is a ru le of evid ence w hich acts as a d efence in p reventing one

party alleging facts necessary to a claim w here he has previou sly by his
cond uct represented the contrary.
App lied to liqu id ated d am ages it w ould seem to am ount to this. If an
em p loyer assu red a contractor he d id not intend to ded u ct d am ages for late
comp letion and the contractor fi nished at his ow n pace instead of accelerat-
ing to avoid d am ages, the em ployer could be estopp ed from suing for liq-
uid ated d am ages and the contractor could rely on the d octrine of w aiver to
recover d am ages d ed u cted against the assu rance given.
Variation
Clearly, if there is any consideration given for the w aiver, such as a prom ise
by the contractor not to press claim s for loss and expense or extra cost, then
that am ou nts to a variation of the term s of the contract and is legally bind ing.
Where there is a w aiver w ithout consid eration it m ay be w ithd raw n by
232 11.11 Unfair Contract Terms Act 1977
reasonable notice as in Rickards (Charles) v. Oppenheim (1950) m entioned in

Chapter 2.
Con tract adm in istrator n o p ow er to vary term s
In practice in the constru ction ind ustry true w aiver is unu sual if only because
d irect com m u nication betw een the contractor and em ployer is itself fairly
unusual. For m ost m atters the contractor deals w ith the contract architect or
engineer w hose capacity to vary the term s of the contract, either offi cially
or by w aiver, is restricted to his pow ers u nd er the contract. If the architect
or engineer d id p u rport to act as agent of the em p loyer w ith w id er pow ers,
inclu d ing those to w aive the term s of the contract, that w ou ld be a d ifferent
matter.
Consequ ently com m ents by architects or engineers at site m eetings or the
like of the kind ‘d on’t w orry about d am ages’, w ould be of little valu e to the
contractor in a d efence against d am ages.
To avoid any possibility of interfering w ith contractu al requirem ents and
proced u res and to avoid the charge of w aiver being raised , it is the policy
of some em ployers that they d o not attend m eetings w ith or d eal d irectly
with the contractor. This is sound policy because it is very easy at a site
meeting if the em ployer is present for him to be d raw n into concessions on
contractu al p erform ance w hich he may later regret.
11.11 Unfa ir Cont ra ct Terms Act 1977
The question is som etim es asked , d oes the Unfair Contract Term s Act 1977
ap ply to liquid ated d am ages? Usually the qu estion com es from som eone
who thinks that p aying liquidated d am ages is unfair. Ironically, how ever, if
the Act d oes app ly, u nfairness u nd er the Act relates to the lim itation effect
of liqu id ated d am ages. And if the Act offers protection to anyone in this
matter, w hich is d ou bted , such protection m ight w ell be in favour of the
recip ient and not the p ayer of liquid ated d am ages.
The Act w as introd u ced to lim it the use of exclusion or exem p tion clauses.
It com m ences:
‘An Act to im p ose fu rther lim its on the extent to w hich u nd er the law of
England and Wales and N orthern Ireland civil liability for breach of con-
tract, or for negligence or for other breach of d uty, can be avoid ed by
m eans of contract term s and otherw ise and u nd er the law of Scotland
civil liability can be avoid ed by m eans of contract term s.’
In broad term s, the Act governs contract term s w hich:
(i) exclu d e or restrict liability for negligence;
(ii) exclu d e or restrict liability for breach of contract;
(iii) p erm it d ifferent contractu al p erform ance from that exp ected or perm it
no p erform ance at all;
11.11 Unfair Contract Terms Act 1977 233
(iv) requ ire ind em nities against the other party’s negligence or breach of
contract;
(v) exclu d e liability for breach of term s im plied into contracts by the Sale
of Good s Act and the Sup ply of Good s and Services Act;
(vi) exclu d e liability in respect of m isrepresentation.
Negligence liability u nd er the Act ap plies only to liability arising from busi-
ness activities.
The Act governs liability arising in contract w hen one party either:
(i) d eals as a consum er; or
(ii) d eals on the other ’s w ritten stand ard term s of business.
Test of reason ab len ess
In relation to a contract term there is a test of reasonableness to the effect

that a term :
‘shall have been a fair and reasonable one to be inclu d ed having regard
to the circu m stances w hich w ere, or m ight reasonably have been, know n
to or in the contem plation of the p arties w hen the contract w as m ad e.’
Ap p lication to liq uid ated d am ages
To bring liqu id ated d am ages in a construction contract w ithin the scop e of

the Act it w ou ld be necessary to show :
(i) an intention to exclu de or restrict liability for breach of contract;
(ii) that the party w hose rights w ere exclud ed or restricted dealt on the
other ’s w ritten stand ard term s of business;
(iii) that the exclu sion or restriction term s failed the test of
reasonableness.
The fi rst requ irem ent above is, perhaps, m et. Liquid ated d am ages are
intend ed to restrict liability for breach of contract in the sense that they
exclud e general dam ages. The third requ irem ent w ou ld be d iffi cult to m eet
since if the liqu id ated dam ages are a genu ine pre-estim ate of loss, or a lesser
su m , they m ust evid ently m eet the reasonableness test. But even if it w as
possible to overcom e this, the second requ irem ent on d ealing on the other
party’s stand ard term s w ould present a d iffi culty.
Stan d ard term s
Firstly, there is the general question of w hether or not stand ard cond itions
of contract could be said to represent one p arty’s term s. As Emden’s Construc-
tion Law issue 22 says at III 176:
234 11.11 Unfair Contract Terms Act 1977
‘There is, how ever, consid erable d ebate as to w hether the stand ard form s
of bu ild ing contract (su ch as JCT 80) fall w ithin the Unfair Contract Term s
Act 1977. The p rincipal point of controversy is w hether such contracts
can accurately be said to represent one party’s w ritten stand ard term s of
business (i.e. in normal cases, those of the contractor) w hen the stand ard
form s go to substantial lengths to d efi ne and balance the interests of both
parties, and have been evolved by long p rocesses of consu ltation. The
question is a d iffi cu lt one, but tw o p oints can p erhap s be usefully m ad e.
The fi rst is that there is nothing exp licit in the Act to prevent a set of term s
from being treated as the stand ard term s of one p arty m erely because
they m ight also be d escribed as the stand ard term s of the other p arty. The
second , and more serious, point is that the m ere generosity or evenhand -
ed ness of a set of term s shou ld not, by itself, d isqu alify them from clas-
sifi cation as the stand ard term s of a particu lar party; su ch m atters are
better ad jud ged accord ing to the statu tory reasonableness test than by
pre-em pting that test ou tright. If the relevant stand ard form is one w hich
the p arty in qu estion habitu ally em ploys in his com m ercial relations,
there w ou ld seem to be no d ecisive d iffi culty in treating that form as
em bod ying his w ritten standard term s of bu siness, how ever sym pathetic
and responsive those term s m ay be to the legitim ate comm ercial interests
of the other contracting party.’
O th er p arty’s term s
Then there rem ains the fi nal hu rd le for any party seeking to app ly the Act
to liquid ated dam ages in a construction contract – the need to show that
they w ere d ealing on the other party’s term s. That is to say, an em ployer
claim ing that his rights w ere restricted by liquid ated d am ages w ou ld have
to show that he w as d ealing on the contractor ’s term s – an u nusu al reversal
of norm al contractu al practice but not im possible in specialist or sm all
works contracts.
Ap p lication to con stru ction con tracts
The Unfair Contract Term s Act has not had a great deal of app lication to
constru ction contracts but in Rees Hough Ltd v. Redland Reinforced Plastics Ltd
(1984) the cou rt d id consid er the ‘reasonableness test’ in connection w ith the
supp liers’ term s of sale for special concrete pip es for p ipe-jacking.
Red land ’s term s, as is not u nusu al, exclu d ed all liability in respect of loss
or d am age su ffered by the custom er as a resu lt of any d efect in the good s
or lack of fi tness for their purpose. During construction variou s d efects
occurred in the p ip es and the pipe-jacking w as aband oned in favou r of
segm ental tu nnelling. In an action to recover d am ages, Jud ge New ey had to
consid er, am ongst other things, w hether Redland ’s terms w ere reasonable
under the Unfair Contract Term s Act. These are extracts from his jud gment:
11.11 Unfair Contract Terms Act 1977 235
‘Consid erations w hich in m y view su p port Red land ’s contention that

their stand ard cond itions are reasonable are: that the contract w as betw een
tw o com p anies and , w hile Red land w ere the larger, RH w ere capable of
looking after them selves; all or m ost other concrete p ip e m anufactu rers
contract on the basis of stand ard term s; the PJA [Pipe-Jacking Association]
d id not protest at su ch term s, although they had w ith regard to state-
m ents of lim itation on load ing; RH had long been aw are that Red land
had stand ard terms; the term s w ould have been und erstand able by any
intelligent bu sinessm an; and RH never attem p ted to negotiate alterations
in the term s.’
‘Consid erations w hich in m y op inion are against Red land ’s contention
that the term s are reasonable are that: RH w ere regular custom ers of
Red land and m ajor p urchasers of their jacking pipes; w hen in the p ast
pipes had been d efective, Red land had not relied on the term s but had
paid com p ensation to RH; Redland d id not refer to the term s d u ring
negotiation of the contract; the sum s to be p aid by RH for the p ipes w ere
substantial; Red land w as likely to gain from the d evelopm ent of a new
pipe, w hich after successfu l use cou ld be m arketed generally; the rem e-
d ies of rep air and rep lacem ent provid ed by the term s were if defects w ere
liable to result in pip e jacking having to be aband oned when a pip eline
w as incom p lete; the term s had not been negotiated betw een the PJA and
the CPA [Concrete Pip e Association] or any other trad e association; and
Red land cou ld , as it had before 1968, have m aintained prod u ct liability
insurance.’
‘Doing the best I can, I reach the conclu sion that Red land has failed
to prove that their stand ard term s w ere reasonable; ind eed I think that
the balance of the considerations is strongly against the term s being
reasonable.’
‘I therefore, hold that Red land cannot rely u pon the standard term s
of sale to invalid ate the exp ress and im plied term s betw een them selves
and RH .’
Chap ter 12
Exten sion s of tim e
12.1 P urposes of ext ension provisions
A contractor is u nd er a strict d uty to com plete on tim e excep t to the extent

that he is p revented from d oing so by the em ployer or is given relief by the
exp ress provisions of the contract. The effect of extend ing tim e is to m aintain
the contractor ’s obligation to com p lete w ithin a d efi ned time and failu re by
the contractor to d o so leaves him liable to d am ages, either liquid ated or
general, accord ing to the term s of the contract. In the absence of extension
provisions, tim e is p u t at large by prevention and the contractor ’s obligation
is to com plete within a reasonable tim e. The contractor ’s liability can then
only be for general d am ages but fi rst it m ust be proved that he has failed to
com p lete w ithin a reasonable tim e.
Extension of tim e clau ses, therefore, have variou s p urp oses:
(i) to retain a d efi ned tim e for com pletion;
(ii) to preserve the em p loyer ’s right to liqu id ated dam ages against acts of
p revention;
(iii) to give the contractor relief from his strict d u ty to com plete on tim e in
respect of d elays caused by d esignated neutral events.
It is a com mon belief in the construction ind u stry that extensions of tim e are
solely for the benefi t of the contractor. At face value by giving the contractor
more tim e to com plete the w orks and by red ucing his liability for liquid ated
d am ages they do app ear to be one-sided . This view is reinforced by the
d rafting of extension clau ses w hich requ ire the contractor to app ly for and
to substantiate his case and by contractor ’s trad itional linkage of extensions
of tim e with claim s for loss and expense or extra cost.
There seem s to be little in all this for the em ployer.
O vercom in g p reven tion
As show n in earlier chap ters, it is not the contractor w ho has m ost need of
extension of tim e provisions, it is the em ployer. A string of w ell-d ocu m ented
cases from Holme v. Guppy (1838) to Rapid Building v. Ealing (1984) confi rm
that the courts w ill not u phold liqu id ated d amages w here the em p loyer has
prevented com pletion on tim e unless there is exp ress provision in the con-
tract to extend tim e for the em ployer ’s d efau lt. Lord Fraser ’s com m ent in
Percy Bilton Ltd v. Greater London Council (1982) su m s it up :
12.2 Notices, applications and assessments 237
‘. . . The general ru le is that the m ain contractor is bou nd to com plete the
w ork by the d ate for com pletion stated in the contract. If he fails to d o
so, he w ill be liable for liquid ated d am ages to the em ployer. That is
subject to the exception that the em p loyer is not entitled to liqu id ated
d am ages if by his acts or om issions he has prevented the main contractor
from com pleting his w ork by the com p letion d ate: see, for exam ple,
Holme v. Guppy (1838) and Wells v. Army and Navy Co-operative Society
(1902). These general ru les m ay be amend ed by the express term s of the
contract . . .’
Relief to con tractor
If overcom ing prevention w as the sole pu rp ose of extension clau ses they
w ou ld d eal w ith such m atters as: late possession of the site; late su pply of
d raw ings and inform ation; interference by the em ployer ’s w orkm en; varia-
tions and extras. There w ou ld be no need to inclu d e for: neutral events
w hich are the fau lt of neither party; force m ajeu re; w ar or riots; nor for
events w hich inherently are contractors’ risk, su ch as w eather and strikes.
By these ad d itional events the contractor is given relief from his otherw ise
strict d u ty to com p lete on tim e and in this resp ect extension of tim e clau ses
d o operate to the contractor ’s benefi t.
The extent of the benefi t varies consid erably from form to form . With
stand ard form s the need for consensu s betw een the p arties in the d rafting
process m ay allow the introd uction of events w hich go w ell beyond w hat
m ost w ould regard as neutral in ord inary circu m stances. Thu s, in some
contracts the contractor can seek an extension for inability to obtain labour
or m aterials for reasons beyond his control; although m any em ployers
regard such clau ses as going too far and d elete them . Where the form is
em p loyer d rafted it is a m atter of com m ercial ju dgm ent on the allocation of
risk. The emp loyer has no need to includ e provisions for exceptional ad verse
w eather nor any other neutral events but if he om its su ch grou nd s he has
to consid er how m u ch the contractor might ad d to his tend er price to cover
the greater risk of incu rring liqu id ated d am ages.
12.2 Not ices, a pplica t ions a nd a ssessment s
Extension of tim e clau ses of stand ard forms m ay at fi rst read ing give the
im pression that an ap plication by the contractor is a cond ition preced ent
to any extension being granted . This com es from the use of p hrases of the
type ‘the contractor shall forthw ith give written notice’ and ‘the engineer
shall u p on w ritten request’. Closer exam ination of the clau ses w ill often
reveal that the contractor ’s obligation is to give notice only of d elay and
that there is a d efi ned d u ty on the contract adm inistrator to consid er the
contractor ’s entitlem ent to an extension w hether or not an ap plication has
been m ad e.
238 12.2 Notices, applications and assessments
The facility for contract ad m inistrators to grant extensions if they are due
is essential to m aintain the extension provisions. If an application by the
contractor w as a cond ition p recedent to an extension, it is arguable that it
wou ld be at the option of the contractor w hether or not the provisions w ere
effective, and by choosing not to app ly for an extension to cover acts of
prevention the contractor could rend er the liquid ated d am ages provisions
inoperative. See, for exam ple, the comm ents of Mr Justice Jackson in
Multiplex v. Honeywell (2007) qu oted in Chap ter 5 above.
D u ty of certifi ers
It follow s that the contract ad m inistrator cannot m erely take a passive

role in the extension process; he m u st consid er his d u ty to the em p loyer.
In Holland Hannan & Cubitts (Northern) Ltd v. Welsh Health Technical
Services Organisation (1981) design d efects in w ind ow s su pplied by a
nom inated su b-contractor led to d elays but the architect, in the m istaken
belief that the problem lay betw een the m ain contractor and the su b-
contractor, d eclined to issue a variation ord er or an extension of tim e. The
architect w as joined in the action w hich follow ed and sued by the em p loyer
for negligence and breach of contract. This is w hat Jud ge N ew ey had
to say:
‘. . . PTP’s [Percy Thom as Partnership] failure to issu e a Variation Instruc-
tion w hen d efects in d esign had becom e apparent, w hen they had com e
to believe that Crittall’s rem ed ies w ere overcom ing the d efects and w hen
they had no alternative prop osals of their ow n, m ay possibly be excused
on the ground s that they w ere labouring u nd er a m istake of law as to
Cubitt’s responsibilities. H ow ever, I fi nd it im p ossible to believe that
architects in charge of a great build ing p roject, w hich has been brou ght
to a stop by an u nexpected d iffi culty, are entitled to adop t a p assive atti-
tu d e, as PTP d id in this case. PTP’s failures w ere ones of om ission rather
than of com m ission, bu t I think that they nonetheless am ou nted to breach
of contract.
The sam e conclu sion as I have reached in regard to the issue of a
variation instru ction ap p lies, I think, to the grant to Cu bitts of an exten-
sion of tim e . . .’
Failure by a certifi er to act fairly can lead to invalid ation of his certifi cates.
See the com m ents in Chapter 11. But even w here the certifi er acts fairly
that w ill not be enou gh to sustain his d ecisions if it can be show n that he
has failed to apply the m achinery of the contract to his d ecision m aking
process.
This point com es out very strongly in the case of John Barker Construction
Ltd v. London Portman Hotel Ltd (1996) w here the ju d ge held that the effect
of the architect m aking an im pressionistic assessm ent instead of a logical
analysis of d elay rend ered his extension of tim e fund am entally fl aw ed . The
jud ge said :
‘I accept that [the architect] believed , and believes, that he m ad e a fair

assessm ent of the extension of time du e to the Plaintiffs. It is fairly ap par-
ent that the Defend ants were concerned by the overru n of the contract in
tim e and costs, and I have no d ou bt that [the architect] w as conscious of
this, but I believe also that he end eavou red to exercise his jud gm ent
ind ep end ently. H ow ever, in m y jud gm ent his assessm ent of the extension
of tim e d ue to the Plaintiffs was fund am entally fl aw ed in a nu m ber of
respects, nam ely:
(1) [The architect] d id not carry out a logical analysis in a m ethod ical w ay
of the im p act w hich the relevant m atters had or w ere likely to have
on the Plaintiffs’ p lanned program m e.
(2) He m ad e an imp ressionistic, rather than a calculated , assessm ent of
the tim e w hich he thought w as reasonable for the variou s item s ind i-
vid ually and overall. (The Defend ants them selves w ere aw are of the
natu re of [the architect’s] assessm ent, but decid ed against seeking to
have any m ore detailed analysis of the Plaintiffs’ claim carried ou t
unless and u ntil there w as litigation.)
(3) [The architect] m isapplied the contractu al provisions, as m ore par-
ticu larly set out above. Becau se of his unfam iliarity w ith SMM7 he
d id not pay suffi cient attention to the content of the bills, w hich w as
vital in the case of a JCT contract with qu antities.
(4) Where [the architect] allow ed tim e for relevant events, the allow ance
which he m ad e in im portant instances (su ch as the item s relating to
the w alls or the cu tting of p ockets in the bathroom screed s) bore no
logical or reasonable relation to the d elay caused .
I recognise that the assessm ent of a fair and reasonable extension
involves an exercise of ju d gm ent, but that ju d gm ent m ust be fairly and
rationally based .
All in all, I am satisfi ed that the Plaintiffs have established that, although
there w as no bad faith or excess of jurisd iction on the part of the architect,
his d eterm ination of the extension of tim e d ue to the Plaintiffs w as not a
fair d eterm ination, nor w as it based on a proper app lication of the provi-
sions of the contract, and it w as accord ingly invalid .’
This case p rovid es a clear w arning to everyone w hose d u ty it is to assess

and certify extensions of tim e that anything less than a thorou gh d elay
analysis m ay invalid ate the certifi cate. The consequ ences of that could w ell
be that the certifi er cou ld fi nd him self in breach of his professional contract
and liable to the em p loyer for breach of d uty.
Also of interest on the d uty of certifi ers to act im partially is the u nusu al
case of Costain Ltd & Others v. Bechtel Ltd (2005). Costain w as part of a
consortium of contractors, know n as Corber, engaged to carry ou t part of
the Channel Tu nnel Rail Link project. Bechtel w as part of a consortium
engaged to act as p roject m anager. Costain w as concerned that Bechtel w as
d eliberately ad op ting a p olicy of ad m inistering the contract in an u nfair and
ad verse m anner. Costain sought interim injunctions restraining the project
240 12.2 Notices, applications and assessments
manager ’s cond uct. A key issu e in the case w as w hether in assessing su m s

payable to the contractor, the project m anager w as und er a du ty to act
im partially betw een the em ployer and the contractor or m erely to act in the
interests of the em ployer. Costain relied on the p rinciples established by the
Hou se of Lord s in Sutcliffe v. Thackrah (1974) that a certifi er has a d u ty to act
fairly and im p artially. Bechtel argu ed :
the term s of the contract w ere specifi c and d etailed and that they con-
ferred no d iscretion on the project m anager – there w as, therefore, no
need to im p ly any term on im partiality
the d ecisions of the p roject m anager cou ld be challenged in adjud ication
– thereby exclud ing the need for an im p lied term on im partiality
the p osition of the project m anager u nd er the contract w as analogou s
to that of the p roject m anager in Royal Brompton Hospital NHS Trust v.
Hammond & Others (2002) w here the p roject manager had been sp ecifi -
cally em ployed to look after the interests of the em ployer
there w ere term s in the contract (these were ad d itional cond itions) w hich
exclud ed term s imp lied by custom .
The ju d ge, w hilst d eclining to grant the interim inju nctions sought by
Costain, exp ressed the view s that:
the princip les of Sutcliffe v. Thackrah d id ap ply to the contract
the provisions for ad jud ication did not affect any d uty to act fairly and
im p artially
the project m anager ’s p osition under the contract w as not analogou s to
that in the Royal Brompton case
the ad d itional cond itions exclud ing term s im p lied by custom had no
im p act since the im p lied d u ty of a certifi er to act fairly and im p artially
w as a m atter of law not cu stom .
Is th e con tractor ’s ap p lication a cond ition p reced en t?
The d irect qu estion of w hether a contractor ’s ap plication w as a cond ition

preced ent for granting an extension w as one of the m any issu es consid ered
in London Borough of Merton v. Stanley Hugh Leach Ltd (1985). The issue w as
put as follow s:
‘Up on the tru e constru ction of clau se 23 is the contractor entitled to
an extension of tim e in respect of any cau se of d elay falling w ithin
sub-clau ses (a) to (k) if he fails to give w ritten notice thereof forthw ith
up on it becoming reasonably apparent that the p rogress of the w orks is
d elayed ?’
Mr Ju stice Vinelott held that giving notice w as not a cond ition preced ent. In
the course of his ju d gm ent, he said :
‘. . . The case for Merton is that the architect is u nder no d u ty to consid er
or form an opinion on the qu estion w hether comp letion of the w orks is
likely to have been or has been delayed for any of the reasons set out in
clause 23 u nless and u ntil the contractor has given notice of the cau se of
a d elay that has becom e “reasonably app arent” or, as it has been pu t in
argu m ent, that the giving of notice by the contractor is a cond ition prec-
ed ent w hich m u st be satisfi ed before there is any d uty on the part of the
architect to consid er and form an op inion on these m atters. The arbitra-
tor ’s answ er to this qu estion w as that “a w ritten notice from the contrac-
tor is not a cond ition p reced ent to the granting of an extension of tim e
und er clause 23 . . .”
I think the answer to Merton’s contention is to be found in a com p arison
of the circum stances in w hich a contractor is requ ired to give notice on
the one hand and the circum stances in w hich the architect is required to
form an op inion on the other hand . The fi rst part of clause 23 looks to a
situ ation in w hich it is apparent to the contractor that the p rogress of the
w orks is d elayed , that is, to an event know n to the contractor w hich has
resu lted or w ill inevitably result in d elay. The second p art looks to a
situ ation in w hich the architect has form ed an op inion that com p letion is
likely to be, or has been d elayed beyond the d ate for com pletion. It is
possible that the architect m ight know of events (in particu lar “d elay on
the p art of artists, trad esmen or others engaged by the em p loyer in exe-
cu ting w ork not form ing part of this contract”) w hich is likely to cause
d elay in com pletion bu t w hich has not cau sed an actu al or prospective
d elay in the p rogress of the w ork w hich is app arent to the contractor. If
the architect is of the op inion that becau se of an event falling w ithin sub-
paragraphs (a) to (k) progress of the w ork is likely to be d elayed beyond
the original or any su bstituted com pletion d ate he m ust estim ate the
d elay and m ake an ap propriate extension to the d ate for com p letion.
H e ow es that d uty not only to the contractor bu t also to the building
ow ner . . .’
Mr Ju stice Vinelott w ent on to say that failure by the contractor to give notice
of delay w as itself breach of contract and this cou ld have some effect on his
right to an extension of time. Draw ing from view s exp ressed in Keating he
mad e the point that if the architect, becau se of failure by the contractor to
give notice of d elay, w as unable to avoid or red u ce a d elay to com pletion, the
contractor should have no greater extension than if he had given notice.
The legal p rincip le here is that no one should benefi t from his ow n breach
of contract bu t it is closely allied to the d uty to m itigate. Both JCT and ICE
form s encom pass these issues by reference to ‘fair and reasonable’ tests and
JCT goes further by expressly requiring the contractor to u se his best end eav-
ou rs to prevent d elay.
M ean in g of d elay
As to w hat is m eant by ‘d elay’ in an extension of tim e clause, there are d if-

fering view s. Mu ch d epend s upon the p articular w ord s u sed . The natu ral
m eaning w ou ld be d elay to com p letion if the clause is concerned only w ith
242 12.3 Time for granting extensions
extensions of tim e. It is d iffi cult to see w hat p u rpose w ould be served by

requiring the contractor to give notice of d elays to non-critical activities or
to give notice w hen adequ ate fl oat tim e rem ained to p erm it com p letion
within the tim e allow ed . If there is a w ider m eaning than d elay to com ple-
tion and the contractor fails to give notice of su bord inate d elays it is u nlikely
that the em ployer w ou ld su ffer any d am age as a result of the breach. The
contractor alone m ight su ffer by som e d im inution of loss and expense or
extra cost p aym ents in app ropriate circu m stances.
H ow ever, in som e form s it is not clear w hether d elay m eans ‘d elay in
com p letion’ or sim ply ‘d elay in progress’ and w hether the contractor is
entitled to an extension of tim e for any delay w hether or not com p letion is
likely to be achieved before or after the d u e d ate. Recent versions of ICE
Cond itions resolved the p roblem by requ iring the engineer to d eal sepa-
rately w ith d elays and extensions.
Ap p lication for n eu tral even ts
It is possible that the contractor could d isad vantage him self by failing to
give notice of d elay or m aking application for extension of tim e in respect
of neu tral events. Ind eed there is a school of thought that says that w hilst
notices and app lications m ay not be cond itions preced ent for acts of pre-
vention, exp ress requ irem ents for notices and applications are cond itions
preced ent for neutral events.
On legal p rincip les there is som e logic in this, since it is clearly u p to the
contractor to m ake his case and to obtain whatever benefi t he can from the
contractu al provisions. In practice, how ever, there is a comp lication. Con-
tractors m u ch p refer extensions for reim bu rsable rather than neutral events
and w ill look for the possibility of gaining the fi rst at the loss of the second .
So it is not u ncom mon for a contractor to p lay d ow n the d elaying effects of
his ow n problem s and of neutral events, particularly ad verse w eather, and
to attribu te all delay to acts of prevention.
In su ch circu m stances contract ad m inistrators m ay w ell feel they have a
d uty to the em ployer to consid er all the facts know n to them and to grant
extensions for neu tral events even w hen no ap plication has been mad e. This
is not strictly necessary because if the true cause of d elay is a neutral event
and the contractor has forfeited his right by non-ap plication, that should
rightly be the end of the m atter. The contractor ’s rights of claim for loss
and exp ense or extra cost if he has any are not affected by this. It w ou ld be
od d if the contract p laced a d u ty on the contract ad m inistrator to rectify the
om issions of the contractor except w here by d oing so he w as serving his
d uty to the em p loyer.
12.3 Time for gra nt ing ext ensions
There are tw o issues to consid er here. Firstly, that extensions of tim e m ight
be granted too late to be effective in keeping liqu id ated d am ages p rovisions
12.3 Time for granting extensions 243
alive and second ly, that extensions m ight be granted too late to allow the
contractor to re-p rogramm e his w ork. In the fi rst case it is the em ployer w ho
is the loser; in the second case the contractor, excep t to the extent that he
m ight be successfu l in recovering his acceleration costs from the em ployer.
The case of Miller v. London County Council (1934) has alread y been m en-
tioned in Chap ter 11. In that case it w as held that the phrase ‘to assign su ch
other time for com pletion’ contem plated exercise of the pow er w ithin a
reasonable tim e of the d elay and a retrosp ective extension came too late to
be effective.
In Amalgamated Building Contractors v. Waltham (1952), Lord Justice Denning
d eclined to follow Miller w hich he said turned on its p articular w ord ing and
he had this to say on the contractor ’s argu m ent that the architect m u st give
a com pletion d ate at w hich they could aim in the futu re:
‘. . . I d o not agree w ith this contention. It is only necessary to take a few
practical illu strations to see that the architect as a m atter of bu siness, m u st
be able to give an extension even though it is retrospective – in such a
case, seeing that the cause of the d elay op erates until the last m om ent,
w hen the w orks are com pleted , it m ust follow that the architect can give
a certifi cate after they are com pleted . . .’
Com m enting on this case w hich concerned extensions of the neu tral typ e
relating to diffi culties in the supp ly of labou r and m aterials, Keating su ggests
that the pow er to extend tim e retrospectively w ou ld not app ly to d elay
caused by the em p loyer u nless very clear w ord s are used .
Stand ard form s su ch as JCT 2007 and ICE 7th Ed ition d o exp ressly p rovid e
for a review of extensions after com pletion althou gh both have tim e lim its
– 12 w eeks after the d ate of practical comp letion in JCT 2005 and 28 d ays
after the issu e of the certifi cate of su bstantial com pletion in ICE 7th Ed ition.
But in any event, follow ing the d ecision in Temloc v. Errill (1987), m entioned
in Chap ter 11, that failu re by the architect to observe the 12 w eek requ ire-
m ent d id not invalidate liquid ated d am ages, these tim e lim its are p erhap s
to be taken as d irectory only.
Con tractor ’s op p ortu n ity to re-p rogram m e
The question of w hether failu re to grant an extension in tim e for the contrac-
tor to re-program m e is a breach, and the related question of w hat is the
consequ ence if it is a breach, again m ust hinge in p art on w hether the cau se
of d elay is em ployer ’s fau lt or a neutral event. Mr Ju stice Rop er in Fernbrook
Trading Co. Ltd v. Taggart (1979) pu t the m atter this w ay:
‘. . . I think it m ust be im plicit in the norm al extension clau se that the
contractor is to be inform ed of his new com pletion d ate as soon as reason-
ably p racticable. If the sole cause is the ordering of extra w ork then in the
norm al cou rse extensions should be given at the tim e of ord ering, so that
the contractor has a target for w hich to aim . Where the cause of d elay lies
beyond the em ployer, and particu larly w here its d u ration is uncertain,
244 12.3 Time for granting extensions
then the extension ord er m ay be d elayed , althou gh even then it w ould

be a reasonable inference to d raw from the ord inary extension clause that
the extension shou ld be given a reasonable tim e after the factors w hich
w ill govern the exercise of the [architect’s] d iscretion have been estab-
lished . Where there are m ultip le cau ses of delay, there may be no alterna-
tive bu t to leave the fi nal d ecision until ju st before the issu e of the fi nal
certifi cate . . .’
In Perini Corporation v. Commonwealth of Australia (1969) Mr Ju stice Macfarlan

d evoted a m ajor part of his lengthy jud gm ent to this issu e, bu t in fi nd ing
that the certifi er w as bou nd to give his d ecision in a reasonable tim e he d id
not app ear to distingu ish betw een em ployer ’s fau lt and neu tral events. The
three follow ing extracts from the jud gment show his line of thou ght.
‘It w as also su bmitted that w hen an application w as m ad e the Director

of Works w as obliged to give his d ecision prom ptly. It w as argu ed
that he d id not have any d iscretion as to w hether he shou ld grant or
refuse an ap p lication; he shou ld it w as said, once he found the facts of
cause and d elay in the erection of the bu ild ings, autom atically grant an
extension.
The argu m ent continu ed that it w as qu ite irrelevant, and ind eed w rong,
for the Director to d istinguish betw een rain w hich w as norm al and there-
fore, as he said , to be expected , and rain w hich was abnorm al; to refuse
an extension becau se he w as of the opinion that the contractor could
m ake up the lost tim e d uring the p eriod that remained for com pletion of
the contract. It w as also, so it w as argu ed , qu ite w rong for him to d efer
his d ecision on an ap p lication and to inform the contractor that he had
d one so and that the facts upon w hich the d eferred ap plication had been
based had been noted and w ould be consid ered with other facts w hich
m ight thereafter occu r to d eterm ine then w hether or not an extension w as
justifi ed at a later tim e. At other tim es the Director gave his reason for
refusing an app lication that the policy of the Departm ent w as that ap pli-
cations, m ad e in circu m stances su ch as w ere being consid ered, shou ld be
refused.
It w as argu ed on behalf of the p laintiff that this attitu de to his d uty w as
unauthorised . All these argum ents su bm itted on behalf of the plaintiff
stem m ed in a fu nd am ental sense from the consid eration that w ith an
agreem ent as large and com p lex as this one w as, it w as of the utm ost
im portance that the p rogress of the work shou ld be planned and that if
by reason of a refu sal of an application there had to be a change in the
plan it w as im portant for the purposes of the contract that the change
shou ld be mad e as early as possible. It w as also im portant so it w as
argu ed , that the change should be m ad e early because of the loss to the
plaintiff if it w ere not then d one.’
‘Tw o other p oints rem ain for consid eration. The fi rst is one to w hich I
have already referred and is w hether or not the Director m u st, as w as
alleged on behalf of the plaintiff, m ake his d ecision on an app lication
12.3 Time for granting extensions 245
prom ptly. Clau se 35 is silent on this p oint. It provid es that the application
of the contractor shall be w ithin 14 d ays of the hap pening etc. bu t d oes
not provid e any tim e w ithin w hich the Director m u st give his d ecision. I
have alread y d escribed the general character of this agreement and I will
not repeat the d escrip tion, bu t in m y opinion it is clear that the exigencies
of this p articular agreem ent, as exem p lifi ed by all its p rovisions, require
that a d ecision shall not be d eferred or d elayed. I d o not quite appreciate
how cond ition 35 can be construed as an obligation to decid e p rom ptly,
bu t I am clear that both the exigencies of this agreem ent as w ell as the
w ord s of clau se 35 require that the d ecision m u st be given w ithin a
reasonable tim e. The m easurem ent of a reasonable tim e in any particu lar
case is alw ays a m atter of fact. Plainly the Director m ust not d elay, nor
m ay he p rocrastinate, and in my opinion he is not entitled sim p ly to d efer
a d ecision. On the other hand he is, in m y opinion, and this follow s from
the natu re of his obligation to give his ow n personal d ecision on the point,
necessarily obliged to have available for that consid eration such tim e as
is necessary to enable him to investigate the facts w hich are relevant to
m aking it. When that investigation is com p lete I am of the opinion that
his d ecision shou ld then be m ad e.
I cannot accep t all the argum ents su bmitted by learned cou nsel for the
plaintiff that the Director is bound to investigate every d ep end ent fact
him self; this conclusion w ou ld , I think, be to ignore the realities of the
situ ation. I am of the opinion, though, that by this agreem ent and by his
m and ate he m ay act up on the fi ndings and op inions of other persons, be
they su bord inates or ind epend ent p ersons such as architects or m eteoro-
logical observers; he m ay also consid er and p ay attention to the recom-
m end ations of su bord inates w ith resp ect to the very app lication he is
consid ering. I do agree though that the actual d ecision m u st be one w hich
fl ow s from the volition of his ow n m ind and I am of the opinion that it
is quite irrelevant that that decision is exp ressed by the placing of his
initials u p on the recom m end ation of a subord inate offi cer.’
‘Paragrap h 7 of the Statem ent of Claim alleges that the term to be im plied
obliges the d efend ant to ensure that the Director of Works d ecid es an
ap plication for extension prom ptly. I have alread y expressed the opinion
that the proper im p lied term in the circum stances is to m ake a d ecision
w ithin a reasonable tim e. I am also of the opinion that the obligation
created by an im plied term of the d efend ant is to insure that the Director
of Works gives his d ecision w ithin a reasonable tim e in the m anner in
w hich I have alread y explained . . .’
Con stru ctive acceleration
There is no su ggestion in Perini that tim e w ould be pu t at large and liqui-

d ated d am ages lost by failu re to give extensions w ithin a reasonable time
and ind eed the case is som etim es quoted as au thority for the prop osition
that the contractor has a rem edy for the costs of enforced or constructive
246 12.4 Application to claims
acceleration. Bearing in m ind that Perini w as d ecid ed on im plied term s, the

answ ers to the qu estions on breach and consequences arising from late
granting of extensions prior to com pletion m ay be as follow s:
(i) if there are express tim e requ irem ents on the certifi er, the liquidated
d amages p rovisions m ay be invalid ated – Temloc v. Errill (1987) it should
be noted w as decid ed on the tim e requirem ent after com pletion;
(ii) if there are express or im p lied tim e requirem ents on the certifi er and
the contractor accelerates to avoid liquid ated dam ages he m ay be
entitled to his costs;
(iii) it rem ains open w hether em ployers’ fault and neutral events carry the
same status in (i) and (ii) above – it w ould be w ise for the certifi er to
assu m e that they d o.
D em and after ten d er
A sm all point from Perini, w holly unrelated to extensions of tim e but one
which w ill surp rise m any, is that the contractor w as u nable to recover the
cost of a bank gu arantee required by the em ployer after form al accep tance
of the tend er. The ju d ge said:
‘. . . The reality of the situation in m y opinion is that the p laintiff and the
d efend ant agreed to the provision by the p laintiff of an ad d itional gu ar-
antee but that they d id not m ake any agreem ent at all w ith resp ect to the
liability of one sid e or the other side for the cost of d oing so. It is in m y
opinion sim ply a m atter u pon w hich the p arties have not expressed any
agreem ent and for that reason the claim of the p laintiff on this p oint m u st
fail . . .’
12.4 Applica t ion t o cla ims
The link betw een extension of tim e clau ses and the recovery of loss and
exp ense or extra cost by the contractor has long been a controversial issu e.
Many contractors w ork to the sim p le m axim ‘get the tim e fi rst and the
money w ill follow ’ and m any contract ad m inistrators are nervou s abou t
granting extensions because they anticipate exactly w hat w ill follow.
Althou gh extension of tim e clauses are rarely d rafted w ith a view to p rovid -
ing ground s for loss and expense claim s, there is probably m ore tim e sp ent
in the construction indu stry on relating extensions to claim s than to relief
from liqu id ated d am ages.
Reim b u rsab le and non -reim b u rsab le
Usually there w ill be no link at all betw een extension of tim e clauses of a
contract and provisions for ad d itional p aym ents, bu t just as the contractor
looks for som ething tangible on w hich to base his claim s, so the contract
12.4 Application to claims 247
su pervisor looks for som ething tangible to justify his certifi cation of extra
paym ents. Tacitly, if not expressly then, there is a link betw een extensions
and claims and there is general recognition that there are tw o typ es of exten-
sion: (i) ‘reim bu rsable’ extensions w hich are based on em ployer ’s fault; and
(ii) ‘non-reim bursable’ extensions w hich are based on neutral events. In
the Society of Constru ction Law ’s Delay and Disrup tion Protocol these are
referred to as ‘com pensable’ and ‘non-com p ensable’ events.
N eu tral even ts – loss lies w h ere it falls
In Henry Boot Construction Ltd v. Central Lancashire Development Corporation

(1980) on a JCT 63 contract regard ing a d isp u te on w hether ‘statu tory u nd er-
takers’ w ere w ithin the d efi nition of trad esm en or others engaged by the
em p loyer in laying m ains for a developm ent site, Jud ge Fay exp ressed the
m atter this w ay:
‘. . . N ow if there is d elay in carrying ou t a constru ction contract there is,
of course, loss. There is in the fi rst instance, loss to both p arties. To the
em p loyer, the ow ner, there is loss of the retu rn up on his investm ent. The
d ay when he starts getting return by w ay of rent from his property is
postp oned and he m ay w ell have an extend ed period of exp end itu re
up on supervision and the like. Equally, there is loss up on the contractor
ow ing to the p rolongation of the p eriod for w hich he has to su pp ly
m atters falling w ithin overhead s as w ell as other exp end itu re, and ind eed
possibly id le tim e as w ell . . .’
‘. . . The broad schem e of these provisions is plain. There are cases w here
the loss shou ld be shared, and there are cases w here it shou ld be w holly
borne by the em p loyer. There are also cases w hich d o not fall w ithin either
of these cond itions and w hich are the fault of the contractor. But in the
cases w here the fau lt is not that of the contractor, the schem e clearly is
that in certain cases, the loss is to be shared ; the loss lies w here it falls.
Bu t in other cases the em ployer has to com pensate the contractor in
respect of the d elay, and that category, w here the em ployer has to com-
pensate the contractor, shou ld one w ou ld think, clearly be com p osed of
cases w here there is fault upon the em p loyer or fau lt for w hich the
em p loyer can be said to bear som e resp onsibility . . .’
The reference here to loss being shared is m ade in the sense that the em p loyer
loses his right to d amages for late com p letion and the contractor stand s his
ow n costs. This ind eed is the essence of the non-reim bu rsable extension – as
Jud ge Fay said – the loss lies w here it falls.
Exten sion s not con d ition s preced en t to recovery of cost
The d iffi culty for the contractor is that u nless the extension provisions
requ ire the certifi er to indicate the grou nd s and app ortionm ent of any
248 12.5 Proof of entitlement
extension granted , w hen the contractor has m ad e ap plication und er m ore

than one head ing, he m ay not know w hether he has been granted reim burs-
able or non-reim bu rsable extensions. On the basis that loss and expense
or extra cost p rovisions stand alone, this shou ld not m atter. As Ju d ge
Fox-And rew s said in Fairweather v. Wandsworth (1987), obtaining an exten-
sion of the tim e is not a cond ition preced ent to recovering loss and exp ense,
bu t the jud ge w ent on to recognise the realities of the situ ation w hen
he said :
‘. . . N either this p art of the jud gm ent nor the term s of the contract itself
point to an extension of tim e und er cond ition 23(f) being a cond ition
preced ent to recovery of d irect loss and exp ense u nd er condition 24(1)(a).
How ever, the p ractical effect ord inarily w ill be that if the architect
has refu sed an extension und er the form er, the contractor is u nlikely
to be successfu l w ith the architect on an ap p lication u nd er cond ition
24(1)(a) . . .’
Ap p ortionm en t of exten sion s
JCT 2005, althou gh not making an extension of tim e a cond ition p reced ent
to recovery of loss and exp ense, does have in its loss and expense clause a
sensible requirem ent that the architect shall state in w riting w hat extensions
have been m ad e in respect of reim bu rsable events if that is necessary for
the ascertainm ent of loss and expense. ICE Minor Works form has a sim ilar
linkage in its ad d itional p aym ents clause. ICE 7th Ed ition tackles the issue
in a d ifferent w ay by sep arately identifying events w hich can give rise to
both claim s for extra costs and extensions of tim e.
For further com m ent on app ortionm ent see Chapter 14 and the case of
John Doyle v. Laing (2004) later in this chap ter.
12.5 P roof of ent it lement
Stand ard form s usu ally require the contractor to give notice of delay or m ake
his app lication w ithin reasonable tim e of the happening of the d elaying
event and to p rovid e su ch d etails and p articulars as are necessary to assist
the contract ad m inistrator in making his d ecision.
N eed for record s
The burd en of proof of d elay rests on the contractor w hether the app lication
be m ad e before or after com pletion and w hether the d elaying event is the
em ployer ’s fau lt or neu tral. If the contractor intend s to challenge liquid ated
d am ages on the grou nd s of delay or aim s to avoid liquidated d amages by
obtaining an extension from the contract ad m inistrator or an arbitrator, the
12.5 Proof of entitlement 249
contractor w ill have to p rod uce evid ence that d elay occurred and that the
cause of the d elay gave an entitlem ent to an extension.
Consequ ently it is up to the contractor to keep records as evid ence of both
d elay and cause. The strength of the contractor ’s case w ill d epend on the
quality of his record s.
Some d elays can be show n to fl ow naturally from the cau se; thu s an ord er
to su spend w ork for a d efi ned period w ou ld give both a read ily id entifi able
event and a read ily m easurable d elay. With variation ord ers and extras,
however, the p osition is not as straightforw ard . There m ay be the argu m ent
that the contractor has a contractu al obligation to accom m odate variations
and extras and has m ade no attem p t to d o so. And there w ill often be the
su sp icion that the d elays the contractor is trying to pass off as d ue to relevant
events, have other cau ses of the contractor ’s ow n m aking, or w ithin his
control for w hich there is no entitlem ent to extension.
M on th ly p rogress m eetin gs
It is not only the contractor w ho m u st keep record s. A sim ilar burd en rests
w ith the contract su p ervisor to protect the em ployer ’s p osition. Id eally, the
contractor and the contract su pervisor should be of the sam e m ind as the
contract progresses on the causes and extent of any d elays. They may not
be able to agree, but at least they should m ake som e attem pt to d o so. There
is probably no effective substitute for the m onthly progress m eeting at
w hich the contractor m akes his report, the contract ad m inistrator m akes his,
and they jointly agree by d iscussion w hat should be placed on record as the
true state of affairs.
Usefu ln ess of p rogram m es
How effective is the contractor ’s programm e as a scale for the m easurem ent
of d elay? Mu ch d ep end s on the quality of the p rogram m e and whether the
contractor w as achieving the planned rate of p rogress before the alleged
d elay occurred . There is no d oubt that a com p rehensive p rogram m e m arked
up on a regu lar basis to show actual start d ates, d urations, and com pletion
d ates of signifi cant activities, is at least a cred ible record of p rogress even if
it says nothing on the actual cau ses of any d elays. Bu t by ad d ing to the
program m e ind icators on w hen variations, revisions and the like w ere
ord ered ; instru ctions w ere given; and other events w ere encountered ; the
program m e can p rovid e a d etailed pictu re w hich should satisfy the tests of
good evid ence.
The contractor w ho fails to prod uce an effective and realistic program me
pu ts him self at a d isad vantage on proof of entitlem ent to extensions. First
of all he m u st show that he has su ffered delay and that this d elay has
affected com pletion of the w orks; then he m u st show that the d elay w as
caused by a relevant event and not his own d efi ciencies and diffi cu lties.
250 12.6 Global claims
To d o this w ithou t a program m e show ing w hat w as intend ed by w ay of

ord erly p rogress and outp u t, and record s show ing how progress and ou tpu t
were com p aring w ith the p rogram m e before the alleged d elay, is a near
im possible task. As for the contract ad ministrator having to form his ow n
view in su ch circum stances, he m ay have so few d efi nite facts on w hich to
base his d ecision that the contractor can hard ly com plain of u nfair treatm ent.
This later point came up in Hounslow v. Twickenham Garden Developments
(1971) as a sid e issu e on w hether or not the contractor ’s refu sal to provid e
a program m e had im properly infl uenced the architect’s d ecision not to give
an extension of tim e for a strike and his d ecision to issu e a notice u nd er the
d eterm ination p rovisions. Mr Justice Megarry in consid ering the architect’s
d uty on these matters in the absence of a program m e said this:
‘It w ill be seen from this that provid ed the contractor has given w ritten
notice of the cause of delay, the obligation to make an extension appears
to rest on the architect w ithou t the necessity of any form al requ est for it
by the contractor. Yet he is required to d o this only if in his opinion the
com p letion of the w orks “is likely to be or has been d elayed beyond the
Date of Com pletion”, or any extend ed tim e for com pletion p reviou sly
fi xed . If a contractor is w ell ahead of his w orks and is then d elayed by a
strike, the architect m ay nevertheless reach the conclu sion that com ple-
tion of the works is not likely to be d elayed beyond the date of com p le-
tion. Und er cond ition 21(1), the contractor is u nd er a d ouble obligation:
on being given p ossession of the site, he m u st “thereupon begin the
Works and regu larly and diligently proceed w ith the sam e”, and he m u st
also com p lete the w orks “on or before the Date for Comp letion”, su bject
to any extension of tim e. If a strike occu rs w hen tw o-third s of the w ork
has been com p leted in half the contract tim e, I do not think that on resum -
ing w ork a few w eeks later the contractor is then entitled to slow d ow n
the w ork so as to last out the tim e until the d ate for com pletion (or
beyond , if an extension of tim e is granted ) if thereby he is failing to
proceed w ith the w ork “regu larly and d iligently”.’
12.6 Globa l cla ims
All claim s w hether for loss and expense, extra cost, or for extension of tim e,
should m eet the legal requirem ent of linking d am age w ith cause. A claim
for loss and exp ense or extra cost is not effective w ithou t a cau se and a claim
for extension of tim e is not effective w ithou t a relevant event. Stand ard
form s of contract d isplay this principle by requ iring each and every claim
to stand on its ow n m erits.
Contractors may well say there are circu m stances w here it is not p ossible
to isolate ind ivid u al d elaying events. If there has been severe d isru ption of
planned activities by changes, variations and late instructions, it m ay be
im practicable to attribute loss and expense or extra cost, to ind ivid ual head s
of claim and it m ay be d iffi cu lt, if not im possible, to isolate the effects of
12.6 Global claims 251
d elay for each relevant event. Is it p ossible in such circu m stances for the
contractor to m ake a ‘global’ approach to the p resentation of his claim ?
For loss and expense or extra cost there is au thority for the proposition
that the global ap proach can be u sed w hen the contractu al m achinery has
been exhausted . In J. Crosby & Sons Ltd v. Portland Urban District Council
(1967) consid eration had to be given on a p ipeline contract w hich had been
d elayed by 46 w eeks by a com bination of m atters to w hether the arbitrator
w as entitled to aw ard a lum p su m by w ay of com pensation to the contractor.
The arbitrator had fou nd :
‘. . . The result, in term s of d elay and d isorganisation, of each of the
m atters referred to above w as a continu ing one. As each m atter occu rred
its consequ ences w ere ad d ed to the cu m u lative consequ ences of the
m atters w hich had preced ed it. The d elay and d isorganisation w hich
ultim ately resu lted w as cum u lative and attribu table to the com bined
effect of all these m atters. It is therefore im p racticable, if not im p ossible,
to assess the ad ditional expense cau sed by d elay and d isorganisation d u e
to any one of these m atters in isolation from the other matters . . .’
On app eal to the H igh Cou rt against the arbitrator ’s award the argum ent
for the Cou ncil w as p ut as follow s:
‘. . . The respond ents say that the contract provid es a m ost elaborate cod e
w hereby p rices and rates can be varied or prescribed in alm ost every
eventu ality. They say that this cod e is intend ed to operate in relation to
each p iece of w ork separately and no provision is mad e for variation of
the contract p rice generally. Whilst they conced ed that an arbitrator at the
end of the d ay m ay m ake an aw ard of a lum p su m , they insist that this
lu m p su m m ust be ascertained sim ply by ad ding together the ind ividu al
am ou nts w hich he fi nd s to be d ue und er each head of claim. This resu lts,
they say, from the fact that the cod e in the contract p rovid es d ifferent
bases of assessm ent for different claim s . . .’
And for the contractor the argum ent w as pu t in this w ay:
‘. . . Since, how ever, the extent of the extra cost incu rred d ep end s u pon
an extrem ely com plex interaction betw een the consequences of the various
d enials, su spensions and variations, it m ay w ell be d iffi cu lt or even
im possible to m ake an accurate apportionm ent of the total extra cost
betw een the several causative events. An artifi cial apportionment could
of cou rse have been m ad e; but w hy, they ask, shou ld the arbitrator m ake
such an apportionm ent which has no basis in reality . . .?’
Mr Ju stice Donald son giving jud gm ent in favou r of the contractor accep ted
the global approach w ith reservations. H e said:
‘. . . so long as the arbitrator d oes not m ake any aw ard w hich contains a
profi t elem ent, this being perm issible und er clauses 51 and 52 bu t not
und er clauses 41 and 42, and provid ed he ensu res that there is no d upli-
cation, I can see no reason w hy he shou ld not recognise the realities of
the situ ation and m ake ind ivid ual aw ard s in resp ect of those parts of
ind ivid ual item s of the claim w hich can be d ealt with in isolation and a
sup p lem entary aw ard in respect of the rem aind er of these claim s as a
com p osite w hole. This is w hat the arbitrator has d one . . .’
The ru ling in Crosby was follow ed by Mr Ju stice Vinelott in London Borough
of Merton v. Leach (1985). H e said :
‘. . . In Crosby the arbitrator rolled up several heads of claim arising u nder
d ifferent head s and indeed claim s for w hich the contract provid ed d iffer-
ent bases of assessm ent. The question accord ingly is w hether I should
follow that d ecision. I need hard ly say that I w ould be reluctant to d iffer
from a ju d ge of Donald son J’s experience in m atters of this kind u nless I
w as convinced that the question had not been fu lly argu ed before him or
that he had overlooked som e m aterial p rovisions of the contract or som e
relevant au thority.
Far from being so convinced , I fi nd his reasoning com pelling. The posi-
tion in the instant case is, I think, as follow s. If ap plication is m ad e (u nder
clause 11(6) or 24(1) or u nder both su b-clauses) for reim bursem ent of
d irect loss or exp ense attributable to m ore than one head of claim and at
the tim e w hen the loss or expense com es to be ascertained it is im practi-
cable to d isentangle or d isintegrate the part d irectly attributable to each
head of claim , then, provid ed of cou rse that the contractor has not unrea-
sonably delayed in m aking the claim and so has him self created the d if-
fi cu lty, the architect m ust ascertain the global loss d irectly attributable
to the tw o cau ses, d isregard ing, as in Crosby, any loss or exp ense w hich
w ou ld have been recoverable if the claim had been m ad e und er one head
in isolation and w hich w ou ld not have been recoverable und er the other
head taken in isolation.
To this extent the law supp lem ents the contractu al m achinery w hich
no longer w orks in the w ay in w hich it w as intended to w ork so as to
ensure that the contractor is not u nfairly deprived of the benefi t w hich
the p arties clearly intend he should have . . .’
Neither Crosby nor Merton gave anything but qu alifi ed approval to the
global ap proach. Both requ ired the use of contractual p roced u re to its lim it
and then evid ence of the im possibility of accurate app ortionm ent for the
rem aind er. Crosby and Merton w ere certainly not, as som e contractors believe,
au thority for the p rop osition that a post-com pletion global claim su bm ission
is a legitim ate alternative to tim ely and individ u al ap plications.
Later cases
In the case of Wharf Properties Ltd & the Wharf (Holdings) Ltd v. Eric Cumine
Associates (1991) an action by a d evelop er against his architect w as struck
out because it d id not d isclose a reasonable cau se of action. The em ployer
who claim ed that the architect had failed p roperly to m anage and co-
ord inate the project had p lead ed that the com plexity of the project m ad e it
im possible to isolate ind ivid ual d elays and their effects.
Crosby, Merton and Wharf were all consid ered by Record er Tackaberry in
Mid Glamorgan County Council v. Williams (1991) w here an em p loyer claim ed
on a global basis against his architect follow ing claim s settled w ith the
contractor for late su pply of inform ation. An ap plication for the claim to be
stru ck out w as rejected and it w as held that claim s form ulated in a global
m anner could be pu rsued if it w as im possible or im p racticable to break
d own the interaction of events.
In the case of British Airways Pension Trustees Ltd v. Sir Robert McAlpine &
Sons Ltd (1994) the contractor had been successful in having an action against
him struck out on the ground s that the statem ent of claim did not set out
the rem ed ial cost of each alleged defect and did not p articu larise for each
d efect the alleged d im inu tion in valu e. The Court of App eal reversed the
striking ou t ord er, hold ing that although the p lead ing as to d am ages w as
em barrassing in that it w as open to further p articu larisation it w as not
seriou sly p rejud icial to the defendants. Lord Ju stice Saville said:
‘The basic p urp ose of p lead ings is to enable the op posing p arty to know
w hat case is being m ad e in suffi cient d etail to enable that party p roperly
to prepare to answ er it. To m y m ind it seem s that in recent years there
has been a tendency to forget this basic pu rp ose and to seek particularisa-
tion even w hen it is not really requ ired . This is not only costly in itself,
bu t is calcu lated to lead to d elay and to interlocutory battles in w hich the
parties and the cou rt p ore over end less pages of p lead ings to see w hether
or not som e particu lar p oint has or has not been raised or answ ered, w hen
in tru th each p arty know s perfectly w ell w hat case is m ad e by the other
and is able p rop erly to be prepared to d eal w ith it. Plead ings are not a
gam e to be played at the exp ense of the litigants, nor an end in them -
selves, bu t a m eans to the end , and that end is to give each party a fair
hearing. Each case m ust of course be looked at in the light of its ow n
subject m atter and circu m stances.’
In the case of GMTC Tools and Equipment Ltd v. Yuasa Warwick Machinery Ltd
(1994) the Cou rt of Ap peal held that it w as not the function of the cou rts to
requ ire a p arty to establish causation and loss by any p articu lar m ethod .
Lord Ju stice Leggatt said :
‘I have com e to the clear conclu sion that the p laintiffs shou ld be p erm it-
ted to formu late their claim s for d am ages as they w ish, and not be forced
into a straightjacket of the jud ge’s or their op ponents’ choosing.’
Com m en t
The com m on rule w hich can be taken from the above-m entioned cases from
Crosby to GMTC Tools is that generally the law requires cau se and effect to
be p articu larised for each item of claim bu t in circum stances w here su ch
particu larisation is im p ossible then globalisation of som e or all of the effects
m ay be perm issible. H ow ever, und erlying this ru le is another ru le to the
effect that for a claim ant to succeed w ith a global claim it cannot includ e
within its claim m atters for w hich it carries responsibility. Lord Macfad yen
(the ju d ge of fi rst instance) in John Doyle v. Laing p u t it this w ay:
‘36. The logic of a global claim dem and s, how ever, that all the events
w hich contribute to cau sing the global loss be events for w hich the
d efend er is liable. If the cau sal events inclu d e events for w hich the
d efend er bears no liability, the effect of u phold ing the global claim
is to im p ose on the d efend er a liability w hich, in part, is not legally
his. That is u njustifi ed . A global claim , as su ch, m ust therefore fail
if any m aterial contribution to the cau sation of the global loss is
m ad e by a factor or factors for w hich the d efend er bears no legal
liability . . . The p oint has on occasion been expressed in term s of a
requ irem ent that the pursuer shou ld not him self have been respon-
sible for any factor contribu ting m aterially to the global loss, bu t it
is in m y view clearly m ore accu rate to say that there m u st be no
m aterial cau sative factor for w hich the d efend er is not liable.
37. Ad vancing a claim for loss and expense in global form is therefore a
risky enterp rise. Failure to prove that a p articu lar event for w hich
the d efend er w as liable played a p art in cau sing the global loss w ill
not have any ad verse effect on the claim , provid ed the rem aining
events for w hich the d efend er w as liable are p roved to have caused
the global loss. On the other hand , p roof that an event played a
m aterial p art in cau sing the global loss, com bined w ith failu re to
prove that that event w as one for w hich the d efend er w as respon-
sible, w ill u nd erm ine the logic of the global claim . Moreover, the
d efend er m ay set out to prove that, in ad d ition to the factors for
w hich he is liable found ed on by the pursuer, a m aterial contribution
to the cau sation of the global loss has been m ad e by another factor
or other factors for w hich he has no liability. If he su cceed s in proving
that, again the global claim w ill be u nd erm ined.’
Ad d ed to the above-d escribed d iffi culties of su staining global claim s, there
is the point that for claim s m ad e und er construction contracts, w hether for
tim e or for m oney, there are usu ally prescriptive ru les lim iting, and some-
tim es going so far as to p rohibit, global claim s. For this reason p erhaps, as
mu ch as anything else, there is very little by w ay of legal au thority on the
globalisation of extension of tim e claim s.
To the extent that extensions of tim e are seen as entitlem ents it is for the
contractor to com ply w ith the ap plicable proced u ral ru les and few m od ern
contracts, if any, allow for global app lications or assessm ents. H ow ever, in
contracts w here there are frequent d elaying events the contractu al m achin-
ery for d ealing w ith extensions of tim e som etim es breaks d ow n raising the
interesting qu estion of w hether the consequence is that globalisation shou ld
be allow ed or whether the em ployer ’s right to liqu id ated dam ages is lost.
There d oes not app ear to be any defi nitive legal answ er to this but in p rac-
tice it is the globalisation p oint which is u sually argu ed rather than the loss
of right to d am ages p oint.
The Doyle v. La ing ca se (2004)
Since its p ublication in 2004 the op inion of the Scottish Inner H ou se in the
case of John Doyle Construction Ltd v. Laing Management (Scotland) Ltd (2004)
has received enorm ou s attention from law yers, contractors and em p loyers
anxious to establish how far it has changed the law on global claim s not
only in Scotland but in the rest of the United Kingd om . On this latter point
the case of London Underground Ltd v. Citylink Telecommunications Ltd (2007)
is of interest. In consid ering a challenge to an arbitrator ’s aw ard , Mr Justice
Ram sey said in that case:
‘In d ecid ing w hether there was serious irregularity, I consid er that the
prop er app roach to global claim s is relevant. The ap proach set ou t in the
d ecision in [Doyle v. Laing] is not challenged on this ap plication and I
accep t that approach.’
Note also the end orsem ent of the app roach in Skanska Construction UK Ltd
v. Egger (Barony) Ltd (2004) and the new com m ent on global claim s in
Keating:
‘On the other hand, if a global claim fails, that d oes not m ean that no
claim w hatsoever could su cceed , since there m ay be su ffi cient evid ence
to app ortion ind ivid ual losses to ind ivid ual events . . .’
The extent to w hich the law has changed , sim ply stated , is that p rior to Doyle
v. Laing global claim s tend ed to stand or fall in their entirety w hereas p ost
Doyle v. Laing it is perm issible to consider app ortionm ent.
The reasoning in Doyle v. Laing w as stated by Lord Dru mm ond You ng as
follow s:
‘[10] For a loss and exp ense claim u nd er a constru ction contract to
succeed , the contractor m ust aver and p rove three m atters: fi rst, the
existence of one or m ore events for w hich the em ployer is resp on-
sible; second ly, the existence of loss and expense suffered by the
contractor; and , third ly, a causal link betw een the event or events
and the loss and expense. (The present case involves a w orks con-
tract conclud ed betw een a m anagem ent contractor and a w orks
contractor; in su ch a case the m anagem ent contractor is obviou sly
in the p osition of the em ployer and the w orks contractor in the
p osition of the contractor). N orm ally ind ivid ual causal links m u st
be d em onstrated betw een each of the events for w hich the em p loyer
is responsible and particular item s of loss and expense. Frequ ently,
however, the loss and expense resu lts from d elay and d isrup tion
caused by a nu m ber of d ifferent events, in su ch a w ay that it is
im possible to separate out the consequ ences of each of those events.
In that event, the events for w hich the em ployer is resp onsible m ay
interact w ith one another in such a w ay as to p rod uce a cum u lative
effect. If, how ever, the contractor is able to d em onstrate that all of
the events on w hich he relies are in law the responsibility of the
em ployer, it is not necessary for him to d emonstrate cau sal links

betw een ind ivid u al events and p articu lar head s of loss. In su ch a
case, becau se all of the causative events are m atters for w hich the
em ployer is resp onsible, any loss and expense that is cau sed by
those events and no others m ust necessarily be the resp onsibility
of the em p loyer. That is in essence the natu re of a global claim . A
com m on examp le occu rs when a contractor contends that d elay and
d isrup tion have resu lted from a com bination of the late provision
of d raw ings and inform ation and d esign changes instructed on the
em ployer ’s behalf; in such a case all of the m atters relied on are the
legal resp onsibility of the em ployer. Where, how ever, it ap pears that
a signifi cant cau se of the d elay and d isrup tion has been a m atter for
which the em ployer is not responsible, a claim presented in this
manner m u st necessarily fail. If, for exam p le, the loss and expense
has been cau sed in part by bad w eather, for w hich neither party is
resp onsible, or by ineffi cient w orking on the part of the contractor,
which is his responsibility, such a claim m ust fail. In each case, of
cou rse, if the claim is to fail, the m atter for w hich the em ployer
is not resp onsible in law m ust play a signifi cant part in the cau sa-
tion of the loss and expense. In som e cases it may be p ossible to
sep arate ou t the effects of m atters for w hich the em ployer is not
resp onsible.
[11] The expression “global claim ” has norm ally been used in Scotland ,
England and other Com m onw ealth cou ntries to d enote a claim
calculated in the foregoing m anner. In the United States the corre-
sp onding exp ression is “total cost claim ”. In the Am erican cases
before the Court of Claim s, how ever, a further category is recog-
nised , that of a “mod ifi ed total cost claim ”. In the Am erican term i-
nology, a total cost claim involves the contractor ’s claim ing that the
whole of his ad d itional costs in perform ing the contract have been
the result of events for w hich the emp loyer is responsible. A m od i-
fi ed total cost claim is m ore restrictive, and involves the contractor ’s
d ivid ing up his ad d itional costs and only claim ing that certain p arts
of those costs are the resu lt of events that are the em p loyer ’s respon-
sibility. This term inology has the ad vantage of em phasising that the
techniqu e involved in calcu lating a global claim need not be ap p lied
to the whole of the contractor ’s claim . Instead , the contractor can
d ivid e his loss and expense into d iscrete p arts and u se the global
claim techniqu e for only one, or a lim ited num ber, of su ch parts. In
relation to the rem aining parts of the loss and expense, the contrac-
tor m ay seek to p rove causation in a conventional manner. This m ay
be particularly u seful in relation to the consequences of d elay, as
against d isru p tion. The delay, by itself, w ill invariably have the
consequ ence that the contractor ’s site establishm ent m ust be main-
tained for a longer p eriod than w ou ld otherw ise be the case, and
frequently it has the consequ ence that forem en and other su per-
visory staff have to be engaged on the contract for longer period s.
Costs of that natu re can be attribu ted to d elay alone, w ithout regard
to d isrup tion. Moreover, because d elay is calcu lated in term s of time
alone, it is relatively straightforw ard to sep arate the effects of d elay
caused by m atters for w hich the em p loyer is responsible and the
effects of d elay cau sed by other m atters. For exam ple, d elay cau sed
by late instructions and delay cau sed by bad w eather can be m eas-
u red in a straightforw ard fashion, subject only to the possibility that
the tw o cau ses op erate concurrently; w e d iscuss concu rrent cau ses
below at paragrap hs [15]–[19].
[12] Perhaps the m ost d etailed d escrip tion of total cost claim s is fou nd
in John Holland Construction & Engineering Pty Ltd v. Kvaerner RJ
Brown Pty Ltd, a d ecision of the Su p rem e Cou rt of Victoria. In that
case, Byrne J. stated (at 82 BLR 85–87):
“The claim as plead ed . . . is a global claim , that is, the claim ant does
not seek to attribute any specifi c loss to a specifi c breach of contract,
bu t is content to allege a comp osite loss as a resu lt of all of the
breaches alleged , or presu mably as a resu lt of su ch breaches as are
u ltimately proved . Su ch claim has been held to be perm issible in the
case w here it is im practical to d isentangle that p art of the loss w hich
is attribu table to each head of claim , and this situ ation has not been
brou ght about by d elay or other cond uct of the claim ant . . .
Fu rther, this global claim is in fact a total cost claim . In its sim p lest
m anifestation a contractor, as the m aker of su ch claim , alleges
against a proprietor a num ber of breaches of contract and qu antifi es
its global loss as the actual cost of the w ork less the exp ected cost.
The logic of su ch a claim is this:
(a) the contractor m ight reasonably have exp ected to perform the
w ork for a particu lar su m, u sually the contract price;
(b) the prop rietor com m itted breaches of contract;
(c) the actu al reasonable cost of the w ork w as a su m greater
than the expected cost.
The logical consequence im plicit in this is that the p rop rietor ’s
breaches cau sed that extra cost or cost overrun. This im p lication is
valid only so long as, and to the extent that, the three propositions
are p roved and a further u nstated one is accep ted : the prop rietor ’s
breaches represent the only causally signifi cant factor responsible
for the d ifference betw een the expected cost and the actual cost. In
such a case the causal nexus is inferred rather than d em onstrated
. . . The u nd erstated assum ption u nd erlying the inference may be
further analysed . What is involved here is tw o things: fi rst, the
breaches of contract caused som e extra cost; second ly, the contrac-
tor ’s cost overru n is this extra cost. The fi rst aspect w ill often cause
little d iffi cu lty but it shou ld not, for this reason, be ignored . . . It is
the second aspect of the und erstated assum ption, how ever, w hich
is likely to cau se the more obvious problem becau se it involves
an allegation that the breaches of contract w ere the m aterial cause
of all of the contractor ’s cost overrun. This involves an assertion
that, given that the breaches of contract cau sed som e extra cost, they
mu st have cau sed the w hole of the extra cost becau se no other rel-
evant cause w as responsible for any part of it.”
Byrne J w ent on to consid er the claim m ade by the plaintiffs in the case
before him , and p ointed out that, because it was a total cost claim , it w as
necessary to elim inate any cau ses of inad equacy in the tend er price other
than m atters for w hich the em p loyer w as responsible. It w as also neces-
sary to elim inate any cau ses of overru n in the construction cost other than
m atters for w hich the em ployer w as resp onsible.
[13] In Boyajian v United States, 423 F 2d 1231 (1970), the Court of Claim s
app roved of the follow ing passage com m enting on the total cost
m ethod of calculation (at 1243):
“This theory has never been favou red by the court and has been
tolerated only w hen no other m od e w as available and w hen the
reliability of the su pporting evidence w as fully su bstantiated . . .
The accep tability of the m ethod hinges on proof that (1) the nature
of the p articu lar losses m ake it im possible or highly im practicable
to d eterm ine them w ith a reasonable degree of accuracy; (2) the
p laintiff’s bid or estim ate w as realistic; (3) its actual costs w ere
reasonable; and (4) it w as not responsible for the ad d ed
expenses.”
In that case it w as held that any su ggestion that there w as a presu m p -
tion that the contractor ’s exp end itu re w as reasonable m u st be
rejected .
[14] We agree w ith the foregoing statem ents of the law by Byrne J. and
the Cou rt of Claim s. It is accord ingly clear that if a global claim is to
su cceed , w hether it is a total cost claim or not, the contractor m u st
elim inate from the causes of his loss and expense all m atters that are
not the responsibility of the em ployer. This requ irem ent is, how ever,
m itigated by the consid erations d iscu ssed by the Lord Ord inary at
p aragraphs [38] and [39] of his opinion. In the fi rst place, it m ay be
p ossible to id entify a causal link betw een particular events for w hich
the em p loyer is responsible and ind ivid u al item s of loss. On occasion
that m ay be possible w here it can be established that a grou p of
events for w hich the em ployer is responsible are cau sally linked w ith
a grou p of head s of loss, provid ed that the loss has no other signifi -
cant cause. In d eterm ining w hat is a signifi cant cause, the “dom inant
cau se” app roach d escribed in the follow ing paragraph is of rele-
vance. Determ ining a cau sal link betw een particular events and par-
ticu lar head s of loss m ay be of p articu lar imp ortance where the loss
resu lts from mere d elay, as against d isrup tion; in cases of m ere d elay
su ch losses as the need to maintain the site establishm ent for an
extend ed tim e can often readily be attribu ted to particular events,
su ch as the late provision of inform ation or design changes. We note
that in the United States the Cou rt of Claim s has app roved of an
app roach along the foregoing lines. In Boyajian v United States, the
Cou rt of Claims approved of the follow ing passage (at 423 F 2d

1244):
“In situations w here the court has rejected the ‘total cost’ m ethod of
p roving d am ages, but w here the record nevertheless contained rea-
sonably satisfactory evid ence of w hat the d am ages are, com p uted
on an accep table basis, the cou rt has ad op ted su ch other evidence . . .;
or w here su ch other evid ence, although not satisfactory in and of
itself up on w hich to base a ju d gm ent, has nevertheless been consid -
ered at least su ffi cient upon w hich to pred icate a ‘jury verd ict’ aw ard ,
it has rend ered a jud gm ent based on su ch a verd ict . . . H ow ever,
w here the record is blank w ith respect to any such other alternative
evid ence, the cou rt has been obliged to d ism iss the claim for failure
of d am age p roof, regardless of the m erits.”
[15] In the second p lace, the question of cau sation m ust be treated
by “the app lication of com m on sense to the logical p rinciples
of cau sation”: John Holland Construction & Engineering Pty Ltd v.
Kvaerner RJ Brown Pty Ltd, supra, at 82 BLR 84I per Byrne J.; Alexan-
der v. Cambridge Credit Corporation Ltd, (1987) 9 N SWLR 310; Leyland
Shipping Company Ltd v. Norwich Union Fire Insurance Society Ltd,
[1918] AC 350, at 362 per Lord Du ned in. In this connection, it is
frequ ently p ossible to say that an item of loss has been caused by a
p articu lar event notw ithstanding that other events played a p art in
its occu rrence. In such cases, if an event or events for w hich the
em p loyer is responsible can be d escribed as the dom inant cau se of
an item of loss, that w ill be su ffi cient to establish liability, notw ith-
stand ing the existence of other cau ses that are to som e d egree at least
concu rrent. That test is sim ilar to that ad opted by the H ouse of Lord s
in Leyland Shipping Company Ltd v. Norwich Union Fire Insurance
Society Ltd, w here a ship w as torped oed by a Germ an su bm arine and
taken into the harbou r of Le H avre. When a gale sp rang u p she w as
m oved to a berth insid e the ou ter breakw ater, w here she took the
grou nd at each ebb tide. Ultim ately her bu lkhead s gave w ay and she
sank. She w as insured against perils of the sea, but exclud ing the
consequ ences of hostilities. It w as held that the p roxim ate cau se of
the loss was the d am age infl icted by the torp ed o, w hich fell w ithin
the exclusion. In our opinion the sam e ap proach shou ld be taken to
cases su ch as the present. If an item of loss resu lts from concu rrent
causes, and one of those causes can be id entifi ed as the p roxim ate
or d om inant cause of the loss, it w ill be treated as the operative
cause, and the p erson responsible for it w ill be resp onsible for
the loss.
[16] In the third place, even if it cannot be said that events for w hich
the em ployer is responsible are the d om inant cause of the loss, it
m ay be p ossible to ap portion the loss betw een the cau ses for w hich
the em ployer is resp onsible and other cau ses. In su ch a case it is
obviously necessary that the event or events for w hich the em ployer
is resp onsible shou ld be a material cau se of the loss. Provid ed that

cond ition is m et, how ever, w e are of op inion that app ortionm ent
of loss betw een the d ifferent cau ses is possible in an appropriate
case. Such a proced ure m ay be appropriate in a case w here the
cau ses of the loss are truly concu rrent, in the sense that both op erate
together at the sam e tim e to prod u ce a single consequence. For
exam p le, w ork on a construction project m ight be held up for a
p eriod ow ing to the late provision of inform ation by the architect,
bu t d u ring that p eriod bad w eather m ight have prevented w ork
for part of the tim e. In su ch a case resp onsibility for the loss can
be ap portioned betw een the tw o cau ses, accord ing to their relative
signifi cance. Where the consequ ence is delay as against d isru ption,
that can be d one fairly read ily on the basis of the tim e d u ring w hich
each of the cau ses w as operative. Du ring the period w hen both
operated , w e are of opinion that each shou ld norm ally be treated
as contribu ting to the loss, with the result that the em ployer is
resp onsible for only p art of the d elay d uring that period . Unless
there are special reasons to the contrary, responsibility d u ring that
p eriod shou ld p robably be d ivid ed on an equ al basis, at least w here
the concurrent cau se is not the contractor ’s responsibility. Where
it is his resp onsibility, how ever, it m ay be appropriate to d eny
him any recovery for the period of d elay d u ring w hich he is in
d efau lt.
[17] App ortionm ent in this w ay, on a tim e basis, is relatively straight-
forw ard in cases that involve only d elay. Where d isruption to the
contractor ’s w ork is involved , m atters becom e m ore com p lex.
N evertheless, w e are of opinion that app ortionm ent w ill frequently
be p ossible in such cases, accord ing to the relative im portance of the
variou s causative events in p rod ucing the loss. Whether it is possible
w ill clearly depend on the assessm ent m ad e by the jud ge or arbiter,
w ho m u st of cou rse approach it on a w holly objective basis. It m ay
be said that su ch an approach prod uces a som ew hat rough and read y
resu lt. This proced ure d oes not, how ever, seem to u s to be fu nd a-
m entally d ifferent in nature from that u sed in relation to contribu-
tory negligence or contribution am ong joint w rongd oers. Moreover,
the alternative to such an approach is the strict view that, if a contrac-
tor su stains a loss caused partly by events for w hich the em ployer
is resp onsible and p artly by other events, he cannot recover anything
because he cannot d em onstrate that the w hole of the loss is the
resp onsibility of the emp loyer. That w ou ld d eny him a rem ed y even
if the cond uct of the em ployer or the architect is p lainly cu lpable, as
w here an architect fails to prod u ce instru ctions d esp ite rep eated
requ ests and ind ications that w ork is being d elayed . It seem s to us
that in su ch cases the contractor shou ld be able to recover for part
of his loss and expense, and w e are not p ersu ad ed that the practical
d iffi cu lties of carrying out the exercise should p revent him from
d oing so.
[18] An ap portionm ent proced u re of this nature has been u sed w ith
app arent success in the United States in cases before the Court of
Claim s. Thu s in Lichter v. Mellon-Stuart Company, 305 F 2d 216 (1962),
the p laintiffs’ total cost claim on one contract w as rejected on the
grou nd that a su bstantial am ount of their loss w as the consequence
of factors other than breaches of contract by the d efend ants. The
cou rt cou ld fi nd no basis for allocation of the plaintiff’s claim , w hich
w as for a lu m p su m, betw een those cau ses w hich w ere actionable
and those w hich w ere not, w ith the resu lt that the entire claim w as
rejected . N evertheless, the Court of Claim s allow ed a claim based on
another contract betw een the same parties to su cceed in p art, and its
d ecision w as u pheld by the United States Cou rt of Ap peals for the
Third Circu it. The Court of Claim s had held that p art of the plain-
tiff’s extra cost on this contract was attribu table to the fault of the
d efend ant and p art w as attribu table to other non-com pensable
factors. The Court of Appeals stated the resu lt of that fi nding as
follow s (at 305 F 2d 221):
“Once it had thus been established that only p art of the . . . claim
rep resented extra cost chargeable to Mellon, the one question rem ain-
ing w as w hether a reasonable allocation of part of the total sum w as
p ossible. The cou rt und ertook such an allocation, guided by evi-
d ence concerning the extra tim e requ ired for the performance of the
stone contract as the result of the im prop er shelf angles. We cannot
say that this w as an arbitrary m ethod of allocation. Ind eed , [the
p laintiff] is not in p osition to com plain that the allocation w as im pre-
cise since it bore the burd en of p roving how mu ch of the extra cost
resu lted from Mellon’s im proper cond uct. [The p laintiff] risked the
loss of its entire claim , as occurred w ith reference to the m asonry
contract, if the cou rt should not have been able to m ake a reasonable
allocation.”
The im portant p oints that em erge from this d ecision are, fi rst, that the
Fed eral cou rts in the United States are w illing to u nd ertake an app ortion-
m ent exercise and , second ly, that any su ch app ortionm ent m ust be based
on the evid ence and carried ou t on a basis that is reasonable in all the
circu m stances. In ou r opinion a similar proced ure shou ld be available in
Scots law. We stress, how ever, that the allocation m u st be based on the
evid ence, and that und er Scottish proced ure the evid ence m ust be based
on a fou nd ation in the p leadings.
[19] In Phillips Construction Co. Inc v. United States, 394 F 2d 834 (1968),
the plaintiff u nd ertook the construction of a large housing p roject
connected w ith an air force base. During construction, heavy rainfall
and extensive fl ood ing w ere encou ntered. Und er the parties’ con-
tract, the p laintiff assum ed the risks incid ent to abnorm al rainfall
as su ch. Nevertheless, it claim ed that its d iffi culties w ere greatly
com p ou nd ed by the inad equ acy of the governm ent-d esigned
d rainage system for the project, and it su ed for the loss that it said
resulted from the d efective d rainage system . The Arm ed Services
Board of Contract Ap peals, the body charged w ith d eterm ining the
d isp u te at fi rst instance, rejected a total cost claim by the p laintiff,
becau se the plaintiff’s total loss w as cau sed p artly by m atters for
w hich the governm ent w ere resp onsible and p artly by the excep -
tional rainfall, for w hich neither party w as responsible. N ever-
theless, the Board agreed w ith the p laintiff’s contention about the
inad equ acy of the d rainage system , and apportioned the plaintiff’s
ad d itional costs betw een fl ood ing caused by d efective d rainage and
other factors. That exercise w as u pheld by the Cou rt of Claims,
w hich observed that “It represented the best ju d gm ent of the fact
trier on the record before it”, and this is all “that the parties have
any right to exp ect”. In our opinion a broad ly sim ilar ap portionm ent
exercise is possible in a Scottish case, for the reasons d iscu ssed
above.
[20] The present case is concerned w ith the relevancy of the pu rsu ers’
p lead ings, and the argu m ent for the d efend ers in large m easure
consisted of a d etailed and sustained attack on the overall structu re
of those plead ings. N evertheless, it mu st be borne in m ind that the
p resent case involves a com m ercial action, and in the Com m ercial
Court elaborate p lead ing is unnecessary. All that is required is that
a party’s averm ents shou ld satisfy the fu nd am ental requ irem ents
of any plead ings, nam ely that they shou ld give fair notice to the
other p arty of the facts that are relied on, together w ith the general
structu re of the legal consequences that are said to follow from
those facts. In d oing that, the p lead ings of one p arty shou ld d is-
close su ffi cient to enable the other p arty to prepare its ow n case
and to enable the p arties and the court to d eterm ine the issu es that
are actu ally in d ispu te. The relevancy of p leadings mu st alw ays be
tested against these fund amental requirem ents. In a case involving
the causal links that m ay exist betw een events having contractu al
signifi cance and losses suffered by the pu rsu er, it is obviously
necessary that the events relied on should be set out com p rehen-
sively. It is also essential that the heads of loss shou ld be set ou t
com p rehensively, althou gh that can often best be achieved by a
sched ule that is sep arate from the pleadings them selves. So far as
the cau sal links are concerned , how ever, there w ill u sually be no
need to d o m ore than set ou t the general prop osition that su ch
links exist. Causation is largely a m atter of inference, and each sid e
in practice w ill p ut forw ard its ow n contentions as to w hat the
app rop riate inferences are. In com mercial cases, at least, it is norm al
for those contentions to be based on expert rep orts, w hich shou ld
be lod ged in p rocess at a relatively early stage in the action. In
these circu m stances there is relatively little scope for one sid e to
be taken by su rprise at proof, and it w ill not norm ally be d iffi cu lt
for a d efend er to take a su ffi ciently d efi nite view of cau sation to
lod ge a tend er, if that is thought ap propriate. What is not necessary
is that averm ents of causation should be over-elaborate, covering
12.7 The liability of certifiers 263
every possible com bination of contractu al events that m ight exist

and the loss or losses that m ight be said to follow from su ch
events.’
12.7 The lia bilit y of cert ifi ers
In Chap ter 11 the p ossibility of an aggrieved contractor bringing an action

against a certifi er for alleged und er-certifi cation of extension of tim e is
consid ered . And in Section 12.2 above, com m ent is m ad e on the d u ties of
certifi ers in u nd ertaking their role in the extension of tim e p rocess.
Also w orth noting as an ind ication of the potential liabilities w hich certi-
fi ers face if they fail to exercise d ue skill and care in the p erform ance of their
d uties are the follow ing:
Edgeworth Construction Ltd v. N D Lea & Associates (1993) w here the
Su prem e Cou rt of Canad a, taking a d ifferent view than the English Court
of Ap peal in Pacific Associates v. Baxter, held that a consulting engineer ’s
d u ty of care to a contractor w as not negated by either the existence or
the term s of the contract betw een the contractor and the em p loyer. The
case did not concern extensions of tim e but nevertheless it serves as an
ind icator of how the law m ay d evelop in actions by contractors against
certifi ers.
West Faulkener Associates v. London Borough of Newham (1994) w here the
Court of App eal held that an architect w ho had failed to und erstand the
obligation im p osed on the contractor by a contractual requirem ent that
he should proceed regu larly and d iligently and consequ ently had failed
to serve a notice of d efault entitling the em p loyer to term inate the contract
w as in breach of his d u ty of skill and care to the em p loyer.
Wessex Regional Health Authority v. HLM Design Ltd (1995) w here it w as
held that an em p loyer had ind epend ent and concurrent cau ses of action
arising ou t of over-certifi cation of extensions of tim e against both the
contractor and the architect.
Royal Brompton Hospital NHS Trust v. Hammond & Others (2000) w here His
H onou r Ju d ge Seym ou r stated the tests for professional negligence estab-
lished in Bolam v. Friern Hospital Management Committee (1957):
‘(i) w hat, at the m aterial time, w ere the stand ards of ord inarily comp e-
tent m em bers of the relevant p rofession in relation to w hatever it is
w hich it is alleged that the defendant should have d one, bu t failed
to d o, or d id , but should not have d one;
(ii) w hat it is that the d efend ant actu ally failed to d o, or d id , as the case
m ay be;
(iii) by a com p arison of (i) and (ii) above, that the defend ant fell below
the stand ard s of the ordinarily com petent m em ber of m atter or his
p rofession in respect of the m atter or m atters of com plaint.’
The jud ge then said:
264 12.7 The liability of certifiers
‘H ow ever, for the reasons w hich I have set out above, in m y view, in
practical term s the burd en should ered by a claim ant w ho contend s that
an architect or a p roject m anager has been negligent in granting, or being
involved in the grant of, an extension of tim e for com p letion of w orks
governed by a contract in the Stand ard Form is a heavy one: unless the
case is very obviou s it is m ost unlikely to succeed .’
before going on to fi nd that the architect had been negligent in respect of
one of the extensions of tim e granted .
Chap ter 13
Relevan t even ts
13.1 Force ma jeure
The expression ‘force m ajeure’ is of French origin. Und er the French Civil
Cod e force m ajeu re is a d efence to a claim for dam ages for breach of contract.
It need s to be show n that the event:
(i) m ad e p erformance im possible;
(ii) w as u nforeseeable;
(iii) w as unavoid able in occurrence and effects.
In English law there is no d octrine of force m ajeu re. Before 1863 and the case
of Taylor v. Caldwell it w as a rule of the law of contract that the p arties w ere
absolu tely bou nd to perform any obligations they had und ertaken and the
fact that perform ance had becom e im possible d id not provide relief from
d am ages. In Taylor v. Caldwell a m u sic hall w hich w as to be hired for a
concert was d estroyed by fi re the d ay before the p erform ance; the court of
Queen’s Bench held the hirer not liable for dam ages by im plying a term on
im possibility of perform ance. Mr Ju stice Blackburn said :
‘. . . in contracts in w hich the performance d epend s on the continu ed
existence of a given person or thing, a condition is im p lied that the im pos-
sibility of p erform ance arising from the p erishing of the person or thing
shall excuse the p erform ance . . .’
From this case d evelop ed the d octrine of fru stration extend ing the sphere
of im p ossibility to other instances of frustration. On basic legal princip les,
therefore, it is frustration and not force m ajeure which m u st be plead ed as
a d efence in English contract law.
Force m ajeu re d oes, how ever, have a place in English law w here it is
expressly introd uced as a contract term – as for examp le, in MF/ 1 where it
provid es grou nd s for extension of tim e. There can also be an oblique app li-
cation throu gh the m ed iu m of EU law.
EU law
In Dairyvale Foods Ltd v. Intervention Board of Agricultural Produce (1982) Mr

Justice Parker, in consid ering w hether ind u strial action cam e w ithin the
d efi nition of ‘force m ajeu re’ in EEC regu lations, held that to be effective the
occu rrence had to be:
266 13.1 Force majeure
(i) an external event beyond the control of the party relying on it;
and
(ii) had to have consequ ences w hich cou ld not be avoid ed .
Force m ajeu re exclu d es fau lt
Contractu ally based force m ajeure to be effective has to m eet the sam e tests
and has to conform w ith the d octrine of frustration in that there m u st be no
fau lt attaching to the p arty u sing force m ajeu re as a d efence or a grou nd for
claim . In Sonat Offshore SA v. Amerada Hess Development Ltd (1987) a force
majeu re clause entitled Sonat, an oil rig operation, to paym ent in certain
circum stances. The clause applied ‘. . . w hen perform ance is hind ered or
prevented by strikes (excep t contractor ind u ced strikes by contractor ’s per-
sonnel) or lockout, riot, w ar (d eclared or u nd eclared ), act of God , insu rrec-
tion, civil d istu rbances, fi re, interference by any Governm ent Au thority or
other cau se beyond the reasonable control of su ch p arty . . .’. Arising from
the fault of Sonat there w as an explosion and severe fi re. The Cou rt of
Appeal held that ‘. . . other cause beyond the reasonable control . . .’ did not
inclu d e for negligence.
Con tractu al ap p lication
On the qu estion of scop e of the phrase ‘force m ajeu re’ w hen u sed in a con-
tract there are few English exam ples for jud icial gu id ance. It w ou ld seem
from Lebeaupin v. Crispin (1920) that the phrase cou ld cover w ars, ep id em ics
and strikes am ongst other things.
The p oint w as m ad e in that case that:
‘. . . a force m ajeure clau se should be construed in each case w ith close
attention to the w ord s w hich preced e or follow it and w ith due regard to
the natu re and general term s of the contract . . .’
In JCT 2005 m ost of the events w hich m ight be consid ered as force m ajeu re
are covered elsew here in the contract as grou nds for extension – e.g. w ar,
strikes, riot, fi re, storm s and exceptional w eather and the application of the
term is obviou sly restricted . In ICE form s the phrase is not u sed at all.
Force m ajeu re by its nature is a neu tral event betw een the parties and
is therefore a non-reim bu rsable event as far as extensions of tim e are
concerned .
Am ongst the few d efi nitions of force majeure in constru ction contracts is
the follow ing from FIDIC Cond itions of Contract:
‘In this Clau se, “Force Majeu re” m eans an exceptional event or
circu m stance:
(a) w hich is beyond a Party’s control,
13.2 Adverse weather 267
(b) w hich such Party could not reasonably have provid ed against before
entering into the Contract,
(c) w hich, having arisen, such Party could not reasonably have avoid ed
or overcom e, and
(d ) w hich is not su bstantially attribu table to the other Party.’
13.2 Adverse w ea t her
Ad verse w eather of itself does not give any grou nds for non-p erform ance
of contractual obligations. Unless there are p rovisions in the contract offer-
ing relief, the contractor is d eem ed to have taken all risks from w eather.
Hudson qu otes the early case of Maryon v. Carter (1830) w here a pavem ent
w as to be laid by a certain d ate. Du e to bad w eather the contractor d id not
comp lete on tim e and forfeited his right to paym ent.
The qu estion of w hether or not ad verse w eather should be a relevant
event is pu rely a m atter of risk d istribution in the contract. The case for the
risk being allocated to the contractor is that it follow s the general principle
that risks shou ld be allocated to the p arty best able to control them . There
is also the general point that the contractor can spread the risk over his
variou s contracts w hereas if the em ployer takes the risk there m ay be no
correspond ing scope for spreading the risk. Consid er, for exam ple, an
em p loyer engaging in a single project.
It is noticeable that in recent years a trend appears to be d eveloping, led
perhap s by central governm ent–d rafted contracts su ch as GC/ Works/ 1
Ed ition 3 and the H ighw ays Agency Design and Bu ild Contract, of fi rm ly
placing all w eather risks on the contractor and in su ch contracts there is, of
course, no relevant event for ad verse w eather.
Stan d ard form s
Nonetheless m any stand ard form s of construction contract d o m ake som e

provision for extension of tim e in respect of exceptional ad verse w eather
and some, su ch as the N ew Engineering Contract, go fu rther by allow ing
som e of the risk of the contractor ’s costs to fall on the em ployer. Experimen-
tal contracts have even been ru n on the basis that the em p loyer carries the
risk for all tim e lost d ue to w eather, but there is no evid ence that either
contractors or em ployers w ould w elcome the general ap plication of such a
rad ical app roach.
The extent to w hich ad verse w eather app lies as a relevant event d ep end s,
therefore, alm ost exclu sively on the w ord ing of the contract. In JCT 2005, it
is given as d elay d ue to ‘excep tionally ad verse w eather conditions’. The old
JCT 63 said ‘excep tionally inclem ent w eather ’ bu t this w as consid ered to be
too restrictive to inclu d e for heat. ICE form s u se the phrase ‘excep tional
ad verse w eather ’ cond itions.
268 13.2 Adverse weather
Weath er record s
It is not ju st the phrase w hich has to be consid ered bu t also its context. The
contractor ’s entitlem ent, und er JCT form s, to an extension is in respect of
d elay to the p rogress of the w orks by excep tionally ad verse w eather cond i-
tions. The starting point then, is that there has to be d elay, not just excep tion-
ally ad verse w eather. This m ay seem rather theoretical but it has becom e so
com m on for contractors to apply for extensions on the ground s that the
weather has been w orse than average that sight can becom e lost of the need
for proof of d elay. The practice of obtaining local w eather record s and com -
paring them on a year to year basis, or on a p articular year against average,
may show that the w eather has been exceptional but it says nothing about
d elay.
The p oint cam e u p in the case of Walter Lawrence & Son Ltd v. Commercial
Union Properties (UK) Ltd (1984) w here a contractor w as su ing for retu rn of
am ou nts d ed u cted as liquid ated dam ages. Ju d ge Haw ser held that:
‘. . . When consid ering an extension of tim e u nd er clause 23(b) of JCT 63,
on the ground of “excep tionally inclem ent w eather” the correct test for
the architect to app ly is w hether the w eather itself w as “exceptionally
inclem ent” so as to give rise to d elay and not w hether the am ou nt of tim e
lost by the inclem ent w eather w as exceptional . . .’
Assessm en t ap p lies to tim e w ork carried ou t
Another m atter of signifi cant interest arose in the Walter Lawrence case in
resp ect of the tim e at w hich the w eather shou ld be assessed . The architect
in corresp ond ence had said : ‘. . . It is ou r view that w e can only take into
accou nt w eather cond itions prevailing w hen the works w ere p rogram m ed
to be p ut in hand , not w hen the w orks w ere actu ally carried out . . .’
The contractor refu ted this and claim ed that his progress relative to
program m e w as not relevant to his entitlem ent to an extension. It w as held
that the effect of the excep tionally inclem ent w eather is to be assessed at the
tim e w hen the w orks are actually carried out and not w hen they w ere pro-
gram m ed to be carried ou t even if the contractor is in d elay.
Weath er after d u e d ate for com pletion
It should be ad d ed that the ju dge in Walter Lawrence d rew a distinction

betw een d elays w hich occur d u ring the original or extend ed tim e for com -
pletion and d elays after the d ue date w here the contractor is in cu lpable
d elay. H e said :
‘. . . These letters d o raise the issue as to w hether the plaintiffs can legiti-
m ately claim in resp ect of delays w hich occurred after the d ate w hen the
13.2 Adverse weather 269
contract p lus any p roper extension of tim e ought to have been com pleted .
I think that there is clearly an issu e on that asp ect of the m atter, bu t it
w ou ld app ear to m e that the plaintiffs have a claim of substantial char-
acter in resp ect of the p eriod to the end of the contract – as properly
extend ed . . .’
This qu estion of w hether the contractor can get an extension of tim e for
a neutral event w hich occurs after the du e d ate for com p letion bu t w hen
the contractor is still proceeding in cu lpable d elay cannot be generally
settled . It d ep ends on the w ord ing of the particular contract. In the case of
Amalgamated Building Contractors v. Waltham Holy Cross UDC (1952) Lord
Justice Denning, on an early bu ild ing form , said :
‘. . . Take a sim p le case w here contractors, near the end of the w ork, have
overru n the contract tim e for six m onths w ithout legitim ate excu se. They
cannot get an extension for that p eriod . N ow suppose that the w orks are
still u ncom p leted and a strike occu rs and lasts a m onth. The contractors
can get an extension of tim e for that m onth . . .’
This ap p arent acceptance of entitlem ent to an extension for neutral events
after the d u e d ate for com pletion d oes not give a general rule and the p rob-
ability is that w here extension p rovisions refer to the contractor being ‘fairly’
entitled , as m ost m od ern stand ard form s d o, then the contractor w ou ld have
som e d iffi culty in establishing his case.
Is ad verse w eath er ‘b eyon d th e con tractor ’s control’?
A question frequ ently asked in respect of stand ard form s w hich have no
sp ecifi c relevant event for ad verse w eather but w hich contain a relevant
event w ord ed ‘beyond the contractor ’s control’ or sim ilar is w hether su ch a
broad ly w ord ed event can cover delays cau sed by adverse w eather.
The answ er to that, ap p lying the factual test w hich w ou ld seem to follow
the d ecision in the Scott Lithgow case (see the com m ent in Chapter 6) is that
it has to be d ecid ed as a m atter of fact in each case w hether the d elay caused
by the ad verse w eather w as beyond the contractor ’s control. That m ay
d epend on the step s taken, or w hich cou ld have been taken, by the contrac-
tor to alleviate the effects of the w eather.
The qu estion som etim es arises in respect of p rocess and plant contracts
und er m od el form s such as MF/ 1 and the IChem E Red Book. In su ch con-
tracts the probability is that suscep tibility to w eather conditions has not been
consid ered suffi ciently im p ortant to ju stify a specifi c relevant event for
w eather. And , having regard to the balance of risk in those contracts, w hich
is generally favourable to the contractor, the case for allow ing extensions of
time for d elays cau sed by ad verse w eather as being m atters beyond the
contractor ’s control is arguably stronger than w ou ld be the case in an ordi-
nary construction contract w hich w as silent on w eather.
270 13.3 Civil commotion, strikes, etc.
13.3 Civil commot ion, st rikes, et c.
These events may be includ ed by express reference in d etail or m ay not be

inclu d ed at all. Where not includ ed they m ay in appropriate circum stances
be covered by generalised events such as ‘force majeure’ or ‘other sp ecial
circum stances’.
Civil com m otion has been defi ned as ‘an insurrection of the people’ for
general p urp oses and for insurance pu rp oses as ‘a stage betw een a riot and
a civil w ar ’. ‘Local com bination of w orkmen’ is an old -fashioned exp ression,
the exact m eaning of w hich is u ncertain. It m ight cover events falling short
of a strike such as a m ass p icket or p erhap s even an organised ‘go slow ’ or
‘w ork-to-ru le’.
Strik es
Strikes can be d iffi cu lt m atters in consid ering extensions. Do they ap ply

solely to the site of the w orks and the contractor ’s ow n w orkforce or is there
a m ore general ap plication to su b-contractors and sup pliers and if so how
far rem oved ? And shou ld the contractor get an extension of tim e if his ow n
bad em ployee relationship has cau sed the strike or, taking the m atter a stage
fu rther, if it is su sp ected that the contractor has engineered the strike?
JCT 2005 answ ers the fi rst qu estion by its w id e ap p lication of the clau se:
‘. . . affecting any of the trad es em ployed u pon the w orks or any of the trad es
engaged in the preparation, m anufacture, or transportation of any of the
good s or m aterials requ ired for the w orks . . .’. The contract is silent on the
question of cu lpability bu t once again, the fair and reasonable test seem s to
have som e relevance althou gh strong evid ence against the contractor w ould
be need ed to avoid giving him the benefi t of any d ou bt.
ICE form s say nothing on strikes, etc. and it is u p to the contractor to argu e
his cau se und er ‘other special circum stances’.
An exam p le of the d iffi cu lty in ap plying p rovisions in stand ard form s to
strikes and the like can be found in Boskalis Westminster Construction Ltd v.
Liverpool City Council (1983). Delays arose on the contract from strikes on
works by statu tory und ertakers w hich cam e w ithin the category of ‘others
engaged by the respond ents in executing w ork not form ing part of the con-
tract’. The architect gave the contractor an extension u nd er the prevention
provisions; the em ployer claim ed it shou ld have been given u nd er strikes.
At the back of this, of cou rse, w as the question of recovery of loss and
exp ense. The court u pheld the arbitrator ’s d ecision that the d elay d id not
com e within the scop e of the strike clause.
D u ty to m itigate
One area of d iffi culty is w hether the contractor can avoid the effects of
strikes etc. by changing su ppliers and su b-contractors, albeit at extra cost.
13.4 Damage to the works 271
The general d u ty to m itigate m ay not ap ply since the contractor w ou ld

rarely be in a p osition to recover his extra costs from the em ployer but in so
far as there is an express contractual requirem ent for the contractor to u se
his best end eavou rs to p revent d elay, howsoever cau sed , then he w ill have
an obligation to consid er alternatives if available.
13.4 Da ma ge t o t he w orks
Few subjects in construction are as com plicated as d am age to the w orks

and insurance and w hen it com es to w hether d elays caused by insu r-
able risks are ground s for extensions of tim e, there are few defi nitive
answ ers.
Starting from the p osition that the contractor ’s obligation is to com plete
the w orks w ithin the sp ecifi ed tim e, it w ould seem not u nreasonable to
su ggest that the contractor shou ld bear the consequ ences of, or insure
against, all losses and d elays arising from d am age to the w orks. Bu t that is
an over-sim plifi cation. Dam age to the w orks can arise from any of three
causes:
(i) contractor ’s negligence;
(ii) circum stances ou tsid e the contractor ’s control;
(iii) em ployer ’s fault through u se, occup ation or d esign.
On general p rincip les, the contractor w ould have no case for an extension
in the fi rst instance; a possible case in the second accord ing to the risk
sharing asp ects of the contract; and a d efi nite entitlem ent to an extension in
the third on the ground s of prevention.
Where the contract is silent on extensions of time for dam age to the
w orks, the contractor has no entitlem ent to an extension excep t to the extent
that general p rovisions su ch as ‘force m ajeu re’ or ‘other sp ecial circum -
stances’ might be held to app ly. It is d iffi cu lt to see how either could ap ply
to contractor ’s negligence and , on rules outlined in Chapters 5 and 6 d evel-
oped from p revention and contra proferentem, they shou ld not ap ply to
em p loyer ’s fau lt u nless su ch fau lt is specifi cally inclu d ed in the provisions.
This leaves circu m stances outsid e the contractor ’s control as the only
application.
It is not alw ays seen or treated this w ay. ICE form s are silent on the subject
and as users of the form s w ill know there is very little consistency in the
granting of extensions by engineers or by arbitrators. Most, bu t not all, will
exclud e contractor ’s negligence; som e take a broad view of ‘other special
circu mstances’ and w ill allow for everything but obvious negligence includ -
ing such cau ses as vand alism , site accidents and circum stances ou tsid e the
contractor ’s control, w hilst others take a hard line and exclu de the lot. Many
d o not accept that an extension cannot be granted und er ‘any sp ecial cir-
cum stances’ for em ployer ’s fault.
JCT form s expressly d eal w ith som e aspects of d am age to the w orks by
m aking ‘the sp ecifi ed perils’ relevant events. These are defi ned as:
272 13.5 Sub-contractors
‘fi re, lightning, exp losion, storm , tem p est, fl ood , bursting or overfl ow ing
of w ater tanks, ap paratus or pipes, earthqu ake, aircraft and other aerial
d evices or articles d rop p ed therefrom , riot and civil com m otion, bu t
exclud ing Excepted Risks.’
Nothing is said abou t contractor ’s negligence and it m ay not be correct to
exclud e it on the w ord ing. Moreover, there is an op tional clau se for the
em ployer to insu re against loss of liquid ated d am ages in respect of the
specifi ed perils. Nothing is said about vand alism , accid ental im p act d am age
and the like and w ith no other events covering these m atters they are not
obviou s ground s for extensions.
13.5 Sub-cont ra ct ors
D om estic su b-con tractors
On basic p rinciples, d elays caused by d om estic su b-contractors d o not

give grou nd s for extensions of tim e. Unless there are express p rovisions in
the contract to cover d elays so caused or there are other p rovisions for
extensions w hich can be interpreted to cover sub-contractors, the p roblem s
of su b-contractor default w ill rest betw een the m ain contractor and
sub-contractor.
If the contractor is required by the term s of the contract to obtain ap proval
to his sub-contractors from the contract ad ministrator and that app roval is
unreasonably d elayed , that could be a breach of contract w ith the p otential
to d efeat the liquid ated d am ages provisions unless there are extension
clau ses covering em ployer ’s acts of prevention.
N om in ated su b -con tractors
Nom inated sub-contractors are the cause of m any com p lex d isp u tes, as
shown in Chapter 9, and how ever m u ch form s of contract attem pt to
place resp onsibility for su ch su b-contractors on m ain contractors, it is very
d iffi cu lt for the em p loyers to avoid sharing som e of the resp onsibility for
their d elays and d efau lts. The burd en of re-nom ination after d efault is
a heavy one as show n in North West Metropolitan Regional Hospital Board
v. Bickerton (1970), Peak v. McKinney (1970), Percy Bilton v. GLC (1982) and
Fairclough v. Rhuddlan Borough Council (1985), with the em ployer bou nd to
avoid d elay in re-nom inating and to allow tim e for rectifi cation of fau lty
work.
Details of the variou s stand ard form s are consid ered in the conclu d ing
chapters of this book but few m od ern form s now includ e p rovisions for
nom inated su b-contractors. ICE 7th Ed ition is one that does but it allow s
extensions only for d elays arising from d eterm ination of the nominated su b-
contractors’ em p loym ent.
13.5 Sub-contractors 273
Beyon d con tractor ’s con trol
The possibility of general phrases in extension provisions being inter-

preted to cover su b-contractor d elay arises from the interp retation of ‘a
cause beyond the contractor ’s control’ in Scott Lithgow v. Secretary of State
for Defence (1989). Although that case related to a right of paym ent, the
sam e decision w ould probably have been given in relation to extension
of tim e. See the comm ent in Chap ter 6. The case d oes ind icate the need
for great caution in d rafting general phrases w hich give rights and
obligations.
Thu s in early JCT Minor Build ing Works forms the contractor w as
entitled to an extension if it becam e ap parent that the w orks w ould not
be com p leted by the d ue d ate for ‘reasons beyond the control of the contrac-
tor ’. The form w as am end ed in 1991 to take note of the Scott Lithgow decision
so as to inclu d e ‘w ithin’ the control of the contractor any d efau lt of sub-
contractors or su pp liers.
How ever, there are still other w ell-u sed stand ard form s of contract, includ -
ing MF/ 1, w hich use su ch phrases as ‘beyond the reasonable control of the
contractor ’ in d efi ning relevant events. In such contracts it m ay w ell be open
to the contractor to argu e that he is entitled to an extension of time if he is
d elayed by su b-contractors w ho, as a m atter of fact, are beyond his reason-
able control.
An exam p le of the d iffi culties w hich can result from im p recise d rafting is
fou nd in the case of John Mowlem & Company plc v. Eagle Star Insurance
Company Ltd (1995). The contract contained an extension of tim e clause
w hich read (in p art):
‘. . . if, in the opinion of the architect, the com p letion of any section is
likely to be or has been d elayed . . . by any cau se beyond the control of
the Management Contractor, his subcontractors or m aterials su p pliers
. . . the architect shall allow and certify a fair and reasonable extension of
tim e . . .’
The p relim inary question consid ered by the Cou rt of Ap peal w as as
follow s:
‘On the true construction of the m anagem ent contract w ou ld the m anage-
m ent contractor ever be entitled to extensions of tim e for causes beyond
its control but w ithin the control of su bcontractors or m aterials supp liers,
and if so in w hat circum stances?’
One su bm ission pu t to the cou rt w as that so long as the cause of d elay w as
beyond the control of any of the entities, the m anagem ent contractor, his
su b-contractors, or his m aterials suppliers then the m anagem ent contractor
w as au tom atically entitled to an extension of tim e. That submission required
the extension of tim e clau se to be read as ‘any cau se beyond the control
of the m anagem ent contractor or his su b-contractors or m aterial su ppliers’.
The effect would be that any cause beyond the control of the m anagem ent
contractor bu t w ithin the control of a sub-contractor, or equ ally w ithin
274 13.6 Non-availability of resources
the control of the m anagem ent contractor but beyond the control of the
sub-contractor w ou ld be a qu alifying event. Lord Justice H irst, after briefl y
reviewing the Scott Lithgow d ecision and d ecid ing that the facts of the case
were qu ite d ifferent, rejected the su bm ission and held the answ er to the
prelim inary qu estion to be in the negative.
13.6 Non-a va ila bilit y of resources
As w ith sub-contractors, the full burd en of p roblem s in obtaining the

resou rces necessary for constructing the w orks should , on basic princip les,
fall on the contractor. If, how ever, the em ployer d ecid es to share the risk by
allow ing extensions of tim e for problem s so arising, that is a concession or
a m atter of comm ercial ju d gm ent betw een the p arties.
Som e stand ard form s d o give the contractor an entitlem ent to extension
for d elays cau sed by his inability to secure labour or m aterials bu t generally
the inability m ust be for reasons beyond the control of the contractor and
which he could not have reasonably foreseen at the tim e of tend er. This w as
the position in JCT 80. Sim ilar provisions in JCT 63 w ere op tional and w ere
frequently d eleted by the em ployers.
Apart from the point of p rinciple as to w hich party shou ld carry the risks
of obtaining resou rces, there is frequently m uch scop e for interp retative
argu m ent on the w ording of such clauses and on the facts of any case. It
may not be the intention of the d raftsm en that every u psu rge in the ind u s-
try’s w orkload w ith its attend ant shortages of labou r and m aterials should
relieve contractors of their obligations to com p lete on tim e, but it is this type
of situation w hich has often led to p roblem s.
Q u alifi ed ten d ers
Perhap s becau se the risk of obtaining resources is so obviou sly that of the
contractor there are few cases of note on the subject. One of interest, bu t not
d irectly concerned w ith extensions of tim e, w as Davis Contractors Ltd v.
Fareham UDC (1956). With its form of tend er for the construction of 78
hou ses, Davis attached a letter stating the p rice w as su bject to ad equ ate
supp lies of labou r being available. In the event, they w ere not and the works
took 22 months to com p lete instead of eight m onths. Davis claim ed that their
tend er w as qu alifi ed and that the contract had been frustrated. It w as held
that Davis’s letter d id not form part of the contract and that the contract had
not been frustrated .
A cau tionary p oint need s to be mad e here for contractors w ho think that
by su bm itting letters of qualifi cation w ith their tend ers they have au to-
matically inclu d ed the qualifi cations in any contract which follow s. The
qualifi cation becom es effective only if it is includ ed in a d ocum ent w hich
becom es bound -in w ith the contract d ocu m ents.
13.7 Statutory undertakers’ works 275
13.7 St a t ut ory undert a kers’ w orks
Gas, w ater, electricity and telephone installations are likely to be a part of

any build ing p roject; and in any u rban road w orks project there w ill be ser-
vices to be diverted or new services to be laid . The qu estion is, w ho p ays
the bill w hen they cau se d elay?
This w as one of the m atters w hich faced Ju dge Fay in Henry Boot v. Central
Lancashire Development Corporation (1980). He had to d ecid e w hether m ains
laid to a housing site w ere w ithin the d escrip tion of ‘w ork being d one by
others engaged by the em ployer ’, in w hich case any d elay caused gave rise
to an extension of tim e and recovery of loss and expense; or w hether they
w ere works execu ted u nd er statu tory pow ers, in w hich case the contractor
got only an extension of tim e bu t no costs. Jud ge Fay d ecid ed in this instance
that the w orks w ere in the fi rst category and he had this to say abou t w here
the loss should fall.
‘. . . The broad schem e of these provisions is plain. There are cases w here
the loss shou ld be shared, and there are cases w here it shou ld be w holly
borne by the em p loyer. There are also those cases w hich d o not fall w ithin
either of these cond itions and w hich are the fau lt of the contractor, w here
the loss of both parties is w holly borne by the contract. Bu t in the cases
w here the fau lt is not that of the contractor the schem e clearly is that in
certain cases the loss is to be shared : the loss lies w here it falls. But in
other cases the emp loyer has to com pensate the contractor in respect of
the d elay, and that category, w here the em p loyer has to com pensate the
contractor, shou ld , one w ou ld think, clearly be com posed of cases w here
there is fau lt up on the em ployer or fault for w hich the em p loyer can be
said to bear som e responsibility.’
It follow s that w here the delay caused by statu tory u nd ertakers’ w ork is an
act of p revention the usual rules ap ply, bu t w here the d elay is neu tral, the
contractor ’s entitlem ent to an extension w ill d epend on the provisions of
the contract.
Are u n dertak ers’ d elays p reven tion or n eu tral?
Stand ard bu ild ing and civil engineering form s cover both p revention and
neu tral situations through various clau ses so argu m ents tend to be m ore on
m oney that on extensions of tim e. Contractors w ill w ish to prove that pre-
vention has occu rred and this lead s to d ispu tes on p rogram m ed rates of
w ork, tim es allow ed for service d iversions, and availability or possession of
the site. It m ay be p ossible to show that d elays have been cau sed bu t these
w ill not necessarily am ou nt to p revention or give entitlem ent to extension
of tim e.
Only if the d elays have im ped ed the contractor in fu lfi lm ent of his obliga-
tion to com p lete on tim e w ill there be prevention. Disruption of the contrac-
tor ’s p lanned activities and im ped im ent of the contractor ’s p lans to fi nish
276 13.8 Other special circumstances
ahead of tim e d o not in them selves give the contractor a rem ed y against the
em ployer for recovery of loss and expense or extra cost. The em ployer d oes
not w arrant that statu tory und ertakers w hether w orking on a contractu al
basis or in exercise of statu tory pow ers w ill fi t in w ith the contractor ’s
plans.
If the em ployer has p rovid ed inform ation in the tend er d ocu m ents on
exp ected d u ration tim es of statutory und ertakers’ w orks, and these tim es
are exceed ed , the contractor w ill obviou sly have better grou nd s for claim
for both costs and extensions than if the em p loyer has left it to the tenderers
to m ake their ow n enqu iries on such tim es. It is p ossible for the em ployer
to provid e inform ation w ithout w arranting its accuracy, but u nless there are
good com m ercial reasons for includ ing inform ation on any matters w hich
are outsid e the em ployer ’s control, su ch inform ation is best om itted .
Delays to the contractor ’s progress caused by p roxim ity to, or physical
contact w ith, statu tory u nd ertakers’ apparatu s com e into a d ifferent cate-
gory from delays cau sed by the presence on site of statutory u nd ertakers or
their ow n contractors engaged on d iverting m ains or laying new ones. The
question of w hether delays caused by p roxim ity or contact qu alify for costs
or extensions of tim e d epend s fi rstly, on how that risk is covered in the
contract and second ly, on the inform ation p rovid ed at the tim e of tend er. At
one end of the scale there m ay be no inform ation given and no p rovision in
the contract for the contractor to recover for unforeseen p hysical cond itions
or artifi cial obstru ctions. In this case the risk is on the contractor. At the other
end of the scale there m ay be detailed, but p ossibly inaccu rate, inform ation
given on locations of ap paratus and also p rovisions in the contract for the
contractor to get both extensions of tim e for d elays and recovery of extra
costs for unforeseen cond itions. In this case the risk is on the em p loyer.
13.8 O t her specia l circumst a nces
The lim itations of this p hrase as a catch-all extension p rovision have been
d iscussed in Chap ter 6. There is a strong legal view that it cannot be u sed
to cover the em ployer ’s acts of prevention unless exp ress w ord s are ad ded
to that effect.
The p hrase is to be fou nd in ICE form s and is w id ely used to cover any
d elay d eem ed u nforeseen and beyond the control of the contractor.
13.9 St a t ut ory pow ers
Und er som e stand ard form s, extensions of tim e can be granted for d elays
caused by restrictions im posed by central governm ent u sing its statu tory
pow ers on the use of labou r, the supply of m aterials, or pow er and energy.
Such p rovisions m ay be u sefu l to the em ployer as w ell as to the contractor
for w ithout it u nd er som e form s the contractor can, in the event of a long
stop page, d eterm ine his own em ploym ent und er the contract.
13.10 Possession and access 277
Changes in the law im posed d u ring the currency of the contract w hich
affect the contractor ’s rate of p rod uction or otherw ise restrict his activities
– such m atters as red u ced noise levels or stricter safety regulations – would
not norm ally give any rights to extensions u nless d eem ed to be ‘force
m ajeu re’ or ‘other special circu mstances’.
13.10 P ossession a nd a ccess
The qu estion of w hether or not failu re by the em p loyer to give possession

of the site at a tim e convenient to the contractor is an act of prevention will
d epend on the w ord ing of the contract. If the contract sim p ly states a d ate
for p ossession of the site, the contractor is entitled to the w hole of the site
from the ou tset; but if the contract specifi es p hased release of the site, the
contractor is obliged to accom mod ate the restrictions this w ill im p ose.
How ever, the em ployer does need to m ake clear his intentions. In Whittal
Builders Co. Ltd v. Chester-le-Street D.C. (1987), the second of tw o cases
betw een the sam e parties, it w as held that in giving piecem eal possession
of the 90 hou ses to be refurbished , the cou ncil w as in breach of contract.
Jud ge Fox-Andrew s said :
‘. . . I am satisfi ed that in a contract of this kind it w ould be unusual for
the contractor to be given possession of all houses at the sam e tim e.
Usually, how ever, in such a contract w here in the natu re of things the
local au thority d oes not know precisely w hen occup ation of the various
houses w ill be given u p to them som e p roced ure is laid d own w hereby
the local au thority gives the best inform ation about likely p ossession
d ates to the contractor to enable him to plan his w ork.
How ever, I d o not consid er, in interp reting a w ritten contract it is
prop er to take into consid eration w hat norm ally w ill occur, particularly
w here the contract in such circum stances ord inarily contains express
provisions d ealing w ith that state of affairs . . .’
Until am end m ent 4 of JCT 80, failure to give p ossession of the site w as not
expressed as a relevant event and , as happ ened in Rapid Building v. Ealing
Family Housing Association (1984), any extension granted by the architect for
a d elay so cau sed w as invalid . JCT 2005 p rovid es for d eferred possession
and for extension of tim e for late possession.
ICE form s have alw ays exp ressly inclu d ed late possession as grou nd s for
extension bu t this recognises perhap s that there are special p roblem s in civil
engineering w orks on possession, not least the am ou nt of land som etim es
involved and the continuing rights of other road u sers.
If the emp loyer intend s that the contractor shou ld not have sole occu p a-
tion of the site this also need s to be w ell expressed , and there certainly need
278 13.11 Late issue of drawings and instructions
to be includ ed in the contract, p rovisions for extend ing tim e in the event of
other au thorised site u sers engaged by the em ployer causing d elay.
Access an d egress
The em p loyer ’s obligations w ith regard to access and egress ap ply only to
his ow n land or routes otherw ise prom ised in the contract. The contractor
has no claim for an extension in the event of d elays caused by his ow n
inability to secure access routes or to keep them in satisfactory operating
ord er.
Traffi c restrictions can p ose p roblem s for contractors, p articularly if
im posed u nexp ected ly d uring the construction p eriod . The p osition is com -
plicated if the em ployer is the au thority w hich has im posed the regu lations.
But in any event p robably the m ost the contractor can hop e for is an exten-
sion und er sp ecial circum stances if su ch a p rovision is includ ed .
13.11 La t e issue of dra w ings a nd inst ruct ions
Contractors com p lain m u ch about the late issue of d raw ings and instruc-
tions and certainly m any claim s w ou ld be avoid ed if all schem es w ere
prepared to the last d etail before the contractor started w ork. How ever,
unless there is an express term to the contrary it is not a breach of contract
for the em ployer throu gh his agent to su pply d raw ings and inform ation as
the w orks p roceed p rovid ing the contractor is not im ped ed in the perfor-
mance of his obligations.
Im p lied term s
But clearly, in the absence of express term s relating to necessary inform ation
there mu st be im p lied term s. And it is misu nd erstand ings or disp utes on
these which frequently cause confl ict. The contractor w ill probably argu e for
im plied terms w hich suit his convenience and profi tability. The em ployer
will p robably argue for im plied term s w hich d id no m ore than require him
to avoid prevention. As a com prom ise they m ight both settle for w hat is
reasonable in all the circu m stances.
In Roberts v. Bury Improvement Commissioners (1870) it w as said:
‘. . . The contractor, also, from the natu re of the works, cou ld not begin
the work until the com m issioners and their architect had su p plied plans
and set out the land , and given the necessary p articulars; and , therefore
in the absence of any express stipu lation on the subject, there w ou ld be
an im plied contract on the part of the com m issioners to d o their p art
w ithin a reasonable tim e; and , if they broke that im plied contract, the
contractor w ould have a cause of action against them for any d am ages
he m ight sustain . . .’
13.11 Late issue of drawings and instructions 279
In Wells v. Army & Navy Co-operative Society (1902) it w as said that:

‘The plaintiffs (the contractors) mu st w ithin reasonable lim its be allow ed
to d ecid e for them selves at w hat tim e they are to be supp lied w ith
d etail.’
More recently in J and J Fee Ltd v. The Express Lift Company Ltd (1993), Ju d ge
Bowsher QC held that it w as an im plied term of a su b-contract und er
DOM/ 2 term s that the m ain contractor w ould p rovid e the su b-contractor
w ith correct inform ation concerning the w orks in such a m anner and at such
times as w as reasonably necessary for the su b-contractor to have in ord er to
fulfi l its obligations u nd er the su b-contract.
Reasonab le tim e for su p p ly
Mr Ju stice Dip lock in Neodox Ltd v. Borough of Swinton and Pendlebury (1958)
had to d ecid e w hat w as a reasonable tim e in a contract w ith exp ress provi-
sions for the sup p ly of inform ation. H e said :
‘. . . It is clear from these clau ses w hich I have read that to give bu siness
effi cacy to the contract, details and instructions necessary for the execu-
tion of the w orks m u st be given by the engineer from tim e to tim e in the
cou rse of the contract and m ust be given in a reasonable tim e. In giving
such instru ctions, the engineer is acting as agent for his principals, the
Corporation, and if he fails to give such instru ctions w ithin a reasonable
tim e, the Corporation are liable in d am ages for breach of contract.
What is a reasonable tim e d oes not d epend solely u pon the convenience
and fi nancial interest of the claim ants. No d ou bt it is to their interest to
have every d etail cu t and d ried on the d ay the contract is signed , but the
contract d oes not contem plate that. It contem plates fu rther d etails and
instru ctions being provid ed , and the engineer is to have a tim e to provid e
them w hich is reasonable having regard to the point of view of him and
his staff and the p oint of view of the Corporation, as w ell as the point of
view of the contractors.
In d eterm ining w hat is a reasonable tim e as resp ects any particu lar
d etails and instructions factors w hich m ust obviou sly be borne in m ind
are su ch matters as the ord er in w hich the engineer has d eterm ined the
w orks shall be carried out (as he is entitled to do und er clau se 2 of the
specifi cation), w hether requests for particular d etails or instru ctions have
been m ad e by the contractors, w hether the instru ctions relate to a varia-
tion of the contract w hich the engineer is entitled to m ake from tim e to
tim e d uring the execution of the contract, or w hether they relate to part
of the original w orks, and also the tim e, includ ing any extension of tim e,
w ithin w hich the contractors are contractu ally bound to com plete the
w orks.
In m entioning these m atters, I w ant to make it perfectly clear that they
are not intend ed to be exhau stive, or anything like it. What is a reasonable
tim e is a qu estion of fact having regard to all the circu m stances of the
280 13.11 Late issue of drawings and instructions
case, and the case stated d oes not d isclose su ffi cient d etails of the circum -
stances relating to any particu lar d etails or instru ctions to m ake it
possible for m e to ind icate w hat w ould be all the relevant factors in
d eterm ining w hat w as a reasonable tim e w ithin w hich such d etails
and instructions shou ld have been given. What I have m entioned are
m erely som e exam p les of factors w hich m ay or m ay not be relevant to
any p articular d etails or instru ctions given w hich the arbitrator has
consid ered . . .’
N atu re of im p lied term s
In London Borough of Merton v. Leach (1985) w hen asked to im p ly a term that

Merton wou ld take all steps necessary to enable the contractor to execute
the w orks in a regu lar and ord erly m anner, Mr Justice Vinelott w ould go no
fu rther than saying:
‘. . . H ow ever, the cou rts have not gone beyond the im p lication of a d uty
to co-operate w henever it is reasonably necessary to enable the other
party to perform his obligations und er a contract. The requirem ent of
“good faith” in system s d erived from Rom an law has not been im ported
into English law . . .’
Con tractu al req u irem en ts
Clearly as w ith so m any other m atters m uch d ep end s on the w ord ing of the
contract and its express term s, if any, on the su p ply of d raw ings and infor-
mation. ICE form s use the phrase ‘any failure or inability of the engineer to
issue at a tim e reasonable in all the circu m stances’; JCT form s refer to ‘the
contractor not having received in d u e tim e’. The contractor m ight w ell fi nd
it easier to argu e a case for d elay u nd er ICE form s given the constru ction
above as to w hat is reasonable.
Ap p lication s for in form ation
Stand ard form s u su ally p lace som e obligation on the contractor to m ake
ap plication for any ad d itional draw ings or inform ation he need s to constru ct
the w orks and the extent to w hich the contractor satisfi es this obligation w ill
have som e bearing on his entitlem ent to an extension in the event of d elay.
If by not ap p lying, or not applying in good tim e, he is in part responsible
for the d elay, that w ill be refl ected in any assessm ent of the ‘reasonableness’
test in resp ect of tim e of su p ply and the ‘fairness’ test in relation to entitle-
ment to an extension.
One of the m any points at issue in Merton w as w hether a program m e
subm itted in d iagram m atic form at the start of the contract and marked w ith
signs show ing the d ate on w hich inform ation w as requ ired throu ghou t the
13.12 Variations and extra works 281
contract satisfi ed the contractual requ irem ents of JCT 63 as a specifi c ap pli-
cation in w riting, not unreasonably d istant from the d ate required . Mr Ju stice
Vinelott held that it d id . This is part of his ju d gm ent:
‘. . . As to the fi rst of these tw o questions, I can see no reason w hy a
d ocum ent w hich like Program m e 515 sets out in d iagram m atic form the
planned programm e of w ork and ind icates by conventional signs the
d ates by w hich instru ctions, d raw ings, d etails and levels are requ ired ,
shou ld not be a su ffi ciently sp ecifi c app lication to m eet the requ irem ents
of these clau ses. What is called for is a d ocum ent which ind icates w hether
by w ord s or by the u se of conventional signs or in any other form , w hat
the contractor requires and w hen he requ ires it and w hich d oes so in su f-
fi cient d etail to enable the architect to u nd erstand clearly w hat is required
of him . The arbitrator held that Programm e 515 m eets that requirem ent
and I see no reason to d iffer from him . . .’
13.12 Va ria t ions a nd ext ra w orks
When variations or extra w orks cause d elay to com pletion, the contractor
w ill have a clear case for extension of tim e, or if there is no exp ress provision
to extend tim e, the em p loyer w ill have lost his right to liqu id ated
d am ages.
It is the follow ing types of questions w hich give rise to argu m ents, e.g.
have the variations actu ally caused d elay to com pletion? Are the extra w orks
really extra? Cou ld the contractor have accom m od ated them in his p ro-
gram m e? Som e of these m atters have been consid ered p reviously and others
are consid ered u nd er p articular form s but it is w orth just noting here that
extra quantities are not necessarily the sam e as extra w orks and in som e
form s of contract, it is the contractor and not the em ployer w ho takes the
risks on qu antities.
13.13 Complia nce w it h inst ruct ions
In the absence of express terms, instructions, w hether from the em ployer or

the contract su pervisor, can read ily u p set contractual intentions by cau sing
prevention or d efeating the contract altogether. Exp ress term s giving con-
tract sup ervisors pow er to m ake ord ers and instructions, and requ iring the
contractor to com ply are useful therefore in m aintaining contractu al stabil-
ity, but it is essential that they are linked to the extension p rovisions of the
contract.
There are d iffi culties som etim es in d istinguishing those instru ctions w hich
give the contractor rights under the contract and those w hich are intended
to correct or ad vise him in relation to perform ance and obligations. All that
can be said is that it is up to the contract ad m inistrator to m ake his intentions
clear. The case of Simplex Concrete Piles Ltd v. Metropolitan Borough of St
282 13.14 Unforeseen physical conditions
Pancras (1958) show s how the em ployer can easily end u p w ith a surprise
bill w hen the contract states that the fi nal accou nt is to includ e for all instruc-
tions and variations. In that case the sp ecifi ed piling system failed on testing
and Sim p lex proposed an alternative system . The architect accep ted the
proposal in a letter w hich w as subsequently held by the cou rt to be an
instru ction for a variation entitling Sim plex to recover the extra cost of the
alternative system . As Mr Justice Ed m u nd -Davies said of Sim plex’s p osition:
‘On any view of the case, they were accord ingly very fortunate in fi nd ing
so am enable and co-operative an architect.’
13.14 Unforeseen physica l condit ions
Unforeseen cond itions are generally taken to be, in the context of construc-
tion contracts, u nexpected ground cond itions on the site. It is som ething of
an od d ity, if not a m atter of concern, that some contracts, includ ing ICE
cond itions refer in their w ord ing neither to the grou nd nor the site. Thu s,
clau se 12 of ICE cond itions refers to physical conditions (and artifi cial
obstructions) encou ntered d uring the carrying out of the w orks.
The consequences of this w ord ing w ere revealed in the case of Humber Oil
Trustees Ltd v. Harbour & General Works (Stevin) Ltd (1991). In that case the
question arose w hether the contractor had encountered p hysical cond itions
within the scop e of clau se 12. As a 300-tonne crane on a jack-u p barge w as
placing precast soffi t units on piles, the barge becam e unstable and col-
lapsed , cau sing extensive d am age to the w orks, plant and equ ipm ent. The
barge w as a total loss and had to be replaced . There w as m u ch d elay and
extra cost.
The contract w as u nd er the ICE Fifth Ed ition cond itions and the contrac-
tor claim ed und er clau se 12 that collap se of the barge, and its consequ ences,
was d u e to encou ntering physical cond itions w hich cou ld not have been
foreseen by an exp erienced contractor. The d ispute w ent to arbitration.
The arbitrator gave an aw ard in favou r of the contractor, fi nding that
althou gh the soil cond itions w ere foreseeable, clau se 12 contains no limita-
tion on the m eaning of ‘p hysical cond ition’; that a com bination of strength
and stress, althou gh transient, can fall w ithin the term s; and that in this case
an u nforeseeable cond ition had occurred .
The em ployer ap p ealed , m aintaining that the question shou ld be not
whether the collap se could have been foreseen, w hich it clearly could not,
bu t w hether p hysical cond itions could reasonably have been foreseen. The
jud ge u p held the arbitrator ’s aw ard but gave leave to appeal. The argu-
ments ad vanced for the em ployer before the Court of App eal w ou ld cer-
tainly have fou nd favour w ith m any engineers – nam ely that a physical
cond ition is som ething m aterial, su ch as rock or running sand , and that
ap plied stress is not a physical condition nor is it som ething w hich can be
encou ntered . The Cou rt of Appeal, how ever, rejected the argu m ents and
d ism issed the ap peal.
Lord Ju stice Parker d ealt w ith the argu m ents as follow s:
13.14 Unforeseen physical conditions 283
‘Mr Dyson [Cou nsel for the em ployer] su bm its that the physical cond ition
of the soil, w hich w as fou nd by the arbitrator to be foreseeable, really
conclu d es the m atter and that applied stress is not and cannot be any p art
of the p hysical cond ition.
Attractive as his argu m ent app ears to be at fi rst sight, I cannot accep t
it. The arbitrator w as in m y view saying that the general soil cond itions
w ere foreseeable and w ell able to stand the ap plied loads and stresses.
There w as, how ever, here a peculiar characteristic w hich cou ld not have
been reasonably foreseen, nam ely a liability to shear at a m uch low er
load ing than had alread y been w ithstood .
The m atter m ay perhaps be put in this w ay. General soil cond itions
w ere know n and w ere foreseeable and foreseen. Su ch soil conditions
w ou ld not have resu lted in a shear failu re. There w as thu s an u nforesee-
able cond ition.
Su ppose that the Contractor, just before the event, had been inform ed
by the engineer that som e fu rther inform ation had just arrived show ing
that Stevin 73 w ou ld collapse becau se of a special featu re of the soil u nder
the leg, w hich nobod y had hitherto know n abou t. In my view the Con-
tractor w ou ld then have encountered a p hysical cond ition w hich w as not
reasonably foreseeable. H e w ould then have m ad e prop osals u nd er clause
12, which the engineer m ight have ap proved , or ind eed even d irected the
Contractor to take.
As to his subm ission that applied stress cannot be a p art of a physical
cond ition, this in m y view is not so. The soil cond itions w hich p revail at
any m om ent w hen one is consid ering op erations su ch as found ations or
any other operation w hich pu ts w eight on the soil is in effect the load -
bearing capacity of the soil conditions. A particular cond ition of soil m ay,
for exam ple, be w ell know n safely to sustain w ithout shear 1,000 tonnes.
If in fact there is settlem ent at a load of 300 tonnes what d oes it show ? In
m y view, surely, that there w as an unknown, foreseeable fau lt w hich w as
plainly a physical cond ition.’
Lord Ju stice N ou rse agreeing said :
‘The arbitrator fou nd that there m ust have been a very u nusu al com bina-
tion of soil strength and ap plied stresses around the base of leg 2 of the
barge ju st before the failure occurred . H e fou nd as a fact that that state
of affairs cou ld not reasonably have been foreseen by an exp erienced
contractor. That fi nd ing cannot be re-opened in this court. Accord ingly
the fi rst qu estion w hich w e have to decid e is w hether this very u nu su al
com bination of soil strength and ap plied stresses w as, as both the arbitra-
tor and Ju d ge Fox-And rew s have held , a physical cond ition encou ntered
by the Contractors w ithin clause 12(1) of the ICE Cond itions.
The p rincip al subm issions of Mr Dyson, for the Em ployers, are to this
effect. H e says that a physical condition is som ething w ith a m aterial,
intransient existence, such as rock or running sand. An ap p lied stress is
not a p hysical cond ition nor, m oreover, is it something w hich can be
encou ntered . Accord ingly, the only p hysical condition w hich here fell
284 13.14 Unforeseen physical conditions
w ithin clause 12(1) w as the soil itself, w hose natu re cou ld , as the arbitra-
tor fou nd , reasonably have been foreseen by an experienced contractor.
I reject these subm issions for the follow ing reasons. First, I agree w ith
Mr Blackburn, for the contractors, that there is nothing to restrict the
ap plication of clause 12(1) to intransient, as d istinct from transient, phys-
ical cond itions. Ind eed the express reference to w eather conditions, albeit
by w ay of exclu sion, su ggests the contrary. Second ly, w hile I w ou ld agree
that an app lied stress is not of itself a physical cond ition, w e are not
concerned w ith such a thing in isolation, bu t w ith a combination of soil
and an app lied stress. Third ly and m ost signifi cantly, as Butler-Sloss LJ
pointed out d uring the course of the argu m ent, it is im possible to sp eak
of a contractor encountering any form of grou nd , be it rock, ru nning sand ,
soil or w hatever, w ithou t recognising that stress of one d egree or another
w ill have to be ap p lied, at any rate notionally, to the grou nd , w hich w ill
in tu rn behave, at any rate notionally, in one w ay or another; no d ou bt
passively in the case of rock, actively in the case of ru nning sand and
perhaps unp red ictably in the case of soil. In other w ord s, for the purp ose
of clau se 12(1), you cannot d issociate the nature of the grou nd from an
actu al or notional app lication of som e d egree of stress. Without such an
ap plication you cannot predict how the ground w ill behave. In the p resent
case I w ould say that the condition encountered by the contractors w as
soil w hich behaved in an unforeseeable m anner und er the stress w hich
w as applied to it, and that that w as a p hysical condition w ithin clause
12(1).’
The d ecision in Humber Oil attracted a good d eal of attention – from law yers
concerned as to its logic; from em ployers w ishing to lim it its consequences;
and from contractors hoping to exp loit its opp ortu nities. But the cause of
the p roblem lies not in the legal d ecision bu t in the w ord ing of clause 12.
Some em p loyers now am end clause 12, su bstitu ting ‘ground cond itions on
site’ for ‘p hysical cond itions’.
Chap ter 14
Cau sation an d con cu rren cy
14.1 Int roduct ion
Disp u tes in constru ction contracts about extensions of time and liability
for liquid ated d am ages are, m ore often than not, d ispu tes abou t the am ou nt
of extra tim e d u e to the contractor w ho has fi nished late or is running
late rather than d ispu tes about the relevant contractu al provisions in them -
selves. Such d isp utes are frequently comp lex, p articu larly so on larger
projects, w ith the parties likely to be at od d s on the cau ses of d elays, the
effects of concu rrency, criticality and the ap prop riate m ethod of d elay
analysis.
In this chap ter the general princip les of causation and concurrency are
exam ined . Criticality and d elay analysis are consid ered in Chapter 16.
Althou gh it m ight be thou ght, given the im portance of these matters and
the regu larity w ith w hich they com e to be d ecid ed in form al d isp ute resolu -
tion p roced ures, that there w ould by now be fi rm sets of rules emanating
from the cou rts or from the drafting of stand ard form s, there rem ains,
however, a great deal of u ncertainty. That is not becau se of lack of effort; it
is becau se the circu m stances of particu lar contracts and the scenarios w hich
can be contem p lated are so d iverse, and often so com p lex, that it is d iffi cult
to d evise rigid rules of general application. Bu t there is, p erhap s, one su ch
ru le w hich com es ou t of the cases and that is the retention of com m on sense
in the assessm ent of extensions of tim e.
Cau sation
Sim ply d efi ned cau sation is the relationship betw een cause and effect. Lord
Wright in Monarch Steamship Co. v. Karlshamns Oljefabriker (1949) p ut it as
follow s:
‘Cau sation is a m ental concept, generally based on inference or ind u ction
from u niform ity of sequence as betw een tw o events that there is a cau sal
link betw een them .’
The signifi cance of cau sation generally is that in ord er to recover d am ages
for breach of contract or in negligence it is necessary to establish both cau se
and cost effect. And , in claim s for extension of tim e it is not enou gh to show
that a relevant event occurred – it is also necessary to establish the d elaying
effect.
286 14.2 Causation generally
Con cu rrency
Concu rrency, sim p ly d efi ned, has the sam e m eaning as sim ultaneous –
nam ely that things are taking place, or have taken place, at the sam e tim e.
In one of the m any Royal Brompton Hospital cases (2001) it w as su ggested
that concurrency only occurs in constru ction contracts w hen comp eting
d elaying events have id entical start and fi nish d ates but that app roach has
not been follow ed in other cases.
Generally, in construction cases, concurrency is taken to refer to com pet-
ing events w hich overlap in their consequ ences. In that sense it is the tim ing
of the effects of the causes w hich are said to be concurrent – not the tim ing
of the cau ses in them selves.
Culp ab le d elay
The exp ression ‘culp able d elay’ is usually ap plied to the situation w hen the
contractor has failed to com p lete the w orks by the d u e d ate and has no
entitlem ent to an extension of tim e.
‘Cu lpable’ is an unfortunate d escription as it imp lies fault, guilt, or, as in
the Shorter Oxford Dictionary, ‘d eserving of pu nishm ent’. The fact that the
contractor has no entitlem ent to an extension d oes not necessarily m ake him
culpable in this sense. The d elay m ay have been cau sed by circum stances
outsid e the contractor ’s control w hich d o not qualify as relevant events –
vand alism to the works is an exam p le. What is tru ly m eant by cu lpable
d elay, therefore, is d elay w ith liability for liquid ated d am ages.
The phrase ‘culp able delay’ patently does not ap p ly to situ ations w here
there is d elay arising from prevention bu t there are no exp ress ground s for
extension. Tim e is then at large and the contractor has no liability for liqui-
d ated d am ages.
‘Cu lp ab le d elay’ b efore com p letion d ate
Culpable d elay is som etim es used to d escribe the situ ation prior to the d ate
for com p letion w here the contractor has fallen behind program m e or sched -
ule w ithou t cau se for extension. This m ight be a reasonable app lication of
the phrase in respect of allegations of failing to p roceed w ith d u e d iligence
and the like bu t it has no relevance to liqu id ated d amages and extensions
of tim e. See the case of Walter Lawrence & Son Ltd v. Commercial Union (1984)
in Chap ter 13, w hich confi rmed that the effects of d elays are to be assessed
with regard to the tim e the w orks w ere carried out, not when they w ere
program m ed to be carried out.
14.2 Ca usa t ion genera lly
The analysis of cau sation is as old as history bu t it rem ains relentlessly

attractive to acad em ics and inescapable in the pu rsuit of nu m erou s p rofes-
14.2 Causation generally 287
sions. In the constru ction ind ustry, the stu d y of cau sation and the app lica-
tion of com p u ters to the p rocess is a thriving business w ith ever-d evelop ing
skills in retrospective d elay analysis (RDA). Bu t, despite the stu d ies and
d esp ite the skills, for the ord inary p ractitioner in constru ction there are still
no fi rm ru les of certain application to the everyd ay problem s on build ing
sites. Perhap s that is how it w ill alw ays be. As Mr Justice Steyn said in the
case of Banque Financière de la Cité v. Westgate Insurance Co. Ltd (1990):
‘There is no m ore d iffi cult area in ou r law than cau sation. Scientifi c p re-
cep ts and philosophical notions are frequently invoked . Ultim ately, it
seems to m e, a jud ge is on safe grou nd if he pu ts his trust in preced ent,
or in its absence, in com m on sense.’
Som e years earlier, in the case of Heskell v. Continental Express Ltd (1950), Mr
Justice Devlin had m ade a sim ilar p oint on the application of com m on sense
w hen saying:
‘The cause of the loss has to be ascertained by the standard of com mon
sense of the ord inary m an. Com m on sense is a blu nt instrum ent not
suited for p robing into m inute points, and I cannot believe that if the
ord inary m an thinks that tw o causes are of equ al effi cacy, he cannot say
so w ithout being interrogated on fi ne d istinctions.’
How ever, d espite the d iffi culties that is not to say that d elay analysis related
to extensions of tim e and claim s for loss and exp ense or extra cost should
not be as thorou gh as circum stances perm it. In the McAlpine Humberoak case
m entioned in Chap ter 2 Lord Justice Lloyd said:
‘The ju d ge d ism issed the d efend ant’s ap proach to the case as being a
retrosp ective and d issectional reconstru ction by exp ert evid ence of events
alm ost d ay by d ay, d raw ing by d raw ing . . . In ou r view the d efend ant’s
ap proach is ju st w hat the case required .’
And in the John Barker case, m entioned in Chapters 11, 12 and 16 the ju d ge
held that the architect’s im pressionistic rather than calculated assessm ent
of the consequences of d elaying events invalid ated his aw ard of extension
of tim e.
In the John Doyle v. Laing (2004) case it w as said :
‘the qu estion of cau sation m ust be treated by “the ap p lication of com mon
sense to the logical p rinciples of causation”: John Holland Construction &
Engineering Pty Ltd v. Kvaerner RJ Brown Pty Ltd, supra, at 82 BLR 84I per
Byrne J.; Alexander v. Cambridge Credit Corporation Ltd (1987) 9 N SWLR
310; Leyland Shipping Company Ltd v. Norwich Union Fire Insurance Society
Ltd [1918] AC 350, at 362 per Lord Du ned in. In this connection, it is
frequently p ossible to say that an item of loss has been caused by a
particu lar event notw ithstand ing that other events played a part in its
occurrence. In such cases, if an event or events for w hich the em p loyer is
responsible can be described as the d om inant cau se of an item of loss,
that w ill be su ffi cient to establish liability, notw ithstanding the existence
of other causes that are to som e d egree at least concurrent. That test is
288 14.2 Causation generally
sim ilar to that ad op ted by the H ou se of Lord s in Leyland Shipping Company

Ltd v. Norwich Union Fire Insurance Society Ltd . . .’
A fu rther neat su mm ary of the law on cau sation w as given in the jud gm ent
of Ju d ge Wilcox in the case of Great Eastern Hotel Company Ltd v. John
Laing Construction Ltd (2005) w here Laing, as the constru ction m anager,
was su ccessfully su ed by the em ployer for breaches of perform ance. The
jud ge said :
‘313. On the qu estion of cau sation, the law is conveniently set ou t in
Chitty on Contracts (29th Ed ition) at volum e 1 at p aragraph:
“The cou rts avoided laying d ow n any form al test for cau sation; they
have relied on comm onsense to guid e d ecisions as to w hether a
breach of contract is a suffi ciently su bstantial cau se of the Claim -
ant’s loss. The answ er to w hether the breach w as the cause of the
loss, or m erely the occasion for loss m u st in the end depend on the
cou rt’s com m onsense in interpreting the facts.”
314. If a breach of contract is one of the causes both co-operating and of
equ al effi ciency in causing loss to the Claim ant the p arty respon-
sible for breach is liable to the Claim ant for that loss. The contract
breaker is liable for as long as his breach w as an “effective cause”
of his loss. See Heskell v. Continental Express Ltd [1995] 1 All Eng 1033
at page 1047A. The Court need not choose which cause w as the
m ore effective. The approach of Devlin J in Heskell w as ad opted by
Steyn J (as he then w as) in Banque Keyser SA v. Skandia [1991] QB
p age 668 at page 717 and accepted by the Court of App eal see page
813A to 814C.’
The ju d ge w ent on to say:
‘315. Each claim or group of claim s mu st be exam ined on their ow n facts
and in the context of the specifi c contractual provisions such as
variations w hich m ay give rise to a consid eration of the com para-
tive p otency of causal events and to app ortionm ent. In the absence
of su ch provision the ap prop riate test is that if GEH p rove that
Laing w ere in breach and the proven breach m aterially contributed
to the loss then it can recover the w hole loss, even if there is
another effective contribu tory cause p rovid ed that there is no d ouble
recovery.’
Ap p roach es to an alysis
The com p lexity of cau sation in legal m atters can be seen from the old
case of Leyland Shipping Co. v. Norwich Union Fire Insurance Society (1918)
regard ing a ship w hich, having been torped oed by a Germ an su bm arine,
was tow ed to a d eep water harbour at Le H avre and then, w hen a gale blew
up, tow ed out to an anchorage near a breakw ater w here she sank w hen the
tid e w ent ou t. The court had to decid e the cau se of the sinking because the
14.3 Concurrency generally 289
ship w as insured against the p erils of the sea bu t not against w ar risks. It
w as held that the cau se w as the torped oing and that the unsu ccessfu l
attem p ts to save the ship d id not break the chain of cau sation. Lord Shaw
said :
‘. . . When various factors or cau ses are concu rrent and one has to be
selected . . . the choice falls up on the one to w hich m ay variously be
ascribed the qualities of reality, pred om inance, effi ciency . . .’
The search for a d om inant cause, how ever, is by no means the only m ethod
of analysing cau sation. Tw o w ell-reported m ed ical cases illu strate alterna-
tive p ossibilities.
In Baker v. Willoughby (1970) the H ou se of Lord s took w hat is som etim es
know n as the fi rst cau se ap proach. The p laintiff w as inju red in the leg as a
result of a m otor accid ent caused by the d efend ant’s negligent d riving. The
inju ry caused pain and suffering and affected the plaintiff’s earning cap acity.
Later, the p laintiff w as involved in an attem pted robbery d uring w hich he
w as shot in the inju red leg. The leg then had to be am pu tated . The qu estion
for the courts w as w hether the d efend ant w as liable to the p laintiff for a
lifetim e’s w orth of p ain, su ffering and loss of earnings or just for that w hich
occu rred prior to the am pu tation. The H ou se of Lord s said the d efend ant
w as liable for the full lifetim e.
By contrast, in Jobling v. Associated Dairies (1982), the H ou se of Lord s took
w hat m ay be called the ultim ately critical ap proach. In that case the plaintiff
su ffered an accid ent at w ork w hich left him w ith a back inju ry and a red u ced
earning cap acity. A few years later, but before settlem ent of d am ages for the
back inju ry, he w as fou nd to be su ffering from spinal d isease w hich m ad e
him totally u nfi t for w ork. The d isease had no connection w ith the injury.
The H ou se of Lord s held there cou ld be no recovery for loss of earnings
from the tim e of total incapacity. The d isease could not be d isregard ed
becau se it w as a sup ervening cause of the p laintiff’s condition w hich would
have overtaken him in any event.
14.3 Concurrency genera lly
The lead ing authority on the sim pler aspects of cau sation and concu rrency
is the ju d gm ent of Mr Ju stice Devlin in the ship p ing case of Heskell v. Con-
tinental Express Ltd (1950). Having fou nd that there w ere tw o separate oper-
ative cau ses he said :
‘Where the w rong is a tort, it is clearly settled that the w rongd oer cannot
excu se him self by p ointing to another cause. It is enou gh that the tort
shou ld be a cau se and it is unnecessary to evaluate com peting cau ses and
ascertain w hich of them is d om inant . . . In the case of breach of contract
the position is not so clear . . .
Whatever the true rule of cau sation m ay be I am satisfi ed that if a
breach of contract is one of tw o cau ses, both co-op erating and both of
equ al effi cacy, as I fi nd in this case, it is su ffi cient to carry ju dgm ent for
290 14.3 Concurrency generally
d am ages. Reischer v. Borwick [1894] 2 QB 548 establishes that for the pu r-

poses of a contract of insu rance it is su ffi cient if an insured event is, in
this sense, a co-op erating cause of the loss. I d o not think that Yorkshire
Dale SS Co. Ltd v. Minister of War Transport [1942] AC 691, w ith its insis-
tence on the ascertainm ent of “the cau se”, d isap proved this principle. The
case d ecid ed that the cause of a loss has to be ascertained by the stand ard
of com m on sense of the ord inary m an. Com m on sense is a blunt instru -
m ent not su ited for probing into m inu te points, and I cannot believe
that if the ord inary m an thinks that tw o cau ses are of app roxim ately
equ al effi cacy, he cannot say so w ithout being interrogated on fi ne
d istinction.’
The D evlin ap p roach
From the above case com es w hat is know n as ‘the Devlin app roach’ – nam ely,
that if a breach of contract is one of tw o cau ses, both co-operating and both
of equal effi cacy, either is suffi cient to establish liability for loss.
The Devlin app roach w as consid ered in the case of Plant Construction Plc
v. Clive Adams Associates (2000) w here, having noted previou s ap provals of
the app roach, the ju d ge said :
‘13. In Heskell v. Continental Express Ltd Devlin J had referred to the tw o
cau ses as being equ ally op erative “in that if either had ceased the
d am age w ou ld have ceased ” (p age 1047B), and it w ou ld seem that
the sam e w as tru e in the Banque Keyser Ullmann case. These w ere
therefore cases like the “head -on-collision” exam p le in p aragraph 7
above. N evertheless the statem ents of p rinciple, even if not exp licitly
d irected to the question posed in paragraph 7 above, are w id e enou gh
to cover it, nor do I see any reason w hy they shou ld not d o so. More-
over, as I u nd erstand it, Devlin J’s references to “equality” are not
d irected to any contribution issue bu t to the question of w hether both
cau ses und er consid eration are “effi cacious”.
14. On the basis of p rinciple, therefore, with su ch lim ited assistance as
can be d erived from the authorities, I conclu d e that Plant should not
have to show that JMH ’s breach w as the sole cau se of the collap se,
or that in the absence of that breach there w ou ld have been no col-
lap se even if Plant’s negligence (inclu d ing that of Mr Ad am s as its
agent) had rem ained . The tru e qu estion, in m y view, shou ld be
w hether JMH’s breach w as causative, w hether alone or as being one
of concurrent cau ses w ith Plant’s negligence, such that but for the
concu rrence of those causes the collap se w ou ld not have occu rred .’
Notw ithstand ing the ap parent attem pt by the ju d ge in the above case to
wid en the app lication of the Devlin approach the point is m ad e by m any
legal com m entators that the Devlin app roach d oes not operate satisfactorily
in constru ction cases w here there are cou nterclaim s nor w here the com pet-
ing causes are not of equ al effi ciency.
14.4 Dominant cause approach 291
O ther ap p roach es
Keating, 8th Ed ition, at pages 272 to 275 gives a d etailed analysis of cau sation
as it ap plies to contracts and show s how u nclear the law is w hen there are
claim s and cou nterclaim s and com peting causes of fau lt – som e the claim -
ant’s, som e the d efend ant’s, and som e neu tral. Keating com es d ow n broad ly
in favou r of the d om inant cause ap proach for contractors’ claim s for paym ent
for d elay arising from em ployer ’s breach w here there are com peting causes
of delay su ch as neu tral events or contractors’ ow n fault.
Keating suggests that there is legal authority for a num ber of propositions
w hich it lists as follow s:
‘(a) the Devlin app roach. If a breach of contract is one of tw o causes of a
loss, both cau ses co-op erating and both of approxim ately equal effi -
cacy, the breach is suffi cient to carry ju d gm ent for the loss.
(b) the d ominant cau se ap proach. If there are tw o cau ses, one the con-
tractu al resp onsibility of the d efend ant and the other the contractu al
resp onsibility of the plaintiff, the p laintiff su cceed s if he establishes
that the cau se for w hich the d efend ant is resp onsible is the effective,
d om inant cau se. Which cause is d om inant is a question of fact, w hich
is not solved by the m ere point of ord er in tim e, bu t is to be d ecid ed
by ap p lying com mon sense stand ard s.
(c) the bu rd en of p roof approach. If part of the d am age is show n to be
d u e to a breach of contract by the p laintiff, the claimant m ust show
how m uch of the d amage is caused otherw ise than by his breach of
contract, failing w hich he can recover nom inal d am ages only.
(d ) the tortiou s solu tion. The claim ant recovers if the cause on w hich he
relies caused or m aterially contributed to the loss.’
Other lines of thou ght are variously d escribed as:
• app ortionm ent
• the ‘bu t-for ’ test
• the fi rst-in-line ap p roach
• the fi rst-p ast-the-post approach.
14.4 Domina nt cause a pproa ch
The d om inant cau se app roach as outlined by Lord Shaw in Leyland Shipping
as stated above is w id ely taken to be the correct ap proach to d ealing w ith
concu rrent cau ses. N evertheless it appeared to receive som ething of a rebuff
in the case of H Fairweather & Co. Ltd v. London Borough of Wandsworth (1987).
Jud ge Fox-And rew s rem itted for reconsid eration an arbitrator ’s aw ard
w hich held w here there w as m ore than one cause of a d elay the extension
had to be granted for the d ominant reason. The arbitrator had d eclared the
architect correct in granting 81 w eeks for strikes. The contractor w anted 18
w eeks re-allocated to reim bu rsable cau ses.
292 14.5 Apportionment
Ju d ge Fox-And rew s said this:

‘. . . “Dom inant” has a num ber of m eanings: “Ruling, p revailing, m ost
infl u ential.” On the assum ption that cond ition 23 is not solely concerned
w ith liqu id ated or ascertained d am ages bu t also triggers and cond itions
a right for a contractor to recover d irect loss and exp ense w here ap pli-
cable und er cond ition 24 then an architect and in his tu rn an arbitrator
has the task of allocating, w hen the facts require it, the extension of tim e
to the variou s head s. I d o not consid er that the d om inant test is
correct . . .’
Althou gh this ju d gm ent has been w id ely rep orted as signalling the end of
the dom inant cau se test, the ju dge w as not ad d ressing the qu estion of cau-
sation as it relates to fi nancial claim s bu t w as sim ply taking a practical
ap proach to the relationship betw een extensions of tim e and su ch claim s.
He went on to say:
‘N either this part of the jud gm ent nor the term s of the contract itself
points to an extension of time und er cond ition 23(f) being a cond ition
preced ent to recovery of d irect loss and exp ense u nd er condition 24(1)(a).
How ever the p ractical effect ordinarily w ill be that if the architect has
refused an extension u nd er the form er the contractor is u nlikely to be
successfu l w ith the architect on an application und er cond ition 24(1)(a).’
Com m en t
The problem w ith the dom inant cau se approach is that althou gh it works
well in insu rance cases it is not alw ays su ited to constru ction cases w here
there are tim e and m oney claim s and it seem s to be at od d s w ith other
ru lings on extension of time claim s. See the Wells v. Army & Navy case (1902)
d iscussed later in this chapter. Generally, how ever, it continues to receive
jud icial su p port – see, for exam ple, the case of Galoo Ltd v. Bright Grahame
Murray (1994) w here it w as said ‘A p laintiff w as entitled to claim d am ages
for breach of contract by the d efend ant w here the breach w as the effective
or dom inant cau se of loss and did not m erely provid e him w ith the op por-
tunity to su stain loss’.
14.5 Apport ionment
Althou gh they are not an exact m atch, there are m any sim ilarities betw een
global claims, on w hich a considerable bod y of case law has d evelop ed , and
ap portionm ent, on w hich there is little case law. On the m atter of fi nancial
claim s the tw o cam e together in the im p ortant d ecision of the Scottish courts
in the case of John Doyle v. Laing (2004) discu ssed in Chapter 12. For exten-
sion of tim e claim s, how ever, there has until recently been little or no autho-
rative supp ort for accep tance of app ortionm ent in extension of time claim s.
14.5 Apportionment 293
If anything, as noted in Chapter 16, the courts have generally taken a strict
approach tow ard s linkage of cause and effect.
How ever, something of a shift in the app roach of the courts m ay be
d etected from tw o recent jud gm ents.
In London Underground Ltd v. Citylink Telecommunications Ltd (2007)
Mr Justice Ram sey d ealing w ith an appeal against an architect’s award on
extensions of tim e said :
‘141. In d ecid ing w hether there w as seriou s irregularity, I consider that

the prop er ap p roach to global claim s is relevant. The app roach set
ou t in the d ecision in [Doyle v. Laing] is not challenged on this appli-
cation and I accep t that approach.
142. The essence of a global claim is that, w hilst the breaches and the
relief claim ed are specifi ed , the question of causation linking the
breaches and the relief claim ed is based su bstantially on inference,
u sually d erived from factual and exp ert evid ence.’
And in the Scottish case of City Inn Ltd v. Shepherd Construction Ltd (2007)
Lord Drum m ond Young explained how he arrived at the conclu sion that
apportionm ent w as ap propriate in a JCT type contract as follow s:
‘[18] While d elay for w hich the contractor is responsible w ill not preclud e
an extension of tim e based on a relevant event, the critical qu estion
w ill frequ ently, perhaps u sually, be how long an extension is ju sti-
fi ed by the relevant event. In p ractice the variou s cau ses of d elay
are likely to interact in a com p lex m anner; shortages of labour will
rarely be total; som e w ork m ay be p ossible d espite inclem ent
w eather; and the d egree to w hich w ork is affected by each of these
causes m ay vary from d ay to d ay. Other m ore com plex situ ations
can easily be imagined . What is requ ired by clause 25 is that the
architect should exercise his jud gm ent to d eterm ine the extent to
w hich com p letion has been d elayed by relevant events. The archi-
tect m u st m ake a d eterm ination on a fair and reasonable basis.
Where there is true concurrency betw een a relevant event and a
contractor d efault, in the sense that both existed sim ultaneou sly,
regard less of w hich started fi rst, it m ay be ap prop riate to ap p ortion
resp onsibility for the d elay betw een the tw o cau ses; obviously,
however, the basis for su ch app ortionm ent m u st be fair and reason-
able. Precisely w hat is fair and reasonable is likely to tu rn on the
exact circum stances of the p articular case. A p roced u re of that
natu re is in m y op inion im plicit in the w ord ing of clau se 25.3.1 and
.3; both of these provisions d irect the architect to give an extension
of tim e by fi xing a Com pletion Date that he considers to be fair and
reasonable.
[19] The foregoing constru ction of clau se 25 is in m y opinion supp orted
by the ap proach taken to concu rrent cau ses of d elay in Fed eral tri-
bu nals in the United States. In Chas. I. Cunningham Co., IBCA 60,
57–2 BCA P1541 (1957), the Board of Contract App eals considered
the legal consequ ences w here a contractor has claim ed for an exten-
sion of tim e but is him self in d efau lt. The m ain opinion of the Board ,
d elivered by one of its m em bers, Mr Slaughter, states the law as
follow s:
“It is w ell settled that the failure of a contractor to prosecute the
contract w ork w ith the effi ciency and exped ition requisite for its
com p letion w ithin the tim e specifi ed by the contract d oes not, in
and of itself, d isentitle the contractor to extensions of time for su ch
p arts of the u ltim ate d elay in com p letion as are attribu table to events
that are them selves excusable, as d efi ned in [the relevant extension
of tim e clause, corresp ond ing to clau se 25]. Where a contractor fi n-
ishes late partly because of a cau se that is excusable und er this
p rovision and partly becau se of a cau se that is not, it is the d uty of
the contracting offi cer to m ake, if at all feasible, a fair apportionm ent
of the extent to w hich com pletion of the job w as d elayed by each of
the tw o cau ses, and to grant an extension of tim e comm ensu rate
with his d eterm ination of the extent to w hich the failure to fi nish
on tim e w as attributable to the excusable one. Accord ingly, if an
event that w ou ld constitute an excusable cau se of d elay in fact
occu rs, and if that event in fact d elays the progress of the w ork as
a w hole, the contractor is entitled to an extension of tim e for so
mu ch of the ultim ate delay in com pletion as w as the result or con-
sequ ence of that event, notw ithstand ing that the progress of the
work m ay also have been slow ed d ow n or halted by a w ant of
d iligence, lack of p lanning, or som e other inexcusable om ission on
the part of the contractor.”
This approach recognises the fact that culp able and non-culp able cau ses
of delay w ill frequ ently coexist and interact, and p erm its the contracting
offi cer, equ ivalent to the architect und er the JCT Form s, to apportion the
d elay betw een the cu lpable and non-cu lpable causes. That seem s to m e
to be the only w ay in w hich a fair resu lt can be achieved in such cases,
and in m y op inion su ch an approach is contem plated by the w ord ing of
clause 25. I shou ld ad d that the d ecision of the Board of Contract Ap p eals
in Chas. I. Cunningham Co. w as follow ed in Sun Shipbuilding & Drydock
Co., ANBCA 11300, 68–1 BCA (CCH) P7054 (1968).
[20] Counsel for the pu rsuers found ed strongly on the opinion of the
cou rt in John Doyle Construction Ltd v. Laing Management (Scotland)
Ltd, 2004 SC 73. That case d ealt w ith a claim for d irect loss and
expense u nd er the equ ivalent of clau se 26 of the JCT Stand ard Form
1980. It w as concerned in particular w ith the w ay in w hich a contrac-
tor cou ld establish a global claim , w here it is im p ossible to d em on-
strate ind ivid u al cau sal links betw een events for w hich the em ployer
is resp onsible and particu lar item s of loss and exp ense. Norm ally,
w hen a global claim is pursued , the contractor m ust d em onstrate
that the w hole of his loss and exp ense results from m atters that
are the resp onsibility of the em ployer. The cou rt pointed ou t that
that requ irem ent m ight be m itigated in three w ays. First, it m ay be
14.5 Apportionment 295
p ossible to id entify a causal link betw een particular events for w hich
the em p loyer is responsible and ind ivid u al item s of loss. Second ly,
the qu estion of cau sation m ust be treated by the application of
com m on sense to the logical principles of cau sation, and if it is p os-
sible to identify an act of the em ployer as the d om inant cause of the
loss that w ill suffi ce. Thirdly, it m ay in som e cases be possible to
ap portion the loss betw een the causes for w hich the em p loyer is
responsible and other causes. In m y opinion these principles have
only lim ited ap plication to the present case. They are concerned w ith
claim s for loss and expense, and consequently m ay have some
bearing on the d efend ers’ claim for prolongation costs (see below, at
p aragrap hs [162]–[167]). They d o not, how ever, ap p ear d irectly rel-
evant to the granting of an extension of tim e. The contractual w ord ing
relating to an extension of tim e is d ifferent from that relating to
claim s for loss and expense. In p articular, in the form of contract that
is p resently u nd er consid eration, there is no reference in clause 26 to
the architect’s m aking such aw ard as is “fair and reasonable”. For
the reasons d iscussed above, I attach consid erable im portance to
those w ord s in the interpretation of clause 25, esp ecially in its prac-
tical ap p lication. In ad d ition, the concep tu al structure of the tw o
clauses is quite d ifferent, and the events that trigger an extension of
tim e and a claim for loss and exp enses are likew ise d istinct. Conse-
qu ently I d o not think that the d ecision in John Doyle Construction is
of general assistance in the constru ction of clau se 25, subject to one
exception, w hich is d iscu ssed in the follow ing paragraph. Perhaps
the one them e that is com m on to clau ses 25 and 26 is that a practical
com m on sense ap proach shou ld be ad opted to the interpretation of
build ing contracts, bu t it is hard ly necessary to refer to au thority for
that p roposition.
[21] In the course of their subm issions cou nsel for the pu rsuers ad vanced
a nu m ber of legal prop ositions. First, it w as said that for a contractor
to establish an entitlem ent to an extension of tim e in respect of d elay
arising ou t of a relevant event he m ust establish that the d elay w as
caused by the relevant event, as op p osed to any other pre-existing
or concurrent m atter for w hich the contractor him self is resp onsible;
and he m u st establish the extent of such d elay. In m y opinion that
p rop osition is too broad ly stated . It is correct that the contractor m ust
establish that d elay was cau sed by a relevant event, and the extent
of the d elay; nevertheless, I am of op inion that concu rrent causes
shou ld be treated in the m anner d iscu ssed in paragraph [18] above.
The second p roposition advanced for the pu rsuers w as that, if a
relevant event can be shown to be the “d om inant or operative” cau se
of a d elay, the p arty resp onsible for that event w ill be held resp on-
sible for the d elay. I agree that it m ay be possible to show that either
a relevant event or a contractor ’s risk event is the d om inant cause
of that d elay, and in su ch a case that event should be treated as
the cau se of the d elay. A sim ilar princip le w as recognised in Doyle,
at paragrap h [15] of the op inion of the court; the p rinciple is

d erived from old er case of Leyland Shipping Company Ltd v. Norwich
Union Fire Insurance Society Ltd [1918] AC 350. Those cases refer to
the “d om inant” or “proxim ate” cau se. The p ursuers’ su bm ission
w ent fu rther, and referred to the “d ominant or operative” cau se
of the d elay. In m y op inion this extension is not legitim ate. Ind eed ,
I have d iffi culty in seeing w hat the w ord “operative” ad d s to the
notion of causation; a cause can only be relevant if it is opera-
tive, and that is as true of concurrent causes as it is of single or
“d om inant” causes.
[22] The pu rsuers’ third proposition w as that a variation instru cted
d u ring a p eriod w hen the contractor is alread y in d elay w ill not
absolve the contractor of responsibility for that p re-existing d elay,
u nless it is proved that the d elay resulted from the variation. As
stated , this is correct. Nevertheless, the “d elay” that m atters is d elay
to the Com pletion Date. If the contractor is, throu gh his ow n fau lt,
in d elay before a relevant event, that m ay explain d elay that follow s
the Com p letion Date. Alternatively, it m ay be possible for the con-
tractor to dem onstrate that he w ould have m ad e up the d elay cau sed
by his ow n fau lt, and that the d elay beyond the Com pletion Date
resu lts from the variation. It is all a qu estion of fact. The p u rsu ers’
fou rth p roposition w as in tw o p arts: fi rst, it is a d efence to a claim
that a variation or late instruction caused d elay to establish that the
m atter to w hich the variation or late instruction w as issu ed w as not
on the critical p ath; second ly, it is also a d efence that the claim ed
d elay w as in fact d ue to other events. The fi rst of these contentions
w as not, I think, in d ispute, althou gh the p arties w ere sharp ly in
d isp u te as to w here the critical path lay in the p rogress of the con-
tractu al w orks. The second contention, how ever, is p erhap s stated
rather sim p listically. In practice causation tend s to op erate in a
com p lex m anner, and a d elay to com p letion m ay be cau sed in part
by relevant events and in part by contractor d efault, in a w ay that
d oes not p erm it the easy separation of these causes. In su ch a case,
the solu tion envisaged by clause 25 is that the architect, or in litiga-
tion the cou rt, m ust apply jud gm ent to d eterm ine the extent to w hich
com p letion has been d elayed by relevant events. In an ap propriate
case app ortionm ent of the d elay betw een relevant events and con-
tractor ’s risk events m ay be app ropriate. Precisely w hen and how
that shou ld take p lace is a question that turns on the p recise facts of
the case.’
Com m en t
It m ay be said that Lord Drum m ond Young’s opinion is confi ned to

constru ction contracts w here the contract ad ministrator ’s d u ty is to assess
entitlem ent to extension of tim e on a fair and reasonable basis. And clearly
14.6 Rules for extensions of time 297
it may be of lim ited app lication to contracts w ith p recisely d efi ned ru les for
assessm ent w hich d iffer from JCT ru les. N evertheless it p rovid es some legal
authority for apportionm ent in relation to extensions of tim e and it m ay
prove to be an im p ortant d ecision in the course of tim e.
14.6 Rules for ext ensions of t ime
As noted in p reviou s chap ters of this book extension of tim e p rovisions are
inclu ded in construction contracts prim arily for the benefi t of the em ployer
in so far that they allow tim e to be extend ed for p reventative acts and
thereby gu ard against tim e becom ing at large. But becau se extensions of
time can also be seen as being a contractual entitlem ent for the contractor it
is clearly necessary that assessm ent of entitlem ent in any particu lar case
starts w ith exam ination of the ap plicable contractual provisions. Only there-
after is it appropriate to look for guid ance from related or general legal
ru lings.
Accord ingly it cannot be said that general rules of cau sation and concur-
rency (develop ed, in any event, m ainly from insurance cases) are alw ays
applicable, nor can it be said ru lings on particu lar contractual provisions are
of general effect.
There is, how ever, an im portant rule of long stand ing relating to
causa-tion and concu rrency in extensions of tim e claim s w hich is w orth
noting: w here there are concurrent cau ses of critical d elay, one of w hich
gives rise to an extension of tim e then, in the absence of w ord ing in the
contract to the contrary, the contractor w ill be entitled to that extension
even if there are other cau ses of d elay w hich are the contractor ’s
responsibility.
The ru le com es from the old case of Wells v. Army & Navy Co-operative
Society (1902). It w as stated m ore recently as an agreed p roposition in Henry
Boot Construction (UK) Ltd v. Malmaison Hotel (Manchester) Ltd (1999) as
follow s:
‘if there are two concurrent cau ses of d elay, one of w hich is a relevant
event, and the other is not, then the contractor is entitled to an extension
of tim e for the p eriod of d elay caused by the relevant event notw ithstand -
ing the concu rrent effect of the other event.’
Precisely how the ru le is applied dep end s up on the w ord ing of the particu-
lar contract.
14.7 Discussion on va rious a pproa ches
Reim b u rsab le/non -reim b u rsab le
Consid er a 10-w eek d elay arising from prevention, overlapp ed by a 10-w eek
d elay for w eather, m aking an overall 15-w eek d elay.
298 14.7 Discussion on various approaches
The contractor m ight say that from the fi rst-in-line or d om inant event
ap proach all 15 w eeks shou ld be given for p revention. The em ployer m ight
argu e for ap p ortionm ent.
PREVENTION
WEATHER
0 5 10 15
Now reverse the delays:
WEATHER
PREVENTION
0 5 10 15
This tim e the em ployer m ight argu e for the fi rst-in-line ap proach and the
contractor for app ortionm ent or the d om inant ap proach.
In the fi rst case there is som e logic in the fi rst-in-line approach – the d elays
d ue to w eather w ou ld not have occurred unless p reced ed by the p revention
d elays. Bu t in the second case the logic of fi rst-in-line breaks d ow n – the
prevention d elays w ou ld have occurred w hether or not preced ed by the
weather d elays.
The p robability is that in the fi rst case the contractor w ou ld get either 10
weeks for p revention and 5 for w eather; or 15 w eeks for prevention. It
should not m ake any d ifference fi nancially to the contractor because he is
fu lly covered against liqu id ated dam ages and his costs for the 5 w eeks
weather shou ld , in the examp le show n, be recoverable irrespective of u nd er
what head the extension is granted .
In the second case the contractor w ou ld probably get 5 or 10 w eeks for
weather plu s 10 or 5 w eeks for prevention.
Reim b u rsab le/culp ab le d elays
PREVENTION
CULPABLE DELAY
0 5 10 15
In this case the fi rst-in-line approach should give the contractor a 10-w eek
extension for p revention but no m ore.
14.7 Discussion on various approaches 299
CULPABLE DELAY
PREVENTION
0 5 10 15
The contractor might argue for a 15-w eek extension for p revention bu t
shou ld get only 10.
N on -reim b u rsab le/culp ab le d elays
WEATHER
CULPABLE DELAY
0 5 10 15
The contractor should probably get 10 w eeks for w eather. The argum ent for
granting 10 rather than 5 is that the em p loyer in strictly legal term s need s
to prove breach to have d am ages and in concurrent situ ations as this, the
contractor is entitled to the benefi t of any d oubt.
CULPABLE DELAY
WEATHER
0 5 10 15
In this case the contractor is the cau se of his ow n m isfortu ne w ith w eather
and there ap pears to be no reason w hy he shou ld have an extension if con-
siderations of fairness can be invoked . In Amalgamated Building Contractors
v. Waltham Holy Cross UDC (1952), Lord Ju stice Denning hypothesised on a
similar situ ation and suggested that an extension for a neu tral event shou ld
be granted to cover the actu al period of d elay by that event.
D efects of fi rst-in -lin e
It can be seen from the above that the d efect of taking the fi rst-in-line
approach is that it is not resp onsive to the concept of cu lp able d elay and can
only ap p ly, if at all, to concurrent relevant events.
Delay by an emp loyer in re-nom inating, such as in Peak v. McKinney
(1970), Percy Bilton v. Greater London Council (1982) and Westminster v. Jarvis
(1970) w ou ld have little effect w ith fi rst-in-line since su ch delay w ill alm ost
300 14.8 Extensions when in culpable delay
invariably follow d elay of the d efau lt itself for w hich the m ain contractor
mu st, u nd er som e form s, take responsibility.
D om in an t versu s app ortion m en t
The d om inant cause ap proach hold s good in all situ ations excep t
where second ary consid erations su ch as claim s are relevant. Ap p ortionm ent
has the benefi t of fl exibility and offers m ore scop e for com p rom ise if a
d ispu te arises than either of the other tw o ap proaches. The problem w ith
ap portionm ent is that how ever sensible an approach it m ay seem , it can
cut across legal p rincip les and establish incorrect liabilities in som e
instances.
14.8 Ext ensions w hen in culpa ble dela y
The point has alread y been m ad e that failu re by the contractor to m aintain
progress d oes not d isqu alify him from extensions of tim e w hen he is still
within the original or extend ed tim e for com p letion.
The qu estion arises, and u ntil recently w as by no m eans fully settled , d oes
the contractor have an entitlem ent to an extension if he is in cu lp able d elay
having failed to com p lete within the sp ecifi ed tim e? What is certain is that
acts of prevention, less still, neutral events cannot alw ays be avoid ed in su ch
circum stances. The em ployer m ay not be able to issu e instructions or varia-
tions on a p articular m atter until the w orks have reached a certain stage of
constru ction and if there is no pow er to extend for prevention the right to
liquid ated d am ages w ill be lost.
H ow ever, follow ing the d ecision in the case of Balfour Beatty v. Chester-
mount (see Chap ter 5) it is now settled that it w ould take very clear w ord s
in a contract to p rod uce the resu lt that extensions of tim e could not be given
to cover acts of p revention occurring d u ring a period of cu lp able d elay. As
to the effect of neu tral events so occu rring that is less certain. But, if the test
in the contract for any extension is w hat is fair and reasonable, then the
contractor ’s entitlem ent to an extension m ay be d ependent u pon the con-
tractor being able to show that even w ithou t his ow n d elay the p articular
relevant events w ou ld have delayed com pletion.
D ot-on p roced u re
Contractors often argu e that an extension for p revention shou ld run from
the original com pletion d ate to the d ate at w hich the prevention fi nishes –
thereby conveniently absolving them from their cu lpable d elay. This
ap proach was rebu ffed by Lord Ju stice Denning in Amalgamated Building
Contractors v. Waltham Holy Cross (1952). Referring in that case to a neutral
event he su ggested ad d ing on the tim e for the delay to the original tim e – a
14.8 Extensions when in culpable delay 301
proced ure now know n as d otting-on. This leaves the contractor w ith liabil-
ity for d am ages for the p ortion of his culpable d elay. H e said :
‘w here the contractors, near the end of the w ork, have overru n the
contract tim e for six months w ithou t legitim ate excu se . . . N ow su p pose
. . . a strike occu rs and lasts a m onth. The contractors can get an extension
of tim e for that m onth. The architect can clearly issue a certifi cate w hich
w ill op erate retrospectively. H e extend s the tim e by one m onth from the
original com p letion d ate, and the extend ed tim e w ill obviou sly be a d ate
w hich is past.’
Cu rren t con tractu al p osition
The extent to w hich the d ot-on approach can be taken for prevention or for
that m atter for neutral events d epend s on the w ord ing of the extension
provisions of the contract and other associated clau ses. There need s to be
express pow er for the architect or engineer to extend tim e after the original
comp letion d ate has p assed.
How ever, see the d etailed com m entary in Chap ter 5 on the Balfour Beatty
v. Chestermount case w hich approved the d ot-on procedu re (the net app roach)
and rejected the alternative gross m ethod .
Chap ter 15
Program m es, m eth od statem en ts an d
b est en d eavou rs
15.1 St a t us of cont ra ct or ’s progra mmes a nd met hod st a t ement s
Resp onsibility for program m ing and constructing the w orks rests w ith the
contractor and u nd er m ost standard forms neither the contractor ’s pro-
gram m e nor m ethod statem ents are contract d ocu m ents. Ind eed the p ro-
gram m e is often not p ublished u ntil after the contract has been signed and
usually requ irem ents for the contractor to prod uce a p rogram m e lie in the
contract itself. This has the effect that und er som e forms it m ay be a breach
of contract not to prod u ce a program m e but it is rarely a breach of contract
not to p roceed to p rogram m e.
The contractor ’s program m e can be of relevance in consid ering rates of
progress and if there is a question of d eterm ination of the contractor ’s
em ploym ent for lack of p rogress, u nder express terms or at com m on law, it
can be of interest as evid ence. Bu t m ore com m only the program me is of
interest in d elay and d isru p tion claims as an aid to establishing intentions
and p erform ance.
N ote, how ever, that it is possible for program m es and m ethod statem ents
to acqu ire contractual status w ithout there being any d irect statem ent to that
effect in the contract.
Thus in London Borough of Merton v. Stanley Hugh Leach Ltd (1985) it w as
held that the contractor ’s p rogram m e, ad equately annotated , cou ld serve as
written notice of requirem ents for inform ation and d raw ing. And in Howe
Engineering Ltd v. Lindner Ceilings & Partitions Ltd (1999) it w as held that as
the m ethod statem ent had been referred to in both the specifi cation and bills
of quantities, both of w hich w ere contract d ocu ments, the m ethod statem ent
itself w as of contractual effect.
15.2 P rogra mmes
If a contractor ’s p rogram me is found to be a contract d ocu m ent, it bind s

not only the contractor to perform to it but also the em ployer to facili-
tate such performance. Thu s, the em ployer ’s d u ty to avoid prevention
w hich in norm al circum stances extend s only to not obstru cting the con-
tractor in his obligation to com plete on tim e, can be w id ened so that pre-
vention can app ly to p rogram m e requirem ents. The imp act of this on
15.2 Programmes 303
the p otential for claim s from the contractor for d elay and d isru p tion is
self-evid ent.
For this reason, am ongst others, m ost em p loyers avoid any p rogram m e,
tend er or otherw ise, being incorporated in the contract d ocum ents.
O b ligation to work to p rogram m e
A qu estion w hich frequently arises is to w hat extent, if any, is a contractor

or a su b-contractor obliged to w ork to a p rogram m e w hich is not a contract
d ocu m ent.
The p oint cam e up in the case of Pigott Foundations Ltd v. Shepherd Con-
struction Ltd (1993) w here the sub-contractor argued that it w as not u nd er
any obligation to d o more than com plete the su b-contract w ork w ithin the
time allow ed and that it w as not bou nd by any particu lar rate of p rogress.
The m ain contractor contend ed that he w as entitled to d am ages because the
slow progress of the su b-contract d uring the contract period prevented other
w ork from being carried out w hich w ou ld have been possible had the p iling
su b-contractor proceed ed w ith reasonable exped ition. The jud ge held that
in the absence of any ind ication to the contrary (such as a contractually
bind ing program m e) the sub-contractor w as entitled to plan and p erform
the sub-contract w ork as he pleased provid ed he fi nished w ithin the tim e
fi xed for the sub-contract.
The ju d ge said :
‘In m y jud gm ent the obligation of the sub-contractor u nder clause 11.1 of
DOM/ 1 to carry ou t and com plete the su b-contract w orks “reasonably in
accord ance w ith the p rogress of the Works” d oes not up on its tru e con-
struction requ ire the su b-contractor to com ply w ith the m ain contractor ’s
program m e of w orks nor d oes it entitle the m ain contractor to claim that
the su b-contractor m u st fi nish or comp lete a particu lar part of the sub-
contract w orks by a particular d ate in order to enable the m ain contractor
to proceed with other p arts of the w orks. The w ord s “the progress of the
Works” are in m y jud gm ent d irected to requiring the su b-contractor to
carry ou t his su b-contract w orks in su ch a m anner as w ou ld not unreason-
ably interfere w ith the actual carrying out of any other w orks w hich can
conveniently be carried out at the sam e tim e. The w ord s do not how ever
in m y ju d gm ent requ ire the sub-contractor to plan his su b-contract w ork
so as to fi t in w ith either any schem e of w ork of the m ain contractor or
to fi nish any p art of the sub-contract w orks by a particu lar d ate so as to
enable the m ain contractor to p roceed w ith other parts of the w ork.’
And , later in the ju d gm ent, the jud ge said:
‘In m y jud gm ent clause 11.8 d oes not exclu d e or m od ify the general prin-
ciple ap plicable to bu ild ing and engineering contracts, that in the absence
of any ind ication to the contrary, a contractor is entitled to p lan and
perform the w ork as he pleases provid ed that he fi nishes it by the tim e
304 15.2 Programmes
fi xed in the contract. See Wells v. Army & Navy Co-operative Society (1902)
2 H u d sons Bu ild ing Contracts (Fou rth Ed ition) 346; GLC v. Cleveland
Bridge & Engineering Company (1984) 34 BLR 50.’
The Ascon case (1999)
In Ascon Contracting Ltd v. Alfred McAlpine Construction Isle of Man Ltd (1999)
one of the m atters the ju d ge had to consid er w as w hether a provision in a
sub-contract requ ired the sub-contractor, Ascon, to com ply w ith the m ain
contract p rogram m e. The relevant provision, clau se 11.1, read :
‘11.1 The Su b-Contractor shall carry ou t and com plete the Sub-Contract
Works in accord ance w ith the details in the Ap pend ix, part 4, and
reasonably in accord ance w ith the p rogress of the Works . . .’
The ju d ge conclu d ed that the w ord s ‘reasonably in accord ance w ith the
progress of the Works’ did not go so far as to requ ire Ascon to com ply w ith
the d etail of McAlp ine’s m ain contract p rogram m e bu t that it d id im p ose
an obligation to p roceed reasonably in accord ance w ith that program m e. He
said (after reciting that p art of the ju d gm ent in the Pigott Foundations case
quoted above):
‘8.8 I respectfu lly agree that clause 11.1 d oes not require the sub-
contractor to com ply w ith the d etail of the m ain contractor ’s p ro-
gram m e, either generally or in relation to the w ork of other sp ecifi c
su b-contractors. My ow n view, how ever, is that the w ord s “reason-
ably in accord ance w ith the p rogress of the Works” go som ew hat
beyond a negative d u ty “not u nreasonably [to] interfere w ith the
actu al carrying ou t” of other w orks. The sub-contractor know s the
nature of the main contract w orks and the place of the sub-contract
w orks in them . As Keating suggests in the p assage referred to by
Ju d ge Gilliland this obligation presu pposes that the m ain contract
w orks are p roceed ing regularly and d iligently. The “progress”
referred to is therefore, I think, that expected and observed in the
light of those facts, although the obligation is only to p roceed “rea-
sonably” in accord ance w ith that p rogress. It is to be noted , more-
over, that in GLC v. Cleveland Bridge & Engineering Co. Ltd (1986) 8
ConLR 30, w hich seem s to be relied u pon in the Pigott Foundations
Ltd case, there w as no exp ress term to the sam e or sim ilar effect as
that in qu estion here and there had been no d elay in com pletion of
the relevant obligation. Another p art of the sam e discussion in Keating
(6th edn, 1995) p 838 suggests that the sub-contractor is u nd er an
obligation to carry ou t the su b-contract works “at su ch a p ace as w ill
enable him to com p lete in accord ance w ith the agreed [su b-contract]
program m e d etails”. Here Ascon d id not comp lete on tim e and it
w as apparent that it w ould not be able to d o so throughou t the
period d u ring w hich McAlpine alleges that Stru ctal’s com m ence-
m ent w as d elayed .
15.2 Programmes 305
8.9 I d o not, therefore, consid er that on the point of law either p arty
w holly su cceed s. McAlp ine cannot rely on any obligation by Ascon
to comp ly w ith the d etail of the p rogram m e for the com m encem ent
or execution of the clad ding w ork, bu t is not preclud ed from contend -
ing that Ascon w as in breach of the obligation to carry out its w orks
“reasonably in accord ance w ith the progress of the [m ain contract]
w orks” and that in consequ ence com mencem ent of clad d ing w as
d elayed . The factual issu e how far it has established that contention
rem ains, but I p ropose to defer consid eration of it until I have d ealt
w ith the second stage of causation, from that p oint to com pletion of
the m ain contract.’
Availab ility of w ork
In Kitsons Sheet Metal Ltd v. Matthew Hall Mechanical & Electrical Engineers
Ltd (1989) a su b-contractor involved in the erection of Term inal 4 at
Heathrow Airp ort claim ed that w ork w as not m ad e available as requ ired by
an agreed p rogram m e. The issue w hich cam e to cou rt raised the qu estion
w hether Kitsons were entitled u nd er the contract to w ork to a program m e
and w hether any w ritten ord er requ iring d ep artu re from it constitu ted a
variation. It w as held the parties m u st have recognised the likelihood of
d elays and of trad es getting in each other ’s w ay and the prospects of w orking
to program m e w ere sm all. Provided Matthew H all d id their best to m ake
areas available for w ork they w ere not in breach of contract even if Kitsons
w ere brou ght to a com p lete stop.
A sim ilar d ecision w as given in Martin Grant & Co. Ltd v. Sir Lindsay Par-
kinson & Co. Ltd (1984). The m ain contract w orks w ere d elayed by various
causes and Grant, a sub-contractor, claim ed that his w orks w ere rend ered
unprofi table by having to w ork over a p rotracted period . The cou rt w as
asked to im ply a term in the su b-contract:
‘. . . That (a) the defend ants w ould m ake su ffi cient w ork available to the
plaintiffs to enable them to m aintain reasonable p rogress and to execute
their w ork in an effi cient and econom ic m anner; and (b) the d efend ants
shou ld not hind er or prevent the p laintiffs in the execution of the sub-
contract w orks . . .’
The cou rt held that, having regard to the express term s of the su b-contract,
there w as no room for any su ch im plied term .
Su p p ly of d raw in gs, etc.
In AMEC Process and Energy Ltd v. Stork Engineers & Contractors (1999) one
of the issues w as w hether Stork w as obliged to supp ly d raw ings, d esign
inform ation and free issu e m aterials so as to enable AMEC to w ork in accor-
d ance w ith its program m e. The cou rt held , having regard to the detail of the
provisions in the contract, that there w as such an obligation.
306 15.3 Shortened programmes
In struction s an d variation s
In Neodox Ltd v. Swinton & Pendlebury Borough Council (1958) the contractor
alleged an im plied term that instructions w ould be given to enable him to
com p lete in an econom ic and exp ed itiou s m anner.
It w as held by Mr Justice Diplock that under the term s of the contract it
was clear that instru ctions w ou ld be given from tim e to tim e and w hat w as
reasonable d id not d epend solely on the convenience and fi nancial interests
of the contractor. H e said:
‘To give bu siness effi cacy to the contract d etails and instru ctions neces-
sary for the execu tion of the Works m u st be given by the Engineer from
tim e to tim e in the cou rse of the contract. If he fails to give such instru c-
tions w ithin a reasonable tim e the Corporation are liable in dam ages for
breach of contract.’
In McAlpine & Son v. Transvaal Provincial Administration (1974), a Sou th
African case, a m otorw ay contractor asked the cou rt to d efi ne an im plied
term on the tim e for sup plying inform ation and giving instructions on
variations as either:
(i) a tim e convenient and p rofi table to him self;
(ii) a tim e not cau sing loss and expense; or
(iii) a tim e so that the w orks cou ld be executed effi ciently and
econom ically.
The cou rt d eclined on the ground s that und er the contract, variations could
be ord ered at any tim e irrespective of the progress of the w orks, and that
d raw ings and instru ctions should be given w ithin a reasonable tim e after
the obligation arose.
15.3 Short ened progra mmes
Contractors have for m any years believed that by su bm itting p rogram m es

showing com p letion in a shorter time than that allow ed in the contract they
im prove their claim p rosp ects.
There is no d ou bt at all that u nder most stand ard form s contractors are
entitled to fi nish early and are entitled to programm e to fi nish early. That is
not to say, how ever, that the em ployer ’s obligation is in any w ay changed
from his original contractu al obligation – not to obstruct the contractor in
fi nishing w ithin the fu ll tim e allow ed . The su bm ission of a shortened p ro-
gram m e w hich is not a contract d ocum ent cannot place a greater liability on
the em p loyer than in the contract itself.
The m atter d id not com e before the cou rts until the case of Glenlion
Construction Ltd v. The Guinness Trust (1987). The contract allow ed 114 w eeks
for comp letion and Glenlion su bm itted a program m e show ing com pleting
in 101 w eeks. On ap p eal from arbitration, the follow ing points of law w ere
raised :
15.3 Shortened programmes 307
‘(1) . . . Whether on a true constru ction of clau se 3.13.4 of the contract bill
the contractor shou ld provid e a program m e chart (“the program m e”)
for the whole of the works show ing a com pletion date no later
than the d ate for com pletion and that agreem ent or app roval by the
architect of the p rogram m e should not relieve the contractor of his
resp onsibility to com plete the w hole of the w orks by the date for
com p letion.
(2) . . . Whether on a tru e constru ction of clause 21 of the cond itions,
nam ely the JCT 63 standard form of contract and clau se 3.13.4 of the
contract bills, if and in so far as the program m e show ed a com p letion
d ate before the d ate for com p letion, the contractor w as entitled to
carry ou t the w orks in accord ance w ith the program m e and to com -
p lete the w orks on the said com pletion d ate.
(3) . . . Whether there w as an im p lied term of the contract betw een the
ap plicant and the respond ent that, if and in so far as the p rogram me
show ed a com p letion d ate before the d ate for com pletion the
emp loyer by him self, his servants or agents should so perform the
said agreem ent as to enable the contractor to carry ou t the w orks in
accord ance w ith the program m e and to com plete the w orks on the
said com p letion d ate.’
It w as held that the answ er to question (1) w as ‘Yes’. This is how Jud ge Fox-
And rew s d ealt w ith questions (2) and (3). H e said:
‘. . . As regard s qu estion (2), in the light of the w ord ing of cond ition 21 it
is self evident that Glenlion w ere entitled to com plete before the d ate of
com p letion. And the contractor w as entitled to com p lete on an earlier
d ate w hether or not he prod uced a program m e with an earlier d ate and
w hether or not he w as contractually bound to p rod uce a program m e. It
w ou ld follow that if he w as entitled to com plete before the d ate of com-
pletion he was entitled to carry out the w orks in su ch a w ay as to enable
him to achieve the earlier com pletion d ate w hether or not the w orks were
program m ed .
The answ er to question (2) is therefore “Yes”.
But in consid ering qu estion (2) it becom es ap p arent that the answ er to
question (3) m u st be “N o”. It is not suggested by Glenlion that they w ere
both entitled and obliged to fi nish by the earlier com p letion d ate. If there
is su ch an im plied term it im posed an obligation on the Trust bu t none
on Glenlion. It is unclear how the variation p rovisions w ou ld have
ap plied . Condition 23 operates, if at all, in relation to the d ate for com ple-
tion stated in the app end ix. A fair and reasonable extension of tim e for
com p letion of the w orks beyond the d ate for com pletion stated in the
ap pend ix m ight be an u nfair and unreasonable extension from an earlier
d ate.
It is not imm ed iately apparent w hy it is reasonable or equ itable that a
unilateral absolu te obligation shou ld be placed on an em ployer.
As long ago as 1970 Mr I.N . Du ncan Wallace, Ed itor of Hudson’s Build-
ing and Engineering Contracts 10th ed n, w rote at p . 603:
308 15.4 Method statements
“In regard to claim s based on delay, litigiou s contractors frequ ently

su pplied to architects or engineers at an early stage in the w ork highly
optim istic program m es show ing com pletion a consid erable tim e ahead
of the contract d ate. These d ocum ents are then u sed (a) to ju stify allega-
tions that the inform ation or possession has been supp lied late by the
architect or engineer and (b) to increase the alleged period of d elay, or
to m ake a d elay claim possible w here the contract com pletion d ate has
not in the event been extend ed .” ’
For fu rther confi rm ation of the approach of the courts to shortened pro-
gram m es, see also the d ecision in J F Finnegan Ltd v. Sheffield City Council
(1988). In that case it w as held that although there m ay be circum stances
when the contractor m ay be entitled to recover costs incurred prior to the
com p letion of the p eriod contracted for, it would , at least u nd er the JCT
form , requ ire proof of sp ecial circum stances.
15.4 Met hod st a t ement s
Method statem ents w hich becom e incorp orated into contract d ocu ments can
create the sam e problem s as tender p rogram m es sim ilarly incorp orated .
In Yorkshire Water Authority v. Sir Alfred McAlpine & Sons (Northern) Ltd
(1985) the contractor had su bm itted w ith his tend er, as instructed , a bar chart
and method statem ent, show ing he had taken note of certain sp ecifi ed
phasing requ irements providing for the constru ction of the works u pstream .
The form al contract agreem ent incorporated the tender and the m inutes of
the m eeting at which the m ethod statem ent w as approved .
The contractor maintained that in the event it w as im p ossible to w ork
upstream and after som e d elay w ork proceed ed d ow nstream . The contractor
then sought a variation ord er und er clause 51(1). The cou rt held :
(i) the tend er program m e / m ethod statem ent w as not the Clau se 14
program m e;
(ii) the incorporation of the m ethod statem ent into the contract im posed
an obligation on the contractor to follow it so far as it w as legal or
physically p ossible to d o so;
(iii) the m ethod statem ent, therefore, becam e a specifi ed m ethod of con-
struction and the contractor was entitled to a variation order and
paym ent accord ingly.
Mr Ju stice Skinner said that:
‘. . . In m y jud gm ent, the stand ard conditions recognise a clear d istinction
betw een obligations sp ecifi ed in the contract in d etail, w hich both parties
can take into accou nt in agreeing a price, and those w hich are general and
w hich d o not have to be specifi ed p re-contractu ally. In this case the appli-
cants cou ld have left the program m e and m ethod s as the sole responsibil-
ity of the resp ond ents und er clau se 14(1) and clause 14(3). The risks
inherent in su ch a p rogram m e or m ethod w ould then have been the
15.5 Best endeavours and the like 309
respond ents’ throughou t. Instead , they decid ed they w anted more control
over the m ethod s and p rogramm e that clau se 14 p rovid ed . H ence clause
107 of the sp ecifi cation; hence the m ethod statement; hence the incorp ora-
tion of the m ethod statem ent into the contract im posing the obligation on
the resp ondents to follow it save in so far as it was legally or physically
im possible. It therefore becam e a specifi ed m ethod of constru ction by
agreem ent betw een the parties . . .’
Sim ilar d ecisions w ere reached in Holland Dredging (UK) Ltd v. Dredging &
Construction Co. Ltd (1987) and Blue Circle Industries plc v. Holland Dredging
(UK) Ltd (1987).
Su bsequ ently in Havant Borough Council v. South Coast Shipping Company
Ltd (1996) various issu es relating to the contractor ’s m ethod of w orking
und er an ICE 5th ed ition contract w ere consid ered . The jud ge, following the
Yorkshire Water d ecision, d istinguished betw een a m ethod of w orking selected
by the contractor and a m ethod of w orking w hich w as sp ecifi ed . H e said :
‘A m ethod in a clau se 14 Method Statem ent w ould not be specifi ed . The
m ethod of w orking rem ains the responsibility of the contractor (Clause
14(7)).
The w ord “specifi ed ” I fi nd relates to som ething w hich contractu ally
is requ ired to be d one. With the result for exam p le that a failu re by a
contractor to follow that m ethod w ou ld be a breach of contract.’
The jud ge w ent on to hold that a specifi ed m ethod of w orking falls w ithin
the d efi nition of tem porary w orks and that if su ch tem porary w orks prove
to be im possible to u nd ertake, w ithin the m eaning of clau se 13 of the con-
tract, then the contractor is entitled to a variation order und er clause 51.
15.5 Best endea vours a nd t he like
Many com mercial and constru ction contracts u se phrases such as ‘best
end eavours’ and ‘reasonable end eavou rs’ to qualify or d escribe how obliga-
tions are to be p erform ed . In constru ction contracts such p hrases are usu ally
attached to progress and com pletion obligations.
Notw ithstand ing the w ealth of cases w hich have exam ined the m eaning
of the p hrases, the extent to w hich they d iffer and the extent to w hich they
are enforceable, a good d eal of uncertainty rem ains on their app lication.
Perhap s the best that can be said is that best end eavou rs m eans d oing all
that is reasonable to obtain an objective, w hereas reasonable end eavours is,
on the face of it, a less stringent obligation und er which a party can have
regard to its ow n interests.
Rhodia Int erna t iona l Holdings (2007)
In Rhodia International Holdings Ltd v. Huntsman International LLC (2007) the

parties w ere und er a contractu al obligation to respectively use reasonable
310 15.5 Best endeavours and the like
end eavours to secu re novation of an electricity sup ply contract. It w as

alleged that H untsm an had not d one so. The follow ing extracts from the
High Cou rt ju dgm ent provid e a usefu l su mm ary of the law and the court’s
reasoning:
‘Reasonable endeavours
30. Before consid ering in d etail the parties’ rival subm issions as to
w hether on the facts H untsm an did u se reasonable end eavours to
obtain the consent of Cogen to the novation to HSSUK of the Energy
Su p ply Contract, I shou ld d eal w ith tw o prelim inary p oints.
31. First, there w as som e d ebate at the hearing as to w hether “reason-
able end eavou rs” is to be equated w ith “best end eavou rs”, a ques-
tion on w hich there seem s to be som e d ivision of jud icial op inion.
At the end of the day I am not convinced that it m akes m uch d iffer-
ence on the facts of this case, but since the point w as fu lly argu ed , I
shou ld d eal w ith it. Mr Beazley QC for Rhod ia contend ed that there
w as no d ifference betw een the two phrases. H e relied u pon a p assage
from the jud gm ent of Buckley LJ in IBM v. Rockware Glass [1980] FSR
335 at 339:
“in the absence of any context ind icating the contrary, this [an obli-
gation to u se its best end eavours] should be und erstood to m ean
that the pu rchaser is to d o all he reasonably can to ensure that the
p lanning perm ission is granted ”.
There are sim ilar statem ents in the jud gm ents of Geoffrey Lane LJ at
344–5 and Goff LJ at 348.
32. Mr Beazley also relied upon w hat Mustill J said in Overseas Buyers
v. Granadex [1980] 2 Lloyd ’s Rep 608 at 613 lhc:
“it w as argu ed that the arbitrators can be seen to have m isd irected
them selves as to the law to be ap plied, for they have fou nd that EIC
d id ‘all that cou ld reasonably be expected of them ’, rather than
fi nding w hether EIC u sed their ‘best end eavours’ to obtain p ermis-
sion to export, w hich is the test laid d ow n by the d ecid ed cases. I
can frankly see no substance at all in this argu m ent. Perhap s the
w ord s ‘best end eavours’ in a statu te or contract m ean som ething
d ifferent from d oing all that can reasonably be expected -althou gh I
cannot think w hat the d ifference might be. (The u nreported d ecision
of the Court of Appeal in IBM v Rockware Glass u pon w hich the
buyers relied , d oes not to my m ind suggest that such a d ifference
exists . . .).”
Mr Beazley pointed ou t that in Marc Rich v SOCAP (1992) Saville J equated
best endeavours w ith d ue d iligence and that Rix LJ in Galaxy Energy v.
Bayoil [2001] 1 Lloyd ’s Rep 512 at 516 equ ated reasonable efforts w ith d ue
d iligence, w hich su ggested that best endeavou rs and reasonable end ea-
vou rs m eant the sam e thing. He sou ght to d istinguish the unreported
d ecision of Rougier J in UBH (Mechanical Services) v. Standard Life (1986)
that an obligation to u se reasonable end eavou rs w as less stringent than
15.5 Best endeavours and the like 311
an obligation to u se best end eavou rs, on the ground s that the point w as
not argu ed but conced ed by Counsel.
33. I am not convinced that (apart from that d ecision of Rougier J) any
of the jud ges in the cases upon which Mr Beazley relied w ere d irect-
ing their m ind s sp ecifi cally to the issue w hether “best end eavou rs”
and “reasonable end eavours” m ean the sam e thing. As a m atter of
langu age and business com m on sense, u ntram m elled by authority,
one w ould su rely conclu d e that they d id not. This is because there
m ay be a nu m ber of reasonable cou rses w hich could be taken in a
given situ ation to achieve a p articu lar aim . An obligation to use
reasonable end eavours to achieve the aim probably only requires a
party to take one reasonable cou rse, not all of them , w hereas an
obligation to u se best end eavours p robably requires a party to take
all the reasonable courses he can. In that context, it m ay w ell be that
an obligation to u se all reasonable end eavours equ ates w ith u sing
best endeavours and it seem s to m e that is essentially w hat Mustill
J is saying in the Overseas Buyers case. One has a sim ilar sense from
a later passage at the end of the jud gm ent of Bu ckley LJ in IBM v.
Rockware Glass at 343, to w hich Mr Edw ard s-Stu art QC for H unts-
m an d rew m y attention.
34. That there is a d istinction betw een best end eavours and reasonable
end eavou rs and that the latter is less stringent than the form er is not
only su pp orted by the d ecision of Rou gier J in UBH bu t by the d eci-
sion of Kim Lewison QC (as he then w as) sitting as a Dep u ty H igh
Court Ju d ge, in Jolley v. Carmel Ltd [2000] 2 EGLR 154 upon w hich
Mr Ed w ard s-Stuart relied . At p . 159 the jud ge said :
“Where a contract is conditional u pon the grant of som e perm ission,
the courts often im ply term s about obtaining it. There is a spectrum
of p ossible imp lications. The im plication m ight be one to use best
end eavou rs to obtain it (see Fischer v. Toumazos [1991] 2 EGLR 204),
to use all reasonable efforts to obtain it (see Hargreaves Transport v.
Lynch [1969] 1 WLR 215) or to u se reasonable efforts to do so. The
term alleged in this case [to u se reasonable efforts] is at the low est
end of the sp ectru m .”
Mr Beazley sou ght to suggest that som ehow this analysis w as d istin-
guishable becau se it w as concerned w ith the im p lication of a term , but I
cannot see any basis for such a d istinction. It seem s to m e that the ju d ge’s
analysis is equ ally app licable to the constru ction of the phrase reasonable
efforts or reasonable end eavou rs w hether it is an express or an im plied
term of any particu lar contract.
35. Accord ingly, in so far as it is necessary to d ecide this p oint, I agree
w ith Mr Ed w ard s-Stu art that an obligation to use reasonable end ea-
vou rs is less stringent than one to u se best end eavou rs. As to w hat
reasonable end eavours m ight entail, he relied up on a recent d ecision
of Lew ison J in Yewbelle v. London Green Developments [2006] EWH C
3166 (Ch) at paragraphs 122–3 w here the ju d ge said :
312 15.5 Best endeavours and the like
“. . . How ever, the essence of the obligation required Yew belle to u se

reasonable end eavou rs to reach an agreem ent, not w ith the other
party to the contract, but w ith a third party. To that extent it seem s
to m e that at the very least Phillip s is a usefu l analogy. In using
reasonable end eavou rs tow ard s that end, I d o not consid er that
Yew belle w as required to sacrifi ce its ow n com mercial interests.
123. I com e back to the question: for how long m u st the seller continue
to use reasonable end eavours to achieve the d esired resu lt? In his
op ening ad d ress, Mr Morgan said that the obligation to u se reason-
able end eavou rs requires you to go on using endeavou rs u ntil the
p oint is reached w hen all reasonable end eavours have been
exhau sted . You w ould sim ply be repeating yourself to go through
the sam e m atters again. I am p rep ared to accept this form u lation,
subject to the qu alifi cation that accou nt m u st be taken of events as
they u nfold , includ ing extraord inary events.”
Su bject to one caveat, I w ould agree w ith this analysis. The caveat is that,
w here the contract actu ally specifi es certain steps have to be taken (as
here the p rovision of a d irect covenant if so required ) as part of the exer-
cise of reasonable end eavou rs, those steps w ill have to be taken, even if
that cou ld on one view be said to involve the sacrifi cing of a party’s com -
m ercial interests.’
Chap ter 16
D elay an alysis
16.1 Int roduct ion
Although the basic legal principles relating to extensions of tim e for com ple-
tion have a long history and can be traced back a hu nd red or m ore years it
is only in the last thirty or so years that d etailed attention has been given as
to how the d etail of am ounts d ue as extensions of time should be calcu lated .
But ou t of this com paratively recent change a new ind u stry d evoted to d elay
analysis has d evelop ed.
The old method s w ere generally sim plistic and , more often than not,
im pressionistic rather than analytical. Typ ically, if a contractor fi nished late
the contract ad m inistrator w ould review the am ount of ad d itional w ork
und ertaken and the circum stances u nd er w hich the w orks had been
constructed and then, if the contractor w as ad ju dged to have perform ed
satisfactorily, an extension of time revising the d ate for com pletion to the
d ate of actu al com pletion w ou ld be aw ard ed . When analysis w as m ad e of
the d elaying effects of particular events it w as usually und ertaken retrosp ec-
tively by com p aring the contractor ’s as-built progress w ith his planned
program m e. Prospective analysis w as rarely und ertaken. Such sim p le
m ethod s w ere not unfi tting for their tim e – particu larly w hen ap plied
w ith m otivation to achieve a result fair and reasonable to both p arties.
Program m es w ere often no m ore than sim ple bar charts and critical p ath
analysis, w hen it was d one, w as a m anual task unaid ed by the benefi t of
comp uters.
The m ain d riving forces behind the d evelop m ent of new m ethod s are
frequently exp lained as being the com p lexity of m od ern constru ction pro-
jects and the facility of com puters to generate and exam ine mu ltip le critical
path p ossibilities and the effects thereon of d elaying events. This m ay w ell
be correct but there are other forces in play w hich alm ost certainly have an
infl u ence on the m od ern approach to the assessm ent of extensions of tim e.
One is that com m ercial pressures to im pose liquidated d am ages for d elay
are greater than in bygone tim es – as are pressures of accou ntability on
pu blic bod ies. Another is that the respect w hich w as previou sly held for the
d ecisions of p ersons hold ing offi ce as contract ad m inistrators (architects,
engineers and the like) has largely evap orated and anything that can be
challenged w ill now be challenged by a d issatisfi ed party. Hence the p resent
pressu res for scrutiny of the d ecision-m aking process.
Bu t, w hatever the exp lanation for the d evelopm ent of d elay analysis tech-
niques, interest in the su bject is now so great that it has becom e essential to
314 16.1 Introduction
undertake som e form of d elay analysis in exam ination of extension of tim e

and p rolongation claim s. So m uch can be seen from the variou s cases m en-
tioned later in this chap ter. What can also be seen from the cases is that there
is still room for d ebate as to w hich delay analysis techniqu es are m ost su it-
able for p articu lar circum stances and w hat reliance shou ld be p laced on
com p u ter-generated resu lts w hich are at od d s w ith results obtained by m ore
d ow n-to-earth m ethod s.
Term inology
One of the p roblem s of the d eveloping science of d elay analysis is that the
term inology used is still expanding and only a lim ited num ber of the term s
used by those engaged in the process have a settled m eaning. Only the
princip al term s are consid ered in this book but for fu rther inform ation see
the very u sefu l ‘Delay and Disru ption Protocol’ pu blished by the Society of
Constru ction Law in 2002 w hich contains a glossary of the m ost com m only
used term s.
Since, in the m ajority of instances, d elay analysis is som ething u nd ertaken

in pu rsuance of an objective related to a contractu al obligation, liability, or
claim , it follow s, although it is frequ ently overlooked , that the starting point
for any analysis shou ld be exam ination of the contractu al provisions. Thu s
som e contracts requ ire extensions of tim e to be aw ard ed retrospectively
whereas others require a p rospective approach. And w hereas som e contracts
place em phasis on the need for fair and reasonable extensions of tim e, others
are m ore prescrip tive.
Su ch consid erations have an im portant part to p lay in the selection and/
or d eterm ination of w hich m ethod of d elay analysis shou ld be u sed – w hether
that be by the contract ad m inistrator in m aking routine aw ard s, by program -
ming exp erts engaged to assist in d isp ute resolution processes, or by the
d ispu te resolvers them selves.
Pu rp oses of d elay an alysis
Much, if not the m ajority, of d elay analysis w ork in the construction ind us-
try is u nd ertaken to assess, to prove, or to rebu t tim e-related claim s of one
sort or another. These m ay be extension of tim e claim s, reasonable tim e
claim s, p rolongation claim s, acceleration claim s or d elay claim s. Som etim es
there is a com bination of claim s.
Clearly, w here the focu s of attention is on one p articu lar type of claim ,
there is a need to u tilise from the ou tset an app rop riate m ethod of d elay
analysis. How ever, w here various types of claim are packaged together it
16.1 Introduction 315
m ay not be evid ent from the outset if there is a single appropriate m ethod
or to w hat extent, d ep end ing on how d iffi cult the claim s are to resolve,
sep arate m ethods for separate claim s are necessary. A costly m istake in su ch
circu mstances is for the claim ing party to em bark up on, and to soldier on
w ith, an inap p ropriate or lim ited use delay analysis. It is far better and less
costly in the long run to take legal ad vice to ensu re that the p urp ose of the
d elay analysis is und erstood before it is com m enced .
Con cerns
Com m only exp ressed concerns abou t d elay analysis are that even on a given
set of facts very d ifferent conclu sions can be reached d epend ing on the typ e
of analysis u nd ertaken. See, for exam p le, the Society of Constru ction Law
pu blication ‘The Great Delay Analysis Debate’ released in 2006.
It is, of cou rse, evid ent that a prospective analysis m ay p rod u ce a d ifferent
result from a retrospective analysis. What is less evident is w hy on com mon
facts, a com m on program m e, and a com m on m ethod of analysis very d if-
ferent results can be prod u ced . At the best this su ggests that som e types of
analysis are over-d ep end ent on su bjective use of data; at the w orst it su g-
gests that som e are capable of being m anipu lated to produ ce w hatever resu lt
is requ ired .
Thu s it w as said by the jud ge in the Great Eastern case m entioned in
Chap ter 14:
‘223. It is evid ent in m y jud gm ent that Laing consistently u nderplayed
m ention of the tru e causes of critical d elay and assert other reasons
for d elay that w ould not refl ect upon them . They consistently m is-
rep orted the d elays actually occu rring and m anip u lated the d ata in
the program m e up d ate to obscure the accurate position.’
and
‘231. Becau se of the m isreporting of p rogress, som e of the follow ing
Trad e Contractors com m enced w ork on site before the w orks w ere
read y for them , and this led to claim s for extensive extensions of
tim e together w ith prolongation and d isruption costs. Had the tru e
state of p rogress been declared , w hilst it w ould have been necessary
for Laing to have renegotiated w ith Trad e Contractors in ord er to
p ostp one their com m encem ent on site, the cost consequ ences of
su ch renegotiation w ou ld have been relatively m inor, and it w ould
have avoid ed the subsequ ent claim s for extensions of tim e and loss
and exp ense.’
Another com m only expressed concern about d elay analysis is the high
cost of engaging experts for d isp ute resolution p roced u res. Frequ ently it
seem s to be that far from sim ply engaging an individ ual to act as expert
a party has, know ingly or otherw ise, engaged a fu ll su pp orting cast of
assistants.
316 16.2 Critical paths
Sim ilarly the costs of engaging claim s consultants can resu lt in startlingly
high bills. H is H onou r Ju d ge Fox-And rew s in the case of Wessex Regional
Health Authority v. HLM Design Ltd (1995) even w ent so far as to say:
‘In the arbitration p roceed ings only to a lim ited extent did Wessex use
the services of counsel and solicitors. In the m ain the preparation of
Wessex’s case w as pu t in the hand s of claim s consu ltants.
In any proceed ings by Wessex against H LM w here reasonableness of
the p reparation and settlem ent of the arbitration proceedings w as in issue
it w ou ld be likely to resu lt in a p rolonged investigation as to the condu ct
of the claim s consu ltants w ho m ight be m ad e a party by Wessex to incu r
costs of £1,197,363.73 in respect of the extension of tim e aspects alone.
(Su bstantial other costs m ust have been incurred for other issues that
w ere raised in the arbitration.)’
16.2 Crit ica l pa t hs
The Society of Construction Law Delay and Disrup tion Protocol d efi nes
‘critical p ath’ and related term s as follow s:
‘critical path
The sequ ence of activities through a project netw ork from start to fi nish,
the su m of w hose d u rations determ ines the overall project d uration.
There m ay be m ore than one critical p ath d epend ing on w orkfl ow logic.
A d elay to p rogress of any activity on the critical p ath w ill, withou t accel-
eration or re-sequencing, cau se the overall p roject d uration to be extend ed ,
and it is therefore referred to as a “critical d elay”.
critical p ath an alysis (CPA) and critical p ath m ethod (CPM)
The critical p ath analysis or m ethod is the p rocess of ded u cing the critical
activities in a program m e by tracing the logical sequence of tasks that
d irectly affect the d ate of project com pletion. It is a m ethod ology or m an-
agem ent techniqu e that determ ines a project’s critical p ath. The resu lting
programm e m ay be d ep icted in a nu m ber of d ifferent form s, inclu d ing
a Gantt or bar chart, line-of-balance d iagram , pure logic d iagram , tim e-
scaled logic d iagram or as a tim e-chainage d iagram , depend ing on the
nature of the w orks rep resented in the p rogram m e.’
His H onour Jud ge Toulm in in the case of Mirant Asia-Pacific Construction
(Hong Kong) Ltd v. Ove Arup & Partners International Ltd (2007) m ad e these
observations on critical p aths:
‘575.
1. The critical p ath can be defi ned as “the sequ ence of activities
throu gh a Project netw ork from start to fi nish, the sum of w hose
d u rations d eterm ine the overall Project d uration”.
2. Du ration is only the shortest tim e if activities on the critical path
are carried ou t in the shortest tim e.
3. There m ay be m ore than one critical path.
16.2 Critical paths 317
4. It is im p ortant to look at activities at or near the critical p ath to

u nd erstand their potential im pact on the Project.
5. Wind ow s analysis, review ing the course of a Project m onth by
m onth, p rovid es an excellent form of analysis to inform those
controlling the Project w hat action they need to take to prevent
d elay to the Project.
6. Without su ch analysis those controlling the Project m ay think
they know w hat activities are on the critical path but it m ay w ell
ap pear after a critical path analysis that they w ere m istaken.
7. A less reliable form of critical path analysis is the w atershed
analysis. This analyses the Project in term s of a few key events.
It m ay be a suffi cient check in the cou rse of a Project to analyse
w hat changes, if any, m ay need to be m ad e in the Project at the
tim e of a benchm ark event.
8. Both w ind ow s analysis and w atershed analysis are used fre-
qu ently to analyse delays at the end of a Project. A w atershed
analysis w ill be less reliable p articu larly if the gap s betw een the
w atershed s are lengthy. It d oes not show the p attern of events
betw een the w atershed s. This m ay be very im p ortant where a
nu m ber of activities are at or near the critical path. What the
w atershed analysis provid es is a snapshot at the particular tim e
w hen it is carried out.
9. Float in a p rogram m ing sense m eans the length of tim e betw een
w hen an activity is d ue to start and w hen it mu st start if it is to
avoid being on the critical p ath. Float can also be u sed to refer
to the ad d itional tim e need ed / allow ed to comp lete an activity
over and above the shortest tim e that is reasonably required .
10. It is, of cou rse, obvious that the analysis is only valid if it is
com prehensive and takes accou nt of all activities.’
The jud ge w ent on to say:
‘575.
11. As the claimant read ily acknow led ges, it is m erely a tool w hich
m u st be consid ered w ith the other evid ence. The question of
w hether or not the failure of the Boiler found ation caused d elay
to the com m encem ent of the Reliability Trials and if so w hat
d elay is a qu estion of fact. The evid ence of Program m ing Exp erts
m ay be of p ersuasive assistance.
576. To these propositions I ad d the proposition that if a retrospective
d elay analysis is being cond ucted on a Project, the analysis m ust
includ e the time to the end of the Project, otherw ise activities m ay
occu r w hich w ill take them on to the (or a) critical path after the d ate
of the fi nal w ind ow or w atershed . In this resp ect Mr Lechner ’s
analysis w hich end s in October 1998 is seriously fl aw ed .’
Thereafter, having consid ered points of criticism in resp ect of both exp erts’
reports, the jud ge conclu d ed ‘that the Reports of the Program m ing Experts
take m e no fu rther than the fi nd ings w hich I have alread y m ad e’.
318 16.3 Float
16.3 Floa t
In sim ple term s ‘fl oat’ is spare tim e w ithin a p rogram m e. The term can be
attached to an activity or to overall com p letion.
The Society of Construction Law Protocol d efi nitions are:
‘fl oat
The tim e available for an activity in ad d ition to its p lanned d u ration. See
free fl oat and total fl oat. Where the w ord “fl oat” app ears in the Protocol,
it m eans p ositive not negative fl oat, unless expressly stated otherw ise.
free fl oat
The amount of tim e that an activity can be d elayed beyond its early start
/ early fi nish d ates w ithou t d elaying the early start or early fi nish of any
im m ed iately follow ing activity.
total fl oat
The am ount of tim e that an activity m ay be delayed beyond its early start
/ early fi nish dates w ithou t d elaying the contract com pletion d ate.’
O w n ersh ip of fl oat
Questions and d isputes as to w hich party ow ns fl oat, or gets the benefi t of

it, are com m onplace in construction contracts. There is no single answ er
since contracts d iffer in their provisions as to extensions of time. Thus, in a
contract w hich allow s extensions for any d elay beyond planned com pletion
end fl oat w ou ld ap p ear to belong to the contractor. In contrast, in a contract
allow ing extensions only for d elay beyond the comp letion d ate any end fl oat
wou ld app ear to belong to the em ployer.
In the case of Ascon Contracting Ltd v. Alfred McAlpine Construction Isle of
Man Ltd (1999), H is H onou r Judge H icks had this to say on fl oat:
‘91. Before ad d ressing those factu al issu es I m ust d eal w ith the p oint
raised by McAlpine as to the effect of its m ain contract “fl oat”, w hich
w ou ld in w hole or in part pre-em p t them . It d oes not seem to be in
d ispu te that McAlp ine’s program m e contained a “fl oat” of fi ve w eeks
in the sense, as I u nd erstand it, that had work started on tim e and
had all su b-p rogram m es for sub-contract works and for elem ents to
be carried ou t by McAlpine’s ow n labour been fulfi lled w ithout slip-
page the m ain contract w ould have been com p leted fi ve w eeks early.
McAlp ine’s argu m ent seem s to be that it is entitled to the “benefi t”
or “valu e” of this fl oat and can therefore use it at its op tion to
“cancel” or red u ce d elays for w hich it or other sub-contractors w ould
be responsible in preference to those chargeable to Ascon.
92. In m y ju d gm ent that argum ent is m isconceived . The fl oat is certainly
of valu e to the m ain contractor in the sense that d elays of u p to that
total am ou nt, how ever cau sed , can be accom mod ated w ithout
involving him in liability for liqu id ated d am ages to the em p loyer or,
if he calcu lates his ow n prolongation costs from the contractu al
16.3 Float 319
com p letion d ate (as McAlp ine has here) rather than from the earlier
d ate w hich m ight have been achieved , in any su ch costs. H e cannot,
how ever, w hile accepting that benefi t as against the em ployer, claim
against su b-contractors as if it d id not exist. That is self-evid ent if
total d elays as against su b-program m es d o not exceed the fl oat. The
m ain contractor, not having su ffered any loss of the above kind s,
cannot recover from sub-contractors the hyp othetical loss he w ould
have su ffered had the fl oat not existed , and that w ill be so w hether
the d elay is w holly the fault of one sub-contractor, or w holly that of
the m ain contractor him self, or spread in varying degrees betw een
several su b-contractors and the m ain contractor. N o d oubt those d if-
ferent situations can be d escribed , in a sense, as ones in which the
“benefi t” of the fl oat has accrued to the d efau lting party or p arties,
bu t no-one could supp ose that the m ain contractor has, or should
have, any pow er to alter the resu lt so as to shift that “benefi t”. The
issu es in any claim against a su b-contractor rem ain sim ply breach,
loss and cau sation.
93. I d o not see w hy that analysis should still hold good if the constitu-
ent d elays m ore than use up the fl oat, so that com pletion is late. Six
sub-contractors, each responsible for a w eek’s d elay, w ill have caused
no loss if there is a six w eeks’ fl oat. They are equ ally at fault, and
equ ally share in the “benefi t”. If the fl oat is only fi ve w eeks, so that
com p letion is a w eek late, the sam e p rinciple shou ld op erate; they
are equ ally at fau lt, should equally share in the red uced “benefi t”
and therefore equally in responsibility for the one w eek’s loss. The
allocation shou ld not be in the gift of the m ain contractor.
94. I therefore reject McAlpine’s “fl oat” argum ent. I m ake it clear that I
d o so on the basis that it d id not raise qu estions of concurrent liabil-
ity or contribu tion; the contention w as explicitly that the “benefi t”,
and therefore the resid ual liability, fell to be allocated am ong the
p arties resp onsible for d elay and that that allocation w as entirely in
the m ain contractor ’s gift as am ong sub-contractors, or as betw een
them and the m ain contractor w here the latter ’s ow n d elay w as in
qu estion.
In Royal Brompton Hospital NHS Trust Ltd v. Hammond (2002) His H onour
Jud ge Lloyd said :
‘. . . All activities have potential or theoretical fl oat (even if the period is
negative). What is requ ired is to track the actu al execution of the w orks.
On a factu al basis this part of the case requires no fu rther d iscu ssion. In
ad d ition, clause 25 refers to “exp ected d elay in the com p letion of the
Works” and to the need for the Architect to form an op inion as to w hether
becau se of a Relevant Event “the comp letion of the w orks is likely to be
d elayed thereby beyond the Comp letion Date”. Und er the JCT cond i-
tions, as used here, there can be no d oubt that if an architect is required
to form an op inion then, if there is then u nused fl oat for the benefi t of
the contractor (and not for another reason su ch as to d eal w ith p .c. or
320 16.4 Methods of delay analysis
provisional sum s or item s), then the architect is bou nd to take it into
account since an extension is only to be granted if com p letion w ould
otherw ise be d elayed beyond the then current com p letion date. This m ay
seem hard to a contractor but the objects of an extension of tim e clause
are to avoid the contractor being liable for liquid ated d am ages w here
there has been d elay for w hich it is not responsible, and still to establish
a new com pletion d ate to w hich the contractor should w ork so that both
the em p loyer and the contractor know w here they stand. The architect
shou ld in su ch circu mstances inform the contractor that, if thereafter
events occu r for w hich an extension of tim e cannot be granted , and if, as
a resu lt, the contractor w ould be liable for liqu id ated d am ages then an
ap propriate extension, not exceed ing the fl oat, w ou ld be given. In that
w ay the p urposes of the clause can be m et: the d ate for com p letion is
alw ays know n; the p osition on liquid ated d am ages is clear; yet the con-
tractor is not d ep rived perm anently of “its” fl oat. Und er these JCT Cond i-
tions the Architect cannot revise an extension once given so as to fi x an
earlier d ate (except in the lim ited circu m stances set out in clau ses 25.3.2
and 25.3.3). Thus to grant an extension w hich p reserved the contractor ’s
fl oat w ou ld not be “fair and reasonable”. Und er clau se 23.1 the em ployer
is entitled to com p letion on or before the Com pletion Date so the em ployer
is u ltim ately entitled to the benefi t of any unu sed fl oat that the contractor
d oes not need . Few contractors w ish to rem ain on a site any longer than
is need ed and em ployers are u sually happ y to take possession earlier,
rather than later, and, if they are not, they have to accept the risk of early
com p letion. In practice, how ever, architects are not norm ally concerned
abou t these points and may reasonably take the view that, unless the fl oat
is obviou s, its existence need not be d iscovered . . .’
16.4 Met hods of dela y a na lysis
It is beyond the scope of this book to com m ent on all the various m ethod s
of d elay analysis now in com m on u se. Most m ethod s are, how ever, variants
of fou r m ain types:
• as-p lanned v. as-bu ilt
• im pacted as-p lanned
• collapsed as-built
• tim e imp act analysis.
As-p lan n ed v. as-b u ilt
This is a sim p le retrosp ective m ethod of d elay analysis based on factu al

evid ence. It exam ines actu al progress achieved against progress as p lanned .
To be effective it requires a realistic program m e and good as-built record s.
It can w ork to lim ited effect w ithou t a critical p ath analysis and w ithou t
com p u ter softw are.
16.4 Methods of delay analysis 321
Im p acted as-p lan n ed
This is another com paratively sim ple m ethod of d elay analysis. It examines
the im p act of single events or groups of events on the p lanned p rogram m e.
It can be u sed for p rosp ective as w ell as for retrosp ective analysis. Again
it can be used w ithout a critical path analysis and com pu ter softw are.
How ever, since the effect of im pacting d elaying events on to a program me
m ay w ell change the critical path, m anual u se of the m ethod has obvious
lim itations.
Collap sed as-b u ilt
This is a retrosp ective m ethod of analysis by w hich d elays are extracted from
the as-bu ilt program m e to see w hen com pletion w ou ld have been achieved
but for the delaying effects attributable to either the contractor or the
em p loyer. It requ ires a logic-linked programm e and good as-bu ilt record s.
For analysis of any com p lexity com p u ter softw are is essential.
Tim e im p act an alysis
This is a p rosp ective m ethod of analysis. It involves up d ating the contrac-

tor ’s program m e to refl ect the progress achieved at the tim e of a d elaying
event, or grou p of events, and then com p aring the anticipated com pletion
d ates w ith and withou t the events. It is norm ally und ertaken u sing com-
pu ter softw are.
This m ethod of analysis is selected in the Society of Constru ction Law
Protocol as the preferred m ethod for comp lex cases. Thus, at paragraph 4.8
it is said :
‘Tim e im pact analysis is based on the effect of Delay Events on the
Contractor ’s intentions for the futu re cond u ct of the w ork in the light of
progress actu ally achieved at the tim e of the Delay Event and can also be
used to assist in resolving m ore comp lex d elay scenarios involving con-
cu rrent d elays, acceleration and d isru p tion. It is also the best techniqu e
for d eterm ining the am ount of EOT that a Contractor should have been
granted at the tim e an Emp loyer Risk Event occu rred . In this situation,
the am ou nt of EOT m ay not precisely refl ect the actu al d elay su ffered by
the Contractor. That d oes not m ean that tim e im pact analysis generates
hypothetical resu lts – it generates results show ing entitlement. This tech-
nique is the preferred techniqu e to resolve com plex d isp utes related to
d elay and com p ensation for that d elay.’
As a general overview of all four m ethod s the Protocol states at paragraphs
4.14 to 4.16:
‘4.14 As-p lanned v as-bu ilt and im p acted as-p lanned are generally the
cheap est and sim plest m ethod s of analysis.
322 16.5 Judicial comments on delay analysis
4.15 Collap sed as-bu ilt is also an analysis sim p le to perform althou gh it
is often m ore laborious and subjective becau se of the inherent d if-
fi cu lty of establishing accu rate as-built logic from record s.
4.16 Tim e im pact analysis is the m ost thorou gh m ethod of analysis,
althou gh it is generally the m ost time-consu m ing and costly w hen
p erform ed forensically.’
16.5 Judicia l comment s on dela y a na lysis
Prior to the ju d gm ent in the case of John Barker Construction Ltd v. London
Portman Hotel (1996) there w as little by w ay of ju d icial com ment on d elay
analysis. H owever, as noted in Chapter 12 above, the ru ling in that case
mad e clear that the cou rt expected extensions of tim e to be assessed by
logical analysis. In hold ing that the architect’s assessm ent w as fu nd am en-
tally fl aw ed the ju d ge said , am ongst other things:
‘1. [the architect] d id not carry out a logical analysis in a m ethod ical w ay
of the im pact w hich the relevant m atters had or w ere likely to have
on the Plaintiffs’ p lanned program m e.
2. [the architect] m ad e an im pressionistic, rather than a calcu lated ,
assessment of the tim e w hich he thought w as reasonable for the
variou s item s ind ivid ually and overall.
3. [the architect] misapplied the contractu al p rovisions, as more p articu-
larly set out above.
4. Where [the architect] allow ed tim e for relevant events, the allow ance
w hich he m ad e in im portant instances . . . bore no logical or reason-
able relation to the d elay cau sed .’
This ru ling that there shou ld be logical analysis has been follow ed in su b-
sequ ent cases – w ith som e jud ges going so far as to say that critical p ath
analysis is a necessary part of the analysis. Bu t note the com m ent of Mr
Ju stice Ram sey in London Underground Ltd v. Citylink Telecommunications Ltd
(2007):
‘Second ly, w hilst analysis of critical d elay by one of a num ber of w ell-
know n m ethod s is often relied on and can assist in arriving at a conclu-
sion of what is fair and reasonable, that analysis shou ld not be seen as
d eterm ining the answ er to the question. It is at m ost an area of expert
evid ence w hich m ay assist the arbitrator or the cou rt in arriving at
the answ er of w hat is a fair and reasonable extension of tim e in the
circu m stances.’
Moreover, in tw o recent cases the ju dges have show n, in preferring sim -
plicity over com p lexity, that it is the reliability of the m aterial pu t before
them that cou nts not its apparent technical su periority, sop histication or
volu m e.
In Skanska Construction UK Ltd v. Egger (Barony) Ltd (2004) the jud ge’s
com m ents inclu d ed the follow ing:
16.5 Judicial comments on delay analysis 323
‘413. [Mr S], a planning consultant originally em p loyed by and later

retained by SCL as a Consultant gave evid ence at the Liability tri-
al . . . H e im p ressed m e as som eone w ho w as objective, m eticulous
as to d etail, and not hide bou nd by theory as w hen d em onstrable
fact collid ed w ith com puter program m e logic.
414. H is analysis w as accessibly depicted in a series of charts accom p a-
nying his evid ence.
415. [Mr P] prod uced a report of som e hu nd reds of pages sup p orted by
240 charts. It w as a w ork of great ind ustry incorporating the efforts
of a team of assistants in his p ractice.
...
422. It is evid ent that the reliability of [Mr P’]s sop histicated im pact
analysis is only as good as the d ata p ut in. The cou rt cannot have
confi dence as to the com pleteness and quality of the inpu t into this
com plex and rushed com pu ter project.
423. Egger su bmit that the softw are used by [Mr S] is incapable of pro-
d u cing a reliable analysis since Pow er Project is p rim arily a p lan-
ning tool creating a graphic rep resentation, it is a d ated system and
d oes not have the sophistication of the [P] system bu t I am satisfi ed
that it also has a signifi cant capacity for logical connections and for
id entifying critical paths and for re-sched u ling activities to show
how events change.
424. [Mr P] stated that the effective app lication of Pow er Project w ith its
inherent lim itations w as also d epend ent u pon the ‘intuition’ of its
u ser. A term , it seem s, that includ es the power of selection of facts
and interp retive ju d gm ent of them . As a criticism , it is d iffi cult to
see how this d iffers from the process followed and applied by
[Mr P’s] ow n team of assistants prior to inpu t into his com pu ter
p rogram m e. [Mr S] w as available to be cross-exam ined and his
jud gm ent and interpretation w as app arent and cou ld be tested . I
w as not im pressed w ith the evid ence of [Mr P] for the reasons I
have set ou t above. It w as not thorough. It w as not com plete. H e
only d irectly consid ered critical d elay and did not really ad d ress
d isrup tion and he proceed ed from the w rong p rem ise in relation to
su b-contract period s w hich p roceed ed on the basis of that w hich is
agreed betw een SCL and the sub-contractor. I p referred the evi-
d ence of [Mr S] as to program m ing and planning m atters to that of
[Mr P].’
In City Inn Ltd v. Shepherd Construction Ltd (2007) Lord Drum m ond Young
said in relation to the evid ence of the tw o exp erts in the case:
‘[27] [Mr W] w as critical of the as-built critical p ath analysis u sed by [Mr
L]; I d eal w ith his specifi c criticism s of that analysis at paragraphs
[36]–[39] below. In evid ence, [Mr W] stated that he had consid ered
u nd ertaking a critical path analysis, bu t d ecided not to d o so. H e
d id not have access to an electronic version of the d efend ers’ origi-
nal program m e for the project, and because of this it w as im possible
324 16.5 Judicial comments on delay analysis
to id entify the d efend ers’ original critical path through the p ro-
gram m e. N evertheless, m aking use of his experience in p rogram -
ming, [Mr W] had attem pted to replicate w hat he surm ised m ight
be the logic of the d efend ers’ original p rogram m e; he stated ,
how ever, that he had no great confi d ence that his version of that
p rogram m e w as either correct or com plete. [Mr W] stated that to
continu e w ith a critical path analysis based on logic that he knew
not to be com pletely correct w ou ld have m eant that he cou ld not be
su re of the evid ence that he w as giving to the court.
[28] The pu rsu ers criticised [Mr W’s] ap proach to the case. They referred
in p articular to his failu re to und ertake a critical path analysis of the
p resent project. That m ight be explained by the fact that [Mr W]
p referred to u se the as-planned v as-built m ethod . N evertheless, the
w eakness of that m ethod w as that, as [Mr W] acknow led ged , it d oes
not id entify the critical path and therefore need s to be used w ith
great care and u nd erstand ing of the processes in the w hole of the
p roject. The p u rsuers subm itted that an expert cou ld only give a
m eaningfu l opinion as to w hich activities in a project are critical on
the basis of an as-bu ilt critical p ath analysis, su ch as that carried ou t
by [Mr L]. For that reason it w as suggested that I shou ld treat w ith
cau tion, and indeed scepticism , [Mr W’s] opinion.
[29] In m y op inion the p ursu ers clearly w ent too far in su ggesting that
an expert cou ld only give a m eaningfu l opinion on the basis of an
as-bu ilt critical path analysis. For reasons d iscussed below (at para-
grap hs [36]-[37]) I am of the op inion that su ch an app roach has
serious d angers of its ow n. I further conclud e, as exp lained in those
p aragraphs, that [Mr L’s] ow n use of an as-bu ilt critical path analy-
sis is fl aw ed in a signifi cant nu mber of imp ortant respects. On that
basis, I conclud e that that approach to the issu es in the p resent case
is not help fu l. The m ajor d iffi cu lty, it seem s to m e, is that in the typ e
of programm e used to carry ou t a critical path analysis any signifi -
cant error in the inform ation that is fed into the p rogram m e is liable
to invalid ate the entire analysis. Moreover, for reasons exp lained by
[Mr W] (p aragrap hs [36]–[37] below ), I conclud e that it is easy to
m ake such errors. That seem s to m e to invalid ate the use of an as-
bu ilt critical path analysis to d iscover after the event w here the
critical p ath lay, at least in a case w here fu ll electronic record s are
not available from the contractor. That d oes not invalid ate the u se
of a critical path analysis as a planning tool, bu t that is a different
m atter, becau se it is being u sed then for an entirely different p urpose.
Consequ ently I think it necessary to revert to the m ethod s that w ere
in u se before com p uter softw are cam e to be used extensively in the
p rogram m ing of com p lex constru ction contracts. That is essentially
w hat [Mr W] d id in his evid ence. Those old er m ethod s are still
p lainly valid , and if com pu ter-based techniqu es cannot be u sed
accu rately there is no alternative to u sing old er, non-com pu ter-based
techniques.’
Chap ter 17
Bu ild in g form s
17.1 Int roduct ion
In the earlier ed itions of this book the liqu id ated d am ages and extension of
time provisions from all the then wid ely used standard form s for build ing
w orks w ere rep rod u ced and briefl y com m ented upon. That w as a m anage-
able task. H owever, w ith the publication over the last ten years or so of new
m od el form s by variou s p rofessional and com m ercial organisations and the
expansion of others into fam ilies of form s, the nu m ber of m od el / stand ard
form s of bu ild ing contracts on the m arket preclud es exam ination of each
and every form .
There are signs that for the foreseeable fu ture the m ain focus of attention
in the build ing ind u stry w ill be on the comp rehensive su ite of m ain con-
tracts and su bcontracts (the JCT 2005 form s) recently prod uced by the Joint
Contracts Tribunal. Only tim e w ill tell w hether these form s w ill becom e
pop ular enou gh to elim inate the opp osition but given the restricted scop e
of this chap ter these are clearly the form s w hich need to be exam ined .
17.2 JCT 2005 cont ract s
The Joint Contracts Tribunal, w hose m em bers presently inclu d e representa-

tives of p rofessional bod ies, em p loyer ’s organisations and contractor ’s fed -
erations, w as established in 1931. Its best-know n prod uctions JCT 63 and
JCT 1980 w ere w ithou t d oubt the d om inant form s of building contract of
their tim es.
In 2005 JCT lau nched , partly perhap s in resp onse to com petition com ing
from the expand ing fam ily of N ew Engineering Contracts, a co-ord inated
su ite of contracts covering various procu rem ent, pricing and m anagem ent
options and includ ing both m ain contracts and su b-contracts. The suite
inclu des:
• Stand ard Bu ild ing Contract
• Interm ed iate Bu ild ing Contract
• Minor Works Bu ild ing Contract
• Design and Bu ild Contract
326 17.3 Commencement and completion
• Major Project Construction Contract

• Stand ard Bu ild ing Sub-Contracts
• Interm ed iate Build ing Su b-Contracts
• Major Project Sub-Contract
• Design and Build Su b-Contract
• Prim e Cost Bu ild ing Contract
• Measu red Term Contract
• Rep air and Maintenance Contract
The provisions for liqu idated d amages and extensions of tim e consid ered
in this chap ter are taken from the Stand ard Build ing Contract (w ithou t
quantities).
17.3 Commencement a nd complet ion
Within the Contract Particu lars attached to the Articles of Agreem ent the
em ployer is requ ired to state d ates of possession of the site and the d ate for
com p letion (the Com p letion Date).
Clau se 2.4 com m ences:
‘On the Date of Possession possession of the site or, in the case of a
Section, p ossession of the relevant part of the site shall be given to the
Contractor who shall thereupon begin the constru ction of the Works or
Section and regu larly and d iligently proceed w ith and comp lete the sam e
on or before the relevant Com pletion Date.’
Com p letion
Com p letion is not a defi ned term . It is for the architect to form an opinion
on w hen practical com pletion has been achieved . Clau se 2.30 states:
‘When in the opinion of the Architect / Contract Ad m inistrator p ractical
com p letion of the Works or a Section is achieved and the Contractor has
com p lied suffi ciently w ith clauses 2.40 and 3.25.4, then:
.1 in the case of the Works, the Architect / Contract Ad m inistrator shall
forthw ith issue a certifi cate to that effect (the Practical Com pletion
Certifi cate)’;
.2 in the case of a Section, he shall forthw ith issue a certifi cate of practical
com p letion of that Section (a Section Com pletion Certifi cate)’;
and p ractical com p letion of the Works or the Section shall be d eem ed for all
the pu rposes of this Contract to have taken place on the d ate stated in that
certifi cate.’
The references in clau se 2.30 to clauses 2.40 and 3.25.4 relate to the provi-
sion of as-bu ilt d raw ings and inform ation for the CDM (construction, d esign
and m anagem ent) regulations.
17.4 Notification of delay 327
In properly form ing his op inion on w hen practical com pletion is achieved
the architect shou ld be guid ed by the p rincip les laid dow n by the courts.
These are d iscu ssed in Chap ter 10 above bu t, in short, p ractical com pletion
is com p letion of all the w ork that has to be d one save for ‘d e m inim is’ item s.
Or as the H ong Kong Court of Appeal in Mariner Hotels Ltd v. Atlas Ltd (2006)
pu t it practical com pletion m eans ‘a state of affairs in w hich the w orks have
been com p leted free from patent d efects other than ones to be ignored as
trifl ing’.
Bu t even if there is som e uncertainty as to w hat constitutes practical
comp letion on any particular project it is clear from clau se 2.30 that it is the
issu e of the Practical Com pletion Certifi cate w hich m arks com pletion.
17.4 Not ifi ca t ion of dela y
Clau se 2.27.1 sp ells ou t the fi rm obligation on the contractor to give w ritten

notice of any d elay w hether or not he is seeking an extension of tim e and
w hether or not the cau se of the d elay is a relevant event as d efi ned in the
clau se.
‘If and w henever it becom es reasonably app arent that the progress of the
Works or any Section is being or is likely to be d elayed the Contractor
shall forthw ith give w ritten notice to the Architect / Contract Ad ministra-
tor of the m aterial circu m stances, inclu d ing the cau se or causes of the
d elay, and shall id entify in the notice any event w hich in his op inion is a
Relevant Event.’
The contractor w ou ld not norm ally w rite to the architect of his ow n accord
inform ing him of the p roblem s w hich beset any contractor in the course
of his business and for w hich he carries and accep ts fu ll resp onsibility –
problem s w ith labou r, p oor perform ance of d om estic sub-contractors, late
su pp ly of m aterials, bad planning and faulty w orkm anship. Most contrac-
tors w ou ld p refer to keep such m atters to them selves. Moreover, since the
contractor ’s prim ary obligation is to com plete the works w ithin the tim e
allow ed , it cou ld be argu ed that it is of no concern to the architect or
em p loyer u nless the w orks are likely to be d elayed beyond the com pletion
d ate.
Against this, how ever, there are tw o factors to consid er:
(a) by clause 2.28.6.1 the contractor is to u se his best end eavours to p revent
d elay in the p rogress of the w orks, how soever caused ;
(b) by clau se 2.28.1 the architect is to give su ch extension of tim e as he
consid ers to be fair and reasonable.
Clearly, for an architect’s d ecision to be fair and reasonable he m ust know
all the facts – inclu d ing those both favou rable and u nfavou rable to the
contractor ’s case. Thu s, in the case of Henry Boot Construction (UK) Ltd v.
Malmaison Hotel (Manchester) Ltd (1999) w hich related to a JCT 1980 contract
it w as held that in d eterm ining whether a relevant event w as likely to have
328 17.5 Extension of time
caused d elay beyond the comp letion date the architect w as entitled to con-
sid er the effect of other events.
Further requ irem ents in respect of notices are contained in clau ses 2.27.2
and 2.27.3. These read :
‘.2 In resp ect of each event id entifi ed in the notice the Contractor shall,
if p racticable in su ch notice or otherw ise in writing as soon as possible
thereafter, give p articulars of its exp ected effects, inclu d ing an esti-
m ate of any exp ected delay in the com pletion of the Works or any
Section beyond the relevant Com pletion Date.
.3 The Contractor shall forthw ith notify the Architect / Contract Ad m in-
istrator in w riting of any m aterial change in the estim ated d elay or in
any other particu lars and su pp ly such fu rther inform ation as the
Architect / Contract Ad m inistrator may at any time reasonably
requ ire.’
Con d ition s p reced en t
It is d oubtfu l if, in them selves, any of the p arts of clause 2.27 contain noti-
fi cation requ irem ents w hich w ould be constru ed by the courts as cond ition
preced ents to entitlem ent to extension of tim e. There are no clear w ords to
the effect that they d o. How ever, taken in conju nction w ith the op ening
sentence of clau se 2.28 w hich m akes receipt by the architect of notice and
particu lars u nd er clau se 2.27 the starting p oint for consid eration of exten-
sion of tim e it cou ld be argu ed that failure to give w ritten notice constitu tes
breach of a cond ition p reced ent to entitlem ent. Thu s in the Steria v. Sigma
(2007) case d iscu ssed in Chapter 5 a requ irem ent to give notice of d elay
under an MF / 1 typ e contract w as held to be a cond ition p reced ent. How ever,
the architect’s p ow er und er clau se 2.28.5.1 to take accou nt of relevant events
not notifi ed w hen m aking a fi nal review goes against the concept of the
contractor ’s notice being a bind ing cond ition p recedent.
17.5 Ext ension of t ime
JCT 2005 places its extension of tim e provisions und er the head ing ‘Ad ju st-
ment of Com pletion Date’. It nevertheless continu es to u se the phrase
‘extension of tim e’ in various clau ses includ ing clau se 2.28 – the clause
setting ou t the proced u res for the adju stm ent of tim e. Clau se 2.28 has six
parts:
• 2.28.1 – architect’s d u ty to consid er the contractor ’s notices
• 2.28.2 – architect’s d u ty to notify decision w ithin 12 w eeks
• 2.28.3 – architect’s d u ty to item ise any extension of tim e
• 2.28.4 – red uctions of extension of tim e in respect of omitted w orks
• 2.28.5 – architect’s review after the comp letion d ate
• 2.28.6 – provisos affecting 2.28.1 to 2.28.5.
17.5 Extension of time 329
Clau se 2.28.1
‘Fixing Com p letion Date

.1 If, in the opinion of the Architect / Contract Ad m inistrator, on receiv-
ing a notice and p articulars under clau se 2.27:
.1 any of the events w hich are stated to be a cause of d elay is a Rele-
vant Event; and
.2 com pletion of the Works or of any Section is likely to be d elayed
thereby beyond the relevant Com p letion Date,
then, save w here these Cond itions expressly provid e otherw ise, the
Architect / Contract Ad m inistrator shall give an extension of tim e by
fi xing su ch later d ate as the Com pletion Date for the Works or Section as
he then estim ates to be fair and reasonable.’
Und er clau se 2.28.1 the architect has tw o key tasks to perform – bu t only on
receip t of the contractor ’s notice and p articu lars. The fi rst task is to consid er
w hether a notifi ed event is a relevant event. The contractor should alread y
have stated his view in com pliance w ith clau se 2.27.1. The architect m ay not
agree. For exam p le, the contractor m ay claim ad verse w eather cond itions to
be excep tional – and thereby a relevant event, w hereas the architect m ay
d isagree that the w eather w as exceptional. The architect’s second task is to
consid er w hether d elay to the com pletion d ate has been caused by a relevant
event. This m ay involve u nd ertaking systematic d elay analysis. For m ore on
this see Chapter 16.
The requirem ent in clause 2.28.1 for the architect’s assessm ent to be fair
and reasonable is im portant. It allow s a m easu re of personal ju d gm ent and
possibly ap portionm ent where there are com peting events – see the com -
m entary in Chap ter 14. How ever, it is not a licence to m ake an im p ression-
istic assessment – see the case of John Barker Construction Ltd v. London
Portman Hotel Ltd (1996) m entioned in Chapter 12.
Clau se 2.28.2
‘.2 Whether or not an extension is given, the Architect / Contract Ad m in-

istrator shall notify the Contractor in w riting of his d ecision in respect
of any notice u nd er clause 2.27 as soon as is reasonably practicable
and in any event w ithin 12 w eeks of receipt of the required particulars.
Where the period from receipt to the Com p letion Date is less than 12
w eeks, he shall end eavou r to d o so prior to the Com p letion Date.’
There are sou nd p ractical and comm ercial reasons w hy the architect’s deci-
sion shou ld be given w ithin 12 w eeks. The contractor is entitled to know
how long he has to com p lete the w orks. It is d ou bted , how ever, w hether
failu re by the architect to m eet the 12 w eek target invalid ates his aw ard . In
Temloc v. Errill (1987) the 12 w eek requ irement p ost-com pletion w as held to
be d irectory rather than mand atory (see Chap ter 11). N evertheless it is qu es-
tionable w hether the sam e rule applies to pre-com pletion assessm ents.
The requ irem ent for the architect to notify his d ecision as soon as reason-
ably practicable leaves op en the question of w hether the architect’s d elay
analysis should be p rospective or retrospective. This p rovid es a m easu re of
fl exibility for the architect in m aking his assessm ents w hich is lacking in
som e other stand ard form s.
Clau se 2.28.3
‘.3 The Architect / Contract Ad m inistrator shall in his d ecision state:

.1 the extension of tim e that he has attributed to each Relevant Event;
and
.2 (in the case of a decision u nder clause 2.28.4 or 2.28.5) the red uction
in tim e that he has attributed to each Relevant Om ission.’
Clau se 2.28.3 d oes not p erm it the architect to m ake a global aw ard of
extension of tim e. One reason for this is the need to be able to id entify the
im pact of events which give rise to entitlem ent to recovery of loss and
exp ense.
H ow ever, if all the d elaying events und er consid eration are relevant
events of the sam e stand ing as regard s loss and exp ense and there is
com p lex interaction of the type consid ered in Crosby v. Portland (1967) a
global award may be a m ore accurate and realistic aw ard than one artifi cially
particu larised .
Clau se 2.28.4
‘.4 After the fi rst fi xing of a later Com p letion Date in resp ect of the Works
or a Section, either u nd er clause 2.28.1 or by a Pre-agreed Ad ju stment,
bu t su bject to clauses 2.28.6.3 and 2.28.6.4, the Architect / Contract
Ad m inistrator m ay by notice in w riting to the Contractor, giving the
d etails referred to in clause 2.28.3, fi x a Com pletion Date for the Works
or that Section earlier than that p reviou sly so fi xed if in his opinion
the fi xing of su ch earlier Com pletion Date is fair and reasonable,
having regard to any Relevant Om issions for w hich instru ctions have
been issu ed after the last occasion on which a new Com pletion Date
w as fi xed for the Works or for that Section.’
This clau se em pow ers the architect to fi x com pletion dates earlier than those
previou sly fi xed if it is fair and reasonable to d o so having regard to om is-
sions instru cted after extensions of tim e have been granted . In effect, there-
fore, extensions of tim e p reviously granted can be red uced by later om issions.
How ever the architect’s p ow er is subject to two provisos fou nd in clauses
2.28.6.3 and 2.28.6.4 – the fi rst that there shou ld be no red u ction of the
original tim e for com pletion; the second that there shou ld be no red uction
of pre-agreed extensions of tim e.
Clau se 2.28.5
‘.5 After the Com p letion Date for the Works or for a Section, if this occu rs
before the d ate of practical com pletion, the Architect / Contract
Ad m inistrator m ay, and not later than the expiry of 12 w eeks after
the d ate of practical comp letion shall, by notice in w riting to the
Contractor, giving the d etails referred to in clause 2.28.3:
.1 fi x a Com pletion Date for the Works or for the Section later than
that previously fi xed if in his op inion that is fair and reasonable
having regard to any Relevant Events, w hether on review ing a
p reviou s d ecision or otherw ise and w hether or not the Relevant
Event has been specifi cally notifi ed by the Contractor u nd er clau se
2.27.1; or
.2 subject to clauses 2.28.6.3 and 2.28.6.4, fi x a Com p letion Date earlier
than that previou sly fi xed if in his opinion that is fair and reason-
able having regard to any instru ctions for Relevant Om issions
issued after the last occasion on w hich a new Com pletion Date w as
fi xed for the Works or Section; or
.3 confi rm the Com p letion Date p reviou sly fi xed .’
Und er this clau se the architect is required to fi nalise his position on revisions
to the com p letion d ate w ithin 12 w eeks of practical com p letion. H e has three
options: he can extend his aw ard s of extensions of tim e; red u ce his aw ard s
on accou nt of later om issions; or confi rm p reviou s d ecisions. H ow ever, w hat
he m u st d o is pu t in w riting his fi nal d ecision.
Clau se 2.28.6
‘.6 Provid ed alw ays that:

.1 the Contractor shall constantly use his best end eavou rs to prevent
d elay in the p rogress of the Works or any Section, how ever cau sed ,
and to p revent the com p letion of the Works or Section being d elayed
or fu rther delayed beyond the relevant Com p letion Date;
.2 in the event of any d elay the Contractor shall d o all that m ay rea-
sonably be requ ired to the satisfaction of the Architect / Contract
Ad m inistrator to proceed with the Works or Section;
.3 no d ecision of the Architect / Contract Adm inistrator under clause
2.28.4 or 2.28.5.2 shall fi x a Com pletion Date for the Works or any
Section earlier than the relevant Date for Com p letion; and
.4 no d ecision und er clau se 2.28.4 or 2.28.5.2 shall alter the length of
any Pre-agreed Ad justm ent unless the relevant Variation or other
w ork referred to in clau se 5.2.1 is itself the su bject of a Relevant
Om ission.’
These p rovisos seem intend ed princip ally to op erate on the preced ing
clau ses setting out the architect’s pow ers and d u ties regard ing extensions
332 17.6 Relevant events
of tim e. How ever, they also can be read as im posing obligations on the
contractor as regard s p rogress.
The proviso in clau se 2.28.6.1 that the contractor shou ld u se his best
end eavours to p revent d elay seem s unnecessary given the contractor ’s basic
obligation to com p lete the w orks w ithin the tim e allow ed and the inclu sion
of the ‘fair and reasonable’ test in assessm ent of extensions of tim e. As to
how far the contractor has to go in using his best end eavours, see the d iscus-
sion in Chap ter 15.
The p roviso in clause 2.28.6.2 cou ld be taken as a m ild ly w ord ed obliga-
tion on the contractor to accelerate.
17.6 Releva nt event s
JCT 2005 retains the extensive list of relevant events found in earlier ed itions
bu t it is presented in a m ore read able m anner:
Clau se 2.29
‘The follow ing are the Relevant Events referred to in clau ses 2.27 and
2.28:
.1 Variations and any other m atters or instructions w hich und er these
Cond itions are to be treated as, or as requiring, a Variation;
.2 Instru ctions of the Architect / Contract Adm inistrator:
.1 und er any of clau ses 2.15, 3.15, 3.16, 3.23 or 5.3.2; or
.2 for the op ening u p for inspection or testing of any w ork, m aterials
or good s und er clau se 3.17 or 3.18.4 (inclu d ing m aking good ),
u nless the insp ection or test shows that the w ork, materials or
goods are not in accord ance w ith this Contract;
.3 deferm ent of the giving of possession of the site or any Section
u nd er clause 2.5;
.4 su spension by the Contractor u nd er clause 4.14 of the p erform ance
of his obligations und er this Contract;
.5 any im ped iment, p revention or d efault, w hether by act or om is-
sion, by the Em p loyer, the Architect, Contract Adm inistrator, the
Qu antity Su rveyor or any of the Em ployer ’s Persons, excep t to the
extent cau sed or contributed to by any d efault, w hether by act or
om ission, of the Contractor or of any of the Contractor ’s Persons;
.6 the carrying ou t by a Statutory Und ertaker of w ork in pursu ance
of its statu tory obligations in relation to the Works, or the failure
to carry ou t su ch w ork;
.7 excep tionally ad verse w eather cond itions;
.8 loss or d am age occasioned by any of the Specifi ed Perils;
.9 civil com m otion or the use or threat of terrorism and / or the activ-
ities of the relevant authorities in d ealing with such event or threat;
.10 strike, lock-ou t or local com bination of w orkm en affecting any of
the trad es em p loyed up on the Works or any of the trad es engaged
17.7 Non-completion certificates 333
in the p reparation, m anufactu re or transp ortation of any of the

good s or m aterials requ ired for the Works or any p ersons engaged
in the prep aration of the d esign for the Contractor ’s Designed
Portion;
.11 the exercise after the Base Date by the United Kingd om Govern-
m ent of any statutory pow er w hich d irectly affects the execu tion
of the Works;
.12 force m ajeu re.’
In stru ction s
The instru ctions referred to in clause 2.29.2.2 are:

• clause 2.15 resolution of errors, om issions etc. in d ocu m ents
• clause 3.15 postp onem ent of w ork
• clause 3.16 provisional su m s
• clause 3.23 antiqu ities
• clause 5.3.2 qu otations.
Statu tory u n d ertak ers’ work s
For com m ent on such w orks see Chapter 13 and the reference there to the
case of Henry Boot v. Central Lancashire Development Corporation (1980).
Sp ecifi ed p erils
These are d efi ned in clau se 6.8 as follow s:

‘fi re, lightning, exp losion, storm , fl ood , escape of w ater from any w ater
tank, ap paratu s or p ipe, earthquake, aircraft and other aerial d evices or
articles d ropp ed therefrom , riot and civil com m otion, but exclu ding
Excep ted Risks.’
‘Excepted Risks’ as referred to here are risks arising from nu clear w aste,
sonic w aves and the like.
Force m ajeu re
JCT 2005 d oes not d efi ne ‘force m ajeure’. For discussion on its m eaning see
Chap ter 13 above.
17.7 Non-complet ion cert ifi ca t es
Clau se 2.31
‘If the Contractor fails to com plete the Works or a Section by the relevant
Com pletion Date, the Architect / Contract Ad m inistrator shall issu e a
334 17.8 Payment of liquidated damages
certifi cate to that effect (a ‘N on-Com p letion Certifi cate’). If a new Com -
pletion Date is fi xed after the issu e of su ch a certifi cate, such fi xing shall
cancel that certifi cate and the Architect / Contract Adm inistrator shall
w here necessary issue a further certifi cate.’
In com m on w ith som e other stand ard form s of contract, JCT 2005 m akes it
a cond ition p reced ent to the d ed uction of liquid ated d am ages, that the
architect shall have issu ed a certifi cate of non-com pletion. This acts as a
safeguard to the contractor against prem ature d ed uctions from paym ent
certifi cates by the em p loyer, and it serves as a p ositive remind er to the
em ployer that the right to d ed uct liqu id ated d am ages has been activated .
The certifi cate in clause 2.31 is to be a statem ent of fact and not a statem ent
of opinion. If the architect fails in his d uty to issue a certifi cate of non-
com p letion he w ill d ep rive the em ployer of his right to d ed u ct liqu id ated
d am ages.
17.8 P a yment of liquida t ed da ma ges
Clau ses 2.32 and 2.37 of JCT 2005 are the principal clau ses detailing the
em ployer ’s rights to d ed u ct, or requ ire the contractor to p ay, liquid ated
d am ages for late com p letion. Clause 2.33 w hich d eals w ith partial posses-
sions by the em p loyer also need s to be consid ered .
Clau se 2.32
‘.1 Provid ed :
.1 the Architect / Contract Ad m inistrator has issu ed a N on-
Com pletion Certifi cate for the Works or a Section; and
.2 the Em p loyer has inform ed the Contractor in w riting before the
d ate of the Final Certifi cate that he m ay requ ire paym ent of, or
m ay w ithhold or d ed uct, liqu id ated d amages,
the Em p loyer m ay, not later than 5 d ays before the fi nal d ate for p aym ent
of the d ebt du e u nd er the Final Certifi cate, give notice in w riting to the
Contractor in the term s set out in clau se 2.32.2.
.2 A notice from the Em ployer und er clause 2.32.1 shall state that for the
period betw een the Comp letion Date and the d ate of practical com p le-
tion of the Works or that Section:
.1 he requ ires the Contractor to pay liquid ated damages at the rate
stated in the Contract Particulars, or lesser rate stated in the notice, in
w hich event the Em ployer m ay recover the same as a d ebt; and / or
.2 that he w ill w ithhold or d ed uct liqu id ated dam ages at the rate
stated in the Contract Particu lars, or at such lesser stated rate, from
m onies d u e to the Contractor.
.3 if the Architect / Contract Ad m inistrator fi xes a later Com pletion
Date for the Works or a Section or such later Com pletion Date is
17.8 Payment of liquidated damages 335
stated in the Confi rm ed Acceptance of a Sched u le 2 Quotation, the

Em ployer shall p ay or repay to the Contractor any am ou nts recov-
ered , allow ed or paid und er clau se 2.32 for the period up to that
later Com p letion Date.
.4 if the Em ployer in relation to the Works or a Section has inform ed
the Contractor in w riting in accord ance w ith clause 2.32.1.2 that he
m ay requ ire paym ent of, or m ay w ithhold or d ed u ct, liquidated
d am ages, then, u nless the Emp loyer states otherw ise in w riting,
clau se 2.32.1.2 shall rem ain satisfi ed in relation to the Works
or Section, notw ithstand ing the cancellation of the relevant N on-
Com p letion Certifi cate and issue of any further N on-Com p letion
Certifi cate.’
Con d ition s p reced en t to d ed u ction
Clau se 2.32.1 states tw o im portant general cond itions preced ent to the
em p loyer ’s rights to ded uct or require p aym ent of liqu id ated d am ages. The
fi rst is that the architect m ust have issued a non-com pletion certifi cate;
the second is that the em ployer mu st have issu ed a notice of intention to
d ed uct or require p ayment. Without either of these d ed uction of liquid ated
d am ages w ill be invalid .
Ad d itionally in clau se 2.32.1 there is a requirement that the em ployer ’s
notice m u st be given not later than 5 d ays before the fi nal date for p aym ent
und er the fi nal certifi cate.
Fu rther cond itions p reced ent are found in clau ses 4.13.4 and 4.15.4 w hich
d eal with the service of w ithhold ing notices for interim and fi nal p aym ent
certifi cates. These are ad d itional to the clause 2.32.1 cond itions.
The overall schem e therefore is that there m u st be a clearly stated d ate
from which d elay dam ages can run; the em p loyer m u st have inform ed the
contractor that he intend s to exercise his rights regard ing d elay d am ages;
and the em p loyer m u st serve w ithhold ing notices in respect of particu lar
d ed uctions.
Em p loyer ’s n otice
At fi rst sight the requirem ent in clause 2.32.2 that the em p loyer ’s notice shall
state the period betw een the com pletion d ate and the d ate of p ractical
comp letion m ight be taken as suggesting that the notice, and the d ed u ction
of liqu id ated d am ages, should only follow p ractical com p letion. H ow ever,
read in conju nction w ith the rem aind er of clau se 2.32 it is app arent that w hat
it m eans is sim ply that the notice shall have a statem ent to the effect that,
for the p eriod betw een the com pletion d ate and practical com pletion,
paym ent or d ed uction of liquid ated d am ages w ill be enforced .
It is, therefore, open to the em ployer to serve his notice under clause 2.32.2
at any tim e prior to the fi nal certifi cate restriction.
336 17.9 Proportioning down of liquidated damages
H e can, if he w ishes, do so at com m encem ent of the contract so that the

contractor is und er no illusion that liquid ated d amages are to be no m ore
than a threat.
Partial p ossession s
As is com m on in construction contracts, sections of the w orks in JCT 2005

are p re-d efi ned p arts of the w orks w ith their ow n comp letion d ates and rates
of liquid ated d am ages. They are covered by the p hrases ‘Work or any
Section’ found throu ghout the contract. In contrast, ‘p arts’ of the w ork are
not defi ned and they are not subject to provisions for com pletion, extension
of tim e and liqu id ated d am ages. How ever, p artial com pletions d o infl u ence
such p rovisions for the w hole of the w orks and for sections in so far that
they have the p otential to invalidate liquid ated d am ages unless these are
proportioned dow n.
JCT 2005 p rovid es for p artial possessions by the em ployer in clause 2.33:
‘2.33 If at any tim e or tim es before the d ate of issue by the Architect /
Contract Ad m inistrator of the Practical Com pletion Certifi cate or
relevant Section Com pletion Certifi cate the Em ployer w ishes to take
p ossession of any part or parts of the Works or a Section and the
consent of the Contractor has been obtained (w hich consent shall
not be unreasonably d elayed or w ithheld ), then, notw ithstand ing
anything exp ressed or im plied elsew here in this Contract, the
Em p loyer m ay take possession of su ch part or parts. The Architect
/ Contract Ad m inistrator shall thereup on issu e to the Contractor
on behalf of the Em ployer a w ritten statem ent id entifying the p art
or p arts taken into possession and giving the d ate when the
Em p loyer took possession (‘the Relevant Part’ and ‘the Relevant
Date’ resp ectively).’
17.9 P roport ioning dow n of liquida t ed da ma ges
The prop ortioning d ow n ru le of JCT 2005 is sim ply stated in clau se 2.37 as
follow s:
Clau se 2.37
‘As from the Relevant Date, the rate of liqu id ated d am ages stated in
the Contract Particu lars in respect of the Works or Section containing the
Relevant Part shall red uce by the sam e p roportion as the valu e of the
Relevant Part bears to the Contract Su m or to the relevant Section Su m ,
as show n in the Contract Particu lars.’
Chap ter 18
Civil en gin eerin g form s
18.1 NEC 3 – Engineering a nd Const ruct ion Cont ra ct , 2005
NEC 3 is the generic nam e of a fam ily of contracts p u blished for the Institu -
tion of Civil Engineers. N EC stand s for N ew Engineering Contract and it is
by this nam e that the contracts are generally know n. The m ain contract and
the subcontract w ere fi rst p u blished as consultative ed itions in Janu ary 1991.
First form al ed itions follow ed in March 1993; second editions in Novem ber
1995; and third ed itions in June 2005.
Betw een 1991 and 2005 other contracts w ere p rod uced su ch that by 2005
the N EC 3 fam ily com prised :
• the NEC 3 Engineering and Constru ction Contract
• the NEC 3 Engineering and Constru ction Subcontract
• the NEC 3 Professional Services Contract
• the NEC 3 Short Contract
• the NEC 3 Short Subcontract
• the NEC 3 Ad ju d icator ’s Contract
• the NEC 3 Term Services Contract
• the NEC 3 Fram ew ork Contract.
In this chap ter it is the m ain form N EC 3 Engineering and Constru ction
Contract w hich is exam ined .
NEC 3 is intend ed for use on engineering or build ing projects, both at
home or overseas; and to app ly w hether the contractor has fu ll d esign
responsibility or none at all; and to both ord inary contracts or m anagem ent-
style contracts. There are six pricing op tions varying from lum p su m to fully
cost reim bu rsable. The m ain objectives ad op ted in the d rafting w ere fl exibil-
ity, clarity and p rom otion of good project m anagem ent. To achieve this N EC
3 incorp orates various contractual arrangements and combinations of core
clau ses and optional clauses. Much of the fam iliar term inology of conven-
tional constru ction contracts is aband oned in favou r of a d irect and non-
legalistic style of d rafting. The balance of risk betw een the p arties can be
varied accord ing to w hich optional clau ses are ad op ted , but generally the
full costs of any changes fall w holly on the em ployer. Thus variations and
the like are valu ed at cost inclu d ing contractor ’s p relim inaries.
Liqu id ated d am ages p rovisions for late com pletion are includ ed in the
optional clau ses, as are p rovisions for liqu id ated d am ages for low p erfor-
m ance w hich app ly w hen the works fail to m eet stip u lated p erform ance
stand ard s after hand -over. The p rovisions for extensions of tim e are includ ed
338 18.1 NEC 3 – Engineering and Construction Contract, 2005
in the core clau ses for com pensation events. These are events w hich give the
contractor entitlem ent to both extra cost and extra tim e. There are no provi-
sions for events giving entitlement to extra time only.
Com m en cem en t and com p letion
The com m encem ent d ate is a d ate set by the em p loyer in the contract d ata.
The d ate for com pletion is generally sim ilarly set by the em p loyer bu t there
is provision for it to be set by the contractor if the parties so agree.
Becau se of the m inim alistic style of w ord ing in N EC 3 care need s to be
taken in operating the contract of the d istinction betw een the d ate for com -
pletion (the com pletion d ate) and the d ate of com pletion.
Com p letion is d efi ned in clause 11.2(2) as follow s:
‘(2) Com p letion is w hen the Contractor has:
– d one all the w ork w hich the Works Inform ation states he is to d o
by the Com pletion Date and
– corrected notifi ed Defects w hich w ould have prevented the
Employer from u sing the works and Others from d oing their
w ork.
If the w ork w hich the Contractor is to d o by the Com pletion Date is not
stated in the Works Inform ation, Com pletion is w hen the Contractor has
d one all the w ork necessary for the Employer to u se the works and for
Others to d o their w ork.’
By clause 30.2 the p roject m anager ‘d ecid es’ the d ate of com pletion and
certifi es com pletion w ithin one w eek of com pletion. The contractor is not
required to take any steps to initiate that bu t in p ractice w ill generally do
so. The u se of the w ord ‘d ecides’ is interesting. It raises questions as to
whether it can be said that the parties have agreed to accept the d ecision of
the p roject m anager su ch that it is not challengeable or w hether via the
variou s d ispu te resolu tion p roced ures in the contract, or in law, either party
can seek to overturn the p roject m anager ’s d ecision.
Section al com p letion an d k ey d ates
Sectional com pletion requ irem ents are set ou t in the contract data and are
covered by op tional clau se X5.1 as follow s:
‘In these conditions of contract, u nless stated as the whole of the works, each
reference and clause relevant to:
– the works
– Com p letion and
– Com p letion Date
ap plies, as the case m ay be, to either the w hole of the works or any section
of the works.’
18.1 NEC 3 – Engineering and Construction Contract, 2005 339
Key d ates are d ates set by the em ployer by w hich the contractor has to bring
a stated p art of the w orks to a specifi ed cond ition. Key d ates can be extended
by the sam e com p ensation event p roced ures as com p letion d ates.
Exten sion of tim e
The p rovisions in NEC 3 for extending tim e are signifi cantly different from
conventional extension of tim e clauses. Thu s the phrase ‘extension of tim e’
is never u sed . In its place there is only reference to changes to the com ple-
tion d ate. Clau se 11.2(3) explains this as follow s ‘The Comp letion Date is the
“completion date” unless later changed in accord ance w ith this contract’.
More im portantly the only m echanism for extend ing tim e is throu gh the
comp ensation event procedu res of the contract. These serve tw o pu rp oses
– changes to the contract price and changes to com pletion d ates and/ or
key d ates. The listed com p ensation events, of w hich there are tw enty or so,
d epend ing on w hich of the six m ain options of N EC 3 is selected , can there-
fore be taken as a list of relevant events covering both tim e and price
changes.
One of the m ain featu res of the com pensation event procedu res is that
they are intend ed to com m ence w ith quotations from the contractor on
instru ction from the p roject m anager or by the contractor ’s initiative. For
both tim e and p rice changes there are prescrip tive ru les on how the qu ota-
tions shou ld be calculated – or ‘assessed ’ as N EC 3 p uts it. Put sim ply, tim e
changes are assessed by reference to the im p act of the com pensation event
on the accep ted p rogram m e and price changes are assessed by calculation
of the extra cost (p lus a m ark-up) arising from the event. Id eally both tim e
and p rice assessm ents are prospective calcu lations and as such they shou ld
inclu de the contractor ’s risk allow ances. The follow ing extracts from N EC
3 illustrate the above p oints:
Clau se 62.2 – q u otation s for com p en sation even ts
‘Qu otations for com pensation events com prise prop osed changes to the
Prices and any d elay to the Comp letion Date and Key Dates assessed by
the Contractor. The Contractor submits d etails of his assessment with each
quotation. If the p rogram m e for rem aining w ork is altered by the com -
pensation event, the Contractor inclu d es the alterations to the Accepted
Program m e in his qu otation.’
Clau se 63.3 – assessm en t of d elay
‘A d elay to the Com p letion Date is assessed as the length of tim e that,
d u e to the com pensation event, p lanned Com p letion is later than planned
Com pletion as show n on the Accep ted Program m e. A d elay to a Key Date
is assessed as the length of tim e that, d ue to a com pensation event, the

planned d ate w hen the Cond ition stated for a Key Date w ill be m et is
later than the d ate show n on the Accepted Program m e.’
Clau se 63.6 – risk allow an ces
‘Assessm ent of the effect of a com pensation event includ es risk allow -
ances for cost and tim e for m atters w hich have a signifi cant chance of
occurring and are at the Contractor’s risk und er this contract.’
Other p articu lar points of interest are:
(a) Early w arnings
By clau se 16.1 the contractor and the project m anager are required to give
early w arning notice of any m atters w hich could (am ongst other things)
d elay com pletion. Clause 63.5 states that if the contractor d id not give an
early w arning the event is assessed as if it had been given.
(b) Tim e-bars / cond ition precedent
Clau se 61.3 states:
‘The Contractor notifi es the Project Manager of an event w hich has hap -
p ened or w hich he expects to hap pen as a com p ensation event if:
– the Contractor believes that the event is a com pensation event and
– the Project Manager has not notifi ed the event to the Contractor.
If the Contractor d oes not notify a com p ensation event w ithin eight
w eeks of becom ing aw are of the event, he is not entitled to a change in
the Prices, the Com p letion Date or a Key Date u nless the Project Manager
should have notifi ed the event to the Contractor bu t d id not.’
(c) Float
As can be seen from the above-quoted extract from clause 63.3, a d elay
to com p letion is assessed by reference to p lanned com pletion not by ref-
erence to d elay beyond the d ate for com pletion. In effect, therefore, the
contractor ow ns (or gets the benefi t of) any term inal fl oat in the accepted
programm e.
Ju n e 2006 am en d m en t
Regard ing the accep ted p rogram m e, u sers of N EC 3 shou ld be aw are of an

am end ment m ad e to the contract in Ju ne 2006. That d eletes from clau se 32.1
the w ord s “and of notifi ed early w arning m atters” from the p art of the clause
which read s:
‘The Contractor show s on each revised program me:
...
the effects of im plem ented com pensation events and of notifi ed early
w arning m atters’
...
18.1 NEC 3 – Engineering and Construction Contract, 2005 341
The effect of this is to prevent the contractor benefi ting in his tim e and cost
assessm ents from events which m ight not hap p en. This is an im portant
point given that clau se 65.2 gives a m easu re of fi nality to all im plem ented
comp ensation events in stating ‘The assessm ent of a com p ensation event is
not revised if a forecast u p on which it is based is show n by later recorded
inform ation to have been w rong’.
Listed com p en sation even ts
Clau se 60.1 contains nineteen item s stated to be com pensation events.

These are:
(1) instructions changing the w orks information
(2) late access given by em ployer
(3) things not p rovid ed
(4) su spensions
(5) w orks by the em ployer and others
(6) late rep lies to com m u nications
(7) fossils, antiqu ities, etc.
(8) changed d ecisions
(9) w ithhold ing acceptances
(10) searches for d efects
(11) insp ections
(12) physical cond itions
(13) w eather
(14) em p loyer ’s risks
(15) early take-over
(16) late p rovision of testing facilities
(17) correction of assum p tions
(18) breach by the emp loyer
(19) prevention events.
In ad d ition to the above, there are three fu rther com p ensation events in m ain
options B and D covering changes of qu antities and the like arising from the
use of bills of qu antities.
Some em ployers pru ne the above list to achieve w hat they consid er to
be a m ore acceptable balance of risk. The p rim e cand id ate for d eletion is
w eather, bu t p hysical cond itions usually com es ou t w here the contractor is
responsible for d esign and the prevention events item w hich is close to being
‘force m ajeure’ certainly requ ires attention.
In N EC 3 contracts w here the physical cond itions event rem ains included
it need s to be noted that the test is not the usu al ‘foreseeability’ test bu t
“w hat an exp erienced contractor w ould have ju d ged at the Contract Date
to have had su ch a sm all chance of occurring that it w ou ld have been u nrea-
sonable for him to have allow ed for them ”. Sim ilarly w here the p revention
event rem ains includ ed it need s to be noted that not only is its scope
potentially w ider than force majeure bu t it also is tested by consid eration of

what it w ou ld have been u nreasonable to have allow ed for.
D elay d am ages
The only p rovisions for d elay d am ages in N EC 3 are in optional clause X7.
From the reference there to d elay d am ages at rates stated in the contract d ata
this is evid ently intend ed to act as a liqu id ated d am ages clau se. In the
absence of clau se X7 the em ployer ’s remed y for late com p letion is to su e for
general d am ages.
Clau se X7 (d elay d am ages) read s:
‘X7
X7.1 The Contractor pays d elay d am ages at the rate stated in the Contract
Data from the Com pletion Date for each d ay until the earlier of
– Com p letion and
– the d ate on w hich the Employer takes over the works.
X7.2 If the Comp letion Date is changed to a later d ate after d elay d am ages
have been paid , the Employer rep ays the overpaym ent of d am ages
w ith interest. Interest is assessed from the d ate of paym ent to the
d ate of rep aym ent and the d ate of repaym ent is an assessm ent
d ate.
X7.3 If the Employer takes over a part of the works before Com p letion, the
d elay d am ages are red u ced from the d ate on w hich the p art is taken
over. The Project Manager assesses the benefi t to the Employer of
taking over the part of the works as a p roportion of the benefi t to the
Employer of taking over the w hole of the works not p reviously taken
over. The d elay dam ages are red uced in this p rop ortion.’
An im p ortant p oint to note about clauses X7.1 and X7.3 is that there are two
possible end d ates for conclusion of liability for d elay d am ages – com pletion
and take-over. Whichever of these is the earlier is the effective end date.
How ever, u nd er clau se 35 w henever the em p loyer u ses any part of the
works before com p letion the contractor becom es entitled to a take-over
certifi cate for that p art. At that p oint in time the contractor ’s liability for
d elay d am ages starts to red u ce and clau se X7.3 com es into play. In short,
the ru le is that if the em p loyer uses any p art of the w orks, d elay d am ages
start to red u ce.
Another p oint to note abou t clause X7.1 is that it only covers d am ages
for d elay to ‘the Com p letion Date’. Such d elay can includ e for sectional
com p letions p rovid ing that second ary op tion X5 is also includ ed in the
contract bu t, on the face of it, clau se X7 is not intend ed to have any applica-
tion to d elays in m eeting key d ates. That raises interesting questions on the
exclusivity effect of clause X7 and on the em ployer ’s rights (if any) to recover
as general d am ages costs resu lting from late achievem ent of key d ates
and from late com pletions of sections for w hich no stipu lated rates for
d elay d am ages are stated . For com m ent on su chlike questions see Chap ter
18.2 ICE Conditions of Contract – 7th edition, 1999 343
3 above and , in particular, the extracts there from the jud gm ent in the Biffa
Waste case.
Yet a further p oint of note on clau se X7.1 is that it has little to say on the
proced ures for d ed u ction of d elay d am ages. What seem s to be intended is
that for paym ents d ue after the com p letion date has p assed the p roject
m anager assesses the am ou nts of any delay d am ages and allow s for these
in paym ent certifi cates issued und er clause 50.
Prop ortion in g d ow n
The u su al rule is that d elay d am ages are red u ced in proportion to the value
of the w orks taken over. This is largely an arithmetic or quantity su rveying
exercise. The benefi t rule in clau se X7.3 of N EC 3 is an interesting d epartu re
from the u su al rule. The clause gives no guid ance as to how the em ployer ’s
benefi t is to be assessed and it is not d iffi cult to visu alise end less argu m ent
as to how it shou ld be assessed . The principles of assessment are likely to
be contentiou s and sim ilarly the facts.
A basic p oint w hich need s to be consid ered is that stipu lated rates of d elay
d am ages have to be taken as genu ine pre-estim ates of loss if they are to
stand as valid liqu id ated d am ages. Any ad ju stm ents to the stipulated rates
need therefore to follow som e logical and id entifi able process to avoid
void ing the rates. It is therefore argu able that in assessing the em ployer ’s
benefi t the p roject m anager should only take into account circum stances
anticip ated at the tim e the contract w as m ade. H ow ever, the Gu id ance N otes
to N EC 3 take the opp osite view suggesting that only benefi ts qu alifying at
the tim e of calcu lation of proportioning d ow n should be consid ered .
Given the p otential in the present d rafting of clau se X7.3 for d ispu tes and
d ifferences in app lying its ‘benefi t’ rule, m any em ployers m ay be d isposed
to amend the clau se to bring it into line w ith the conventional ‘valu e’ rule
for p rop ortioning d ow n.
18.2 ICE Condit ions of Cont ra ct – 7t h edit ion, 1999
The fi rst ed ition of ICE Cond itions of Contract w as pu blished in 1945; the
second in 1950; the third in 1951; the fou rth in 1955; the fi fth in 1973; the
sixth in 1991; and the seventh in Sep tember 1999. For fi fty years or so these
w ere the principal stand ard form s for civil engineering w orks bu t with the
grow ing p opu larity of the New Engineering Contract it is d oubtfu l if they
still hold that p osition.
The follow ing comm entary relates to the ICE 7th ed ition.
Com m en cem en t an d com p letion
By trad ition ICE contracts state tim es for comp letion rather than com ple-
tion d ates. Accord ingly it is essential that the starting d ate (or Works
344 18.2 ICE Conditions of Contract – 7th edition, 1999
Com m encem ent Date as it is called ) is fi xed w ith certainty. This is d ealt w ith
in clau se 41 as follow s:
‘41 (1) The Works Com mencem ent Date shall be
(a) the d ate sp ecifi ed in the Ap p end ix to the Form of Tend er or
if no d ate is specifi ed
(b) a d ate betw een 14 and 28 d ays of the aw ard of the Contract to
be notifi ed to the Contractor by the Engineer in w riting or
(c) su ch other d ate as m ay be agreed betw een the p arties.
(2) The Contractor shall start the Works on or as soon as is reasonably
p racticable after the Works Com m encem ent Date. Thereafter the
Contractor shall proceed w ith the Works w ith du e exp ed ition and
w ithout d elay in accord ance w ith the Contract.’
The contractor ’s obligations w ith regard to com pletion are stated in clause
43 (tim e for com pletion):
‘43 The w hole of the Works and any Section requ ired to be com p leted
w ithin a p articu lar tim e as stated in the Ap pend ix to the Form of
Tend er shall be su bstantially com p leted w ithin the tim e so stated (or
such extend ed time as may be allow ed u nd er Clause 44 or revised
time agreed u nd er Clau se 46(3)) calcu lated from the Works Com -
m encem ent Date.’
Com p letion is covered in clause 48, the fi rst part of w hich d eals w ith noti-
fi cation of substantial comp letion:
‘48 (1) When the Contractor consid ers that
(a) the w hole of the Works or
(b) any Section in resp ect of w hich a separate tim e for com pletion
is p rovid ed in the Ap pendix to the Form of Tend er
has been su bstantially com pleted and has satisfactorily p assed any fi nal
test that m ay be p rescribed by the Contract he m ay give notice in w riting
to that effect to the Engineer or to the Engineer ’s Rep resentative. Su ch
notice shall be accom p anied by an und ertaking to fi nish any ou tstand ing
w ork in accord ance w ith the p rovisions of Clau se 49(1).’
The second part of clause 48 m akes clear that it is the engineer ’s d uty to
form an opinion as to w hether the w orks have been substantially com p leted
and , if not, to state w hat rem ains to be d one:
‘48 (2) The Engineer shall w ithin 21 d ays of the d ate of d elivery of su ch
notice either
(a) issue to the Contractor (w ith a copy to the Em ployer) a Cer-
tifi cate of Su bstantial Com pletion stating the d ate on w hich
in his op inion the Works w ere or the Section w as su bstantially
com p leted in accord ance w ith the Contract or
(b) give instru ctions in w riting to the Contractor specifying all
the w ork w hich in the Engineer ’s opinion requ ires to be d one
by the Contractor before the issue of such certifi cate.’
Section al com p letion
ICE 7th ed ition d istingu ishes betw een p arts and sections of the w orks. N or-
m ally only sections have stipu lated tim es for com p letion. A section is d efi ned
in clau se 1(1)(u) w hich states ‘Section m eans a part of the Works separately
id entifi ed in the App end ix to the Form of Tend er ’.
Exten sion of tim e
The proced u res and relevant events for extend ing tim e u nd er ICE 7th ed ition
are found in clau se 44 w hich, in its entirety, read s as follow s:
‘44 (1) Should the Contractor consid er that:
(a) any variation ord ered u nd er Clause 51(1) or
(b) increased qu antities referred to in Clau se 51(4) or
(c) any cause of d elay referred to in these Cond itions or
(d ) exceptional ad verse w eather cond itions or
(e) any d elay im ped im ent prevention or d efau lt by the Em p loyer
or
(f) other sp ecial circum stances of any kind w hatsoever w hich
m ay occu r
be su ch as to entitle him to an extension of tim e for the substantial
com p letion of the Works or any Section thereof he shall w ithin 28 d ays
after the cau se of any d elay has arisen or as soon thereafter as is reason-
able deliver to the Engineer full and d etailed particu lars in justifi cation
of the p eriod of extension claim ed in ord er that the claim m ay be inves-
tigated at the tim e.
(2)
(a) The Engineer shall u pon receipt of su ch particu lars consid er
all the circu m stances know n to him at that tim e and m ake an
assessm ent of the d elay (if any) that has been suffered by the
Contractor as a resu lt of the alleged cau se and shall so notify
the Contractor in w riting.
(b) The Engineer m ay in the absence of any claim m ake an assess-
m ent of the d elay that he consid ers has been suffered by the
Contractor as a result of any of the circum stances listed in
sub-clau se (1) of this Clause and shall so notify the Contractor
in w riting.
(3) Shou ld the Engineer consid er that the d elay suffered fairly
entitles the Contractor to an extension of the tim e for the sub-
stantial comp letion of the Works or any Section thereof su ch
interim extension shall be granted forthw ith and be notifi ed to
the Contractor in w riting w ith a cop y to the Em ployer. In the
event that the Contractor has m ad e a claim for an extension of
tim e bu t the Engineer does not consid er the Contractor entitled
to an extension of tim e he shall so inform the Contractor w ithout
d elay.
(4) The Engineer shall not later than 14 d ays after the d u e d ate or
extend ed d ate for com pletion of the Works or any Section thereof
(and w hether or not the Contractor shall have m ade any claim for
an extension of tim e) consid er all the circu m stances know n to him
at that tim e and take actions sim ilar to that provid ed for in sub-
clause (3) of this Clau se. Shou ld the Engineer consid er that the
Contractor is not entitled to an extension of tim e he shall so notify
the Em ployer and the Contractor.
(5) The Engineer shall w ithin 28 d ays of the issue of the Certifi cate
of Su bstantial Com pletion for the Works or for any Section thereof
review all the circu m stances of the kind referred to in su b-clause
(1) of this Clau se and shall fi nally d eterm ine and certify to the
Contractor w ith a copy to the Em ployer the overall extension of
tim e (if any) to w hich he consid ers the Contractor entitled in
resp ect of the Works or the relevant Section. N o su ch fi nal review
of the circu m stances shall resu lt in a d ecrease in any extension of
tim e alread y granted by the Engineer p u rsuant to sub-clau ses (3)
or (4) of this Clau se.’
Relevan t even ts
The cau ses of d elay referred to in clau se 44(1)(c) are for the m ost part fou nd
in the clau ses listed below. These are clau ses w hich m ake specifi c references
to Clause 44:
• clause 7(4) late d raw ings and instru ctions

• clause 12(2) ad verse physical cond itions or artifi cial obstructions
• clause 13(3) instructions causing d elay
• clause 14(8) d elay in engineer ’s consent to contractor ’s m ethod s or
because of engineer ’s requirem ents
• clause 27(4) variations relating to pu blic u tilities
• clause 31(2) facilities for other contractors
• clause 40(1) su spension of w ork
• clause 42(3) failure to give possession.
Ad d itionally, by cross-references to clau se 13, clau se 5 (docum ents m utually
exp lanatory) and clau se 59(4)(b) (expu lsion of nom inated sub-contractor)
inclu d e relevant events.
The relevant event stated in clause 44(1)(e) for p revention or d efau lt by
the em p loyer w as new to ICE 7th ed ition – p reviou s ed itions having relied
on su ch events being covered by the ‘sp ecial circu m stances’ event. For the
d angers of that see the com m ent on ‘catch all’ phrases in Chapter 6 above.
N otice req u irem en ts
The requ irem ent in clau se 44(1) for the contractor to claim extension of tim e
within 28 d ays of the cau se of d elay is probably not w ord ed strongly enough
to serve as a cond ition preced ent to entitlem ent. But, in any event, the
requ irem ents later in clau se 44 for the engineer to m ake assessm ents of the
extensions of tim e d u e whether or not the contractor has m ad e any claim ,
d isp ose of the p rop osition that tim ely notice is a cond ition preced ent to
entitlem ent.
M eth od of assessm en t
ICE 7th ed ition does not prescribe any p articular m ethod of assessm ent of
extension of tim e. The p rocedures for interim assessm ents u nd er clau se 44(3)
seem to suggest prosp ective assessm ents by the requ irem ent that they be
m ad e ‘forthw ith’. H ow ever, the requirem ents for review s in clauses 44(4)
and 44(5) su ggest retrospective assessm ents.
The u nd erlying requ irem ent that the engineer shall m ake assessm ents
w hich are fair in all the circu m stances know n to him appears to offer plenty
of scope for choice in the m ethod of assessm ent. H ow ever against that the
sp ecifi c references in clau ses 44(2)(b) and 44(5) to the circu m stances referred
to in su b clau se (1) – i.e. to the relevant events – m ight be taken as ind icative
of the need for tim e-im p act analysis.
Liq u id ated d am ages for d elay
The p rovisions in ICE conditions of contract for liqu id ated d am ages for
d elay have trad itionally been expressed w ith a level of detail w hich m akes
clear both their p urpose and proced u res. In fu ll the provisions in ICE 7th
ed ition as set out in clause 47 are as follow s:
‘47 (1)
(a) Where the w hole of the Works is not d ivid ed into Sections the
Ap pend ix to the Form of Tend er shall includ e a sum w hich
represents the Em ployer ’s genuine pre-estim ate (expressed
p er w eek or per day as the case may be) of the d am ages likely
to be su ffered by him if the w hole of the Works is not su bstan-
tially com pleted w ithin the tim e prescribed by Clau se 43 or by
any extension thereof granted u nd er Clause 44 or by any revi-
sion thereof agreed und er Clau se 46(3) as the case m ay be.
(b) If the Contractor fails to achieve su bstantial com pletion of the
w hole of the Works w ithin the tim e so prescribed he shall p ay
to the Em p loyer the said su m for every w eek or d ay (as the
case m ay be) which shall elapse betw een the d ate on w hich
the p rescribed tim e expired and the d ate the w hole of the
Works is su bstantially com p leted .
Provid ed that if any part of the Works is certifi ed as substantially
comp lete pu rsu ant to Clau se 48 before the com p letion of the w hole
of the Works the said sum shall be red uced by the proportion w hich
the valu e of the part so com pleted bears to the value of the w hole of
the Works.
(2)
(a) Where the Works is divid ed into Sections (together com prising
the whole of the Works) which are required to be completed
within particular tim es as stated in the Appendix to the Form
of Tend er sub-clause (1) of this Clause shall not apply and
the said Appendix shall inclu d e a sum in respect of each
Section w hich represents the Em ployer ’s genuine pre-estimate
(expressed p er week or p er day as the case may be) of the
d amages likely to be suffered by him if that Section is not sub-
stantially completed w ithin the tim e p rescribed by Clause 43 or
by any extension thereof granted und er Clause 44 or by any
revision thereof agreed und er Clause 46(3) as the case may be.
(b) If the Contractor fails to achieve substantial com pletion of any
Section w ithin the time so p rescribed he shall pay to the
Em p loyer the appropriate stated sum for every w eek or d ay
(as the case m ay be) w hich shall elapse betw een the d ate on
w hich the prescribed tim e exp ired and the d ate of substantial
com pletion of that Section.
Provid ed that if any part of that Section is certifi ed as substantially
com p lete pu rsu ant to Clause 48 before the com pletion of the w hole
thereof the ap p rop riate stated su m shall be redu ced by the p rop ortion
w hich the value of the part so com p leted bears to the value of the
w hole of that Section.
(c) Liqu id ated d am ages in respect of tw o or m ore Sections m ay
w here circum stances so d ictate ru n concurrently.
(3) All su m s p ayable by the Contractor to the Em ployer p ursu ant to
this Clau se shall be paid as liquidated d am ages for delay and not
as a p enalty.
(4)
(a) The total am ount of liquid ated d am ages in respect of the
w hole of the Works or any Section thereof shall be lim ited to
the ap p rop riate sum stated in the App endix to the Form of
Tend er. If no su ch lim it is stated therein then liquid ated
d am ages w ithout lim it shall ap p ly.
(b) Shou ld there be om itted from the Append ix to the Form of
Tend er any sum requ ired to be inserted therein either by su b-
clause (1)(a) or by su b-clause (2)(a) of this Clau se as the case
m ay be or if any su ch su m is stated to be ‘nil’ then to that
extent d amages shall not be payable.
(5) The Em p loyer m ay
(a) d ed u ct and retain the am ount of any liqu id ated d am ages
becom ing d u e und er the provision of this Clause from any
su m s d ue or w hich becom e d ue to the Contractor or
(b) requ ire the Contractor to p ay such am ou nt to the Em p loyer
forthw ith.
If u pon a su bsequ ent or fi nal review of the circu mstances cau sing
d elay the Engineer grants a relevant extension or further extension
of tim e the Em ployer shall no longer be entitled to liquid ated d am ages

in resp ect of the p eriod of such extension.
Any su m in respect of such period w hich m ay alread y have been
recovered u nd er this Clau se shall be reim bu rsed forthw ith to the
Contractor together w ith interest com pou nd ed m onthly at the rate
provid ed for in Clau se 60(7) from the d ate on w hich su ch su m s w ere
recovered from the Contractor.
(6) If after liqu id ated d am ages have becom e payable in resp ect of any
p art of the Works the Engineer issues a variation ord er u nd er
Clau se 51 or adverse p hysical cond itions or artifi cial obstructions
within the m eaning of Clau se 12 are encountered or any other
situ ation outsid e the Contractor ’s control arises any of w hich in
the Engineer ’s opinion results in fu rther delay to that part of the
Works
(a) the Engineer shall so notify the Contractor and the Em p loyer
in writing and
(b) the Emp loyer ’s fu rther entitlem ent to liquid ated d am ages in
resp ect of that part of the Works shall be su spend ed until the
Engineer notifi es the Contractor and the Em ployer in w riting
that the fu rther d elay has com e to an end .
Su ch susp ension shall not invalid ate any entitlem ent to liquid ated
d am ages w hich accrued before the period of further d elay started to
ru n and su bject to any subsequ ent or fi nal review of the circu m -
stances cau sing d elay any m onies alread y d ed ucted or paid as liqui-
d ated d am ages und er the provision of this Clause m ay be retained
by the Em p loyer.’
For the m ost p art the above provisions are self-explanatory and require
no fu rther comm ent. Clau se 47(6) on the intervention of variations is the
exception.
In terven tion of variations
Clau se 47(6) d eals in an u nu sual w ay w ith the question of w hat extension,

if any, is d u e w hen delay for w hich the contractor is not responsible occu rs
after the d u e com p letion d ate. Instead of attem pting to resolve w hether an
extension is d u e u p to the d ate at w hich the d elay ends, or w hether it is du e
only for the p eriod of d elay itself, this provision avoid s the argu m ent by
su sp end ing d am ages for the period of delay. In princip le this seem s a good
approach bu t the d rafting of the clau se is likely to lead to d iffi culties.
The fi rst problem is that the grou nd s for su spend ing liquid ated d am ages
are argu ably too w id e and it is the engineer ’s ‘opinion’ not a test of fairness
w hich ap p lies. The stated ground s are:
(i) a variation ord er u nd er clause 51;
(ii) ad verse p hysical cond itions or artifi cial obstructions w ithin clau se 12;
(iii) any other situ ation ou tsid e the contractor ’s control.
350 18.3 ICE Conditions of Contract for Minor Works – 3rd edition, 2001
The last item goes w ell beyond the relevant events for extensions of
tim e. Thus any d elay by w eather w ou ld seem to qu alify, w hether exception-
ally ad verse or not, and it does not seem to be op en to the engineer to
consid er w hether it is fair for suspension of d am ages to be m ade: he can
only form an opinion on w hether there has been d elay. Contractors in
culpable delay and p aying liquidated d am ages w ill read ily fi nd a range
of m atters outsid e their control to offer as excu ses for continu ing d elay –
not least, as d iscu ssed in Chapter 13, lack of performance by their sub-
contractors or su p pliers.
A second p roblem lies in the use of the p hrase ‘that part of the w orks’
with regard to both d elay and susp ension of dam ages. It is not obviou s w hy
d elay to p art of the w orks, particu larly if non-critical, shou ld lead to su spen-
sion of d am ages. Nor is it clear how the level of su spended dam ages should
be calculated . Perhap s the intended m eaning is that d am ages shou ld be
suspend ed if there is d elay to a section or the w hole of the w orks, but by
d efi nition in clau se 1(1)(c) a section has its ow n identity w hereas a p art is
undefi ned .
A third p roblem is interp retation of the fi nal p aragrap h of the sub-clau se.
The w ord ing throw s into question the w hole p urpose of the suspension of
d am ages p rovision. Clearly the suspension d oes not invalid ate entitlem ent
to dam ages before the period of d elay.
But, in any event, follow ing the d ecision in the Balfour Beatty case m en-
tioned in Chapter 5 of this book there is little d ou bt that the contractors’
entitlem ent to extension of tim e for acts of prevention d uring a period of
culpable d elay is on a net basis rather than a gross basis. Consequ ently, it is
argu able w hether clau se 47(6) serves m uch usefu l purpose.
18.3 ICE Condit ions of Cont ra ct for Minor Works –

3rd edit ion, 2001
The ICE m inor w orks form , fi rst pu blished in 1988, is intend ed for w orks of
a sim p le and straightforw ard nature w here the risks are sm all, the p eriod
for com p letion d oes not exceed six m onths and the contract value d oes not
exceed £500,000.
As w ith all briefl y d rafted and sim ply w ord ed form s of contract on a
subject as com p lex as w orks of construction there is som e lack of legal pre-
cision. The price of brevity is paid w ith u ncertainty and the m inor works
form d oes leave a few qu estions u nansw ered . Thus, one notable om ission
is the absence of any provision for the em ployer to d ed u ct liqu id ated
d am ages from am ounts d u e to the contractor. This m ay be an u nintend ed
om ission althou gh the w ord ing of the p aym ent clauses su ggests that the
point m ight have been consid ered and rejected by the d raftsmen. Also there
are references throu ghou t the form to ‘p arts of the w orks’ w hich are confu s-
ing since the phrase seem s to apply to both parts d efi ned in the sched u le
and to other parts not so d efi ned but w hich are taken into u se or p ossession
ind ep end ently of the rem aind er.
18.3 ICE Conditions of Contract for Minor Works – 3rd edition, 2001 351
Com m en cem en t an d com p letion
Clau se 4.1 (startin g d ate)
‘The starting d ate shall be the date specifi ed in the Ap p end ix or if no d ate
is sp ecifi ed a d ate to be notifi ed by the Engineer in w riting being w ithin
a reasonable tim e and in any event w ithin 28 d ays after the d ate of accep-
tance of the Tend er. The Contractor shall begin the Works at or as soon
as reasonably p ossible after the starting d ate.’
Clau se 4.2 (p eriod for com p letion )
‘The p eriod or p eriod s for com pletion shall be as stated in the Ap pend ix
or su ch extend ed tim e as m ay be granted u nd er Clause 4.4 and shall
com m ence on the starting d ate.’
Com p letion is d efi ned in clause 4.5(1) by reference to the term ‘p ractical
comp letion’. Partial com pletion is covered in clau se 45(2). Those clauses read
as follow s:
‘4.5(1) Practical com p letion of the w hole of the Works shall occur w hen
the Works reach a state w hen notw ithstand ing any d efect or out-
stand ing item s therein, they are taken or are fi t to be taken into
u se or p ossession by the Em ployer.’
‘4.5(2) Sim ilarly p ractical com pletion of part of the Works m ay also occur
bu t only if it is fi t for su ch p art to be taken into u se or possession
ind ep end ently of the rem ainder.’
Clau se 4.4 – Exten sion s of tim e
‘If the progress of the Works or any p art thereof shall be d elayed for any
of the follow ing reasons:
(a) an instru ction given u nder Clau se 2.3(a)(c) or (d);
(b) an instruction given under Clause 2.3(b) where the test or investiga-
tion fails to d isclose non-com pliance w ith the Contract;
(c) encountering an obstruction or cond ition falling w ithin Clau se 3.8
and / or an instruction given u nd er Clause 2.3(e);
(d ) d elay in receip t by the Contractor of necessary instructions, d raw ings
or other inform ation;
(e) failure by the Em p loyer to give ad equ ate access to the Works or
possession of land required to perform the Works;
(f) d elay in receipt by the Contractor of m aterials to be p rovid ed by the
Em ployer u nd er the Contract;
(g) exceptional ad verse w eather;
(h) any delay im p ed im ent prevention or d efau lt by the Em ployer;
(i) other sp ecial circu m stances of any kind w hatsoever outsid e the
control of the Contractor
352 18.3 ICE Conditions of Contract for Minor Works – 3rd edition, 2001
then provid ed that the Contractor has taken all reasonable step s to avoid
or m inim ise the d elay the Engineer shall upon a w ritten request by the
Contractor prom ptly by notice in w riting grant such extension of the
period for com p letion of the w hole or part of the Works as m ay in his
opinion be reasonable. The extend ed period or period s for com p letion
shall be su bject to regular review provid ed that no such review shall
result in a d ecrease in any extension of tim e already granted by the
Engineer.’
‘An y p art of th e w ork s’
The reference to ‘any part’ in the fi rst sentence shou ld logically apply only
to those parts of the w orks d etailed in the Append ix and w hich have their
ow n period s for com pletion. If the phrase is given a w id er m eaning it brings
in any d elay to any part, w hether critical or not. This m ay be intended since
there is a cross reference from the ad d itional paym ents provisions, clau se
6.1, to d elays in clause 4.4 but clearly althou gh ad ditional paym ent m ay be
d ue for a non-critical d elay, an extension of tim e w ill not be d u e.
Su pp ort for the view that ‘any part of the w orks’ refers only to the parts
d etailed in the Ap pend ix com es later in the clau se w here the engineer is
em pow ered to grant extensions of tim e for ‘the w hole or p art of the w orks’.
It w ou ld seem unlikely that the engineer is intend ed to grant extensions of
tim e for unsp ecifi ed parts of the w orks since they have no stipulated tim e
for com p letion in the fi rst place, other than the tim e for the whole of the
works, and becau se liqu idated d am ages d o not ap ply to unspecifi ed parts
ind ep end ently of the whole.
This latter point reveals a m ajor d iffi culty in the clau se w hatever interp re-
tation is taken. Although there can be sp ecifi ed p arts of the w orks w ith their
ow n tim es for com pletion entered in the Append ix, there is no provision for
sep arate liqu id ated d am ages for each part. Consequ ently late com pletion of
a p art, w hether sp ecifi ed or not, cannot attract liqu id ated d am ages ind epen-
d ently of the w hole since there is no m echanism for arriving at the d am ages
d ue. There is a p roced u re in clause 4.6 sim ilar to the ‘scaling d ow n in pro-
portion to work com p leted ’ provisions of m ost form s w hich m ay be an
attemp t to p rop ortion the stipu lated d amages d ow n to sections, bu t trial
insertion of fi gu res suggests that it d oes not w ork as su ch.
The argu m ent against ‘any part of the w orks’ being only a specifi ed part
is that in other clau ses the phrase is used in a general sense. Thus in clause
8.2, the contractor shall not sub-let ‘any p art of the w orks’; and in clause
2.6(2), a suspension of w ork affecting ‘p art of the w orks’ can be treated as
an om ission variation.
Clau se 4.6 Liq u id ated d am ages for late com p letion
‘4.6 If by the end of the p eriod or extended period or period s for com ple-
tion the Works have not reached practical com pletion the Contractor shall
be liable to the Em ployer in the su m stated in the Append ix as liquidated

d am ages for every w eek (or pro rata for p art of a w eek) d uring w hich the
Works so rem ain u ncom pleted u p to the lim it stated in the Ap pend ix.
Sim ilarly w here part or parts of the Works so rem ain u ncom pleted the
Contractor shall be liable to the Emp loyer in the sum stated in the Appen-
d ix red uced in p roportion to the value of those p arts w hich have been
certifi ed as com plete provid ed that the said lim it shall not be redu ced .
Provid ed that if after liqu id ated dam ages have becom e p ayable in respect
of any p art of the Works the Engineer issues a variation ord er u nder
Clau se 2.3(a) or an artifi cial obstru ction or physical condition w ithin the
m eaning of Clau se 3.8 is encou ntered or any other situ ation ou tsid e the
Contractor ’s control arises any of w hich in the op inion of the Engineer
resu lts in further d elay to that part of the Works
(a) the Engineer shall so inform the contractor and the Em p loyer in
writing
and
(b) the Em p loyer ’s further entitlem ent to liqu id ated d am ages in resp ect
of that p art of the Works shall be su spend ed u ntil the Engineer noti-
fi es the Contractor and the Em ployer in w riting that the further d elay
has com e to an end .
Su ch suspension shall not invalidate any entitlem ent to liqu id ated
d am ages w hich accru ed before the period of d elay started to run and any
m onies d ed ucted or p aid in accord ance w ith this Clau se m ay be retained
by the Em p loyer w ithou t incurring interest thereon und er Clause 7.8.’
18.4 CECA Form of sub-cont ra ct , 2008
A m od el form of sub-contract for civil engineering w orks has been in use

for m any years. Originally prod uced by w hat w as then the Fed eration of
Civil Engineering Contractors it w as know n as the FCEC Blue Form . It is
currently p ublished as the CECA Form of Sub-Contract by the Civil Engi-
neering Contractors Association. The July 1998 version w as reprinted w ith
am end m ents in February 2008.
Few changes have been m ad e to the Blue Form since the 1984 ed ition w as
prod uced for u se on su b-contracts associated w ith m ain contracts u nd er ICE
5th ed ition cond itions of contract. And although there is a reference to ICE
6th ed ition cond itions on the cover of the present version it rem ains effective
for u se w ith ICE 7th ed ition cond itions.
Because of its sim plicity, the Blue Form d oes not fi t in w ell w ith main
contracts und er N EC cond itions but nevertheless it is w id ely used w ith su ch
cond itions. There are variou s reasons for this – trad ition; concern over u sing
the N EC su b-contract w hich sim ply steps-d ow n w ith all its com plexities and
risk-sharing arrangem ents the provisions of the m ain N EC contract, and also
concern that the step ped -d ow n adm inistrative and p rocedu ral arrangem ents
of the N EC sub-contract are too w eighty for sm all sub-contracts and for
sm all su b-contractors.
354 18.4 CECA Form of sub-contract, 2008
Com m en cem en t and com p letion
Clau se 6.1 of the Blu e Form d eals w ith com m encem ent and com p letion.
It states:
‘Within 10 d ays, or su ch other period as m ay be agreed in w riting, of
receip t of the Contractor ’s w ritten instru ctions so to d o, the Sub-Contrac-
tor shall enter u p on the Site and com m ence the execution of the Su b-
Contract Works and shall thereafter proceed w ith the sam e w ith d u e
d iligence and w ithout any d elay, excep t su ch as m ay be exp ressly sanc-
tioned or ord ered by the Contractor or be w holly beyond the control of
the Sub-Contractor. Su bject to the p rovisions of this Clause, the Sub-
Contractor shall com p lete the Sub-Contract Works w ithin the Period for
Com p letion sp ecifi ed in the Third Sched u le hereto.’
Exten sion of tim e
Althou gh there are no provisions for liqu id ated d amages for late com pletion
in the Blu e Form , it does have provisions for extensions of tim e m atching
those in the m ain contract and covering add itionally variations of the su b-
contract w orks and d elays caused by the m ain contractor ’s breaches of the
sub-contract. Su ch extensions are granted by the m ain contractor on the
basis of w hat is ‘fair and reasonable’ and they serve to form alise the com ple-
tion obligations of the sub-contract in claim s for general d am ages. It is an
exp ress cond ition p recedent to gaining an extension u nd er the m atching
provisions of the m ain contract that the su b-contractor gives notice w ithin
14 d ays of any d elay fi rst occurring. This is to ensure that the su b-contractor
only acqu ires the benefi ts which should w ith ad equate notice also be avail-
able to the m ain contractor. This is reinforced by lim itation of the su b-
contractor ’s entitlem ent to that of the m ain contractor.
Clau ses 6.2 to 6.5 w hich d eal w ith extensions of tim e read :
‘(2) If the Sub-Contractor shall be d elayed in the execution of the Su b-
Contract Works:
(a) by any circu m stances or occu rrence (other than a breach of this
Su b-Contract by the Sub-Contractor) entitling the Contractor to
an extension of his tim e for com pletion of the Main Works u nd er
the Main Contract; or
(b) by the ord ering of any variation of the Su b-Contract Works to
w hich p aragrap h (a) of this su b-clause d oes not app ly; or
(c) by any breach of this Sub-Contract by the Contractor;
then in any such event the Su b-Contractor shall be entitled to su ch exten-
sion of the Period for Com pletion as m ay in all the circu m stances be fair
and reasonable.
Provid ed alw ays that in any case to w hich paragrap h (a) of this sub-
clause ap plies it shall be a cond ition preced ent to the Sub-Contractor ’s
right to an extension of the Period for Com pletion that he shall have given
w ritten notice to the Contractor of the circum stances or occu rrence w hich
is d elaying him w ithin 14 d ays of such d elay fi rst occurring and in any
such case the extension shall not in any event exceed the extension of tim e
to w hich the Contractor is prop erly entitled und er the Main Contract.
(3) Where d iffering Period s of Com pletion are sp ecifi ed in the Third
Sched u le for d ifferent parts of the Su b-Contract Works, then for the
purp oses of the p reced ing provisions of this clau se each such part
shall be treated separately in accord ance w ith su b-clause (2) above.
(4) Nothing in this clause shall be construed as preventing the Sub-
Contractor from com m encing off the Site any w ork necessary for the
execution of the Sub-Contract Works at any tim e before receip t of the
Contractor ’s w ritten instructions und er su b-clause (1) of this clause.
(5) The contractor shall notify the Sub-Contractor in w riting of all exten-
sions of tim e obtained und er the provisions of the Main Contract
which affect the Su b-Contract.’
D elay d am ages
The Blue Form d oes not p rovid e for liquid ated d am ages for d elay. As
explained in Chap ter 9, there are good reasons w hy it is m ore app rop riate
to leave d am ages for d elay unliquid ated in su b-contracts. H ow ever, since
one elem ent of such u nliquid ated d am ages m ay be liquid ated d am ages
im posed on the m ain contractor it is com m onp lace to inclu d e d etails of m ain
contract rates of liqu id ated dam ages in the su b-contract sched u les. These
can then be inclu d ed in claim s for general d am ages for d elay if it is the sub-
contractor ’s d elay w hich has cau sed m ain contract d elay.
This is confi rm ed by clauses 3.3 and 3.4 of the Blu e Form w hich deal w ith
the su b-contractor ’s liability for general d am ages:
‘(3) The Su b-Contractor shall ind em nify the Contractor against every
liability w hich the Contractor m ay incur to any other p erson w hat-
soever and against all claim s, d em and s, proceed ings, d am ages, costs
and exp enses m ad e against or incu rred by the Contractor by reason
of any breach by the Su b-Contractor of the Su b-Contract.
(4) The Sub-Contractor hereby acknow led ges that any breach by him of
the Su b-Contract m ay result in the Contractor ’s com m itting breaches
of and becoming liable in d am ages und er the Main Contract and
other contracts m ad e by him in connection w ith the Main Works and
m ay occasion further loss or expense to the Contractor in connection
w ith the Main Works and all su ch d am ages loss and expense are
hereby agreed to be w ithin the contem plation of the p arties as being
p robable resu lts of any su ch breach by the Sub-Contractor.’
Chap ter 19
Process an d p lan t form s
19.1 The IChemE Red Book – 4t h edit ion, 2001
The Institu tion of Chem ical Engineers p u blished its fi rst m od el form for
lu mp sum p rocess plant contracts in 1968. It rapid ly became know n as ‘the
Red Book’ from the colou r of its cover. The p resent version of the form is
the fou rth ed ition, p ublished in 2001. It is titled sim ply Form of Contract,
Lum p Su m Contracts, The Red Book, Fourth ed ition 2001.
The om ission of reference to process and / or plant in the title of the fou rth
ed ition is p erhap s a refl ection of the w id er u sage of the Red Book – p articu -
larly in civil engineering. This arose from the trend tow ard s d esign and
bu ild lu mp sum contracts in the 1980s at a tim e when there w ere few other
established m od el form s of that type. Moreover u ntil com paratively recently
the Red Book enjoyed the rem arkable record of having avoid ed the attention
of the cou rts.
The cu rrent provisions in the Red Book for com p letion, extensions of tim e
for com p letion and d elay d am ages are, save for a few excep tions, not far
rem oved from stand ard p rovisions in construction contracts.
Com p letion
Com p letion u nder the Red Book can be a m ore com p lex concept than com -
pletion as u nd erstood in constru ction contracts. It d ep end s on the am ou nt
of testing requ ired . Thu s com pletion of constru ction of the plant m ay be fol-
low ed by take-over tests and then perform ance tests – w ith each stage having
its ow n certifi cation. Ad ditionally the Red Book p rovid es for sectional com -
pletions and allows other u nspecifi ed things, examp les of w hich cou ld be
the provisions of p rogram m es or m anuals, to be given com pletion d ates.
How ever, as can be seen from clau se 13.1, the comp letion p rovisions concen-
trate p rincipally on com pletion of constru ction of the plant. This is marked
by the issue of a Constru ction Com pletion Certifi cate u nd er clau se 32.3.
Clau se 13.1 read s:
‘13.1 Subject to the provisions of Clause 14 (Delays), the Contractor shall
com p lete the construction of the Plant read y for the carrying out of
the take-over p roced ures on or before the d ate, or w ithin the period ,
specifi ed in Sched ule 11 and shall also com plete any specifi ed
section of the Plant and d o any other thing in the performance of
19.1 The IChemE Red Book – 4th edition, 2001 357
the Contract on or before the d ates, or w ithin the p eriods, specifi ed

in the said Sched u le.’
A w ell-recognised problem w ith clau se 13.1 is that it seem s to require only
read iness for take-over tests rather than satisfactory p assing of take-over
tests to establish com pletion. But that can read ily be rectifi ed , and frequ ently
is, by includ ing in Sched ule 11 the passing of take-over tests as one of the
things w ith a stip u lated com pletion d ate.
Section al com p letion
The Red Book provid es for sectional com pletion, at least as far as com p letion
of constru ction of the plant is concerned in clause 32.1. This read s:
‘32.1 If the Contract provid es for the com p letion of construction of the
Plant to be by sp ecifi ed sections, the provisions of Sub-clau ses 32.2
to 32.5 shall ap ply as if the reference therein to Plant w ere a refer-
ence to a specifi ed section.’
Exten sion s of tim e for com p letion
The principal clause in the Red Book d ealing w ith extension of tim e for
comp letion is clau se 14.1 w hich read s:
‘14.1 If the Contractor is d elayed in the p erform ance of any of his obliga-
tions u nd er the Contract by any of the m atters specifi ed below, or
if either p arty is d elayed by Force Majeu re in the performance of
any of his obligations u nd er the Contract, the relevant party shall
forthw ith give notice to the Project Manager and as app ropriate to
the Contractor.
As soon as reasonably possible, the Contractor shall ad vise the Project
Manager of the extension of any date or period sp ecifi ed in the Contract
for the com pletion of such obligations w hich he consid ers w ould be fair
and reasonable in the circum stances. The Contractor shall keep contem-
poraneou s record s of the circum stances, extent and effect of such d elay.
The Project Manager shall, w ithin fou rteen d ays of the tim e that the extent
and consequ ences of any such d elay are know n, issue a Variation Order
both to the Pu rchaser and to the Contractor stating the app ropriate exten-
sion to the App roved Program m e and to Sched u le 11 (Tim es of com ple-
tion) or, if app rop riate, to the period in Sched ule 16 (Perform ance tests
and p roced u res) by the end of w hich the Plant shou ld have p assed all its
perform ance tests. If either party d oes not agree w ith such extension and
such d isagreem ent is not settled in accord ance w ith Clau se 45 (Dispu tes)
then the m atter may be referred to an Expert in accord ance w ith Clause
47 (Reference to an Exp ert).
The m atters entitling the Contractor to an extension u nd er this Sub-
clause are d elays caused by:
358 19.1 The IChemE Red Book – 4th edition, 2001
(a) the occurrence of cond itions to w hich the p rovisions of Su b-clau se 6.3
ap p ly;
(b) a Variation ord ered by the Project Manager (other than a Variation
Ord er given by reason of the Contractor ’s d efau lt) excep t w here the
d elay is alread y covered in a Variation Order issued by the Project
Manager u nd er Sub-clause 16.3;
(c) the giving of any Suspension Ord er by the Project Manager, except
w here given by reason of the Contractor ’s d efault;
(d ) a breach of the Contract by the Pu rchaser; or
(e) the failure of any Su bcontractor nom inated by the Project Manager in
accord ance w ith Clause 10 (N om inated Su bcontractors) to p erform
su ch Su bcontractor ’s obligations d esp ite all d ue su pervision by the
Contractor.’
Clau se 6.3 m entioned in clause 14.1(a) above is an u nforeseen physical con-
d itions clau se, the m ain bod y of w hich read s:
‘6.3 If d uring the carrying out of the Works the Contractor encou nters on
the Site any p hysical cond ition w hich at the d ate of tend er as stated
in the Agreem ent cou ld not reasonably have been foreseen by an
exp erienced contractor possessed of all the information w hich the
Contractor then had or could have obtained by visual inspection of
the Site or by reasonable enquiry, and if the Contractor consid ers that
he w ill in consequ ence of such cond ition incu r an increase in the cost
of perform ing his obligation und er the Contract, he shall give the
Project Manager a notice und er this Su b clause w ithin fourteen d ays
of becom ing aw are of such unforeseen cond ition and otherw ise shall
com p ly with the requirem ents of Su b-clau se 18.1. Any su ch notice
shall . . .’
In sum m ary therefore the relevant events for extensions of tim e are:
• u nforeseen physical conditions

• variations
• susp ensions
• breach by the p u rchaser
• failures of nom inated su b-contractors
• force m ajeu re.
Clau se 14.1 has som e interesting features. Firstly, the onu s is on the contrac-
tor not only to initiate any claim for extension of tim e but also to state w hat
he consid ers to be a fair and reasonable extension. The project m anager has
no express fu nction to perform other than to issue a variation ord er stating
‘the app rop riate extension’ – this presu m ably being the p roject manager ’s
assessm ent. In the event that either party d isagrees w ith this assessm ent that
matter proceed s to d isp ute resolution.
Another point of interest is that in so far as d elays are caused by force
majeu re the clause ap p lies even-hand ed ly to both parties. That is to say,
the pu rchaser has the sam e entitlem ent as the contractor to ap ply for an
19.1 The IChemE Red Book – 4th edition, 2001 359
extension of tim e in w hich to perform his obligations. At fi rst sight this

w ou ld appear to be an arrangem ent w hich cou ld , in som e circum stances,
relieve the purchaser of his fi nancial liabilities to the contractor for d elay
claim s. H ow ever, on close read ing of the clau se it can be seen that
only specifi ed times can be extend ed . It w ill not often be the case that the
contract im poses specifi ed tim es for perform ance on the p u rchaser and it
is d oubted if the clau se shou ld be operated so as to grant extensions of
time to the p urchaser for d elays w hich are no m ore than ord inary acts of
prevention.
Also of interest is that extensions of tim e are form alised by the issu e of a
variation. This has the effect of bringing extensions of tim e w ithin the scop e
of clau se 16 (variations) of the Red Book. Consequently, fi nancial claim s
from the contractor for d elay should be normally evalu ated und er the ru les
for the valuation of variations. Note, however, that clau se 14.4 sp ecifi cally
requ ires d elay claim s arising from the pu rchaser ’s breach or failu res of
nominated sub-contractors to be valued on a cost plu s profi t basis and clause
14.5 requ ires the parties to bear their ow n costs if the d elay is caused by
force m ajeu re.
Finally the facility in clause 14.1 for d isputes on extension of tim e to be
referred to an expert need s to be consid ered w ith cau tion. Und er clause 47
of the Red Book the parties agree to be bou nd by d ecisions of an expert and
that his d ecisions shall be fi nal and bind ing. For m ost Red Book contracts
this w ill be the end of the m atter bu t not necessarily so for contracts falling
w ithin the scop e of statu tory ad ju d ication law s.
Force m ajeu re
Force m ajeu re, as referred to in clau se 14.1, is d efi ned in clause 14.2 as

follow s:
‘14.2 In the context of this Clause, ‘Force Majeure’ shall m ean any cir-
cu m stance beyond the reasonable control of either party w hich
p revents or im pedes the d u e perform ance of the Contract by that
p arty includ ing, but not lim ited to, the follow ing:
(a) governm ent action or trad e em bargo;
(b) w ar, hostilities or acts of terrorism ;
(c) riot or civil com m otion;
(d ) ep id em ic;
(e) earthqu ake, fl ood , fi re or other natural physical d isaster;
(f) exceptionally severe w eather cond itions or the consequences
thereof;
(g) denial of the use of any railw ay, port, airport, shipp ing service
or other m eans of public transp ort; or
(h) ind u strial d isputes, other than any solely confi ned to the Con-
tractor and / or his Su bcontractors or their em p loyees inclu d ing
em p loyees of any Affi liate of the Contractor or Subcontractor.
360 19.2 MF / 1 (Rev 4) 2000 edition
The mere shortage of labour, m aterials or utilities shall not constitute

Force Majeu re u nless caused by circu m stances w hich are them selves
Force Majeure.’
D am ages for d elay
The Red Book’s p rovisions for d am ages for delay are set out principally in
clau ses 15.1 and 15.2. These read :
‘15.1 If the Contractor fails to com plete the Plant or any sp ecifi ed section
thereof or to d o any other thing in accord ance w ith Sched ule 11
(Tim es of com pletion), the Contractor shall p ay the Pu rchaser liqu i-
d ated d am ages as prescribed in Sched u le 12, but shall have no
liability to p ay d am ages in excess of the m axim um (if any) stated
in Sched u le 12.
15.2 If after liqu id ated d am ages for d elay have becom e p ayable in respect
of any p art of the Plant the Project Manager issu es a Variation Order
or a physical cond ition is encou ntered as envisaged in Su b-clause
6.3, either of w hich d elays the Contractor and in the op inion of the
Project Manager properly entitles the Contractor to an extension of
tim e in resp ect of such further d elay to that part of the Plant, the
Project Manager shall forthw ith so inform the Contractor and the
Pu rchaser in w riting.
The Purchaser ’s fu rther entitlem ent to liqu id ated d am ages in resp ect
of that part of the Plant shall thereupon be su sp end ed u ntil the Project
Manager notifi es the Contractor and Pu rchaser in w riting that su ch
further d elay has com e to an end.
Such su sp ension shall not invalid ate any entitlem ent to liquidated
d am ages w hich accru ed before the period of fu rther d elay started to ru n
and (subject to any fi nal review of the circu m stances) any m onies alread y
d ed ucted or p aid as liqu id ated d am ages for d elay m ay be retained by the
Pu rchaser.’
Provid ed that the d ata entered into Sched u les 11 and 12 is consistent and
com p lete, the op eration of clause 15.1 is reasonably straightforw ard .
How ever, there is no express provision for the purchaser to d ed u ct liqui-
d ated d am ages nor is there any provision for proportioning d ow n liqui-
d ated d am ages for partial com pletions.
Clau se 15.2 is less clear in its intent and op eration. It relates to d elays
occurring w hen the contractor is in a period of cu lpable d elay bu t it ap par-
ently restricts the contractor ’s entitlem ent to any further extension of tim e
to delays cau sed by variations and unforeseen physical cond itions.
19.2 MF / 1 (Rev 4) 2000 edit ion
Since 1903 there has been a m od el form of cond itions of contract for p lant
and electrical w orks. Originally know n as MF‘A’, it w as re-nam ed MF / 1
19.2 MF / 1 (Rev 4) 2000 edition 361
in 1988, since w hen it has been pu blished in variou s ed itions – the latest
being MF / 1 (Rev 4) 2000 ed ition. Its full title is ‘Mod el form of General
Cond itions of Contract for use in connection w ith hom e or overseas con-
tracts for the su pp ly of electrical, electronic or m echanical plant – w ith erec-
tion’. It is p u blished for a joint comm ittee of the Institu tions of Electrical and
Mechanical Engineers.
The p rovisions in MF / 1 for com pletion, extensions of tim e for com ple-
tion, and d elay d am ages are signifi cantly d ifferent from those in stand ard
build ing and civil engineering form s. Most notably, liquid ated d am ages can
become d ue even if there is no stipu lated tim e for com pletion and in the
event of p rolonged d elay tim e can be m ad e of the essence.
Com pletion
Com p letion in MF / 1 is w hen the w orks pass their tests on com p letion. This
can be seen from the follow ing clauses:
Clau se 13.1 (con tractor ’s gen eral ob ligation s)
‘13.1 The Contractor shall, subject to the provisions of the Contract, w ith
d u e care and d iligence, d esign, m anu factu re, d eliver to Site, erect
and test the Plant, execute the Works and carry ou t the Tests on
Com pletion w ithin the Tim e for Com p letion.’
Clau se 29.2 (tak in g-over certifi cate)
‘29.2 When the Works have passed the Tests on Com p letion and are
com plete (excep t in m inor resp ects that d o not affect their u se for
the p urpose for w hich they are intended ) the Engineer shall issu e a
certifi cate to the Contractor and to the Pu rchaser (herein called a
‘Taking-Over Certifi cate’). The Engineer shall in the Taking-Over
Certifi cate certify the date u p on w hich the Works p assed the Tests
on Com p letion and w ere so comp lete.’
Clau se 32.1
32.1 Su bject to any requ irem ent und er the Contract for the com p letion of
any Section before the comp letion of the w hole of the Works, the
Contractor shall so execute the Works that they shall be com plete
and pass the Tests on Com pletion (but not the Perform ance Tests, if
any be inclu d ed ) w ithin the tim e for Com pletion.’
Note that there is no obligation or need for the engineer to issu e a certifi cate
of comp letion – the taking-over certifi cate serves for this p urp ose.
362 19.2 MF / 1 (Rev 4) 2000 edition
Section al com p letion s
MF / 1 allow s for sectional com pletions by stating in clau se 29.1: ‘If the
Contract provid es for the Works to be taken over by Sections the provisions
of this clau se shall ap ply to each su ch Section as it app lies to the Works.’
Exten sion of tim e for com p letion
Clau se 33.1 (exten sion of tim e for com p letion) states
‘If, by reason of any variation ord ered pu rsu ant to clau se 27 (Variations)
or of any act or om ission on the p art of the Pu rchaser or the Engineer or
of any ind ustrial d isp ute or by reason of circum stances beyond the rea-
sonable control of the Contractor arising after the acceptance of the Tend er,
the Contractor shall have been d elayed in the com pletion of the Works,
w hether su ch d elay occu rs before or after the Tim e for Com p letion, then
provid ed that the Contractor shall as soon as reasonably practicable have
given to the Purchaser or the Engineer notice of his claim for an extension
of tim e w ith fu ll su p porting details, the Engineer shall on receip t of su ch
notice grant the Contractor from tim e to tim e in w riting either p rosp ec-
tively or retrosp ectively su ch extension of the Time for Com p letion as
m ay be reasonable.’
As can be seen, relevant events are grou ped into fou r categories:
• variations
• acts or om issions of the purchaser or the engineer
• ind ustrial d isp u tes
• circu m stances beyond the reasonable control of the contractor.
Act or om ission
The phrase ‘act or om ission on the part of the Pu rchaser ’ m ay not be

wid e enou gh to cover all d elays for w hich the pu rchaser cou ld be liable –
for exam ple, d elays caused by the pu rchaser ’s other contractors. How ever,
since any such d elay cou ld be covered by the category of circum stances
‘beyond the control of the contractor ’, the om ission is p robably not
serious.
In d u strial d ispu tes
‘Any ind u strial d isp ute’ is w ide enough to cover d ispu tes both within and
without the contractor ’s organisation. To the extent that the contractor ’s
ow n m anagem ent practices m ay have contribu ted to an ind ustrial d ispute,
the w ord ing seem s generous to the contractor.
19.2 MF / 1 (Rev 4) 2000 edition 363
Circu m stances b eyon d th e con trol of th e Con tractor
‘Circu m stances beyond the reasonable control of the Contractor ’ are lim ited
in clau se 33.1 to those arising after acceptance of the tend er. This is not as
straightforw ard a lim itation as it m ight appear. Its interpretation tu rns on
w hat is m eant by circu m stances. For exam ple, on one interpretation the
contractor w ou ld have no entitlem ent to an extension of time for unexpected
site cond itions w hich existed prior to acceptance of the tender if the cond i-
tions themselves rather than the d iscovery of the cond itions are to be
regard ed as the ‘circu m stances’. Another aspect of the phrase ‘circu m stances
beyond the reasonable control of the Contractor ’ to consider is how w id e is
its scope. A similar p hrase w as given an unexpected ly w id e m eaning by the
House of Lord s in Scott Lithgow Ltd v. Secretary of State for Defence (1989). See
Chap ter 6 for com m ent on this case.
As to d elays cau sed by force m ajeure as d efi ned in clause 46.1 of MF / 1
that clause clearly contem plates that extensions of tim e w ill be aw ard ed and
presu m ably, since clause 33.1 d oes not expressly m ention force m ajeu re,
su ch d elays com e u nder circu m stances beyond the reasonable control of the
contractor.
Ad verse w eath er
There is no sp ecifi c relevant event in clause 33.1 for d elays caused by ad verse
w eather bu t it w ou ld certainly be open to the contractor to argu e that these
w ere beyond his reasonable control.
D elays after th e tim e for com p letion
Clau se 33.1 is m ore explicit than the extension of tim e provisions in m ost
other contracts in expressly stating that it ap plies to d elays w hich occu r
after the tim e for com pletion. By that is m eant, after the tim e the contrac-
tor shou ld have com p leted and the contractor is p roceed ing in w hat
is sometim es know n as culpable delay and is liable for d am ages for late
comp letion.
The legal p osition in respect of delays after the tim e for com pletion w as
exam ined , albeit in the context of the standard build ing form of contract,
JCT 1980, in the case of Balfour Beatty Building Ltd v. Chestermount Properties
Ltd (1993). It w as held that the extension of tim e provisions did ap ply to
su ch d elays and that the extensions granted should be on a net basis rather
than on a gross basis. That d ecision is thou ght to be of general ap plication
and is likely to be app licable to p lant and process contracts as w ell as
to construction contracts. Another p oint to note is that for MF / 1 the pro-
visions for d elays after the tim e for com pletion are so w orded that they
extend to neu tral d elays as w ell as to d elays caused by the p u rchaser. The
364 19.2 MF / 1 (Rev 4) 2000 edition
Balfour Beatty case left op en the question of w hether the contractor had an
entitlem ent to an extension of tim e for d elays cau sed by such neutral events
as strikes and fl ood s w hich w ould have been avoid ed if the contractor had
com p leted on tim e.
N otice of claim
Clau se 33.1 contains a p roviso on the d uty of the engineer to grant su ch

extensions of tim e as are d ue. It read s: ‘then provid ing that the Contractor
shall as soon as reasonably practicable have given . . . notice of his claim for
an extension of tim e . . . the Engineer shall on receip t of su ch notice . . .
grant . . . su ch extension . . . as m ay be reasonable’.
This m ay be intend ed to act as a condition preced ent to the granting of
any extension of tim e and it can be argu ed that if the contractor fails to give
notice he loses his entitlem ent. See, for exam p le, the Steria v. Sigma (2007)
case d iscu ssed in Chap ter 5 w here a sim ilar provision in a MF / 1-based
contract w as held to be a cond ition preced ent.
‘Prosp ectively or retrosp ectively’
These w ord s are u sed to overcom e d iffi cu lties w hich have arisen in som e
contracts on the retrospective granting of extensions of tim e.
Clearly it is d esirable that w henever possible the contractor shou ld be
granted extensions of tim e prosp ectively so that he has a com pletion d ate
to aim for and can plan accord ingly. It can even be argu ed that the w ord s
‘on receipt of such notice the Engineer shall’ im p oses a du ty on the engineer
to d eal w ith claim s for any extension w ith reasonable prom ptitud e – if
perhap s, not ‘forthw ith’ as required by som e contracts.
‘As m ay b e reason ab le’
This p hrase ap parently gives the engineer som e fl exibility in d eterm ining
the am ou nt of an extension of tim e. In circu m stances such as concurrent
d elay w here the contractor ’s entitlem ent m ay not m atch exactly the record ed
d elay, ap p ortionm ent w ou ld appear to be in ord er.
D elay b y su b -con tractors
Clau se 33.2 reads:

‘33.2 Any d elay on the part of a Su b-Contractor w hich prevents the
Contractor from com pleting the Works w ithin the Tim e for Com ple-
tion shall entitle the Contractor to an extension thereof p rovid ed
19.2 MF / 1 (Rev 4) 2000 edition 365
su ch d elay is d ue to a cau se for w hich the Contractor him self w ould

have been entitled to an extension of tim e und er su b-clau se 33.1
(Extension of tim e for com p letion).’
This is not it is su ggested a general p rovision entitling the contractor to claim
an extension of tim e for any d elay caused by a sub-contractor. Su ch a provi-
sion w ou ld cut right across the basic p rincip le that the contractor is respon-
sible for the p erform ance of his sub-contractors. More likely, clause 33.2
m erely provides that the contractor retains his entitlem ent to extensions of
time even thou gh the relevant events app ly d irectly to sub-contractors. In
m ost contracts this is to be im plied .
M itigation of con seq u en ces of delay
Clau se 33.3 read s:

‘In all cases w here the Contractor has given notice und er Su b-Clause 33.1
(Extension of Tim e for Comp letion) the Contractor shall consu lt w ith the
Engineer in ord er to d eterm ine the steps (if any) w hich can be taken to
overcom e or m inim ise the actu al or anticip ated d elay. The Contractor
shall thereafter com p ly w ith all reasonable instructions w hich the Engi-
neer shall give in ord er to overcom e or m inim ise such d elay. If com pliance
w ith any such instruction shall cause the Contractor to incur add itional
Cost and the Contractor is entitled to an extension of tim e, the am ou nt
thereof shall be ad d ed to the Contract Price.’
There is m u ch good sense in this provision to m itigate d elay bu t the w ord ing
could be clearer. The qu estion is – d oes the contractor get p aym ent instead
of an extension of tim e or d oes he get both? The p oint is im portant in d eter-
m ining whether there is any transfer of risk to the contractor in respect
of attem p ts to m itigate d elay. If there is not then the pu rchaser risks the
expenditu re of the extra costs w ithout any guarantee of a correspond ing
benefi t.
On strict interpretation of the w ord ing of clause 33.3 it is su ggested that
the contractor is entitled to receive both an extension of tim e and p aym ent
of extra costs. H ow ever, there mu st be som e d ou bt as to w hether this is
intend ed . The proced ural arrangem ents of the clau se p lace the initiative
w ith the contractor and this seem s odd if he is sim ply sp end ing the p ur-
chaser ’s m oney.
‘Th e Con tractor sh all con su lt’
Und er the w ord ing of clause 33.3 the contractor is obliged to consult
w ith the engineer w henever an app lication is m ad e for an extension of
time. This ap plies both to d elays for w hich the pu rchaser is responsible and
to neu tral d elays. Althou gh the contractor d oes not have d iscretion on
366 19.2 MF / 1 (Rev 4) 2000 edition
whether or not to consu lt he m u st in practice have d iscretion on w hat he

proposes.
‘Sh all com p ly w ith all reason ab le in stru ction s’
In so far that the engineer gives instru ctions w hich m atch or are d eveloped
from the contractor ’s proposals they w ou ld no d ou bt be d eem ed to be rea-
sonable instructions. For instructions not agreed in the consultation p rocess
these m ight w ell be d eem ed to be unreasonable.
N ote that the contractor ’s obligation is only to com p ly w ith reasonable
instru ctions – not all instructions. But in any event the obligation m ay be
more theoretical than real becau se if the contractor refu ses to com ply w ith
instru ctions, w hether reasonably given or unreasonably given, there is no
obviou s contractu al rem ed y short of invoking the term ination proced u res
for his d efau lt.
The key qu estion for the contractor in d ecid ing w hether or not to com ply
with the engineer ’s instru ctions is likely to be – w ill paym ent be m ade for
the extra costs? For the answ er to this the contractor need s to know w hether
or not the engineer accep ts that there is an entitlem ent to extension of tim e.
Unfortunately for the contractor the w ord ing of clause 33.3 does not require
the engineer to state his p osition in ad vance of giving instru ctions – although
since it is the pu rchaser ’s m oney w hich is at stake the engineer w ou ld be
well ad vised to know his p osition and to have obtained the approval of the
purchaser before giving any instructions.
As a general point it is questionable w hether instructions on acceleration
type m atters shou ld ever be left to the engineer. Usu ally any paym ents to
the contractor for attem p ting to fi nish before the d ue d ate are agreed d irectly
betw een the p urchaser and the contractor and both p arties know w here they
stand before acceleration m easures are instru cted and com m enced . And to
com p licate m atters, clause 33.3 also requ ires the contractor to com ply w ith
instru ctions to overcom e or minim ise d elay for w hich there is no entitlem ent
to paym ent – a m atter w hich is alread y covered in the contract in clause 14.6
which relates to rate of p rogress.
To alleviate the m ore obvious diffi cu lties of clause 33.3 it is su ggested that
the follow ing p roced u re m ight be ad op ted :
• contractor app lies for an extension of time giving ap propriate d etails;
• contractor indicates to the engineer w hat steps cou ld be taken to over-
com e or m inim ise the d elay;
• engineer form s a view on w hether any extension of tim e is d ue;
• if no extension of tim e consid ered d ue the engineer inform s the contrac-
tor accord ingly and asks for the contractor ’s prop osals u nd er clause
14.6;
• if an extension consid ered d u e the engineer consults w ith the purchaser
on the fi nancial im p lications of taking acceleration m easu res;
• if the p u rchaser consents to ad d itional expend itu re the engineer instructs
the contractor u nd er clause 33.3.
19.2 MF / 1 (Rev 4) 2000 edition 367
D elay in com p letion an d d elay d am ages
Clau se 34.1 d eals w ith d elay in com pletion and liqu id ated d am ages for late
comp letion. The clause read s:
‘34.1 If the Contractor fails to com plete the Works in accordance w ith the
Contract, save as regard s his obligations und er Clauses 35 (Perfor-
m ance Tests) and 36 (Defects Liability), within the Tim e for Com p le-
tion, or if no tim e be fi xed , w ithin a reasonable tim e, there shall be
d ed u cted from the Contract Price or p aid to the Purchaser by the
Contractor the percentage stated in the Ap pend ix of the Contract
Valu e of su ch p arts of the Works as cannot in consequ ence of the
said failure be p u t to the use intend ed for each w eek between the
Tim e for Com p letion and the actu al d ate of com p letion. The am ount
so d ed u cted or paid shall not exceed the m axim um percentage
stated in the App end ix of the Contract Valu e of su ch p arts of the
Works, and such deduction or p aym ent shall su bject to Sub-Clause
34.2 (Prolonged Delay) be in fu ll satisfaction of the Contractor ’s
liability for the said failure.’
‘If n o tim e be fi xed ’
The p rovision in clau se 34.1 that liqu id ated d am ages becom e d u e if the
contractor fails to com p lete w ithin a reasonable tim e ‘if no time be fi xed ’ is
m ost unu sual. N orm al convention is that liqu id ated d am ages ap ply only to
fi xed tim es and u nliquidated d am ages apply w hen tim e is at large. But even
if legal obstacles are not fatal to the app lication of liqu id ated dam ages to
unsp ecifi ed tim es there is the practical point to resolve of w ho d ecid es
w hether or not the contractor has failed to com p lete w ithin a reasonable
time. This alone shou ld be su ffi cient to m ake the point that entering into a
contract w ith no fi xed tim e for com pletion w ill rarely be in the purchaser ’s
interests.
‘Th e p ercen tage stated in th e Ap p en dix’
The ap p end ix of MF / 1, in com m on w ith other plant and p rocess m od el

form s, requ ires the rate of liquid ated d am ages to be stated as a p ercentage
of the contract value for each w eek of d elay. The rate su ggested in the offi -
cial ‘Com m entary’ on MF / 1 published by the sp onsors of the m od el form
is betw een ¼% and 1% p er w eek.
If the rate selected is equivalent to, or less than, the purchaser ’s genu ine
pre-estim ate of loss then it can genu inely stand as liquidated d am ages.
But otherw ise the rate m ay be challengeable as a penalty. In p ractice the
application of a fi nancing form ula of the type app roved in the Finnegan
case gives a rate in the ord er of ½% per w eek w hen m od est su pervision
368 19.2 MF / 1 (Rev 4) 2000 edition
charges are inclu d ed . And for the m ajority of contracts the pu rchaser ’s
true and fu ll p re-estim ate of loss w ou ld probably greatly exceed 1%
per w eek.
‘Su ch p art of th e Work s’
These w ord s su ggest the intention that the rate of liqu id ated d am ages should
be app lied not so m u ch to the contract p rice of the w hole of the w orks as to
the contract value of p arts of the w orks.
Two constru ction cases, Bruno Zornow (Builders) Ltd v. Beechcroft Develop-
ments Ltd (1989) and Turner v. Mathind (1986), illustrate the d iffi culty of
ap plying liqu id ated dam ages to parts of the w orks which are not specifi ed
as sections w ith their ow n rates of d am ages. Those cases did ad m itted ly d eal
with specifi ed su m s rather than p ercentages as liqu id ated d am ages bu t they
show that the cou rts m ay not enforce liqu id ated d am ages p rovisions w hich
are not fu lly sp ecifi ed . The p roblem w ith MF / 1 in referring to parts of the
works is w ho is to sp ecify the valu e of the parts in question and how is the
d iffi cu lty that there is no p rovision for extension of tim e for p arts to be
overcome.
‘As can n ot in con seq u en ce b e p u t to th e u se in ten d ed ’
The w ord s ‘cannot in consequ ence of the said failu re be pu t to the

use intend ed ’ introd uce m ore uncertainty into clau se 34.1. The said ‘failure’
is the failu re of the contractor to com plete the w orks. That in itself is all
that is need ed to activate the contractor ’s liability for late com p letion.
Either the contractor has got a taking-over certifi cate or he has not. It
is therefore d iffi cult to see w hy failu re to com plete is qu alifi ed by consid -
eration of w hether or not the w orks, or p arts of the w orks, cannot in
consequence be p ut to their intend ed u se. On one view the clause seem s
to su ggest that the contractor can challenge his liability for liquid ated
d am ages on the ground s that although he failed to com plete in tim e the
purchaser w as not ready for them . Again this cu ts across the basic legal
princip le that w ith liquidated d am ages the purchaser is not requ ired to
prove his loss.
‘Th e am ou n t . . . sh all n ot exceed th e m axim u m p ercen tage’
The ap pend ix to MF / 1 requires a m axim u m percentage to be stated for

liquid ated d am ages – thus putting a gross lim it on the contractor ’s liability.
The offi cial Com m entary on MF / 1 suggests a m axim um of betw een 5%
and 15%.
This is p u rely a com m ercial arrangement and there is no legal requirem ent
for any m axim um lim it. So the question of w hat m axim u m percentage
19.2 MF / 1 (Rev 4) 2000 edition 369
shou ld be used has to be decid ed on the com m ercial circu m stances of the
parties in each contract. The pu rchaser m ay get the benefi t of better
comp etitive prices if the m axim um percentage is kep t low bu t that need s to
be balanced against the p otential problem s of the p u rchaser if the contractor
is und er no fi nancial pressu re to comp lete on tim e.
Prolon ged d elay
Clau se 34.2 d eals w ith p rolonged delay. The clause states:

‘34.2 If any part of the Works in resp ect of w hich the Pu rchaser has
becom e entitled to the m axim u m amount p rovid ed u nder Sub-
Clause 34.1 (Delay in Com pletion) rem ains u ncom pleted the Pu r-
chaser m ay by notice to the Contractor requ ire him to com plete.
Su ch notice shall fi x a fi nal Tim e for Com p letion w hich shall be
reasonable having regard to such d elay as has alread y occu rred and
to the extent of the w ork requ ired for com p letion. If for any reason,
other than one for w hich the Purchaser or som e other contractor
em p loyed by him is resp onsible, the Contractor fails to com plete
w ithin such tim e, the Purchaser m ay by further notice to the
Contract elect either:
(a) to requ ire the Contractor to com p lete, or
(b) to term inate the Contract in resp ect of su ch part of the
Works,
and recover from the Contractor any loss su ffered by the Purchaser
by reason of the said failu re u p to an am ount not exceed ing the
su m stated in the Append ix or, if no sum be stated, that p art of
the Contract Price that is prop erly ap portionable to such p art of the
Works as cannot by reason of the Contractor ’s failu re be pu t to
the use intend ed .’
Com m en tary on clau se 34.2 – prolon ged d elay
The p u rp ose of clause 34.2 is clearly to keep the contractor u nd er p ressu re

to com plete w hen the m axim u m am ount of liquidated d am ages for late
comp letion has been reached . The pu rchaser is, in effect, given pow er to
m ake tim e of the essence (for w hich the rem ed y for d efau lt is term ination
of the contract) by serving notice on the contractor.
‘An y p art of the Work s’
These w ord s reintrod uce the com plications in clau se 34.1 on the app lication
of the p rovisions to parts of the w orks. Bu t the concept of term ination of the
contract in respect of p arts is even m ore legally du biou s than that of ap ply-
ing liquid ated d am ages to parts.
370 19.2 MF / 1 (Rev 4) 2000 edition
‘A fi n al tim e for com p letion’
It is ap parently left to the purchaser (not the engineer) to fi x the fi nal tim e
for com pletion. The w ord s u sed su ggest that this tim e cannot later be
extend ed . H ow ever, it is far from clear how clau se 34.2 operates if the p u r-
chaser or som e other contractor emp loyed by him is resp onsible for d elay
after the notice fi xing a fi nal tim e for com p letion is served . The p ossibility
is that the p rovisions for term ination lapse and the pu rchaser has no further
rem ed y. It w ould also seem from the w ord s ‘Pu rchaser or som e other con-
tractor ’ that the risk of all other causes of delay rests w ith the contractor and
that no relief is given after the fi xing of the fi nal tim e for com pletion for the
effects of neu tral events.
‘Th e p u rch aser m ay b y fu rth er n otice . . . elect’
By further notice, after the fi nal tim e for com pletion has elap sed , the pu r-
chaser m ay either require the contractor to com p lete, or term inate the con-
tract in resp ect of p arts. How ever, the pu rchaser is not u nd er a d uty to serve
this fu rther notice – the clause read s ‘the Pu rchaser m ay’. The contractu al
position if the pu rchaser fails to serve any fu rther notice w ould seem to be
the sam e as if the pu rchaser serves notice requiring the contractor to com -
plete. N am ely the p urchaser is prepared to accept com pletion w henever it
is achieved . There is nothing in the clause to suggest that the pu rchaser has
the pow er to fi x a second fi nal tim e for com pletion thereby re-activating his
option to term inate the contract.
‘Term in ate th e con tract’
There is no reference in clau se 34.2 linking term ination under the clause w ith
the provisions for term ination und er clause 49 (contractor ’s d efault). Nor is
there anything in clause 49 referring back to clause 34.2. This suggests that
termination u nd er clause 34.2 is w holly ind epend ent of the princip al term ina-
tion p rovisions of MF / 1 as set out in clau se 49. The consequences of term i-
nation u nd er clause 34.2 are therefore purely those d escribed in the clause.
These consequ ences are that the purchaser m ay term inate the contract in
resp ect of the d elayed p arts, and recover unliquid ated d amages up to the
am ou nt stated in the app end ix. This, of course, is after the contractor has
already exhausted the limit of liquid ated d am ages stated in the contract.
‘An y loss su ffered b y th e p u rch aser ’
This phrase m ay not m ean w hat it says. Clause 44.2 of the contract p revents
recovery of ind irect and consequential d am age except in relation to clauses
34.1 and 35.8.
19.2 MF / 1 (Rev 4) 2000 edition 371
‘An am ou n t n ot exceed in g th e su m in th e ap p en d ix’
The ap pend ix requ ires the m axim um loss recoverable by the p urchaser to
be stated as a sum of m oney. There is nothing to stop this su m exceed ing
the contract p rice but the intention is probably that if a su m is stated it is
less than the contract price.
‘If n o su m b e stated ’
Where no sum is stated in the append ix the m axim u m liability of the con-
tractor u nd er clause 34.2 is the contract p rice. But this app lies only w hen
the w hole of the w orks cannot be p ut into u se as intend ed . Where only part
of the w orks cannot be p u t into use an apportionm ent m ust be m ade.
In other w ords, if no m axim u m su m is stated in the app end ix, the con-
tractor ’s m axim um liability for any part of the w orks w hich is still not
capable of being u sed after prolonged d elay is the p rop ortion of the contract
price that the price of the p art has to the w hole.
As a general ru le d am ages for late com pletion are d ed u ctible from the
contract p rice. Thu s the contractor retains his entitlem ent to p ayment for
w ork com p leted notw ithstand ing that he com pletes late and is liable for a
d ed uction for d am ages. In the case of dam ages payable for p rolonged d elay
w here the term ination option is exercised und er MF / 1 the contractor m ay
not have entitlem ent to paym ent of any of the contract p rice bu t he rem ains
liable nevertheless for the pu rchaser ’s loss.
Chap ter 20
FID IC con d ition s of con tract 1999
20.1 FIDIC cont ra ct s
FIDIC cond itions of contract (Féd ération Internationale Des Ingénieu rs –

Conseils) w ere fi rst pu blished in 1957 based on ICE conditions, 4th ed ition.
A second ed ition w as published in 1969; a third in 1977; and a fourth in 1987
– all refl ecting d evelopm ents in ICE cond itions of contract and inclu d ing
mu ch the sam e text and clause nu mbering of ICE cond itions. Throughou t
that tim e, FIDIC conditions, com m only know n as the Red Book becau se of
the cover, were w id ely used for international constru ction projects of a civil
engineering natu re.
In 1999 FIDIC introd u ced fi rst editions of a new suite of contracts:
Con d ition s of con tract for con stru ction
Recom m end ed for build ing or engineering w orks designed in w hole or in

part by the Em ployer and / or his Engineer
Con d ition s of con tract for plan t an d d esign -b u ild
Recom m end ed for the provision of electrical and / or m echanical plant
Con d ition s of con tract for EPC / Tu rn key p rojects
Recom m end ed for pow er plants, infrastructu re projects and the like w here
the contractor takes fu ll responsibility for d esign and construction.
Sh ort form of con tract
Recom m end ed for w orks of sm all capital value.
Not e
The p rovisions for liqu id ated d am ages and extensions of tim e considered in
this chap ter are taken from the Cond itions of Contract for Constru ction. For
convenience it is referred to as the new Red Book.
20.2 Commencement and completion 373
20.2 Commencement a nd complet ion
Clau se 8.1 (com m encem ent of w orks) of the new Red Book states:
‘The Engineer shall give the Contractor not less than 7 d ays’ notice of
the Com m encem ent Date. Unless otherw ise stated in the Particu lar
Cond itions, the Com mencem ent Date shall be w ithin 42 d ays after the
Contractor receives the Letter of Accep tance.’
This is a signifi cant im p rovem ent on the w ord ing of the correspond ing
provision in the old Red Book w hich left m uch to be d esired by w ay of
certainty in saying ‘The Contractor shall comm ence the Works as soon as is
reasonably possible after the receipt by him of a notice to this effect from
the Engineer ’.
Com pletion
Clau ses 8.2 and 10.1 m ake clear that w here tests on com p letion are specifi ed
these have to be p assed before com p letion.
Clau se 8.2 (tim e for com pletion) read s:
‘The Contractor shall com plete the w hole of the Works, and each Section
(if any), w ithin the Tim e for Com pletion for the Works or Section (as the
case m ay be), inclu d ing:
(a) achieving the passing of the Tests on Com pletion, and
(b) com p leting all w ork w hich is stated in the Contract as being required
for the Works or Section to be consid ered to be com pleted for the
p u rp oses of taking-over u nd er Su b-Clau se 10.1 [Taking Over of the
Works and Sections].’
Claim 10.1 (taking over of the w orks and sections) read s:
‘Excep t as stated in Su b-Clause 9.4 [Failure to Pass Tests on Completion], the
Works shall be taken over by the Em p loyer w hen (i) the Works have been
com p leted in accord ance w ith the Contract, inclu d ing the m atters
d escribed in Su b-Clau se 8.2 [Time for Completion] and except as allow ed
in su b-p aragraph (a) below, and (ii) a Taking-Over Certifi cate for the
Works has been issued , or is d eem ed to have been issu ed in accord ance
w ith this Sub-Clause.
The Contractor m ay apply by notice to the Engineer for a Taking-Over
Certifi cate not earlier than 14 days before the Works w ill, in the Contrac-
tor ’s op inion, be com plete and read y for taking over. If the Works are
d ivid ed into Sections, the Contractor m ay sim ilarly app ly for a Taking-
Over Certifi cate for each Section.
The Engineer shall, w ithin 28 d ays after receiving the Contractor ’s
ap plication:
(a) issu e the Taking-Over Certifi cate to the Contractor, stating the d ate
on w hich the Works or Section w ere com p leted in accord ance w ith
the Contract, except for any m inor outstand ing w ork and d efects
w hich w ill not su bstantially affect the use of the Works or Section for
their intend ed p urpose (either untiI or w hilst this w ork is com pleted
and these d efects are rem ed ied); or
(b) reject the application, giving reasons and specifying the w ork required
to be d one by the Contractor to enable the Taking-Over Certifi cate to
be issu ed . The Contractor shall then com p lete this w ork before issu ing
a further notice und er this Su b-Clau se.’
In short it is the issue of the taking-over certifi cate which d efi nes completion.
20.3 Ext ension of t ime
Clau se 8.4 (extension of tim e for com p letion) contains the p rincipal provi-
sions in the new Red Book for extensions of tim e. How ever, it need s to be
read in conjunction w ith other clauses w hich d etail particu lar relevant events
and clau se 20.1 (contractor ’s claim s) w hich inclu d es an im portant cond ition
preced ent to the contractor ’s entitlem ent to extension of tim e.
Clau se 8.4
In fu ll clau se 8.4 states:

‘The Contractor shall be entitled subject to Su b-Clau se 20.1 [Contractor’s
Claims] to an extension of the Tim e for Com p letion if and to the extent
that com pletion for the p urposes of Sub-Clause 10.1 [Taking Over of the
Works and Sections] is or w ill be delayed by any of the follow ing cau ses:
(a) a Variation (u nless an adju stm ent to the Tim e for Com pletion has
been agreed u nder Sub-Clause 13.3 [Variation Procedure]) or other
substantial change in the qu antity of an item of w ork inclu d ed in the
Contract,
(b) a cause of d elay giving an entitlem ent to extension of tim e und er a
Su b-Clau se of these Cond itions,
(c) exceptionally ad verse clim atic cond itions,
(d ) u nforeseeable shortages in the availability of p ersonnel or Good s
caused by epid em ic or governm ental actions, or
(e) any d elay, im ped im ent or prevention cau sed by or attributable to the
Em p loyer, the Em ployer ’s Personnel, or the Em ployer ’s other con-
tractors on the Site.
If the Contractor consid ers him self to be entitled to an extension of the
Tim e for Com pletion, the Contractor shall give notice to the Engineer in
accord ance with Su b-Clau se 20.1 [Contractor’s Claims]. When d eterm ining
each extension of tim e u nd er Sub-Clause 20.1, the Engineer shall review
previou s d eterm inations and m ay increase, but shall not d ecrease, the
total extension of tim e.’
Variation s
The reference in clau se 8.4(a) to ad justm ent to the tim e for com pletion u nd er
clau se 13.3 seem s to concern the procedu ral asp ects of extend ing tim e. It
creates a d istinction between agreed extensions of tim e for variations (recog-
nised by changing the tim e for com pletion) and extensions claim ed for
variations.
Ch an ges in q u an tity
The new Red Book is a re-m easurement contract as confi rmed in clause 12.1.
Hence the provision in clause 8.4(a) for extend ing tim e for substantial
changes in qu antities.
Particu lar en titlem en ts
Clau se 8.4(b) effectively collects together the variou s entitlem ents to exten-
sion of tim e stated elsew here in the conditions. These are:
clause 1.9 – d elayed d raw ings or instru ctions
clause 2.1 – failure to give possession
clause 4.7 – errors in setting-out inform ation
clause 4.12 – u nforeseeable physical conditions
clause 4.24 – fossils
clause 7.4 – testing instructions
clause 8.5 – d elays caused by authorities
clause 8.9 – susp ensions of w orks
clause 10.3 – interference w ith tests on com pletion
clause 13.7 – changes in legislation
clause 19.4 – force m ajeu re.
Clau se 8.5 (d elays cau sed b y au th orities)
Clau se 8.5 clarifi es a m atter w hich in m any constru ction contracts is left
unansw ered – nam ely w hich party carries the risk of d elays attribu table to
the perform ance or attitu d e of p ublic bod ies and au thorities? The clause
read s:
‘If the follow ing cond itions app ly, nam ely
(a) the Contractor has d iligently followed the p rocedu res laid d ow n by the
relevant legally constitu ted public au thorities in the Country,
(b) these au thorities d elay or d isru pt the Contractor ’s w ork, and
(c) the d elay or d isru ption w as Unforeseeable, then this d elay or d is-
ru p tion will be consid ered as a cause of d elay u nd er su b-p aragrap h
(b) of Sub-Clause 8.4 [Extension of Time for Completion].’
Clau se 19.1 (d efi n ition of force m ajeu re)
Clau se 19 d eals in consid erable d etail w ith circum stances arising from ‘force
majeu re’. The clau se com m ences w ith the follow ing d efi nition:
‘In this Clau se, “Force Majeure” m eans an exceptional event or circu m -
stance:
(a) w hich is beyond a Party’s control,
(b) w hich su ch Party could not reasonably have p rovid ed against before
entering into the Contract,
(c) w hich, having arisen, such Party cou ld not reasonably have avoid ed
or overcom e, and
(d ) w hich is not substantially attribu table to the other Party.’
Clim atic con d ition s
To qualify for extension of tim e clim atic cond itions m ust be ‘excep tionally
ad verse’. This can be a controversial m atter although it can be avoid ed by
stating app licable param eters in the contract d ocum ents.
Un foreseeable sh ortages
The p rovision in clause 8.4(d ) for extend ing tim e for u nforeseeable shortages
is another risk sharing arrangem ent of the new Red Book. On its word ing
it seem s to apply to the actions of any governm ent but that m ay not be its
intention.
Preven tion
Clau se 8.4(e) covers acts of prevention by the em ployer, his p ersonnel and
his other contractors. It d oes not expressly extend to the engineer and his
staff bu t it cou ld argu ably d o so.
Clau se 20 (con tractor ’s claim s)
Clau se 8.4 com mences w ith a reference to clause 20.1. That clause read s:
‘If the Contractor considers him self to be entitled to any extension of the
Tim e for Com pletion and/ or any ad d itional paym ent, und er any Clause
of these Cond itions or otherw ise in connection w ith the Contract, the
Contractor shall give notice to the Engineer, d escribing the event or cir-
cum stance giving rise to the claim . The notice shall be given as soon as
practicable, and not later than 28 d ays after the Contractor becam e aw are,
or should have becom e aw are, of the event or circu m stance.
20.4 Delay damages 377
If the Contractor fails to give notice of a claim w ithin such period of 28

d ays, the Tim e for Com p letion shall not be extend ed , the Contractor shall
not be entitled to ad d itional paym ent, and the Em p loyer shall be d is-
charged from all liability in connection w ith the claim . Otherwise, the
follow ing p rovisions of this Su b-Clau se shall ap p ly.’
The p robability is that the clearly w ord ed cond ition precedent to extension
of tim e stated in clause 20.1 w ould be held to be effective u nd er English law
– albeit that there rem ains som e d ebate on w hether such cond itions should
apply to d elays caused by prevention. Und er some civil and equity based
law s it m ay not be so effective.
20.4 Dela y da ma ges
Clau se 8.7 deals in straightforward term s w ith liquid ated dam ages for d elay.
It states:
‘If the Contractor fails to com ply w ith Sub-Clause 8.2 [Time for Comple-
tion], the Contractor shall su bject to Su b-Clau se 2.5 [Employer’s Claims]
pay d elay d am ages to the Em ployer for this d efau lt. These d elay d am ages
shall be the sum stated in the Ap pend ix to Tend er, w hich shall be paid
for every d ay w hich shall elapse betw een the relevant Tim e for Com ple-
tion and the d ate stated in the Taking-Over Certifi cate. H owever, the total
am ou nt d u e u nder this Sub-Clause shall not exceed the m axim um am ount
of delay d am ages (if any) stated in the App end ix to Tend er.
These d elay d am ages shall be the only d am ages d u e from the Contrac-
tor for such d efau lt, other than in the event of term ination u nd er Sub-
Clau se 15.2 [Termination by Employer] p rior to com pletion of the Works.
These d am ages shall not relieve the Contractor from his obligation to
com p lete the Works, or from any other du ties, obligations or resp onsi-
bilities w hich he m ay have und er the Contract.’
Prop ortion in g d ow n
The p rovisions for p rop ortioning d own in the event of p artial com p letions
or occup ations are fou nd in clause 10.2. They state:
‘If a Taking-Over Certifi cate has been issu ed for a part of the Works (other
than a Section), the d elay d am ages thereafter for com p letion of the
rem aind er of the Works shall be red u ced . Sim ilarly, the d elay d am ages
for the rem aind er of the Section (if any) in w hich this p art is includ ed
shall also be red uced . For any period of d elay after the d ate stated in
this Taking-Over Certifi cate, the proportional red uction in these d elay
d am ages shall be calcu lated as the proportion w hich the value of the part
so certifi ed bears to the valu e of the Works or Section (as the case m ay
be) as a w hole. The Engineer shall proceed in accord ance w ith Sub-Clause
378 20.4 Delay damages
3.5 [Determinations] to agree or d eterm ine these proportions. The provi-

sions of this paragraph shall only apply to the d aily rate of d elay d am ages
und er Su b-Clau se 8.7 [Delay Damages], and shall not affect the m axim um
amou nt of these d am ages.’
Because the new Red Book is a re-measu rem ent contract it shou ld be a rela-
tively easy task to value p arts of the w orks and to establish red u ced rates
of liqu idated d am ages for the rem aind er of the w orks. As m ight be exp ected
the lum p su m Cond itions of Contract for EPC / Tu rnkey Projects d o not
perm it the taking-over of p arts except by agreem ent of the p arties and cor-
resp ond ingly they d o not contain a p rop ortioning d ow n clau se.
Tab le of Cases
Abbrevia t ions of La w Report s
The follow ing abbreviations of Reports are u sed :

AC Law Reports Ap peal Cases Series
ALJ Au stralian Law Jou rnal
ALJR Au stralian Law Jou rnal Rep orts
All ER All England Law Reports
Ap p Cas Law Rep orts, Ap p eal Cases
BING Bingham ’s Rep orts, Comm on Pleas
BLR Bu ild ing Law Rep orts
CAMP Cam p bell’s Reports
CH D Law Rep orts, Chancery Division
CILL Constru ction Ind u stry Law Letter
CLR Com m onw ealth Law Rep orts
CONST LJ Constru ction Law Jou rnal
C&P Carrington & Payne’s Rep orts
DLR Dom inion Law Rep orts
EG Estates Gazette
EXCH Exchequer Reports
EWCA England and Wales Cou rt of App eal
EWHC England and Wales H igh Cou rt
FLR Fed eral Law Rep orts (Au stralia)
GIFF Giffard ’s Rep orts
H BC H u d son’s Bu ild ing Contracts
H LC H ou se of Lord s Cases
KB Law Reports Kings Bench Division
LJEX Law Journal, Exchequ er
LJQB Law Journal, Queens Bench
Lloyd s Rep Lloyd ’s List Law Reports
LR/ CP Law Reports, Comm on Pleas
LT Law Tim es Reports
M&W Meeson & Welsby’s Rep orts
N SWLR N ew Sou th Wales Law Rep orts
N ZLR N ew Zealand Law Rep orts
QB Qu eens Bench Rep orts
SALR Sou th African Law Rep orts
SLT Scots Law Tim es
TLR Tim es Law Reports
TR Term Rep orts
WLR Weekly Law Reports
WR Weekly Reporter
380 Table of Cases
Albazero, The (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8

Alexand er v. Cam brid ge Cred it Corp oration Ltd (1987)
9 N SWLR 310 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6, 14.2
Alfred McAlp ine Cap ital Projects Ltd v. Tilebox Ltd [2005]
EWHC 281 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3, 4.6, 5.8, 11.8
Alfred McAlp ine Construction Ltd v. Panatow n Ltd [2000] 1 AC 518 . . . . . 3.8, 4.5
Amalgam ated Build ing Contractors Ltd v. Waltham H oly Cross UDC [1952]
2 All ER 452 . . . . . . . . . . . . . . . . . . . . . . 5.2, 5.3, 5.4, 10.3, 11.4, 12.3, 13.2, 14.7, 14.8
AMEC Process and Energy Ltd v. Stork Engineers & Contractors (1999)
unreported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2
AMEVUDC Finance Ltd v. Au stin (1986) 162 CLR 170 . . . . . . . . . . . . . . . . . . 4.3, 4.6
Angelic Star, The, [1988] 1 Lloyd s Rep 122 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Anglian Water Au thority v. RDL Contracting Ltd (1988) 43 BLR 98 . . . . . . . . . 11.4
Antaios, The [1985] 1 AC 191 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Aoki Corp oration v. Lip p oland (Singap ore) Pte Ltd (1994) . . . . . . . . . . . . . . . . . 11.5
Architectural Installation Services Ltd v. Jam es Gibbons Wind ows Ltd (1989)
46 BLR 91 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
Arenson v. Arenson [1977] AC 405 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
Argentino, The (1888) 59 LT 914 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2
Ariston SRL v. Charly Record s (1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
Arnhold & Co. Ltd v. Attorney General of Hong Kong (1989)
47 BLR 129 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3, 4.5, 8.2, 11.8, 11.9
Ascon Contracting Ltd v. Alfred McAlp ine Construction Isle of Man Ltd (1999)
CILL 1583 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2, 15.2, 16.3
Astea (UK) Ltd v. Tim e Grou p Ltd [2003] EWH C 725 (TCC) . . . . . . . . . . . . . 2.8, 3.2
Avoncroft Construction Ltd v. Sharba H om es (CN ) Ltd [2008]
EWHC 933 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5, 10.7, 10.8
Baese Pty Ltd v. R A Bracken Bu ild ing Pty Ltd (1989) 52 BLR 130 . . . . . 1.1, 3.3, 3.5
Baker v. Willou ghby [1970] AC 467 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2
Balfou r Beatty Bu ild ing Ltd v. Chesterm ou nt Prop erties Ltd (1993)
62 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 5.4, 5.5, 11.7, 14.8, 18.2, 19.2
Balfou r Beatty Civil Engineering Ltd v. Dockland s Light Railw ay Ltd (1996)
78 BLR 42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 2.3, 11.2
Balfou r Beatty Constru ction Ltd v. Scottish Pow er p lc (1994) 71 BLR 20 . . . . . . 3.2
Balfou r Beatty Constru ction Ltd v. Serco Lim ited [2004]
EWHC 3336 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8, 11.2
Banqu e Financiere d e la Cite v. Westgate Insu rance Co. Ltd [1990]
1 QB 665 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2
Banqu e Keyser SA v. Skand ia [1991] 2 AC 249 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2
Barclays Bank p lc v. Fairclough Build ing Ltd (1994) 76 BLR 1 . . . . . . . . . . . . . . . 3.7
Barqu e Quilpu e Ltd v. Bryant [1904] 2KB 261 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
Baskett v. Bend igo Gold Dred ging Co. (1902) 21 N ZLR 166 . . . . . . . . . . . . 5.4, 10.4
Bath and N orth Eastern Som erset District Cou ncil v. Mow lem Plc [2004]
EWCA 115 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5
Bell (A) & Son (Pad d ington) Ltd v. CBF Resid ential Care and
H ousing Association (1989) 46 BLR 102 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
Bevan Investm ents v. Blackall & Stru thers (1977) 11 BLR 78 . . . . . . . . . . . . . . . . . 3.2
BFI Grou p of Com p anies Ltd v. DCB Integration System s Ltd (1987)
CILL 348 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2, 8.2, 10.2, 11.8
Table of Cases 381
Biffa Waste Services Ltd v. Maschinfabrik Ernst H ese GMBH [2008]

EWH C 6 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3, 3.8
Big Island Contracting (H K) Ltd v. Skink Ltd (1990) 52 BLR 110 . . . . . . . . . . . . 10.2
Birm ingham and District Land Co. v. Lond on and N orth Western Railway Co.
(1888) 40 CH.D 268 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.10
Blue Circle Ind u stries plc v. H olland Dred ging Co. (UK) Ltd (1987)
37 BLR 40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.4
Bolam v. Friern H osp ital Managem ent Com m ittee [1957] 1 WLR 582 . . . . . . . . 12.7
Bolton v. Mahad eva [1972] 2 All ER 1322 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2
Boskalis Westm inster Constru ction Ltd v. Liverp ool City Cou ncil (1983)
24 BLR 83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3
Bovis Construction (Scotland ) Ltd v. Whatlings Constru ction Ltd (1995)
75 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
Bovis Lend Lease Ltd v. Triangle Development Ltd (2003) BLR 31 . . . . . . . . . . 10.8
Boyajian v. United States (1970) 423 F 2d 1231 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6
BP Refi nery (Westernport) Pty Ltd v. H astings Shire Cou ncil (1977)
52 ALJR 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3
Brace v. Cald er [1895] 2 QB 253 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2
Braes of Doune Wind Farm (Scotland ) Ltd v. Alfred McAlp ine Bu siness
Services Ltd [2008] EWH C 426 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5
Bramall & Ogd en Ltd v. Sheffi eld City Cou ncil (1983)
29 BLR 73 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6, 4.1, 4.5, 6.3, 6.5, 8.2, 11.9
Brid ge v. Cam pbell Discou nt Co. Ltd [1962] AC 600 . . . . . . . . . . . . . . . . . . . . . . . . 4.3
British Airw ays Pension Trustees Ltd v. Sir Robert McAlp ine & Sons Ltd
(1994) 72 BLR 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6
British Colu m bia Saw m ills Co. v. Nettleship (1868) LR 3 CP 499 . . . . . . . . . . . . . 4.4
British Glansztoff Manufactu ring Comp any Ltd v. General Accid ent
Assurance Corporation Ltd [1913] AC 143 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
British Steel Corp oration v. Cleveland Brid ge and Engineering Co. Ltd
(1984) 24 BLR 94 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7, 2.8
British Westinghou se Electric & Manu factu ring Co. Ltd v. Und ergrou nd
Electric Railway Co. of Lond on Ltd [1912] AC 673 . . . . . . . . . . . . . . . . . . . . . . . 3.2
Bruce v. The Qu een (1866) 2 WW & AB(L) 193 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
Bruno Zornow (Bu ild ers) Ltd v. Beechcroft Develop m ents Ltd (1989)
51 BLR 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4, 19.2
Cape Hatteras, The [1982] 1 Lloyd s Rep 518 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5

CFW Architects (A Firm ) v. Cow lin Constru ction Limited [2006]
EWH C 6 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5
C & P Hau lage v. Mid d leton [1983] 3 All ER 94 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2
Chas. I. Cunningham (1957) IBCA 60 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5
Cine Bes Film cilik Ve Yapim cilik v. United International Pictu res and Others
[2003] EWCA Civ 1669 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2, 4.3
City Inn Ltd v. Shep herd Constru ction Ltd (2001) CA 101/ 00 . . . . . . . . . . . . 1.2, 4.5
City Inn Ltd v. Shep herd Constru ction Ltd (2003) SCLR 795 . . . . . . 1.2, 4.5, 5.7, 5.8
City Inn Ltd v. Shep herd Constru ction Ltd [2007]
CSOH 190 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.2, 4.5, 14.5, 16.5
Clark Contracts Ltd v. The Bu rrell Co. (Constru ction Managem ent)
(No. 2) (2003) SLT (Sh Ct) 73 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8, 4.5
Clem ence v. Clarke (1880) H BC (4th Ed .) Vol. 2 54 . . . . . . . . . . . . . . . . . . . . . . . . .11.4
382 Table of Cases
Clyd ebank Engineering & Ship bu ild ing Co. Ltd v. Yzqu ierd o y Castaned a
[1905] AC 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.1, 4.3, 4.4, 10.5, 11.8
CMC Group Plc v. Michael Zhang [2006] EWCA Civ 408 . . . . . . . . . . . . . . . . . . . 4.5
Colbart Ltd v. H Ku m ar (1992) 59 BLR 89 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
Com m issioner of Pu blic Works v. Hills [1906] AC 368 . . . . . . . . . . . . . . . . . . . . . . 4.3
Costain Ltd & Others v. Bechtel [2005] EWH C 1018 (TCC) . . . . . . . . . . . . . . . . . 12.2
Crosby (J) & Sons Ltd v. Portland Urban District Cou ncil (1967)
5 BLR 121 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2, 12.6, 17.5
Croud ace Ltd v. Lond on Borough of Lam beth (1986) 33 BLR 20 . . . . . . . . . . . . 11.4
Crow n Estate Com m issioners v. John Mow lem & Co. Ltd (1994)
70 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
Cutter v. Pow ell (1795) 6 TR 320 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2
Czarnikow Ltd v. Koufos [1969] (The H eron II) 1 AC 350 . . . . . . . . . . . . . . . . . . . 3.2
D & F Estates Ltd v. Chu rch Com missioners for England (1988) 41 BLR 1 . . . . 6.4
Dairyvale Food s Ltd v. Intervention Board of Agricu ltural Prod u ce [1982]
3 CMLR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1
David McLean H ousing Contractors Ltd v. Swansea H ou sing Association
(2002) BLR 125 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8, 11.2
Davis Contractors Ltd v. Fareham UDC [1956] AC 696 . . . . . . . . . . . . . . . . . . . . 13.6
Departm ent of the Environm ent for N orthern Ireland v.
Farrens (Construction) Ltd (1981) 19 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.6
Design 5 v. Keniston H ousing Association Ltd (1986) 34 BLR 92 . . . . . . . . . . . . . 4.4
Dod d v. Chu rton [1897] 1 QB 562 . . . . . . . . . . . . . . . . . . . . . . . . .5.1, 5.2, 5.3, 6.3, 11.7
Du nlop v. Lam bert (1839) 6 CI & F 600 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8
Du nlop Pneu m atic Tyre Com pany Ltd v. N ew Garage & Motor Com p any Ltd
[1915] AC 79 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 1.2, 4.2, 4.3, 4.4, 4.5, 11.8
ECC Quarries Ltd v. Merrim an Ltd (1988) 45 BLR 90 . . . . . . . . . . . . . . . . . . . . . . 11.4

Ed gew orth Constru ction Ltd v. N D Lea & Associates (1993) 66 BLR 56 . . . . . 12.7
Ed m u nd N u ttall Ltd v. Sevenoaks District Council [2000]
WL 1544581 QBD (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8
Em cor Drake & Sku ll Ltd v. Costain Constru ction Ltd & Skanska
Central Eu rope AB [2004] EWH C 2439 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2
Esand a Finance Corp oration Ltd v. Plissing (1989) ALJ 238 . . . . . . . . . . . . . . 4.4, 4.6
ESS v. Tru scott (1837) 2 M&W 385 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.4
Elsley v. JG Collins Insurance Agencies Ltd (1978) 83 DLR 3rd 1 . . . . . . . . . 1.1, 3.4
Em son Eastern Ltd v. EME Developm ents Ltd (1991) 55 BLR 114 . . . . . . . . . . . 10.2
Export Cred its Gu arantee Dept Prod u cts Co. v. Universal Oil
Prod ucts Com p any [1983] 2 All ER 205 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 4.1
Fairclou gh Bu ild ing Ltd v. Rhud d lan Borou gh Cou ncil (1985)
30 BLR 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4, 13.5
Fairweather (H ) Ltd v. Asd en Secu rities Ltd (1979) 12 BLR 40 . . . . . . . . . 10.5, 11.4
Fairweather (H ) & Co. Ltd v. Lond on Borough of Wand sw orth (1987)
39 BLR 106 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 12.4, 14.4
Felton v. Wharrie (1906) HBC (4th Ed .) Vol 2 398 . . . . . . . . . . . . . . . . . . . . . . . 2.5, 2.6
Fernbrook Trad ing Com p any Ltd v. Taggart [1979] 1 N ZLR 556 . . . . . . . . . 6.4, 12.3
Ferson Contractors Ltd v. Levolu x AT Ltd (2003) EWCA Civ 11 . . . . . . . . . . . . .11.2
Finnegan (J F) Ltd v. Com m unity H ou sing Association Ltd (1993)
65 BLR 63 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.3, 4.4, 10.4, 11.8, 19.2
Table of Cases 383
Finnegan (J F) Ltd v. Com m unity H ou sing Association Ltd (1995)

77 BLR 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
Finnegan (J F) Ltd v. Ford Sellar Morris Developm ents Ltd (1991)
53 BLR 38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
Finnegan (J F) Ltd v. Sheffi eld City Cou ncil (1988) 43 BLR 124 . . . . . . . . . . . . . . 15.3
Fisher v. Tou m azos (1991) 2 EGLR 204 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5
Ford Motor Com p any (England ) Ltd v. Armstrong (1915)
31 TLR 267 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3, 11.8
Galaxy Energy v Bayoil [2001] 1 Lloyd s Rep 512 . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5

Galoo Ltd v. Bright Grahame Mu rray [1994] 1 WLR 1360 . . . . . . . . . . . . . . . . . . 14.4
Gaym ark Investm ents Pty Ltd v. Walter Constru ction Grou p Ltd (1999)
16 BCL 449 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7, 5.8
GLC v. The Cleveland Brid ge & Engineering Co. Ltd (1986)
34 BLR 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3, 15.2
Glenlion Construction Ltd v. The Gu inness Tru st (1987) 30 BLR 89 . . . . . . . . . . 15.3
Gleeson (M J) (Contractors) Ltd v. Lond on Borou gh of H illingd on
Cou ncil (1970) 215 EG 165 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6, 6.5, 8.3
Gleeson (M J) p lc v. Taylor Wood row Construction Ltd (1989)
49 BLR 95 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6, 9.1
GMTC Tools and Equ ip m ent Ltd v. Yu asa Warw ick Machinery Ltd (1994)
73 BLR 102, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6
Great Eastern H otel Com pany Ltd v. John Laing Construction Ltd
[2005] EWHC 181 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2, 3.3, 14.2, 16.1
H ad ley v. Baxend ale (1854) 9 EX 341 . . . . . . . . . . . . . . . . . . . . . . . . . 3.2, 4.4, 9.3, 10.6

H argreaves Transport v. Lynch [1969] 1 WLR 215 . . . . . . . . . . . . . . . . . . . . . . . . . 15.5
H avant Borou gh Cou ncil v. Sou th Coast Ship ping Com p any Ltd [1996]
CILL 1146 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.4
H edley Byrne & Co. Ltd v. H eller & Partners Ltd [1964] AC 465 . . . . . . . . 3.7, 11.3
H end erson v. Henderson (1843) HARE 100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2
H end erson v. Merrett Synd icates Ltd (1994) 69 BLR 26 . . . . . . . . . . . . . . . . . . . . . 3.7
H enry Boot Bu ild ing Ltd v. The Croyd on Hotel and Leisu re Co. Ltd (1985)
36 BLR 41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
H enry Boot Constru ction Ltd v. Central Lancashire Develop m ent Corp oration
(1980) 15 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4, 13.7, 17.6
H enry Boot Constru ction (UK) Ltd v. Malm aison H otel (Manchester) Ltd
[1999] 70 CON LR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6, 17.4
H eskell v. Continental Exp ress Ltd [1950] 1 All ER 1033 . . . . . . . . . . . . . . . . . . . 14.2
H G Construction Ltd v. Ashw ell Hom es (East Anglia) Ltd [2007]
EWH C 144 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2
H ick v. Raym ond & Reid [1893] AC 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8
H ickm an & Co. v. Roberts [1913] AC 229 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4
H ill (J M) & Sons Ltd v. Cam d en Lond on Borou gh Council (1980)
18 BLR 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
H oenig v. Isaacs [1952] 2 All ER 176 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2
H olland Dred ging (UK) Ltd v. Dred ging & Constru ction Co. Ltd (1987)
37 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.4
H olland Hannen & Cubitts (Northern) Ltd v. Welsh H ealth Technical Services
Organisation (1985) 35 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2
H olm e v. Gup p y (1838) 3 M & W 387 . . . . . . . . . 1.1, 2.5, 5.1, 5.2, 6.3, 9.4, 11.7, 12.1
384 Table of Cases
H ome v. H epbu rn (1549) Mor 10033 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1

H ongkong Fir Shipp ing Co. Ltd v. Kawasaki Kisen Kaisha Ltd [1962]
2 QB 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2
H ounslow Lond on Borou gh Cou ncil v. Twickenham Gard en Developm ents Ltd
(1971) 7 BLR 81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4, 12.5
H ow e Engineering Services Ltd v. Lind er Ceilings & Partitions p lc (1999)
unreported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1
H um ber Oil Tru stees Ltd v. Harbou r & General Works (Stevin) Ltd (1991)
59 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.14
IBM v. Rockw are Glass (1980) FSR 335 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5

Im presa Castelli SPA v. Cola H old ings Ltd [2002] EWH C 1363 (TCC) . . . . . . . . 4.5
Ind ian Airlines v. GAI International Ltd [2002] EWH C 2361 (Com m ) . . . . . . . . . 4.3
Investors Com p ensation Schem e v. West Brom wich Bu ild ing Society [1997]
1 WLR 896 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Isand er Finance Corporation v. Plesnick (1989) ALJ 238 . . . . . . . . . . . . . . . . . . . . . 4.3
J & J Fee Ltd v. The Exp ress Lift Com p any Ltd (1993)
10 CON ST LJ 151 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9, 13.11
Jarvis Brent Ltd v. Row linson Constru ction Ltd (1990) 6 CON ST LJ 292 . . . . . 10.3
Jeancharm Lim ited v. Barnet Football Clu b Lim ited [2003]
EWCA Civ 58 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2, 4.3
Jobling v. Associated Dairies Ltd [1982] AC 794 . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2
Jobson v. Johnson [1998] 1 WLR 1026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5
John Barker Constru ction Ltd v. Lond on Portm an H otel Ltd [1996]
CILL 1152 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 1.2, 11.2, 11.4, 12.2, 14.2, 16.5, 17.5
John Doyle Constru ction Ltd v. Laing Managem ent (Scotland ) Ltd (2004)
SC 713 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.2, 12.4, 12.6, 14.2, 14.5
John Holland Construction & Engineering Pty Ltd v. Kvaerner RJ
Brow n Pty Ltd (1996) 82 BLR 81 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6, 14.2
John Mowlem & Com p any plc v. Eagle Star Insu rance Com pany Ltd [1995]
CILL 1047 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5
Johnson v. Gore Wood & Co. [2002] 2 AC 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2
Jolley v. Carm el Ltd (2002) 2 EGLR 154 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5
Jones (Alfred John) v. Stroud District Cou ncil (1986) 34 BLR 27 . . . . . . . . . . . . . . 4.4
Kem ble v. Farren (1829) 6 BIN G 141 . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 4.3, 4.4, 11.8
Kem p v. Rose (1858) 1 GIFF 258 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.6
Kitsons Sheet Metal Ltd v. Matthew Hall Mechanical & Electrical
Engineers Ltd (1989) 47 BLR 82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2
Lam prell v. Billericay Union (1849) 3 EX 283 . . . . . . . . . . . . . . . . . . . . . . . . . 2.5, 11.4

Law v. Red d itch Local Board [1892] 1 QB 127 . . . . . . . . . . . . . . . . . . . . . . . . . 4.1, 4.3
Lazaru s Estates Ltd v. Beasley [1956] 1 QB 702 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4
Lebeau pin v. Crisp in [1920] 2 KB 714 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1
Legge v. Harlock [1848] 12 QB 1015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2
Leyland Shipp ing Co. Ltd v. Norw ich Union Fire Insurance Society Ltd
[1918] AC 350 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6, 14.2, 14.4, 14.5
Lichter v. Mellon-Stu art Com pany (1962) 305 F 2d 216 . . . . . . . . . . . . . . . . . . . . 12.6
Liesbosch (Dred ger) v. Ed ison Steam ship [1933] AC 449 . . . . . . . . . . . . . . . . . . . . 3.2
Lockland Build ers Ltd v. Rickw ood (1995) 77 BLR 38 . . . . . . . . . . . . . . . . . . . . . . . 2.3
Table of Cases 385
Lond on Borough of Merton v. Stanley H u gh Leach Ltd (1985)

32 BLR 51 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2, 12.6, 13.11, 15.1
Lond on Und erground Ltd v. Citylink Telecom m u nications Ltd [2007]
EWH C 1749 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2, 12.6, 14.5, 16.5
Lord Elp hinstone v. Monkland Iron and Coal Co. [1886]
11 Ap p Cas 332 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
Lord svale Finance Plc v. Bank of Zambia [1996] QB 752 . . . . . . . . 1.2, 4.3, 5.8, 11.8
Lu benham Fid elities & Investm ent Co. Ltd v. Sou th Pem brokeshire District
Cou ncil (1986) 33 BLR 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1, 10.1, 11.4
Lu cas v. God w in (1837) 3 Bing NC 737 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
McAlpine & Son v. Transvaal Provincial Ad m inistration [1974]

3 SALR 506 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2
McAlpine H um beroak v. McDerm ott International Inc. (1992)
58 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5, 2.7, 2.10, 5.5, 11.7, 14.3
Machenair Ltd v. Gill & Wilkinson [2005] EWHC 445 (TCC) . . . . . . . . . . . . . . . . 2.8
Mackay v. Dick (1881) 29 WR 541 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
Manni Investm ents Co. Ltd v. Eagle Star Life Assu rance Co. [1997]
2 WLR 945 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Marc Rich v. SOCAP (1992) – u nrep orted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5
Mariner H otels Ltd v. Atlas Ltd (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.3
Martin Grant & Co. Ltd v. Sir Lind say Parkinson & Co. Ltd (1984)
29 BLR 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2
Maryon v. Carter (1830) 4 C & P 295 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2
M & J Polym ers Ltd v. Im erys Minerals Ltd (2008) The Times 2.4.2008 . . . . . . . . 4.5
Mellow es PPG Ltd v. Snelling Constru ction Ltd (1989) 49 BLR 109 . . . . . . . . . . . 9.4
Mercantile Cred it Co. Ltd v. McLachlan (1962) SLT(ShCT) 58 . . . . . . . . . . . . . . . . 4.1
Michael Salliss & Co. Ltd v. Calil (1987) 4 CON ST LJ 125 . . . . . . . . . . . . . . . . . . 11.3
Mid Glam organ Cou nty Cou ncil v. William s (1991) u nreported . . . . . . . . . . . . . 12.6
Miller v. Lond on County Council (1934) 50 TLR 479 . . . . . 5.2, 10.3, 11.4, 11.7, 12.3
Mirant Asia-Pacifi c Constru ction (H ong Kong) Ltd v. Ove Aru p & Partners
International Ltd [2007] EWH C 918 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2, 16.2
Monarch Steam ship Co. v. Karlsham ns Oljefabriker [1949] AC 196 . . . . . . . . . . 14.1
Monmou thshire Cou nty Cou ncil v. Costelloe & Kem p le Ltd (1965)
5 BLR 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2, 11.4
Multiplex Constructions (UK) Lim ited v. Honeyw ell Control System s Lim ited
[2007] EWHC 447 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.2, 5.6, 5.7, 11.7, 12.2
Mu ltiplex Constructions Pty Ltd v. Abgaru s Pty Ltd (1992)
33 N SWLR 504 . . . . . . . . . . . . . . . . . . . . . . . 1.9, 3.2, 3.5, 4.2, 4.4, 4.6, 6.6, 10.2, 11.8
Mu rp hy v. Brentw ood District Cou ncil (1990) 50 BLR 1 . . . . . . . . . . . . . . . . . . . . . 3.7
Mu rray v. Leisureplay Plc [2005] EWCA Civ 963 . . . . 1.2, 3.2, 4.3, 4.4, 4.6, 5.8, 11.8
N eod ox Ltd v. Sw inton & Pend lebu ry Borou gh Council (1958)

5 BLR 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.7, 13.11, 15.2
N evill (H W) (Su nblest) Ltd v. William Press & Sons Ltd (1981)
20 BLR 78 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2
N orthern Regional H ealth Au thority v. Derek Crou ch Constru ction Co. Ltd
(1984) 26 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5, 11.2
N orth Sea Ventilation Ltd v. Consafe Engineering (UK) Ltd (2004) TCC . . . . . . 4.5
N orth West Metrop olitan Regional H ospital Board v. T A Bickerton & Sons Ltd
[1970] 1 WLR 607 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4, 13.5
386 Table of Cases
Oram Build ers v. M J Pem berton (1985) 29 BLR 23 . . . . . . . . . . . . . . . . . . . . . . . . 11.2

Ottaw a N orthern and Western Railway Co. v. Dom inion Brid ge Co. (1905)
36 SCR 347 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
Overseas Buyers v. Granad ex (1980) 2 Lloyd s Rep 608 . . . . . . . . . . . . . . . . . . . . . 15.5
Pacifi c Associates v. Baxter (1988) 44 BLR 33 . . . . . . . . . . . . . . . . . . . . . . . . 11.3, 12.6

Panam ena Eu ropa N avigacion (Com p ania Lim itad a) v.
Fred erick Leyland & Co. Ltd [1947] AC 428 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
Parsons (Livestock) Ltd v. Uttley Ingham & Co. Ltd [1978] 1 All ER 525 . . . . . . 3.2
Parsons Plastics (Research & Develop m ent) v. Purac Ltd (2002)
BLR 334 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8, 11.2
Peak Constru ction (Liverpool) Ltd v. McKinney Fou nd ations Ltd (1970)
1 BLR 114 . . . . . . . . . 1.1, 2.5, 3.1, 3.3, 5.2, 5.3, 5.4, 5.7, 6.2, 6.4, 6.5, 11.7, 13.5, 14.7
Peninsula Balm ain Pty Ltd v. Abigrou p Contractors Pty Ltd [2002]
N SWCA 211 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7, 5.8
Percy Bilton Ltd v. Greater Lond on Cou ncil (1982) 20 BLR 1 5.2, 5.3, 9.4, 11.7, 12.1,
13.5, 14.7
Perini Corporation v. Com m onw ealth of Au stralia (1969) 12 BLR 82 . . . 11.4, 12.3
Perini Pacifi c Ltd v. Greater Vancou ver Sew erage (1966)
57 DLR 2nd 307 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1, 5.3, 6.4, 11.7
Philips H ong Kong Ltd v. Attorney General of H ong Kong (1990)
50 BLR 122 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
Philips H ong Kong Ltd v. Attorney General of H ong Kong (1993)
61 BLR 41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 4.1, 4.3, 5.8, 6.2, 8.2, 11.8
Phillips Constru ction Co. Inc. v. United States (1968) 394 F 2d 834 . . . . . . . . . . 12.6
Photo Prod u ction Ltd v. Secu ricor Transp ort Ltd [1980] AC 827 . . . . . . . . . . 2.2, 3.7
Pigott Fou nd ations Ltd v. Shepherd Constru ction Ltd (1993)
67 BLR 48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3, 9.3, 15.2
Pilkington v. Wood [1953] 1 All ER 810 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2
Plant Constru ction Plc v. Clive Ad am s Associates (2000) BLR 137 . . . . . . . 1.2, 14.3
Prenn v. Sim m ond s [1970] 1 WLR 1381 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Public Works Com m issioner v. H ills [1906] AC 368 . . . . . . . . . . . . . . . . 4.1, 4.3, 11.8
Qu itefi eld Ltd v. Vascroft Contractors Ltd [2006] EWCA Civ 1737 . . . . . . . . . . . 11.2
Ranger v. The Great Western Railw ay Co. (1854) 5 H LC 72 . . . . . 4.3, 7.3, 11.4, 11.8
Rapid Build ing Grou p Ltd v. Ealing Fam ily Housing Association (1984)
29 BLR 5 . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3, 3.4, 5.2, 6.2, 6.3, 10.4, 11.7, 12.1, 13.10
Rayack Constru ction Ltd v. Lam p eter Meat Co. Ltd (1979) 12 BLR 30 . . . . . . . 10.4
Reard on Sm ith Line v. Yngvar Hansen-Tangen [1976] 1 WLR 988 . . . . . . . . . . . . 6.1
Rees Hough Ltd v. Red land Reinforced Plastics Ltd (1984) 27 BLR 136 . . . . . 11.11
Reischer v. Borwick [1894] 2 QB 548 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.3
Rhod ia International H old ings Ltd v. H untsm an International LLC [2007]
EWHC 292 (Com m ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5
Rickard s (Charles) Ltd v. Op penheim [1950] 1 KB 616 . . . . . . . . . . . . . 2.5, 2.6, 11.10
Roberts v. Bu ry Im provem ent Com m issioners (1870) LR 5 CP 310 . . . . . 5.3, 13.11
Robinson v. Harm an (1848) 1 EXCH 850 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2
Robop hone Facilities Ltd v. Blank [1966] 3 All ER 128 . . . . . . . . . . . 3.1, 4.3, 4.4, 4.6
Royal Brom pton Hosp ital v. Ham mond & Others (2000) BLR 75 . . . . . . . . . . . . 12.7
Royal Brom pton Hosp ital v. Ham mond & Others [2001] EWHC 206 (Civ) . . . 14.1
Table of Cases 387
Royal Brom p ton Hosp ital v. H am m ond & Others [2002]

1 CLC 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2, 12.2, 16.3
Ru xley Electronics and Constru ction Ltd v. Forsyth (1995) 73 BLR 1 . . . . . . . . . 3.2
St Martins Prop erty Corp oration Ltd v. Sir Robert McAlp ine [1994]
1 AC 85 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8
Scott Lithgow Ltd v. Secretary of State for Defence (1989)
45 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.4, 9.4, 13.2, 13.5, 19.2
Shaw ton Engineering Ltd v. DGP Grou p International Ltd [2005]
EWCA Civ 1359 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1, 2.6, 2.7
Sim plex Concrete Piles Ltd v. St. Pancras Borou gh Cou ncil (1958)
14 BLR 80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.13
Skanska Constru ction UK Ltd v. Egger (Barony) Ltd [2004]
EWH C 1748 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2, 12.6, 16.5
Skanska Constru ction (Regions) Ltd v. Anglo-Am sterd am Corp Ltd (2002)
84 Con. L.R. 100 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2
Slom an v. Walter (1783) 1 BRD CC 418 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1
SMK Cabinets v. H ili Mod ern Electrics [1984]
1 CON ST LJ 159 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5, 5.1, 5.3, 5.4, 5.5, 11.7
Solholt, The [1983] 1 Lloyd s Rep 605 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2
Solland International Ltd v. Darayd an H old ings Ltd [2002]
EWH C 220 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8
Sonat Offshore SA v. Am erad a Hess Develop m ent Ltd (1987) 39 BLR 1 . . . . . . 13.1
Stanor Electric Ltd v. R Mansell Ltd [1988] CILL 399 . . . . . . . .4.3, 4.5, 6.3, 8.2, 11.8
Startu p v. McDonald (1843) 12 LJ EX 477 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
Steria Ltd v. Sigm a Wireless Com m u nications Ltd (2007)
(TCC) 6 BM 50037 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4, 4.5, 5.8, 6.5, 17.4, 19.2
Su isse Atlantic v. N V Rotterd am sch Kolen Centrale [1967] 1 AC 361 . . . . . . . . . 3.3
Su n Shipbu ild ing & Dryd ock Co. (1968) AN BCA 11300 . . . . . . . . . . . . . . . . . . . . 14.5
Su rrey Heath Borough Council v. Lovell Constru ction Ltd (1990)
48 BLR 108 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3, 3.7
Sutcliffe v. Thackrah (1974) 4 BLR 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3, 12.2
Tai Hing Cotton Mill v. Liu Chong H ing Bank Ltd [1986] AC 80 . . . . . . . . . . . . . 3.7
Taylor v. Cald w ell (1863) 32 LJQB 164 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1
Tem loc Ltd v. Errill Prop erties Ltd (1987)
39 BLR 30 . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1, 3.3, 3.4, 3.5, 4.4, 10.4, 11.4, 12.3, 17.5
Tersons Ltd v. Stevenage Develop m ent Corporation (1963) 5 BLR 54 . . . . . . . . . 6.2
Token Constru ction Co. Ltd v. Charlton Estates Ltd (1973)
1 BLR 48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3, 10.4, 11.4
Tool Metal Manu factu ring Co. Ltd v. Tu ngsten Electric Co. Ltd [1955]
2 All ER 657 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10
Trollope & Colls Ltd v. N orth West Metropolitan Regional Hosp ital Board
(1973) 9 BLR 60 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1, 5.3, 6.1, 8.4
Tu rner Corp oration Ltd v. Au stotel Pty Ltd (1997) 13 BCL 378 . . . . . . . . . . . . . . . 5.7
Tu rner E & Sons Ltd v. Mathind Ltd (1986) 5 CON ST LJ 273 . . . . 1.1, 3.6, 8.4, 19.2
UBH (Mechanical Services) v. Stand ard Life (1986) . . . . . . . . . . . . . . . . . . . . . . . . 15.5

United Scientifi c H old ings Ltd v. Bu rnley Cou ncil [1977]
2 WLR 806 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5, 2.6
388 Table of Cases
VH E Constru ction Plc v. RBSTB Tru st Co. Ltd (2000) BLR 187 . . . . . . . . . . . . . . 10.8
Victoria Laund ry (Wind sor) Ltd v. N ew m an Ind u stries Ltd [1949]
1 All ER 997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2, 4.4
Wad sw orth v. Lyd all [1981] 2 All ER 401 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.6

Wall v. Red eriaktiebolaget Ru ggu d e [1915] 3 KB 66 . . . . . . . . . . . . . . . . . . . . . . . . 4.5
Walter Law rence & Son Ltd v. Com m ercial Union Prop erties Ltd (1984)
4 Con LR 37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2, 14.1
Ware v. Lyttleton H arbou r Board [1882] 1 NZLR SC 191 . . . . . . . . . . . . . . . . . . . . 4.7
Wates Constru ction (Lond on) Ltd v. Franthom Prop erty Ltd (1991)
53 BLR 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
Watts, Watts & Co. Ltd v. Mitsui & Co. Ltd [1917] AC 227 . . . . . . . . . . . . . . . . . . 4.1
Wells v. Arm y & N avy Co-op erative Society (1902)
86 LT 764 . . . . . . . . . . . . . . . . . . . . 2.5, 5.2, 6.4, 9.4, 11.7, 12.1, 13.11, 14.4, 14.6, 15.2
Wessex Regional Health Au thority v. H LM Design Ltd (1995)
71 BLR 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7, 16.1
West Fau lkener Associates v. Lond on Borou gh of N ew ham (1994)
71 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4, 12.7
Westm inster Corporation v. J Jarvis & Sons Ltd (1970) 7 BLR 67 . . . . 9.4, 10.2, 14.7
Wharf Properties Ltd & the Wharf (H old ings) Ltd v. Eric Cu m ine Associates
(1991) 52 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6
Whittal Build ers Co. Ltd v. Chester-le-Street D.C. (1987) 40 BLR 82 . . . . . . . . 13.10
Wickm an Machine Tool Sales Ltd v. Schu ler [1974] AC 235 . . . . . . . . . . . . . . . . . . 2.1
Wid nes Found ry (1925) Ltd v. Cellu lose Acetate Silk Co. Ltd [1933]
AC 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4, 3.5, 4.2, 11.8
Wilbeam v. Ashton (1807) 1 CAMP 78 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1
William H ill Organisation Ltd v. Bernard Su nley & Sons Ltd (1982)
22 BLR 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7
William Verry Ltd v. The Mayor and Bu rgesses of the Lond on Borou gh of
Cam d en [2006] EWHC 761 (TCC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8, 11.2
Wiltshier Constru ction (Scotland ) Ltd v. Dru m chap el H ou sing Co-op erative Ltd
(2003) SLT 443 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.10
Workers Tru st & Merchant Bank Ltd v. Dojap Investm ents Ltd [1993]
AC 573 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
World Beau ty, The [1970] 1 Lloyd s Rep 350 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3
W T Malou f Pty Ltd v. Brinds Ltd (1981) 52 FLR 442 . . . . . . . . . . . . . . . . . . . . . . . 4.2
Re Yead on Waterw orks Com pany & Wright (1895) 72 LT 832 . . . . . . . . . . . . . . . . 7.4
Yew belle v. Lond on Green Develop m ents [2006] EWH C 3166 . . . . . . . . . . . . . . 15.5
Yorkshire Dale SS Co. Ltd v. Minister of War Transp ort [1942] AC 691 . . . . . . . 14.3
In d ex
acceleration ‘catch all’ p rovisions for extensions of

claim s for, 12.3 tim e, 6.4
constructive, 12.3 causation, 1.2, 14.1–14.8
legal au thority, 12.3 cause, d om inant
access to w orks in assessing entitlem ent, 14.4
failure to give, 13.10 in delay, 14.4
obligation to give, 13.10 CECA Form of Subcontract, 18.4
accidental d am age, 13.4 certifi cates
acts of God , 13.1 given by w rong person, 11.4
ad d itional tim e for em p loyer, 1.1 not given in correct form , 11.4
ad d itional w orks, 13.12, not given on tim e, 11.4
ad jud ication, 10.8, 11.2 not valid , 11.4, 12.2
ad m issibility of evid ence, 4.6 of non-com p letion, 17.7
ad verse w eather, 13.2 rep eat, 10.3
analytical ap p roach, 16.4, 16.5 certifi er
applications action against, 11.3
global, 12.6 d uties of, 11.4, 12.2
for extension, see extensions functus officio, 10.5, 11.4
for inform ation, 13.11 liability of, 12.2
apportionm ent, 1.2, 14.5 nam ed , 11.4
arbitration, 11.2 not nam ed , 11.4
assignm ent, 7.4 opinion of, 11.3
charges
bankru ptcy, 7.2, 7.4 consultants fees, 4.4
Banw ell report, 1.3 infl ation, 4.4
best end eavours lane rental, 4.8
d uty to apply, 15.5 su pervision, 4.4
m eaning of, 3.2 circu mstances
beyond contractor ’s control, 6.4 sp ecial, 6.4, 13.81
bonds, 12.3 unavoid able, 6.4
bonus clauses, 4.7 civil com m otion
breach of contract meaning of, 13.3
consequ ences of, 2.1 civil engineering form s, 2.4, 18.1–18.4
expressed , 2.1 claim s
fund am ental, 2.2 link to extension p rovisions, 1.1, 14.4
rem edies for, 1.1, 2.1 non-reim bursable, 1.1
breach of d uty claim s, 3.8 reim bursable, 1.1
bu ild ing form s, 2.4 comm encem ent
bu rd en of proof, 4.6 failure to give, 5.2
bu siness effi cacy, 6.3 no d ate for, 11.6
390 Index
comp ensation as liqu idated d am ages, d am age to w orks, 13.4

4.2 d am ages
comp letion arising naturally, 3.2
by last hou r, 2.4 d ou ble, 3.6
d ate, 10.1, 10.2 d u ty to m itigate, 3.2
contractor ’s d uty to comp lete by, extravagant, 4.3
2.3 form ula for, 4.4
fi xing, 2.4 general, 3.2
earlier than certifi ed , 11.3 lim itation on, 3.4, 3.5
early, 2.4 m easu re of, 3.2
late, d am ages for, 3.1–3.7 m u tuality, 3.1
phased , 3.6 nil, 3.5
practical, 10.2, 17.3 p er d ay/ per w eek, 4.3
sectional, 8.1–8.4 p re-estim ate of, 3.1, 4.2
substantial, m eaning of, 10.2 reasons for use, 3.1
concurrent d elays rem oteness of, 3.2
method s of assessment, 1.2, 14.2– d ates
14.6 for com m encem ent, 2.4
concurrent liability, 3.7 for com p letion, 2.4
cond itions d ed uctions, 10.4
legal m eaning, 2.1, 2.2 before com p letion, 10.1
of contract, stand ard , Chapters 17, show n on certifi cates, 10.1
18, 19, 20 single su m, 10.1
preced ent, not observed , 10.3, 11.5, d elay
12.2, 12.4 analysis, 1.2, 16.1–16.5
construction, ru les of, 6.1, 6.2 concu rrent, 1.1, 14.1–14.6
contra proferentem rule cu lpable, 14.1, 14.6, 14.8
construction of, 6.2 m eaning of, 12.2
effect of, 6.2, 11.9 m easu rem ent of, 12.5, 16.1–16.5
contract notice of, 17.4
ad m inistrator, no p ow er to vary on program m e, 10.1, 15.2
term s, 11.10 d elegation of pow ers
breach of, 1.1, 4.1 m eaning of, 11.4
clauses, d efects in d rafting, u nauthorised , 11.4
6.5 d esign and build contracts, 17.1, 19.1,
term s 20.1
cond itions, 2.2 d eterm ination
interm ed iate, 2.2 after com pletion d ate, 7.1
w arranties, 2.2 com m on law rights, 2.3, 7.1
contractor ’s control contractu al p rovisions, 2.3
circum stances beyond, 6.4, 13.2, effects of, on right to d am ages, 7.1–
13.5 7.5
contractor ’s risk, 13.7 m istake in, 2.1
contractual m achinery not app lied , of contractor ’s em p loym ent, 2.2,
11.4 2.3
counterclaim , 3.3, 5.2 d ishonesty/ integrity of certifi er, 11.4
critical p aths, 16.2, 16.5 d om inant event, 1.1, 14.4
Index 391
d ot-on proced u re, 14.8 general d amages, 3.2, 12.6

d rafting inconsistencies, 6.5 global claim s, 1.2
d raw ings, tim e for issue, 13.11
d u e d iligence, failu re to proceed w ith, hold ing costs, 1.1, 4.4
2.3, 10.1, 15.5 holiday period s, extensions covering,
2.4
econom ic loss, 3.2, 3.8 Housing Grants, Construction and
ejusdem generis ru le 6.1 Regeneration Act, 10.7
em ployer as adm inistrator, 11.2
English Law Com mission Working ICE form s, 2.2, 2.3, 8.2, 8.3, 18.2, 18.3
Paper 1975, 1.2, 4.1 IChem E form s, 19.1
equ ity increased costs, 4.4
applied to penalties, 1.1, 4.1 ind em nities, 9.4
ru les of, 2.5 im plied term s
estoppel, 11.10 nature of, 13.11
events, neutral, 12.2 on supp ly of inform ation, 13.11, 15.2
loss lies w here it falls, 12.4 restrictions on, 6.3
evid ential m atters, 4.6 inform ation
exhau stive effect, 3.3 ap p lications for, 13.11
extensions of tim e, 1.1 contractu al requirem ents, 13.11
after com pletion d ate, 1.1 reasonable tim e for su p ply, 13.11
applications for, 12.2 insolvency as ground s for
apportionment of, 12.4, 14.5 d eterm ination, 7.1–7.5
benefi ts, 1.1 instru ctions
cond itions p reced ent, 1.2, 2.7, 12.2 com p liance w ith, 13.13
non-reimbu rsable, 12.4 late issue, 13.11
proof of entitlem ent, 12.5, 14.1 interest on d am ages rep aid , 10.6
purp oses, 12.1 interest, com m ercial: integrity of
reimbu rsable, 12.4 certifi er, 11.4
tim e for granting, 12.3 interest rates
extra cost, 1.1 in pre-estim ate of loss, 4.4
extra w orks, 13.12 in repaym ent of d am ages, 18.2
interim certifi cates, d ed uctions from ,
FIDIC contracts, 20.1–20.4 10.3, 10.4
fi nal certifi cates, 10.2 interm ed iate term s, 2.2
fi nancing charges, 4.4
fi nishing early, 2.4 JCT forms, 2.2, 2.3, 8.2, 8.3, 17.2
fl oat, 16.3
force m ajeu re, 13.1 key d ates, 18.1
forfeiture, see d eterm ination know led ge of others’ business, 3.2
form ulae for calcu lating liquid ated
d amages, 4.4 Latham rep ort, 1.3
fossils, d elay caused by d iscovery, letter of intent, 11.6
18.1 lim itation, 7.6, 10.5
fraud , effect on certifi cates, 11.4 liquid ated d am ages
fund am ental breach, 2.2 alternative rem edies, 3.3
fund am ental term , 2.2 as agreed su m , 1.1
392 Index
liquid ated d am ages (continued) notices

as exclu sive remed y, 1.1, 3.3 in w riting, 5.7, 5.8, 11.4
as exhau stive rem ed y, 1.1, 3.3 m aking tim e of essence, 2.6
benefi ts, 1.1, 3.1 of intention to dedu ct, 17.7
d ed uction of, 10.1–10.6 novation, 2.3
d efi nition of, 1.1 follow ing d eterm ination, 7.4
d istingu ished from p enalties, 4.3
d ou ble d am ages, 3.6 obligation
expressed per w eek, 4.3 to proceed , 2.4
interest on rep aym ent, 10.6 to w ork to p rogram m e, 15.2
mitigation costs, 3.3 om issions, 17.5
need not be proved , 4.2 op p ression, 1.1
need not be su ffered , 4.2 ord inary m eaning, 6.1
not stated , 3.5 ou tstand ing w ork, 10.1, 10.2
origins, 1.1
other than for d elay, 1.1 paid offi cials, as certifi ers, 11.4
purp oses, 1.1 Panatown problem , 3.8
reasons for use, 3.1 penalties, 1.1, 1.2, 14.1
recovery of, 10.1–10.5 as d efence to liquid ated d am ages,
repaym ent of, 10.6 11.8
stated as nil, 3.5 d istingu ished from d am ages, 4.3
suspension of, 18.2 d octrine of, 1.1, 1.2, 4.3
under-liqu id ation, 3.5 essence of, 4.3
litigation, 11.2 Eu rop ean and international
loss d evelop m ents, 4.1
and expense, 1.1 law on, 4.1
calculations for, 1.1 legal d evelopm ents, 1.2
com m ercial, 4.4 legal enforcem ent of, 1.1, 4.1
em ployer ’s only, 4.4 other than for breach, 4.1
genu ine pre-estim ate of, 1.3, 4.2, 4.4 possession of site
mitigation of, 3.2 by emp loyer, 10.2
non-com m ercial, 4.4 d eferm ent, 13.10
paid by others, 4.4 failu re to give, 13.10
local com bination of w orkm en occu pation, 10.2
d elay cau sed by, 13.3 p artial, 13.10
preced ents, 11.1
m aterials, failu re to obtain, 13.6 pre-estim ate of loss, 1.1, 4.1, 4.2, 4.3,
m ethod statem ents, 15.1, 15.4 4.4
MF/ 1 form, 19.2 absence of, 1.1
m itigation as d efence to liquid ated d am ages,
contractor ’s d uty, 3.2 11.7
rules of, 3.2 cau sed by sub-contractors, 9.1–9.3
em ployer ’s loss only, 4.4
negligence, 13.4 lesser sum , 4.2
New Engineering Contract, 1.3, 18.1 losses p aid by others, 4.4
nom inated , see sub-contractors m eaning of, 4.1, 4.2
non-comp letion, 17.7 m ethod s of calcu lation, 4.4
Index 393
on non-com m ercial projects, 1.1, 4.4 retrospective d elay analysis, 14.3, 16.1,
other than for breach, 4.1 16.4
presu m ed knowled ge, 3.2 ru les of construction, 6.1–6.3
p revention, 1.1, 5.1–5.8, 12.1
after com pletion d ate, 5.4 Schem e for Construction Contracts,
cond itions p reced ent, 1.2 10.7
d efi nition of, 5.3 Scottish Law Com m ission Report
d octrine of, 1.1, 5.1–5.2 1999, 1.2, 4.1
effects of, 5.1, 5.5, 5.6 set-off, 10.4
tim e bars, 5.7 site occup ation charges, 4.7, 4.8
p rofessional responsibility, 11.2, 12.3, Society of Construction Law Protocol,
12.7 1.2
p rogram m es, 15.1–15.4 sp ecifi ed perils, 13.4
contractu al statu s, 15.1 stand ard form s, see Chapters 17, 18,
in assessing d elay, 12.5 19, 20
shortened , 15.3 statu tory powers, 13.9
p rogress statu tory und ertakers’ w orks
m eetings, 12.5 d elay caused by, 13.7
rate of, 2.3, 15.5 risk, 13.7
p rojects stop fi gu res, 4.5, 8.2
comm ercial, 4.4 strikes
public sector, 4.4 contractor ’s resp onsibility for, 13.3
p roportioning d ow n clau ses d elay caused by, 13.3
d efects in, 4.3, 18.1, 19.2 su b-contractors
need for, 8.2 d elay caused by, 9.1–9.3
d om estic, 9.3
quantities, 13.12 liability for d am ages, 9.3
main contractor ’s responsibility,
reasonable tim e, 2.8 9.4
receivership , ad ministrative, 2.3 nom inated, 9.4, 13.5
record s in su pp ort of claim s, 12.5 stand ard form s, 9.4
relevant events, 13.1–13.4 stepping dow n provisions, 3.6, 9.1
building form s, see Chap ter 17 su bstantial com pletion
civil engineering form s, see Chapter meaning of, 10.2
18 perform ance, 10.2
general, see Chap ter 13 su bstantial perform ance, d octrine of,
rem edies 10.2
alternative, 1.1, 2.5, 3.3, 10.4 su p ervising offi cer, op inion of, 11.3
exclusive, 1.1, 3.3 su p plies, d iffi cu lty in obtaining, 13.6
exhau stive, 1.1, 3.3
rem oteness, p rinciples of, 3.2 take or pay clau ses, 4.7
repu d iation, 2.3 tend er
rescission, 2.3 d emand after, 12.3
resources, non-availability, 13.6 qualifi ed , 13.6
responsibility of architect, 11.2 term ination, 2.1, 2.3
retention m oney, d ed u ction from , by agreem ent, 2.3
10.4 by novation, 2.3
394 Index
term ination (continued) und er-liquid ation

by repu d iation, 2.3 argu m ent on penalties, 3.5, 4.2
effects of, 7.1–7.5 reasons for, 3.4
term s unliqu id ated d am ages, 1.1
fu nd am ental, 2.2 see also d am ages, general
meaning of, 2.1–2.2 uneconom ic w orking
theft, d elay cau sed by, 13.4 as ground s for claim , 15.2
third party, d elay cau sed by, 13.4–13.5 related to m itigation, 3.2
time Unfair Contract Terms Act, 11.11
at large, 1.2, 2.7, 2.10, 5.1 unforeseen physical cond itions, 13.14
bars, 5.7
of essence variations
in constru ction contracts, 2.5, 2.6 after com pletion d ate, 5.4
in contracts, 2.5 as ground s for extensions, 2.5, 13.12
m eaning of, 2.5 of terms of contract, 11.10
notice making, 2.6
rules of com m on law, 2.5 waiver, d efence to d am ages, 11.10
rules of equity, 2.5 war, as grou nd s for extension, 13.1
fi xing, 2.4, 2.9 warranty, m eaning of, 2.1, 2.2
for com p letion, 2.4–2.8 wasted exp end itu re, 3.2
for perform ance, 2.4 weather
late instru ctions, 2.8 ad verse, 13.2
lim its d elay caused by, 13.2
on ap plications, 12.2 excep tionally inclem ent, 13.2
on certifi cates, 11.4 m eaning of, 13.2
on recovery, 10.5 weekend s, extensions covering, 2.4
reasonable, for com pletion, 2.8 withhold ing notices, 10.7
term inology, 2.1 work
tort ad d itional, 13.12
alternative claim s in, 3.3, 3.7 availability of, 15.2
liability for d am ages, 3.7, 6.4 om itted , 17.5
tradesm en cau sing d elay, 12.4 susp ension of, 18.1
traffi c restrictions, effect of, 13.10 writing, notices in, 11.4

Liquidated Damages and Extensions of Time in Construction Contracts

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Liquidated Damages and Extensions of Time in Construction Contracts

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Liq u id a t ed D a m a ges a n d

Ext en sion s o f Tim e

A Joh n Wiley & Son s, Lt d., Pu blicat ion

First pu blished 1992

Library of Congress Cataloging-in-Publication Data

A catalogue record for th is book is available from the British Library.

Set in 10/ 12 p t Palatin o by SN P Best-set Typ esetter Ltd ., H ong Kong

5.3 Deﬁ ning an act of prevention 136

11.6 N o d ate for com m encement 227

16 D elay an alysis 313

Stand ard Form of Bu ild ing Contract

ICE Cond itions of Contract for Minor Works

The New Engineering Contract

1.1 Genera l overview

Breach es of con tract

Justice Salm on referred to Holme v. Guppy in his jud gm ent in Peak v.

Liq u id ated d am ages an d pen alties

G en u in e p re-estim ate of loss

Agreed n atu re of d am ages

Exh austive rem ed y

Exten sion s of tim e

The am ou nt of d etail in stand ard form s of contract on p roced ural ru les

Ad d ition al tim e for th e em p loyer

H ow ever, w hat of the p osition w here the em ployer is d elayed by circum -

Liq u id ated d am ages oth er th an for d elay

1.2 Lega l development s

• cau sation and / or concurrency

Pen alty clau ses

5. The enforceability of a penalty shou ld be ju d ged according to all the

Preven tion / con d itions p reced en t / tim e at large

Cau sation an d / or con cu rrency

Disp u tes on construction contracts, p articu larly those relating to claim s

Ap p ortion m en t / glob al claim s

1.3 Cont ra ct ua l development s

2.1 P roblems wit h t erminology

2.2 Condit ions a nd w a rra nt ies

These d eﬁ nitions, even if old fashioned , d o offer som e assistance in that

(1980) that if the exp ression ‘fu nd am ental breach’ w as to be retained it

2.3 Termina t ion

Termination of a contract can occu r in variou s ways – by agreement betw een

Novation is a trip artite agreem ent w hereby a contract is rescind ed in con-

The m ost comm on m ethod of term ination of constru ction contracts is by

Com m on law righ ts

obligation on the contractor w as to ﬁ nish on tim e and he w as entitled to

2.4 Time for performa nce

Tim e m ay be ﬁ xed either by reference to sp eciﬁ ed d ates or by reference

Su ch troubles m ay arise in part from the varying approaches taken to tim e

Fixin g th e com p letion d ate

Fin ish ing early

O b ligation to p roceed ‘regu larly an d d iligen tly’

In West Faulkner Associates v. London Borough of Newham (1994) the Cou rt

2.5 Time of t he essence

Ru les of equ ity

Ru les of com m on law

Cases in con stru ction con tracts

McAlpine Humberoa k (1992)

Disp u tes arose on the effects of variations on contract price w hich w as on a

Tim e of the essen ce gen erally in constru ction con tracts

2.6 Not ice ma king t ime of t he essence

The realisation by one party that tim e is of the essence, or needs to be m ad e

Con tractu al p rovision s

Sha w t on Engineering v. DGP

October 2000, to w hich Mr Thom as d id refer, contain exp lanations