In Henia Investments v Beck Interiors [2015 ] EWHC 2433 (TCC), Akenhead J. decided that under the JCT Form failure on the part of the Contract Administrator to make a decision in respect of a contractually compliant application for an extension of time would not render the Contract Administrator’s Non-Completion Certificate invalid nor prevent the Employer from deducting and/or claiming liquidated damages.
It will be recalled that there are two pre-conditions in the JCT Form in Clause 2.32.1 to the deduction of liquidated damages. One is that the Contract Administrator has issued a Non-Completion Certificate and second, the Employer has notified the Contractor that he may require liquidated damages to be paid by one route or another.
What if the Contractor has made a compliant application for extension of time which the Contract Administrator has not dealt with in accordance with the Contract? What if, for example, the Contract Administrator has simply defiantly ignored the application and indeed said that he was doing so?
Akenhead J. decided that that did not matter. He appears to have been heavily influenced by the fact that if the Contract Administrator did so behave (and it is possible to think of many scenarios less dramatic than the example I have given), then the Contractor could simply go to adjudication.
Akenhead J. had to consider with an extract from Keating on Construction Contracts:
“Similarly where a contract imposes a duty on the architect to extend time and he fails to perform that duty in accordance with the contract, the employer is unable to claim liquidated damages.”
No authority was cited for that proposition. It is easy to understand the logic behind it. The entitlement to liquidated damages arises because “the contractor has failed to complete by the Completion Date.” That is the starting point and the foundation for an employer’s claim for liquidated damages. It was either the original date or according to the Contract, such other date as is fixed …. under clause 2.28.”. Then surely unless the Contract Administrator has dealt with the application in accordance with the contract there is no valid date against which to deduct liquidated damages. The contrary argument that the date remains as originally or previously fixed until changed ignores the fact that the Employer be benefitting then from the Contract Administrator’s wrong.
Equally, the fact that now there is now a speedy mechanism for deciding whether there should be an extension of time – by adjudication – might be thought to miss the point. The speed of the dispute resolution process cannot be relevant. The short point is that until satisfied the Employer would on the Judge’s finding, have an accrued right to liquidated damages. And that despite the fact that its own agent had, on the extreme facts postulated, deliberately ignored the Contract.
Furthermore, the Contractors right to have the issue decided by the Contract Administrator, familiar with the facts has been ignored. Is the Contractor not entitled to that decision even as a dry run ?
All of what Akenhead J. said was obiter dictum as by the time the case came to court, the point did not arise on the facts. It was good of him to decide it. It will mean, though, that the paragraph in Keating will need review.
This is a point to be argued again, at first instance and no doubt in the Court of Appeal.