Sectional completion: Liberty Mercian -v- Dean & Dyball Construction

Summing up

• The case: Liberty Mercian Limited -v- Dean & Dyball Construction Limited [2008] EWHC 2617 (TCC).
• The issue: The effectiveness of sectional completion schedules that provide for the sequential construction of work sections.
• The implication: Where the commencement of a section is described as being contingent upon completion of a preceding section, then any culpable delay to the preceding section will result in liquidated damages being applicable as a result of the same delay to both sections.

One particular area of difficulty in contract drafting arises in connection with projects where the work is to be constructed in sequential phases. For example, the employer may want early possession of a critical part of the works for fitting out by others, during which time it may want to retain occupation of part of an existing adjacent structure to be handed to the contractor later.

Typically, the employer will effect these requirements through the division of the works into sections and defining individual dates of possession and dates for completion and liquidated damages applicable to each section. Difficulties can often arise over the appropriate amounts of liquidated damages to apply to each section, how any relationships between sections can be established, and also with the descriptions of the sections so that the scope of work encompassed by each section is clear.

It is not uncommon to see what are intended to be sequential sections being defined with fixed start and finish dates. This may cause difficulty with how to deal with the situation where, say, section 1 is late and section 2, which cannot start before section 1 is complete, has a fixed start date requiring the employer to give possession of that section to the contractor on the specified date.

The very recent case of Liberty Mercian Limited -v- Dean & Dyball Construction Limited concerned a retail project divided into 5 sections and the applicable contract was JCT 98 with some minor amendments. In this case, the employer had sought to make clear the relationship between the sections by giving sectional completion dates that showed sections 2, 3 and 4 were to be completed sequentially and instead of giving fixed start dates for these sections, the completion schedule described the date of possession as arising upon completion of the preceding phase. All the completion dates for each of the sections were however given as fixed dates.

On any construction project, the contractor will expect to know what period it has to carry out the works or any section of it, but what happened in this case was that section 1 was eight weeks late and the architect granted an extension of time of four weeks for delays to section 1 and then granted the same period of extension to all of the other sections.

Subsequent sections

The dates of possession of subsequent sections was therefore eight weeks late, but the dates for completion were only extended by four weeks. The four weeks of culpable delay to section 1 therefore had the effect of reducing the time available to the contractor for the completion of the remaining sections by four weeks, or rather resulted in the contractor incurring liquidated damages for four weeks in respect of all sections.

Naturally Dean & Dyball (D&D) took exception to this and sought to overturn the sectional completion schedule and the liquidated damages referred to within it.

D&D argued that the completion schedule should be set aside and time put 'at large' because the description of the dates for completion within the completion schedule referred not to "dates for completion" as required by the contract, but to "dates of completion", which was not a term defined by the contract. The judge rejected this argument, describing it as a technical argument and applying a common sense and purposive construction to the contract it was clear what the dates represented.

D&D then argued that as a result of the "cascading" effect of the damages through each section, it was penalised at each stage for the same delay resulting in the liquidated damages operating as a penalty that should therefore be set aside.

Again the judge rejected this argument. He said that it was plain from the completion schedule that later sections would not start until completion of earlier sections and both sides would have been aware that the culpable delay of four weeks on section 1 would automatically mean that work on sections 2, 3, 4 and 5 would start four weeks late. On the same basis he rejected D&D's argument that it should be entitled to extensions of time for deferred possession based on the fact that the dates of possession were the actual dates of possession.

Finally, the judge agreed with Liberty Mercian's argument that any other result would effectively mean that D&D was taking advantage of its own wrong and which would be contrary to a provision that denied the contractor any entitlement to an extension of time for events arising from its own negligence or default.