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Published: Fri, 02 Feb 2018

Contracts And Completion Dates

It is assumed that the contractor started the work in May, 2007 after the acceptance of letter of intent by Morrissey & Marr from Salford Rovers. Contractor required to complete the stadium in June 2010 as the new season will commenced in August 2010. The JCT SBC/Q/2005 form of contract was signed 2 months later, which is in July, 2010.

It is assumed that Morrissey & Marr had been delayed 20 weeks (equivalent to 5 months) by both adverse weather conditions and variations by Salford Rovers where the stadium was completed 20 weeks after the stated completion date in the contract.

Contractual obligation between parties:

The letter of intent would be a simple form of contract but the formal signing of the contract is required to create a contract on the JCT terms. By accepting the letter of intent, the parties accepted that the terms of the letter governed the rights and obligations of their relationship until the formal contract was signed. It is because the letter of intent confirms an intention to enter into a contract and effectively asks Morrissey & Marr to proceed with the work regularly and diligently [1] . Besides that, there is an undertaking in effect pending the execution of a formal contract to pay for Morrissey & Marr based on cost plus basis.

This can be supported by the case Diamond Build Ltd v Clapham Park Homes Ltd [2008] EWHC 1439 (TCC). The Judge explained that although that is a simple contractual arrangement, it has sufficient certainty which consisted of commence date, requirement to proceed regularly and diligently, a complete period, and an undertaking to pay contractor [2] .

After both parties signed The JCT SBC/Q/2005 form of contract, they are bound by the JCT SBC/Q/2005 form of contract that they signed. By referring to case British Steel v Cleveland Bridge (1981) 24 BLR 94, the view of Robert Goff J is that as both parties confidently expected a formal contract to evaluate, one requested the other to commence the work, and the other conformed with that request. The work done as requested will be treated as having performed under that anticipated contract which was entered to [3] .

As both parties had signed the contract, therefore the retrospective effect of newly signed contract was taken place. Therefore, this retrospective effect governs and regulates the relationships of both Morrissey & Marr and Salford Rovers. In spite of this, the effective date of the contract is the date the contract was made, not the earlier date upon which works were started. This can be supported by the case Trollope & Colls and Holland Hannen and Cubitts Ltd -v- Atomic Power Constructions Ltd, QBD 26 October 1962 [4] 

3.0 Entitlement of extension of time and loss of expenses

Morrissey & Marr experienced delay by adverse weather conditions and variations from Salford Rovers in between the period of letter of intent and JCT SBC/Q/2005 form of contract. The contract was signed after the incidents of delays .The major variations were also incorporated into the contract documents before the contract is signed. Therefore those variations occurred before the actual contract comes into existence are not considered as variations after the contract was signed by both parties.

In addition, it is assumed that Morrissey & Marr should negotiate these delays with Salford Rovers and agreed the date of completion after considering these delays before Morrissey & Marr agreed and signed the contract. Therefore, Morrissey & Marr has no right to claim for extension of time, and loss and expense based on that circumstance.

However, if Morrissey & Marr was delayed by any of these ‘Relevant Events’ [5] , he needs to prove that their progress of works are being affected by ‘Relevant Events’ which may resulted delay to the progress of works and consequently affect the date of completion. If possible, more supporting evidences are advised.

In other words, Morrissey & Marr should show that delays occurred during that time had significantly affect the actual progress of the work on site at that time. Morrissey & Marr needs to make sure that the ‘Relevant Events’ had cause potential delay to the as-built progress of works at the point the ‘relevant Events’ occurred as it is not enough for Morrissey & Marr just simply show that the ‘relevant Events’ caused delay to the completion. This is supported by the case Leighton Contractors (Asia) Ltd v Stelux Holdings Ltd that Leighton, the main contractor argued that Stelux, the employer had caused significant delay by releasing tender information for the heating, air conditioning and electrical subcontract works late. However, arbitrator found that Leighton was still only commencing construction of the basement slab, therefore the late of those information would not be the cause of the delay [6] .

Furthermore, ff the delay is of culpable delay, then Morrissey & Marr would not be entitled to extension of time and loss and expense. If the delays are caused by the events which neither Morrissey & Marr and Salford Rovers is responsible, Morrissey & Marr is entitled to extension of time but not loss and expense. Meanwhile, if the delays are caused by the events due to Salford Rovers’s default, then Morrissey & Marr would entitle to extension of time as well loss and expense [7] .

According to Clause 2.27.1 [8] , Morrissey & Marr is required to notify the delay by written notice when delay becomes reasonably apparent that the progress is being or likely to be delayed, however this should not served as condition precedent of the entitlement of extension of time. Unless, if there is a clause states a specific of time for the delivery of notice and also states clearly that the loss of right if the notice was not given by Morrissey & Marr. [9] This is supported by the case of Bremer Handelgesellschaft M.B.H. v. Vanden-Avenne Izegem P.V.B.A., (H.L.) where the House of Lords concluded that a notice provision was not to be a condition precedent unless it stated a specific time for delivery of the notice and stated clearly that the rights would be lost in the event that the notice was not given [10] .

Therefore, as a result, Morrissey & Marr may entitle to extension of time even though the notices of extension of time are issued after the completion of project.

In the event that the delay in completion was caused by employer culpable delay, that means contractor had to complete within a reasonable time where time would be at large. Extension of time should be assessed using a standard of what is fair and reasonable and should be added to the previously fixed completion date [11] . The simple basis of any claim for additional time is that the Contractor must show that, as a result of a relevant delaying event, the works were critically delayed ie cause and effect.

By referring to the case Balfour Beatty v Chestermount Properties (1993) 62 BLR 1

the judge said that if contractor goes beyond the previously-fixed completion date, he must pay liquidated damages for the whole period of time from that date to practical completion unless architect subsequently extends the time for completion due to the reason of relevant event by retrospectively postponing the completion date. If the relevant event is a variation instruction the architect will have to consider whether it is fair and reasonable that the contractor’s total period of time for completion should be increased. If the variation works can reasonably be conducted simultaneously with the original works without interfering with their progress and are unlikely to prolong practical completion, the architect might properly conclude that no extension of time was justified [12] .

If an extension of time is subsequently granted, it is still necessary for the contract administrator, on the employer’s original notice of intention to deduct liquidated damages remains in force until it is specifically revoked [13] .

4.0 Impartiality of Architect:

Architect, as a contract administrator, acts as the agent of Salford Rovers administering the contract on behalf of Salford Rovers and giving effect to the their requirements. Also, architect needs to carry out the functions of ‘decision maker’ under the contract. Therefore, as a ‘decision maker’ [14] , he must act impartially and fairly between the employer and contractor by making the decision on whether to grant extensions of time, and loss and expense to contractor without the external influences from Salford Rovers [15] .

As a result, contractor administrator requires ascertaining and certifying extension of time and loss and expenses on his own opinion [16] .

Furthermore, if architect follows Salford Rovers’s wishes due to the pressure from Salford Rovers when making ‘right’ decision, in the issue of not granting any extensions which means architect losses his impartiality and independence, it is likely that architect’s decision will be ignored [17] . This is clearly supported by the case Hickman v Roberts (1913, HoL) where architect admitted that his decision making is influenced by his employer.

Although architect is engaged by employer to act his agent to ensure the works are completed economically and efficiently and failure to perform those duties properly may result in the employer suing him for damages. But, architect must act fairly and professionally in applying the terms of construction contract,

an architect owes a duty of care towards his client, and the contractor, in the performance of all duties, including contract administration, and specifically certification, and could be liable for negligence in the performance of those duties. Case: Sutcliffe v Thackrah [1974] AC 727. Lord Reid stated: “The employer and the contractor make their contract on the understanding that in all matters where the architect has to apply his professional skill he will act in a fair and unbiased manner in applying the terms of the contract.” [18] 

5.0 Withholding final payment:

Standard forms of construction contracts such as the JCT forms are drafted to be in accordance with section 111 of the Act. The case of Melville Dundas Ltd v George Wimpey UK have seen the House of Lords considering the application of notices under section 111 of the Act.

If the delay of completion is not due to contractor’s insolvency, under Clause 4.15.4, the final date for payment of the balance shall be 28 days from the date of issue of the Final Certificate. If Salford Rovers intends to withhold the final payment, Salford Rovers has to give notice to Morrissey & Marr Construction Ltd by specifying any amount proposed to be withheld from the amount due, the ground or grounds for which withholding the amount of withholding attributable to each ground not later than 5 days before the final date for payment. (Ndekugri & Rycroft, 2009)

Furthermore, Morrissey & Marr is entitled to suspend performance of its obligations where Morrissey & Marr can choose to terminate his employment under clauses and 8.9.3 of JCT 2005

However, if it is the insolvency of Morrissey & Marr, then Salford Rovers can withhold the payment [19] or do not make the payment to insolvent contractor even though there is no appropriate withholding notice [20] . Therefore, Section 111(1) does not apply in this situation [21] .

According to the Act, an effective Withholding notice should consist of the contents: (a) the total amount to be withheld, (b) the grounds for the withholding, and (c) itemization of the total amount to be withheld by individual grounds if there is more than one ground [22] .

The penalty question. Firstly, penalties are unenforceable. Secondly, just because it is referred to as a penalty clause, does not make it a penalty clause. The question is how did the employer ascertain the £900,000 of payment that withheld which served as ‘penalties’? He would have to show that these were contemplatable losses and not a giant figure plucked out of the air to scare the contractor into better performance, or punish him for a delay. If it is, this is deemed to be ‘penalty’ and not enforceable.

In the question of whether Salford Rovers can withhold the final payment in terms of ‘penalties’, it is for the court to find out whether the payment hold is in truth penalty or liquidated damages [23] , irrespective of the words used by parties.

Therefore, it is ‘penalty’ if the sum stipulated for is extravagant and unconscionable in amount in comparison with the maximum actual amount of damages.

If Salford Rovers can prove that the actual damages that he faced is more or less £900,000 for the period of 20 weeks and had made genuine attempt to calculate the losses., or there is no substantial discrepancy between the level of damages stipulated, which is £900,000 and the level of damages which is likely to be suffered [24] , then this is not a ‘penalty’ and Salford Rovers has the right to withhold that amount of sum from [25] Morrissey & Marr [26] .

On the other hand, if £900,000 is proved to be far exceeding the actual losses that Salford Rovers suffered, the liquidated damages clause will be struck down as a penalty [27] 28

Besides that, if no extension of time for completion given for specific ‘act of prevention’ by Salford Rovers, he is in breach of contract and therefore the time for completion is put at large and he loses the right to withhold the payment, which acts as liquidated damages.

The most important is, if Morrissey & Marr is culpable for the delay on a contract, there is nothing to stop Salford Rovers from recovering his proven losses.

If the figure was just plucked out of the air (and the contractor can show this) the only remedy left to the employer is to prove his actual losses, which is a bit trickier………..or, if he can prove it, may actually exceed the £40K. There have been cases where a party will try and prove their own LAD clause was actually intended as a penalty, in an effort to have it struck, because their actual losses exceeded the amount in the LAD clause.

Clause 2.32 provides that the architect must issue a non-completion certificate (certifying that the contractor has failed to complete on time) and the employer must give the contractor written notice of intention to deduct liquidated damages before liquidated damages can be claimed or deducted. (Murdoch & Hughes, 2008)

6.0 Conclusion

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