IF AN EMPLOYER CAUSES DELAY FOR WHICH THERE IS NO ENTITLEMENT TO EXTENSION OF TIME UNDER THE CONTRACT, WILL THE EMPLOYER STILL BE ENTITLED TO LEVY LIQUIDATED DAMAGES?

Delays in contracts are not always caused by the contractor. Sometimes, architects, engineers or the employer itself may cause the delay. Hence, extension of time clauses provide a mechanism for the completion date to be adjusted. Properly administered, the extension of time clause gives the contractor the peace of mind, knowing that he has more time to complete the works. On the other hand, it preserves the employer’s right to levy liquidated damages for delays by the contractor, by ensuring that the contractor would not be able to make an argument that “time is at large”.

When time is said to be at large, then the employer loses his right to claim for liquidated damages, even if the contractor has contributed significantly to the delay. The cases of Rapid Building Group v Ealing Family Housing (1984) as well as Thamesa Designs Sdn Bhd v Kuching Hotels Sdn Bhd (1993) are illustrative of the point.

A good summary of the co-relation between an extension of time clause and a liquidated damages clause is provided by Lord Justice Phillimore in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970), wherein his Lordship said:

“…a clause providing for liquidated damages…is closely linked with a clause which provides for an extension of time…The reason for that is that when the parties agree that if there is delay the contractor is to be liable, they envisage that the delay shall be the fault of the contractor…It follows, once the clause is understood that way, that if part of the delay is due to the fault of the employer, then the clause becomes unworkable if only because there is no fixed date from which to calculate that for which the contractor is responsible and for which he must pay liquidated damages. However, the problem can be cured if allowance can be made for that part of the delay caused by the actions of the employer, and it is for this purpose that recourse is had to the clause dealing with extension of time. If there is a clause which provides for extension of the contractor’s time in the circumstances which happen, and if the appropriate extension is certified by the architect, then the delay due to the fault of the contractor is disentangled from that due to the fault of the employer and a date is fixed from which the liquidated damages can be calculated.”

For that reason, it is important that extension of time clauses are worded comprehensively to allow an extension of time to cover all possible delays that may be caused by the employer, its consultants or other tradesmen for whom the employer may be directly responsible.

Otherwise, employers who cause delay will lose their rights to deduct liquidated damages even for the contractor’s delays.

Messrs Kheng Hoe is a firm of lawyers handling construction litigation in Malaysia. If you have any queries, you may e-mail khenghoe@khenghoe.com.