Hong Kong Institute of Surveyors "EOT and Liquidated Damages"

Transcription

1 Hong Kong Institute of Surveyors "EOT and Liquidated Damages" 18 February 2014 Damon So, Partner Projects (Engineering & Construction) Practice

2 Extension of Time

3 Time Obligations 1. No express agreement reasonable time 2. Date agreed a. Duty to complete by a certain date b. Breach: damages/liquidated damages

4 The Prevention Principle Set at large Reasonable Time Commencement Date Employer s delay Contractual Completion Date Liquidated Damages Damages

5 Extension of Time WHY? FOR CONTRACTOR? It: - avoids the prevention principle - ensures certainty of date - preserves LD's FOR EMPLOYER

6 HKIA Form (1986 Edition) Clause 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

7 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.

8 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?

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

10 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

11 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

12 Time Provisions Original Clause Superintendent has general power to extend time despite Contractor s failure to comply with notice. Clause 35.4 replaced by SC initial notice of 14 days after every cause of delay - second notice with particulars within 21 days of first notice SC Contractor shall only be entitled to an extension of time if SC19.1 is strictly complied with.

13 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

14 Arbitrator s Reasoning Three possible constructions:- 1. Implication of discretionary power similar to Clause 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

15 Arbitrator s Reasoning (Cont'd) EOT claims Superintendent s assessment EOT Granted Delay by Gaymark 1. Discretionary power 2. Non-compliance 3. Optional Reasonable time Extended Completion Date Commencement Date Original Completion Date

16 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

17 Position in Hong Kong Hsin Chong Construction (Asia) Limited v Henble Limited [2006] HCCT -rejected Gaymark -cited submissions from Hudson's

18 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

19 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?

20 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

21 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

22 Position in England (Con't) Walter Lilly & Co v Mackay & DMW Developments [2012] EWHC 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

23 Liquidated Damages

24 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

25 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)

26 Advantages a. Certainty b. Avoids expensive and difficult investigation e.g. public works project c. Causation/remoteness/foreseeability d. Pre-agreed level of damages

27 Defences 1. Time at large 2. Penalty Defences successful - revert to general damages - may be capped at LD

28 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

29 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

30 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

31 Genuine Pre-estimate Alfred McAlpine Capital Projects v Tilebox [2005] EWHC 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

32 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

33 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

34 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

35 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

36 Court's reasoning Delay EOT Claims The Court s finding Failed to comply with notice provisions EOT entitlement Shepherd s argument LD s No EOT

37 Defeating Penalty 1. Incentive vs Penalty 2. Optional Completion Obligations 3. Lane and site rental

38 The End

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