EOT and Liquidated Damages

Hong Kong Institute of Surveyors
"EOT and Liquidated Damages"

18 February 2014
Damon So, Partner
Projects (Engineering & Construction) Practice
Extension of Time
Time Obligations
1. No express agreement reasonable time
2. Date agreed
a. Duty to complete by a certain date
b. Breach: damages/liquidated
damages
www.hoganlovells.com
The Prevention Principle
Set at large
Commencement
Date
Reasonable
Time
Contractual
Completion Date
Employers
delay
Liquidated
Damages
Damages
Extension of Time
WHY?
FOR CONTRACTOR?
It:
- avoids the prevention principle
- ensures certainty of date
- preserves LD's
FOR EMPLOYER
HKIA Form (1986 Edition)

Clause 23
... if in the opinion of the Architect the completion of the
Works is likely to be or has been delayed beyond the Date
for Completion or beyond any extended time previously
fixed ,
a.by force majeure, or
b.by reason of inclement weather , or
c.by reason of civil commotion, local combination of
workmen, strike or lockout , or
d.by reason of Architects instructions issued , or
e.by reason of the Main Contractor not having received in
due time necessary instructions, drawings, details or levels
from the Architect , or
HKIA Form (1986 Edition) (Cont'd)

by delay on the part of artists, tradesmen or others
engaged by the Employer in executing work not forming
part of this Contract, or
f.
...
then the Architect shall so soon as he is able to estimate the
length of the delay beyond the date or time aforesaid make in
writing a fair and reasonable extension of time for completion
of the Works.
Relevant Events
a. Employers delays
e.g. variations, delay by their agents, delay in providing
instructions, drawings, details or level
b. Neutral events
e.g. force majeure, inclement weather, strikes,
c. What is not covered?
Question
What if a delay by Employer is not covered by the
provision?
Notice Provisions
a. Two-stage notices
- notice of delay
- submission of particulars
b. Failure to submit notices
- damages
- loss of right to claim EOT
c. Condition Precedent
Position in Australia
Gaymark Investments Pty Ltd v Walter Construction Group
Ltd, (1999) NTSC 143
Arbitration:
Claim by Walter:
- variations
- prolongation, disruption and accelerations costs
Counterclaim by Gaymark:
- late completion
- liquidated damages
Time Provisions
Original Clause 35.4
- Superintendent has general power to extend time despite
Contractors failure to comply with notice.
Clause 35.4 replaced by SC 19.1
- initial notice of 14 days after every cause of delay
- second notice with particulars within 21 days of first notice
SC19.2
- Contractor shall only be entitled to an extension of time if
SC19.1 is strictly complied with.
Claim for liquidated damages

The Arbitrator found
-
Gaymark caused 77 days delay to Walter

acts of prevention
Walter failed to comply with notice provisions
no general power to grant EOT
time set at large
complete within a reasonable time
no LDs
Arbitrators Reasoning
Three possible constructions:1. Implication of discretionary power similar to Clause 35.4
- care taken in amending the EOT provisions
- Superintendent considered his power being
exhausted once time bar was hit.
2. Too bad for the Contractor
- prolongation costs + liquidated damages
3. Risk taken by Employer
- EOT at Contractor's option
Arbitrators Reasoning (Cont'd)
EOT
claims
Delay by
Gaymark
Superintendents
assessment
1. Discretionary power
2. Non-compliance
3. Optional
Commencement
Date
EOT
Granted
Extended
Completion Date
Reasonable time
Original
Completion Date
Criticisms of Gaymark
IND Wallace QC (Hudson's):
1. Practical considerations ignored:
a. criticality better known to Contractor
b. Owners opportunity to reduce or avoid delay.
2. Judicial dislike of LD clauses no longer exists
3. Rejection of EOT based on failure to comply with
notice rather than own wrong
4. First principle: contractual intention from language
used
Position in Hong Kong

Hsin Chong Construction (Asia) Limited v Henble Limited
[2006] HCCT
-rejected Gaymark
-cited submissions from Hudson's
Position in Hong Kong (Con't)

W Hing Construction Co Ltd v Boost Investments Ltd
[2009] 2 HKLRD 501 (CFI)
-Did not follow Gaymark
-Contractor required to comply with contractual notice
provisions for EOT; failure to comply meant no EOT
Concurrent Delay
-
Issue arises where there is more than one effective cause

for delay
E.g. where both employer and contractor, or contractor and

sub-contractor cause or contribute to delaying events
Should contractor/sub-contractor be entitled to full EOT

caused by both events, or only to a pro-rated EOT for
events not caused by contractor/sub-contractor?
Position in Hong Kong

W Hing Construction Co Ltd v Boost Investments Ltd
[2009] 2 HKLRD 501(CFI)
-Considered Scottish case of City Inn Ltd v Shepherd Ltd
[2008] BLR 269: apportionment of responsibility for delays
caused by different parties
-No apportionment of EOT because contractor did not comply
with contractual notice requirements for EOT
-Whether apportionment approach to be adopted in HK is open
question
Position in England
De Beers Ltd v Atos Origin IT Services [2011] BLR 274
-Where employer and contractor both responsible for
concurrent delay, contractor entitled to EOT but cannot recover
in respect of loss caused by delay
-Contractor would suffer the same loss due to causes within his
control or for which he is contractually responsible
Position in England (Con't)

Walter Lilly & Co v Mackay & DMW Developments
[2012] EWHC 1773
-Contractor is entitled to full EOT for delay caused by two or
more events (if one of them is a relevant event in contract)
-Applied Malmaison approach
Liquidated Damages
Meaning
-
agreed sums payable upon breach
genuine pre-estimate of loss
cf unliquidated damages or general damages
fixed remedy for contractors delay

e.g. $10,000 per day of delay after PC
Effect
-
exhaustive remedy on delay
payable even where no actual loss is suffered
liability capped at agreed damages
if nil inserted as the rate of LDs?

no LDs recoverable for delay
Temloc v Errill Properties Ltd. (CA)
Advantages
a. Certainty
b. Avoids expensive and difficult investigation
e.g. public works project
c. Causation/remoteness/foreseeability
d. Pre-agreed level of damages
Defences
1. Time at large
2. Penalty
Defences successful
- revert to general damages
- may be capped at LD
Penalty
Two conflicting policies
General rule:
- contract to be enforced
Exception:
- damages compensatory
- unjustifiable amount for breach
- not enforced by the Court
- onus on the party being sued upon it
What is Penalty?
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd
[1915]
1.
penalty or liquidated damages.
2.
"in terrorem" of the offending party.
3.
genuine pre-estimate of damage.
4.
circumstances
5.
Tests: breach of non-payment, greatest loss, single sum

payable for different events, sectional completion
Difficulty in estimating?
Philips Hong Kong Ltd v The AG of HK [1993] PC
a.
virtuably impossible to calculate precisely in

advance.
b.
sensible approach by Government
c.
Not enough to identify hypothetical situations
d.
Is it a genuine pre-estimate?
e.
What actually happens subsequently provides

valuable evidence
Genuine Pre-estimate
Alfred McAlpine Capital Projects v Tilebox [2005]
EWHC 281
-
not "genuiness or honesty" of party estimating
objective test at the time of contracting
substantial discrepancy between LD's and likely loss
tendency to uphold commercial contractual terms
echoed in Steria v Sigma Wireless Communications

[2008] BLR 79
Cascading Argument
Liberty Mercian v Dean & Dyball Construction [2008] (TCC)
- construction of 4 retail units, 5 sections
- LD's for each section
- possession of later section on completion of preceding
section
- 4 weeks delay for the first section
- 20 weeks of LD's imposed
Court: nothing unfair
City Inn Limited v Shepherd Construction Ltd.

(2003) Inner House, Court of Session
Notice Provisions:a. Whenever Contractor received an instruction to carry out
works which would require an adjustment to the contract
sum or EOT, before executing the works, the Contractor
should give notice with particulars to the Architect
b. Condition precedent to Contractors right to EOT
Shepherd failed to comply with those provisions
Shepherd's Arguments
No Gaymark argument
Penalty argument :-
procedural default
no relation to LDs imposed
not a genuine pre-estimate of loss suffered as a result of

breach
The Court
a. LDs imposed a a result of delay in completion
b. EOT provision only gave them a right to relief
c. Right lost because of failure to comply with notice
provisions
d. LDs not penalty
Court's reasoning
Delay
EOT Claims
EOT
entitlement
The Courts
finding
Failed to comply
with notice
provisions
Shepherds
argument
LDs
No EOT
Defeating Penalty
1. Incentive vs Penalty
2. Optional Completion Obligations
3. Lane and site rental
The End
Damon So
Partner
Direct line: 2840 5018
E-mail: damon.so@hoganlovells.com
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EOT and Liquidated Damages

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Hong Kong Institute of Surveyors

"EOT and Liquidated Damages"

The Prevention Principle

HKIA Form (1986 Edition)

HKIA Form (1986 Edition) (Cont'd)

Claim for liquidated damages

Gaymark caused 77 days delay to Walter

Arbitrators Reasoning (Cont'd)

Position in Hong Kong

Position in Hong Kong (Con't)

Issue arises where there is more than one effective cause

E.g. where both employer and contractor, or contractor and

Should contractor/sub-contractor be entitled to full EOT

Position in Hong Kong

Position in England (Con't)

agreed sums payable upon breach

genuine pre-estimate of loss

cf unliquidated damages or general damages

fixed remedy for contractors delay

exhaustive remedy on delay

payable even where no actual loss is suffered

liability capped at agreed damages

if nil inserted as the rate of LDs?

penalty or liquidated damages.

"in terrorem" of the offending party.

genuine pre-estimate of damage.

Tests: breach of non-payment, greatest loss, single sum

virtuably impossible to calculate precisely in

sensible approach by Government

Not enough to identify hypothetical situations

What actually happens subsequently provides

not "genuiness or honesty" of party estimating

objective test at the time of contracting

substantial discrepancy between LD's and likely loss

tendency to uphold commercial contractual terms

echoed in Steria v Sigma Wireless Communications

City Inn Limited v Shepherd Construction Ltd.

no relation to LDs imposed

not a genuine pre-estimate of loss suffered as a result of

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