Carillion Construction Ltd v Woods Bagot Europe Ltd & Ors

Under a construction sub-contract providing for revised or further revised periods of completion, an extension of time operates by revising the existing contractual period or periods. It does not create a separate, discontinuous period in which the sub-contractor may complete without liability for earlier delay. Contractual liability is determined by the periods fixed by the contract.

A later agreement fixing new completion dates may crystallise and compromise accrued liability for liquidated damages without extinguishing that liability. The agreement must be construed as a whole, with particular attention to its natural language, contractual context and commercial purpose.

The claimant main contractor brought claims against sub-contractors arising from delay in the design and construction of the Rolls Building. Preliminary issues were ordered concerning the construction of the EMCOR sub-contract’s extension-of-time provisions and the effect of a further supplemental agreement between the claimant and the employer.

The first issue was whether an extension of time had to be added contiguously to the existing completion period or could constitute a further discontinuous period. The second was whether the supplemental agreement extinguished the claimant’s liability for liquidated and ascertained damages for delay up to 22 July 2011, thereby preventing recovery from the sub-contractors.

1. Preliminary issue 1. The natural meaning of clause 11.3 of the EMCOR sub-contract required revised or further revised periods for completion to be added contiguously to the current period. The references in clauses 11.2.2, 11.3, 11.6, 11.7 and 11.9 to revised, extended, shorter or longer periods showed that the contractual mechanism revised the periods stated in the Appendix or previously revised under clause 11. It did not provide fresh and discontinuous periods. The potential for unfair outcomes in particular factual scenarios could not displace the clear contractual language. The approach was also practicable and consistent with commercial common sense.
2. The contractual interpretation principles stated by the Supreme Court in Arnold v Britton [2015] UKSC 36 were applied. The court was required to begin with the natural and ordinary meaning of the words, read in the context of the contract, its purpose and the facts known or reasonably available to the parties when it was made. Commercial common sense could not be used retrospectively to contradict clear language.
3. Preliminary issue 2(a). The Further Supplemental Agreement did not extinguish Carillion’s liability to Rolls for liquidated and ascertained damages between 29 January and 22 July 2011. Properly construed, it crystallised and satisfied that accrued liability by deductions from the Contract Sum. The agreement of new Dates for Completion established the point from which any further liability would be assessed; it did not operate as an extension of time under the main contract.
4. The distinction between liquidated damages levied under the main contract and sums paid or allowed as part of a commercial settlement was immaterial. Carillion remained liable for the compromised liquidated damages, so the sub-contractors’ potential liability was not excluded on that basis. Preliminary issue 2(b) therefore did not arise. Other arguments concerning clause 10 of the EMCOR Supplemental Agreement, Carillion’s liability and the reasonableness of the settlement remained open.