Thursday, 5 January 2017

Octoesse LLP v Trak Special Projects Ltd

[2016] EWHC 3180 (TCC)

The Trak case revolved around the interpretation of clauses 2.22 and 2.23 of the standard form JCT Intermediate Building Contract (IC 2011). Clause 2.22 provides as follows:

“If the Contractor fails to complete the Works or a Section by the relevant Completion Date, the Architect/Contract Administrator shall issue a certificate to that effect. If an extension of time is made after the issue of such a certificate, the extension shall cancel that certificate and the Architect/ Contract Administrator shall where necessary issue a further certificate.”

On 3 October 2014, the CA issued a certificate of non-completion. The Works were certified as practically complete on 13 February 2015. On 3 July 2015 Trak submitted a claim for an 18-week extension of time. By letter dated 9 November 2015, the CA granted Trak an extension of time of 9.5 weeks. No further certificate of non-completion was issued. Octoesse gave notice of their intention to deduct and did deduct liquidated damages from the sum stated to be due in the final certificate.

In the adjudication, and in Part 8 proceedings before the TCC, Trak argued that Octoesse was not entitled to make that deduction. Under clause 2.23.1, it was an express condition of Octoesse’’s entitlement to give notice under clause 2.23.2, and to deduct liquidated damages, that the CA had issued a certificate under clause 2.22. That condition had not been met. The effect of clause 2.22 was that the certificate of non-completion issued on 3 October 2014 had been cancelled when a further extension of time had been made in November 2015. As no further certificate had been issued, the LADs could not be validly deducted. The adjudicator and Mrs Justice Jefford agreed.

Octoesse argued that the purpose of clause 2.22 was to put the Contractor on notice that the Employer may levy liquidated damages. The argument emphasised the words “where necessary” in clause 2.22. Octoesse argued that it was not necessary here for the CA to issue a further notice of non-completion because practical completion had already been achieved before an extension of time was made. Trak was already fully aware of its potential liability for liquidated damages. However, the Judge felt that this failed to give effect to the mandatory obligations imposed by the use of the word “shall” in clause 2.22. Awarding an extension of time had the effect of cancelling any certificate already issued and so the CA would have to issue a further certificate, where necessary, regardless of whether practical completion had been granted or not. 

As for clause 2.23, if an Employer has given notice of his intention to deduct liquidated damages but an extension of time is then made and a further certificate of non-completion issued, then the Employer does not need to give notice of his intention again. There is a clear distinction between the Employer’’s notice under clause and the certificate of non-completion.

Here, in light of the extension of time given in November 2015, the certificate of non-completion was cancelled; no further certificate was issued and, in the absence of such a certificate, the condition in cl. was not fulfilled. Therefore Octoesse was not entitled to deduct liquidated damages.

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