Liberty Mercian Ltd v Dean & Dyball Construction Ltd

A sectional completion agreement is enforceable where, read as a whole and purposively, it identifies the contractual dates for completion of each section. Where the works are necessarily sequential, culpable delay to an earlier section may properly cause corresponding culpable delay to later sections. Liquidated damages may then be recovered for that consequential delay, provided the agreed sums are directed to the loss arising from delay to each relevant section and do not operate as a penalty. An extension of time granted for non-culpable delay may follow through to later sections, but a contractor cannot obtain an extension for delay to later sections caused by its own culpable delay.

The claimant engaged the defendant under a JCT Standard Form of Building Contract, 1998 edition 2003 revision, for the construction of four retail units. The contract incorporated a sectional completion agreement providing phased possession, completion dates and different rates of liquidated and ascertained damages for five sections.

Delay to the first section led to extensions of time being granted for part of the delay and liquidated damages being deducted for the remaining culpable delay. The defendant contended that the sectional arrangements were void for uncertainty, that time was at large, that the liquidated damages were penalties because the delay was cascaded through later sections, and that it was entitled to full extensions for delayed possession of those sections. The parties referred the contractual issues to the court under CPR Part 8.

1. Construction of completion dates. The references in the sectional completion schedule to dates of completion were construed as references to the dates for completion under the contract. A common-sense and purposive construction showed that they were anticipated contractual dates, capable of extension under clause 25. The agreement was therefore workable and was not void for uncertainty.
2. Cascade of culpable delay. The sequential structure of the works meant that delay to section 1 necessarily delayed the commencement of later sections. Although the contract did not state expressly that culpable delay on one section produced equivalent culpable delay on subsequent sections, that was the only sensible construction of the agreement as a whole. A contractor responsible for the initial delay was liable for the liquidated damages flowing from the resulting delay to later sections.
3. Penalty argument. The liquidated damages were not penalties. The parties understood that delay to an earlier section would affect later sections, and the rates varied according to the work and loss associated with each section. That variation strongly supported the conclusion that the sums were genuine pre-estimates of the specific losses likely to result from delay.
4. Contractual modification. Clause 25.3.4.3 was an agreed contractual modification. Its inclusion within the specification was administrative and did not engage the hierarchy provision in clause 2.2.1. It provided an additional reason why the defendant could not obtain an extension for delay caused by its own default.
5. Extensions of time. Extensions of time and liquidated damages concerned completion dates, not merely dates of possession. Non-culpable delay to section 1 could properly follow through to later sections, but granting a full extension for later sections where possession was delayed by the defendant’s own culpable delay would improperly reward that default.

The claimant was entitled to the declarations sought. The parties were directed to agree the consequential form of order.