Hong Kong Institute of Surveyors EOT and Liquidated Damages · Hong Kong Institute of Surveyors...

Projects (Engineering & Construction) Practice

Hong Kong Institute of Surveyors

"EOT and Liquidated Damages"

18 February 2014

Damon So, Partner

Extension of Time

www.hoganlovells.com

Time Obligations

1. No express agreement – reasonable time

2. Date agreed

a. Duty to complete by a certain date

b. Breach: damages/liquidated

damages

The Prevention Principle

Set “at large”Reasonable

Commencement Date

Employer’s delay

Contractual Completion Date

Liquidated Damages

Damages

Extension of Time

FOR CONTRACTOR?

- avoids the “prevention principle”

- ensures certainty of date

- preserves LD's

FOR EMPLOYER

HKIA Form (1986 Edition)

Clause 23

“... if in the opinion of the Architect the completion of the Works is likely to be or has been delayed beyond the Date for Completion … or beyond any extended time previously fixed …,

a.by force majeure, or

b.by reason of inclement weather …, or

c.by reason of civil commotion, local combination of workmen, strike or lockout …, or

d.by reason of Architect’s instructions issued …, or

e.by reason of the Main Contractor not having received in due time necessary instructions, drawings, details or levels from the Architect …, or

HKIA Form (1986 Edition) (Cont'd)

f. by delay on the part of artists, tradesmen or others engaged by the Employer in executing work not forming

part of this Contract, or

then the Architect shall so soon as he is able to estimate the length of the delay beyond the date or time aforesaid make in writing a fair and reasonable extension of time for completion of the Works. …

Relevant Events

a. Employer’s delays

e.g. variations, delay by their agents, delay in providing

instructions, drawings, details or level

b. Neutral events

e.g. force majeure, inclement weather, strikes,

c. What is not covered?

Question

What if a delay by Employer is not covered by the provision?

Notice Provisions

a. Two-stage notices

- notice of delay

- submission of particulars

b. Failure to submit notices

- damages

- loss of right to claim EOT

c. Condition Precedent

Position in Australia

Gaymark Investments Pty Ltd v Walter Construction Group

Ltd, (1999) NTSC 143

Arbitration:

Claim by Walter:- variations- prolongation, disruption and accelerations costs

Counterclaim by Gaymark:- late completion- liquidated damages

Time Provisions

Original Clause 35.4

- Superintendent has general power to extend time despite Contractor’s failure to comply with notice.

Clause 35.4 replaced by SC 19.1

- initial notice of 14 days after every cause of delay- second notice with particulars within 21 days of first notice

SC19.2

- Contractor shall only be entitled to an extension of time if SC19.1 is strictly complied with.

Claim for liquidated damages

The Arbitrator found

- Gaymark caused 77 days delay to Walter

- “acts of prevention”

- Walter failed to comply with notice provisions

- no general power to grant EOT

- time set “at large”

- complete within a reasonable time

- no LD’s

Arbitrator’s Reasoning

Three possible constructions:-

1. Implication of discretionary power similar to Clause 35.4

- care taken in amending the EOT provisions

- Superintendent considered his power being

exhausted once time bar was hit.

2. Too bad for the Contractor

- prolongation costs + liquidated damages

3. Risk taken by Employer

- EOT at Contractor's option

Arbitrator’s Reasoning (Cont'd)

Extended Completion Date

Commencement Date

Original Completion Date

Delay by Gaymark

EOT claims

EOT Granted

Superintendent’s assessment

1. Discretionary power

2. Non-compliance

Reasonable time3. Optional

Criticisms of Gaymark

IND Wallace QC (Hudson's):

1. Practical considerations ignored:

a. criticality better known to Contractor

b. Owner’s opportunity to reduce or avoid delay.

2. Judicial dislike of LD clauses no longer exists

3. Rejection of EOT based on failure to comply with notice rather than own wrong

4. First principle: contractual intention from language used

Position in Hong Kong

Hsin Chong Construction (Asia) Limited v Henble Limited

[2006] HCCT

-rejected Gaymark

-cited submissions from Hudson's

Position in Hong Kong (Con't)

W Hing Construction Co Ltd v Boost Investments Ltd

[2009] 2 HKLRD 501 (CFI)

-Did not follow Gaymark

-Contractor required to comply with contractual notice provisions for EOT; failure to comply meant no EOT

Concurrent Delay

- Issue arises where there is more than one effective cause for delay

- E.g. where both employer and contractor, or contractor and sub-contractor cause or contribute to delaying events

- Should contractor/sub-contractor be entitled to full EOT caused by both events, or only to a pro-rated EOT for events not caused by contractor/sub-contractor?

Position in Hong Kong

W Hing Construction Co Ltd v Boost Investments Ltd

[2009] 2 HKLRD 501(CFI)

-Considered Scottish case of City Inn Ltd v Shepherd Ltd [2008] BLR 269: apportionment of responsibility for delays caused by different parties

-No apportionment of EOT because contractor did not comply with contractual notice requirements for EOT

-Whether apportionment approach to be adopted in HK is open question

Position in England

De Beers Ltd v Atos Origin IT Services [2011] BLR 274

-Where employer and contractor both responsible for concurrent delay, contractor entitled to EOT but cannot recover in respect of loss caused by delay

-Contractor would suffer the same loss due to causes within his control or for which he is contractually responsible

Position in England (Con't)

Walter Lilly & Co v Mackay & DMW Developments

[2012] EWHC 1773

-Contractor is entitled to full EOT for delay caused by two or more events (if one of them is a relevant event in contract)

-Applied Malmaison approach

Liquidated Damages

Meaning

- agreed sums payable upon breach

- genuine pre-estimate of loss

- cf “unliquidated damages” or general damages

- fixed remedy for contractor’s delay

e.g. $10,000 per day of delay after PC

Effect

- exhaustive remedy on delay

- payable even where no actual loss is suffered

- liability capped at agreed damages

- if “nil” inserted as the rate of LD’s?

no LD’s recoverable for delay

Temloc v Errill Properties Ltd. (CA)

Advantages

a. Certainty

b. Avoids expensive and difficult investigation

e.g. public works project

c. Causation/remoteness/foreseeability

d. Pre-agreed level of damages

Defences

1. Time at large

2. Penalty

Defences successful

- revert to general damages

- may be capped at LD

Penalty

Two conflicting policies

General rule:

- contract to be enforced

Exception:

- damages compensatory

- unjustifiable amount for breach

- not enforced by the Court

- onus on the party being sued upon it

What is Penalty?

Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd

[1915]

1. “penalty” or “liquidated damages”.

2. "in terrorem" of the offending party.

3. genuine pre-estimate of damage.

4. circumstances

5. Tests: breach of non-payment, greatest loss, single sum payable for different events, sectional completion

Difficulty in estimating?

Philips Hong Kong Ltd v The AG of HK [1993] PC

a. virtuably impossible to calculate precisely in advance.

b. sensible approach by Government

c. Not enough to identify hypothetical situations

d. Is it a genuine pre-estimate?

e. What actually happens subsequently provides valuable evidence

Genuine Pre-estimate

Alfred McAlpine Capital Projects v Tilebox [2005] EWHC 281

- not "genuiness or honesty" of party estimating

- objective test at the time of contracting

- substantial discrepancy between LD's and likely loss

- tendency to uphold commercial contractual terms

- echoed in Steria v Sigma Wireless Communications [2008] BLR 79

Cascading Argument

Liberty Mercian v Dean & Dyball Construction [2008] (TCC)

- construction of 4 retail units, 5 sections

- LD's for each section

- possession of later section on completion of preceding section

- 4 weeks delay for the first section

- 20 weeks of LD's imposed

Court: nothing unfair

City Inn Limited v Shepherd Construction Ltd.(2003) Inner House, Court of Session

Notice Provisions:-

a. Whenever Contractor received an instruction to carry out works which would require an adjustment to the contract sum or EOT, before executing the works, the Contractor should give notice with particulars to the Architect

b. Condition precedent to Contractor’s right to EOT

Shepherd failed to comply with those provisions

Shepherd's Arguments

No Gaymark argument

Penalty argument :-

- procedural default

- no relation to LD’s imposed

- not a genuine pre-estimate of loss suffered as a result of breach

The Court

a. LD’s imposed a a result of delay in completion

b. EOT provision only gave them a right to relief

c. Right lost because of failure to comply with notice provisions

d. LD’s not penalty

Court's reasoning

DelayEOT Claims

Failed to comply with notice provisions

EOT entitlement

No EOT

The Court’s finding

LD’s

Shepherd’s argument

Defeating Penalty

1. Incentive vs Penalty

2. Optional Completion Obligations

3. Lane and site rental

The End

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Damon SoPartnerDirect line: 2840 5018E-mail: damon.so@hoganlovells.com

Hong Kong Institute of Surveyors EOT and Liquidated Damages · Hong Kong Institute of Surveyors...

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