The recent judgment in Steria v Sigma suggests answers to as yet unresolved questions that often arise in relation to time bars, extensions of time (EOTs) and liquidated damages (LDs) under construction contracts.
Steria built for Sigma a computer aided despatch system under a heavily revised MF/1 Form of Sub-Contract. Sigma sought to set off against the final £100,000 that it owed Steria LDs of about £200,000 for Steria's alleged delay in completing the works. Despite these modest sums the parties incurred "substantial" costs conducting what the judge described as "hostile litigation" lasting some years, including a five-day trial.
In awarding Steria just under £100,000 (after deducting LDs of £5,000) the judge held as follows:
1. Steria was only entitled to an EOT "provided" it gave a compliant notice "within a reasonable period" (under clause 6.1 of the form). Such a notice was a condition precedent to any EOT entitlement even though the clause did not expressly warn that non-compliance would deprive Steria of any EOT. The judge adopted the reasoning in Multiplex v Honeywell.
2. It did not matter that non-compliance with clause 6.1 would have allowed Sigma to recover LDs even if Sigma had caused the delay (a point not decided in Honeywell where there was no LDs clause and Multiplex still had to prove the loss caused by Honeywell's delay).
3. Nor was the LDs provision penal (and therefore unenforceable) on the basis that LDs accrued as a result of a mere breach of a notice requirement. LDs only accrued when there was a delay and when Steria was not entitled, for whatever reason, to relief by way of an EOT.
4. Clause 6.1 obliged Steria to notify Sigma that identified relevant circumstances had occurred and that those circumstances had delayed its works. While the notice did not have to specify the clause, it did have to emanate from Steria so that Sigma knew Steria was notifying it. Thus a minute of a meeting prepared by a third party that recorded a delay was insufficient. It is unclear if the position would have been different if Steria had commented on the minute or if Steria had prepared it.
5. The proper approach to EOTs under clause 6.1 was to award Steria an EOT even if the matter it relied upon was not the dominant cause of delay, provided only that it had equal causative potency with all other matters causing delay. This endorses the views expressed in Henry Boot v Malmaison and Keating on Construction Contracts (8th ed.).
It remains to be seen how influential this judgment will be:
- Any court, if so minded, may not follow 1. because it was based upon hypothetical facts (Steria properly notified all the grounds upon which it was entitled to an EOT). It is, however, yet another indication of the English courts' readiness to enforce time bar clauses.
- It is hard to tell whether 2. was fully argued.
- 3. repeats a previous Scots judgment but is another straw in a wind blowing in the same direction.
- 4. and 5. are of general interest if they are not limited to clause 6.1.
The one certainty is the apparently Pyrrhic nature of Steria's victory.
Steria Ltd v Sigma Wireless Communications Ltd
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
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The original publication date for this article was 09/01/2008.
