Cases - Peak Construction Ltd v McKinney Foundations Ltd

Record details

Peak Construction Ltd v McKinney Foundations Ltd
1 BLR 111
Construction claim - time for completion - extension of time - delay - remedial works - liquidated damages - discharge of date of completion - contract administration

Pursuant to a bespoke contract devised by Liverpool Corporation, the claimant builders were engaged to construct a multi-storey block of flats within 24 months. Clause 23 of the contract empowered the architect to extend time in the event of (amongst other things) 'unforeseen circumstances'. The defendants were nominated subcontractors specialising in the design and construction of piles. During the course of the works it was discovered that one of the piles was constructed from unsuitable materials and was, as Salmon LJ put it, 'useless'. Works were immediately suspended and did not recommence for some 58 weeks, ostensibly because of the time it took the Liverpool Corporation to approve the proposed remedial works. Remedial works were eventually carried out which took approximately 6 weeks to complete.

The Court of Appeal held that it was impossible to hold the contractor responsible for a delay of 58 weeks when the requisite remedial works took only 6 weeks to complete. In setting out what has become the 'traditional' approach of the courts to the consideration of extension of time and liquidated damages clauses (as to which see below), the Court of Appeal held that the same should be construed strictly contra proferentem, and that no liquidated damages would be recoverable where the employer was in any way responsible for a failure to achieve a completion date. Further, their Lordships ruled that if any employer wants to preserve the right to claim liquidated damages in circumstances where he has been culpable for delay, then the extension of time clause should make provision for this eventuality. If this is not catered for in the extension of time clause, then the fixed date for completion will be discharged.

The contract in question contained extension of time and liquidated damages provisions, as well as a clause stating that 'time shall be considered as of the essence of the contract on the part of the contractor'. The contract did not provide for an extension of time to be granted for the employer's failure to promptly authorise and instruct the investigations and remedial works and therefore time could not be extended in this regard.

Salmon LJ was highly critical of the drafting of the contract, describing the same as being worthy of a prize for 'the most one-sided, obscurely and ineptly drafted clauses in the United Kingdom'. However, the Court of Appeal did not object to the principle of upholding an employer's right to terminate pursuant to a time of the essence clause even where the contract contained extension of time and liquidated damages provisions, with Salmon LJ expressing 'no doubt' that the employer would be entitled to terminate if the contract period (as extended) had expired. It was held that a liquidated damages provision will encompass any sums which would be payable to the contractor pursuant to a fluctuations clause under the contract.

The Court of Appeal held that the employer could not claim liquidated damages for a delay, when there is no mechanism in the contract which allows the contractor to apply for an extension of time in relation to that particular delay.

This case is an example of how the contra proferentum rule can apply to construction cases. In this case, the court held that provisions relating to liquidated damages and extensions of time in an employer-devised contract should be construed against the employer.

(1971) 69 LGR 1 CA

The Court held that where any part of the delay to the works had been caused by the employer in circumstances where no extension of time was due there could be no liability for liquidated damages.