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Contractor held liable for failing to complete works within a “reasonable time” under Supply of Goods and Services Act

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Authored by: Justin Yuen

In a recent judgment of England’s Technology and Construction Court (Barkby Real Estate Developments Ltd v Cornerstone Telecommunications Infrastructure Ltd [2022] EWHC 1892 (TCC)), even though there was no formal contract between the parties stipulating time, the court held that the contractor had to complete works “within a reasonable time”, pursuant to section 14 of the Supply of Goods and Services Act 1982. Section 14 of the Supply of Goods and Services Act 1982 is similar to section 6 of Hong Kong’s Supply of Services (Implied Terms) Ordinance, Cap 457 and the judgment is therefore of note to the construction industry in Hong Kong.

Background

The project out of which the dispute arose was a development in Hastings. The Claimant, BREDL, a developer of trade parks in the United Kingdom, put the project site together, reached agreements with tenants for the site, and forward sold the project to Hastings Borough Council. BREDL engaged the Defendant (Cornerstone), a national infrastructure provider involved in the installation of electronic communications on land, to relocate a mobile telephone mast on the project site. Cornerstone produced a design for the foundations for the mast, which turned out to be inappropriate for the actual ground conditions and so it had to carry out a redesign, which resulted in a delay in the completion of Cornerstone’s works.

The dispute

It was BREDL’s case that when the main development was completed on 30 June 2020, it could not be handed over to Hastings Borough Council, because the sight lines were still obstructed by the old mast. Cornerstone’s response was that the works for the main development were not then complete, so that the delay in the completion of its works caused BREDL no loss, which BREDL would not have suffered in any event.

What caused the delay in handover to the purchaser?

The court said that the resolution of this dispute turned upon the snagging lists produced by the Employer’s Agent. The court was of the view that the fact that Practical Completion became dependent upon completion of Cornerstone’s works may in itself be sufficient to resolve this issue in favour of BREDL. However, the court looked with care at the list of outstanding works as at 30 June 2020. The court accepted that these were of the nature of snagging works which would not have prevented hand over to Hastings Borough Council and therefore accepted BREDL’s case that the delay in handover after 30 June 2020 was as a result of the need for Cornerstone and its team to complete its works.

Who was responsible for the delay?

The court turned to the question of whether Cornerstone was contractually responsible for the delay. Although there was no formal written contract between BREDL and Cornerstone, the court held that a contract had been entered into by them when payment was accepted by Cornerstone as having been made for the works.

The parties agreed that the contract was subject to section 14 of the Supply of Goods and Services Act 1982, which provides that where, under a relevant contract for the supply of a service by a supplier acting in the course of a business, the time for the service to be carried out is not fixed by the contract, left to be fixed in a manner agreed by the contract or determined by the course of dealing between the parties, there is an implied term that the supplier will carry out the service within a reasonable time and that what is a reasonable time is a question of fact.

Both parties referred the court to Hick v Raymond & Reid [1893] AC 22 in which the court said “When the language of a contract does not expressly, or by necessary implication, fix any time for the performance of a contractual obligation, the law implies that it shall be performed within a reasonable time. The rule is of general application, and is not confined to contracts for the carriage of goods by sea. In the case of other contracts the condition has been frequently interpreted; and has invariably been held to mean that the party upon whom it is incumbent duly fulfils his obligation, notwithstanding protracted delay, so long as such delay is attributable to causes beyond his control, and he has neither acted negligently nor unreasonably.”

The court then went on to consider what was a reasonable time for completion of the works and to answer that question said it was entitled to and should take into account what actually happened. The crucial issue was who was to take responsibility for the five month delay attributable to the unsatisfactory ground conditions. The court was satisfied on the evidence that had it not been for that five month delay, Cornerstone would have completed its works by about the end of March 2020. Thus on the facts of this case, the answer to the question, what would be a reasonable time for completion, depended upon how responsibility for that five month delay was to be allocated.

Did Cornerstone fail to carry out and complete works within a reasonable time?

The court identified two sub-issues, namely (i) who bears responsibility for the fact that the original foundation design was inappropriate? (ii) once the foundation problem had been identified, did Cornerstone act with reasonable expedition to deal with the problem?

The court held that whatever the general practice of the telecommunications industry was, a competent designer would have called for a geotechnical survey before finalising the design. This was not done and as result, the original design was inappropriate. Cornerstone was responsible for design and there was a sufficient basis upon which to hold that it failed to carry out its works within a reasonable time. That conclusion was strengthened, the court said, by consideration of the second sub-issue: there was no explanation as to why it took five months to resolve the problem once identified. At most, the court said, a couple of months would be needed to find a solution and get the team back on site.

The court said that the overall impression it had, was that Cornerstone was very busy – it had about fifty contracts on the go, of which this was not a high priority contract. The court also found that Cornerstone was made aware that the execution of Cornerstone’s works was necessary to enable BREDL to achieve its objectives – and that the “build contract” (i.e. the main development) was only eight months. In those circumstances, the court had no hesitation in holding that the Cornerstone works should have been completed well before 30 June 2020, and would have been, but for matters for which Cornerstone was contractually responsible.

If Cornerstone breached its obligation as to time, was BREDL entitled to damages, and, if so, in what amount? Were BREDL’s losses too remote?

BDREDL claimed additional project finance costs and additional project management costs.

Additional project finance costs

The court was satisfied on the evidence that as a result of delay in the completion of BREDL’s transaction with Hastings Borough Council, there was delay in redemption of the loan as a result of which the fees and interest were incurred. The calculation was premised upon the assumption that if Practical Completion had occurred on 30 June 2020 the fees and interest would have been avoided. However, the court did not accept that premise in its entirety. Once the Practical Completion Certificate was eventually issued in August, it still took about twenty one days for the transaction to complete and the court was not convinced that that particular delay would have been significantly less had Practical Completion occurred on 30 June 2020. But for Cornerstone’s delays, the court said, the transaction with Hastings Borough Council would have been completed on or about 21 July 2020. On that basis, BREDL would in any event have incurred the monthly fee for July 2020 and interest up to and including 21 July 2020. Conversely, but for Cornerstone’s delays, BREDL would have avoided the monthly fee for August 2020 and interest after 21 July 2020.

The court then went on to consider Cornerstone’s contention that this loss was too remote to be recoverable. It said that Cornerstone knew (i) from about 5 February 2019, that the build period for the main development was only eight months starting five weeks from that date; (ii) from at least 7 February 2019, that the project had been forward sold to Hastings Borough Council and (iii) from at least 12 February 2019, that BREDL needed the mast removed before it could complete its development. Accordingly, Cornerstone knew, or should have appreciated, that this was a main development where the build period was relatively short, needed the mast removed for its satisfactory completion and that it was being sold on to Hastings Borough Council.

The court said that there was no reason to suppose that Cornerstone knew in any detail of BREDL’s precise arrangements with Hastings or with its financiers, but any intelligent consideration would have made them realise that there was a serious possibility that BREDL would have some sort of financing arrangement in place and that BREDL’s final ability to pay off that financing would be tied to practical completion of the project, including its works. Accordingly, the court rejected the suggestion that the financing costs were too remote to be recoverable. Accordingly, under this head of claim, the court awarded the monthly fee for August and the interest incurred between 22 July 2020 and date of redemption of the loan (28 August 2020).

Additional project management costs

The court accepted that this additional fee may not have been a fee to which the project manager was strictly entitled under the terms of its engagement by BREDL, but it was the sort of additional fee very often paid to a professional adviser when the work involved in a project has been much delayed, as this was. Accordingly, it held that it was a payment reasonably associated with and caused by the delay to the main project and was the sort of payment which Cornerstone (which had been keen to charge extra for its additional expenditure in putting in the larger foundations) would or should have regarded as a serious possibility.

A more significant issue, the court said, was whether the payment was associated with general delay to the main project or to the effect of Cornerstone’s delays upon the main project. As to that, the evidence was clear, that it was the additional time and work involved for the project manager because of Cornerstone’s delays which was the reason for the payment. Accordingly BREDL was also entitled to recover the claimed sum.

Comments

Finance and management costs have long been recognised heads of delay claims in construction projects. This judgment serves to confirm that they are recoverable in law when the contractor can prove that they were caused by the delay for which the employer is responsible.

Key Contacts

Justin Yuen

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9734

Related Services and Sectors:

Construction

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