Extension of Time Claims in Hong Kong

A: What to Claim

The starting point is the contract and the extension of time clause itself. In this section, I want to emphasise two points:

1. The importance of clear drafting, which sounds obvious, but it is bad drafting that is the cause of so many problems.
2. The second point is less obvious. Restricting the grounds for extensions of time in an extension of time clause may not be in your best interests.

Generally construction contracts have long complicated clauses dealing with extensions of time and dates for completion. The clause will specify either a precise date for completion or alternatively a length of time in which the Works must be completed. If no time is specified in the contract, the Contractor will be under an implied obligation to complete the contract works within a reasonable time¹.

Contracts also usually state that where the Contractor fails to complete the Works by the date for completion, he will be liable for liquidated damages. If the contract does not include a liquidated damages clause, an employer can still claim general damages for delay. The exact wording of the liquidated damages provision needs to be reviewed. Some contracts are written on the basis that liquidated damages are the only remedy and some are written on the basis that where general damages are higher, general damages could be claimed instead, subject to proof. Be careful when amending standard contracts, however. The case of Temloc v Errill Properties² is a warning.

In that case, the Employer was required to state the figure for liquidated damages for delay in the appendix to the standard form contract. The figure inserted in the appendix was nil. The Contractor was delayed in completing the works and there was a dispute. The court considered that on a proper construction of the contract, the parties had agreed that there should be no damages for delayed completion. It was held that as the contract stated that liquidated damages provided the only remedy for delay and the appendix was expressly completed to provide for nil liquidated damages, no damages were payable at all.

Where the Employer by its actions or omissions prevents the Contractor from completing the works by the date for completion and where the extension of time provision does not cover the delay, the Employer is unable to claim liquidated damages. This is, of course, the main reason for the inclusion of an extension of time clause within a construction contract. Its primary purpose is to allow the Employer to extend time for completion by the Contractor as a result of any of the delays listed in the extension of time clause, so that rights to claim liquidated damages are not defeated by the Employer's own actions.

This principle that the Employer cannot rely upon liquidated damages clauses, if it has by its own actions prevented the contractor from completing the works as known as the Prevention or Peak principle³. It is from the case of Peak v McKenney Foundation Ltd⁴. The prevention principle is a simple concept and was summarized well by the Australian court in Turner Corp v Co-ordinated Industries⁵.

"Essentially it is that a party to the contract has been prevented from fulfilling its contractual obligations by virtue of the conduct of the other party."

In the Peak case, Peak was the head contractor and contracted with the Liverpool Corporation to carry out building works. McKenney was the nominated sub-contractor for the foundations. In early 1964, it was discovered that there was a fault in the building's perimeter piles. Delays, mainly caused by the Liverpool Corporation meant that an expert was not engaged to review the problem until February 1965. The expert produced its report to the parties in May 1965. The next day, Peak wrote to the Liverpool Corporation asking for an instruction to carry out the work recommended by the expert. Peak heard nothing from the Liverpool Corporation and therefore wrote to them again in June. It was not until 30 July 1965 that the expert's recommendations were approved by the Liverpool Corporation and Peak began remedial work on 12 August 1965. In total, the works were suspended for 58 weeks.

The Liverpool Corporation sought liquidated damages from Peak and Peak in turn sued McKenney for liquidated damages. The Court of Appeal held that the Liverpool Corporation was not entitled to recover liquidated damages from Peak because at least part of the 58 week delay was caused by the Liverpool Corporation itself. The extension of time clause in the head contract did not enable the Liverpool Corporation to extend time for its own delays. In fact, no attempt had been made by the Liverpool Corporation to extend time at all. Therefore, there was no date from when liquidated damages could commence. The court said:

"A clause giving the Employer liquidated damages as so much a week or month which elapses between the date fixed for completion and the actual date of completion is usually coupled, as in the present case, with an extension of time clause… If a failure to complete on time is due to the fault of both the employer and the contractor, in my view, the clause does not bite. I cannot see how, in the ordinary course, the employer can insist on compliance with a condition if it is partly his own fault that it cannot be fulfilled".⁶

For the prevention principle to apply, all that is required is the act or omission of the Employer (or its agents) preventing the Contractor from completing the Works by the specified time.

Even the ordering of a variation which prevented the Contractor from completing on time has been held to be an act of prevention, leading to the result that the employer could not claim liquidated damages. That is the Australian case SMK Cabinets v Hili Modern Electronics Pty Ltd.⁷

If the prevention principle applies, the date for completion will be set aside and time is said to be at large. What that means is that the contractor has a reasonable time to complete and that the liquidated damages provision will not apply. If the extension of time clause does not give the contractor the right to claim an extension of time for all possible causes of delays by the Employer, there is a risk that the right to claim liquidated damages will be set aside.

I want to demonstrate what I have said by reviewing the grounds upon which Contractors can claim extensions of time under two Hong Kong standard form contracts.

In an appendix to the written paper that I have prepared, I have set out the extension of time clauses in full. I will not go through each ground for an extension of time individually. That will take a few hours in itself. However, I will refer to the main provisions and raise issues for you to think about.

I will start with the Hong Kong Government Form General Conditions of Contract for Building Works - 1999 Edition. Clause 50(1)(b) sets out the grounds for an extension of time claim. There are 11 grounds altogether. I will mention only 6, which are:

1. Inclement weather and/or its consequences adversely affecting the progress of the Works;
2. variations under Clause 60;
3. a substantial increase in the quantity of any item of work;
4. not being given possession of the Site or subsequently being deprived of it:
5. a disturbance to the progress of the Works, for which the Employer or the Architect or Specialist Contractor is responsible; and
6. "any special circumstance of any kind whatsoever".

The grounds upon which Contractors can claim extensions of time under this Government form are fairly extensive. As a result therefore, the Government is well protected against the possibility that an act of prevention might set aside its right to claim liquidated damages. However the wording is not without problems. For instance the ground for an extension of time for variations, only applies to variations under Clause 60. The right to issue variations is not without limit. If it can be shown that the Contract Manager has exceeded his authority and as a result Clause 60 does not apply, then there is a strong argument that the extension of time clause also does not apply and the Employer cannot claim liquidated damages. The ground in sub clause (v) which allows an extension of time if there is a substantial increase in quantities comes partially to the assistance of the Government here.

Further, the last ground "any special circumstance of any kind whatsoever" seems very unclear. This wording reflects similar wording in the FIDIC and ICE contracts and surprisingly, there is very little legal authority as to what it might mean.

The word "special" implies "of a particular kind, not general or exceptional in amount degree or intensity". Therefore any delay which is caused by something common will not be covered by this clause. Presumably the clause covers any special risks, which are accepted by the Government under Clause 84, but given that the terms 'special circumstance' is a different term than special risks, then it is likely to have a different perhaps wider meaning.

There is further confusion caused by Clause 50(1)(c). This seeks to confirm what the Contractor cannot claim an extension of time for. Specifically it states that the Contractor cannot claim for:

1. a suspension to the Works described in Clause 54(2)(a) to (d) - the most important of which is suspension caused by the default of the Contractor; or
2. a shortage of Constructional Plant or labour.

The problem with clauses which confirm what the Contractor cannot claim for is not what they say, but which they leave out. For instance, this clause confirms that the Contractor cannot claim an extension of time for shortage of Constructional Plant or labour, but there is no mention of whether or not the Contractor can claim an extension of time for a shortage of materials. Can a Contractor argue therefore that a shortage of materials was caused by a "special circumstance", then he can claim an extension of time? Further if the materials are being imported and if as a consequence of inclement weather either in the country of origin or during transit, there is a delay to the progress of the works, can the contractor claim an extension of time?

The HKIA/RICS standard form of contract has very different wording. Clause 23 is the extension of time clause. It also sets out 11 grounds to claim an extension of time. Again I will mention 6 grounds.

1. force majeure;
   
   This is very unclear. This term is not at all defined in the contract and would encourage anyone using this form of contract to include a good definition of force majeure.
2. inclement weather or the subsequent effects of such inclement weather - which is expressly defined;
3. civil commotion, strikes and lockouts affecting any of the trades employed upon the Works;
4. variations under the contract;
   
   Again - note that only variations under the Contract allow an extension of time. Any additional work claims which are properly quantum meruit or outside the contract would set time at large.
5. delays by the Architect in providing instructions, drawings, details or levels;
6. delays by artists, tradesmen or others engaged by the Employer.

Unlike the Government form contract, there is no general provision which states that a default by the Employer will allow the Contractor to claim an extension of time. In my view, this is a mistake. Similarly, the clause allowing a Contractor to claim an extension of time as a result of delays by the Architect is very narrowly worded. This allows the Contractor to claim an extension of time only if it is not received in due time.

"necessary instructions, drawings, details or levels"

When reviewing this clause, it should be borne in mind that the extension of time provisions should be strictly interpreted.⁸ I can only presume that this clause was written in this way because it was assumed that when the contract was signed, the Contractor would have a full design and that the only elements of the design that he would still need would be details. However I have seen this clause used in a fast track design and build project, where the Contractor had extremely limited design details at the outset. It is clearly inapplicable in those circumstances.

It is not difficult to think of other things which the Architect has to provide which could be a cause of delay. For instance, would approvals be included? Possibly. How about an entire sub-contract specification? Bear in mind that the extension of time clause must be interpreted strictly.

Unfortunately case law does not provide answers to these questions. However the lesson to be learnt is that the clause should be clearer.

Invariably, Clause 23 is amended by consultants acting for the Employer. It is usually the case that the amendments restrict the grounds upon which a Contractor can claim an extension of time. Although Employers and their consultants see a benefit in restricting these grounds, it is important to take great care.

Ultimately, if the extension of time clause is not properly drafted and an act of prevention occurs, then the Employer will not be able to claim liquidated damages and the whole purpose of the extension of time clause will be lost.