Delay damages in sub-contracts: upholding the contract
In the latest in a series of disputes between the parties over development work carried out at Gatwick Airport, the TCC has overturned an adjudicator’s decision and found in favour of Vinci Construction UK Limited, holding that on a proper construction of the sub-contract, the works in question were “sufficiently identifiable and certain” and that consequently the damages provisions were enforceable against Beumer Group UK Ltd.
In 2011/2012 the claimant, Vinci Construction UK Limited, entered into a contract with Gatwick Airport Limited to carry out various development works at Gatwick Airport’s South Terminal, including the addition of a new baggage handling system and associated airside infrastructure.
Vinci sub-contracted with the defendant, Beumer Group UK Ltd, in respect of the baggage handling works. The sub-contract was based on the NEC Engineering and Construction Subcontract, Third Edition, subject to bespoke amendments, and provided for sectional access to and completion of the sub-contract works, with different access and completion dates for each section, and liquidated delay damages being payable by Beumer where the sectional completion dates were not achieved.
The ‘Baggage Works’, at Section 5 of the sub-contract, had a completion date of 12 May 2015 and the ‘Remaining Works’, at Section 6 of the sub-contract, had a completion date of 27 May 2015. The terms ‘Baggage Works’ and ‘Remaining Works’ were not defined in the sub-contract.
In 2014 the works were delayed and on 30 October 2014, by a settlement agreement, the parties agreed to extend the access dates and sectional completion dates, the completion date for the ‘Baggage Works’ being pushed back to 17 November 2015 and the completion date for the ‘Remaining Works’ being pushed back to 14 December 2015.
In 2016 a dispute arose between the parties as to the operation of the sectional completion dates and the delay damages provisions, which was referred to adjudication.
Although it was common ground that part of the sub-contract works included the disconnection of the redundant baggage equipment, the parties disagreed as to whether these works would fall into Section 5 or 6 and therefore which completion date applied. Vinci argued that disconnection of the existing equipment fell within Section 6, the ‘Remaining Works’, and that the works falling within Sections 5 and 6 were sufficiently identifiable and certain to render the completion and delay damages provisions operable and enforceable. Beumer took the view that it was not sufficiently clear or ascertainable whether disconnection of the redundant baggage equipment fell within Section 5 or 6, and that as such the provisions imposing liability on Beumer to pay delay damages on failure to meet the sectional completion dates were too uncertain to be enforceable.
On 9 May 2016 the adjudicator, Dr Cyril Chern, found in Beumer’s favour and held that the provisions for delay damages were “uncertain, inoperable and unenforceable”.
Vinci applied to the court for declaratory relief as to the proper construction of the sub-contract. The application was heard by Mrs Justice O’Farrell sitting in the Technology and Construction Court, who held that the works falling within Sections 5 and 6 were sufficiently identifiable and certain, and that consequently the sectional completion and delay damages provisions were operable and enforceable.
In reaching this decision, Mrs Justice O’Farrell considered the established principles applying to the interpretation of contracts as set out in Arnold v Britton  UKSC 36 and Wood v Capita Insurance Services Ltd  UKSC 24. She emphasised the reluctance of courts to hold a provision in a contract void for uncertainty, particularly where the contract has been performed and made reference to the tendency of the courts as expressed in GLC v Connolly  2 QB 100 and Scammell v Dicker  to find an interpretation that will give effect to the parties’ intentions.
She then considered in detail the provisions of the sub-contract. Although the terms ‘Baggage Works’ and ‘Remaining Works’ were undefined, Schedule 12 of the sub-contract contained descriptions of the sub-contract works and it was possible from an objective reading of Schedule 12 to ascertain that disconnection of the redundant baggage equipment fell within Section 6. She referred to the fact that the parties had negotiated separate rates of delay damages that would become payable in respect of failure to achieve the Section 5 and Section 6 completion dates showed as demonstrating, in her view, that the parties must have had some understanding of the works within each section. Also relevant was the fact that Schedule 12 expressly provided for Beumer to disconnect the redundant equipment, which would have to take place after the works to make the baggage system operational are complete, otherwise there would be an interruption to the baggage handling facilities.
This is yet another example of courts seeking to uphold the contract between the parties and, although not binding on lower courts, the decision will undoubtedly be welcomed by those seeking to rely on the damages provisions of a contract.