JCT subcontracts: Court of Appeal calls time on extensions of time

15 / 03 / 2017

A TCC case involving Carillion concerning the issue of delayed work and entitlement to an extension of time has potentially significant implications for contractors.

The Court of Appeal in Carillion Construction Limited v Emcor Engineering Services Limited & Emcor (UK) Limited [2017] has confirmed that an extension of time awarded under the JCT ‘DOM/2’ subcontract is to commence contiguously on the previously due date for completion, even where it causes commercial unfairness.

However, in considering the preliminary issue referred from and arising in a dispute over the Technology and Construction Court, previously written about in Construction News last May, the Court of Appeal has identified this as a question of some importance for the construction industry.

There have been countless cases on entitlements to extensions of time and damages for delay. But until now, no one had ever argued that any extension of time clause requires or permits non-contiguous extensions of time to be granted so that the subcontractor bears the consequences of the delay for which he is responsible.

Logical argument

It was argued that the contractor, where a subcontractor delays, should be able to calculate the resulting loss or damage by reference to the period when the subcontractor was actually in delay, rather than for a contiguous period running from an adjusted date for completion (say, for compliance with variation instructions or the delay of another subcontractor) which prevented the subcontractor’s timely completion.

The result here is that the contractor, Carillion, may be left with a position where it is unable to recover damages from the subcontractor, Emcor, for a period of culpable delay which had been, in effect, erased by an extension of time granted due to delay by another subcontractor.

If so, in effect it would be a windfall for the subcontractor. This issue, now firmly in the industry spotlight, rests on the drafting of the delay and extension of time provisions in the JCT DOM/2 standard form subcontract.

It is the same in the recent JCT subcontract forms published in 2011 and 2016 and can be found in other similar forms of contracts.

Recognising this as “an oddity”, and “more troubled” than the first instance TCC judge by this anomaly given the unfairness that it causes, the Court of Appeal was nevertheless constrained by the natural meaning of the drafting in the contract and was not able to depart from it based on commercial common sense.

Lord Justice Jackson found he was bound to accept the logic of Carillion’s argument, but remarked “the life of the law has not been logic: it has been experience”.

The genie’s out

In the court’s experience until now, the awarding of contiguous extensions of time had worked, although it was open to criticism.

The decision follows the approach of the Supreme Court in Arnold v Britton (2015) and reinforces that the courts will not move from the natural meaning of the drafting even where, as here, a harsh result with a significant commercial risk imbalance was not anticipated at the outset of entering the subcontract – which, it is suggested, was the case here.

So where next? This case is unlikely to prove a one-off – the genie is out of the bottle.

For existing projects in delay and using JCT subcontracts, it is not difficult to anticipate that subcontractors will look to apply the decision to their advantage to seek relief from damages.

A greater risk of unfairness lies for more complex projects with multiple subcontractors or where an employer seeks variations, perhaps to accommodate an end-user request, or if graduated loss or liquidated damages provisions preclude recovery of a higher loss or rate.

We can expect contractors to look to amend JCT subcontract forms to see risk for delay in these circumstances is passed through to subcontractors. However, in the short term their hands may be tied by existing extension of time clauses and the need for certainty and uniformity throughout the contract chain.

Consider the wording

Employers would also be advised to carefully consider the wording of extension of time and delay damages provisions to prevent ambiguity and future litigation.

While the wording may be different in the JCT main contract standard forms, there is still a risk that similar circumstances will arise – for example, where the employer has a series of direct contracts with multiple contractors on site, or framework arrangements.

The clear message is the courts will not intervene even if the drafting gives an unfair result, unless there is genuine ambiguity coupled with a strong indication this particular issue is one for the industry.

For those managing and drafting construction contracts there is responsibility – consider whether your provisions, given their natural meaning, give effect to the parties’ commercial intentions.

Of course, all this is for commercial negotiation, and experience teaches us the resulting contract terms will now be many.

In the interests of a consistent approach, perhaps it’s time for the JCT to review the standard contract provisions for time.

This article was first published in Construction News on 10 March 2017.