| Date | 27 November 2002 |
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| Judgment | Skanska Construction (Regions) Limited -v- Anglo-Amsterdam Corporation Limited, TCC 20 June 2002 |
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| The Issue | Whether delay damages may be imposed during a period when the employer's tenant has commenced fit out works throughout the entirety of the site. |
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| Implication |
Deemed practical completion will occur under a JCT contract where partial possession of the whole of the works is given. Partial possession may apply to the entirety of the works and not merely discreet parts. |
printIn August of this year, I reported the case of Impresa Castelli -v- Cola Holdings in which the parties were in dispute regarding the effect of partial possession under a JCT With Contractor's Design form of Building Contract. The parties were engaged in the construction of a hotel at Great Queen Street, London. The works were considerably late in completion. Prior to practical completion being certified, the contractor permitted the employer access to parts of the hotel to enable it to be fully operational, even though certain works, including air conditioning, were incomplete. Impresa argued that this amounted to partial possession under Clause 17 of the JCT form, with the effect that it should not be liable to pay liquidated damages for delay in respect of the parts of the hotel taken into possession. Judge Thornton QC accepted that if Clause 17 applied, Impresa would not be liable for delay damages for the relevant parts of the building taken into possession. However, he concluded that quite independently from partial possession, Clause 23.3.2 provided that the employer was entitled to use and occupy parts or all of the works with the consent of the contractor. Such occupation had no effect on the contractor's exclusive possession of the works, nor upon the contractor's obligations and entitlements with regard to liquidated damages, retention, defects liability and insurance. Judge Thornton concluded that, though the employer had taken over and started to operate parts of the hotel, there was nothing between the parties which lead him to believe that partial possession had occurred. The term "access" had been adopted, which was more naturally directed to the type of use and occupation contemplated by Clause 23.3.2. In consequence, liquidated damages remained enforceable, notwithstanding the use and occupation then being made of the hotel by the employer. At approximately the same time as this decision in June of this year, Judge Thornton was dealing with very similar issues in the case of Skanska Construction (Regions) -v- Anglo-Amsterdam Corporation. Once again, the contract was a JCT standard form With Contractor's Design. Skanska had been engaged to design and build an office facility in South Gyle, Edinburgh. Anglo-Amsterdam alleged that Skanska was late in the completion of the works and applied liquidated damages at the rate of £20,000 per week for a period of approximately nine weeks. Skanska responded that the building had achieved practical completion on time, or alternatively, that partial possession of the works had taken place. In either case, the deduction of liquidated damages was improper. The matter progressed to arbitration. The arbitrator was advised by the parties that Clause 16, which dealt with practical completion, had been amended to provide a more stringent test. The amended Clause 16 added that practical completion would not be granted until the employer was "satisfied that any unfinished works are very minimal and of a minor nature and not fundamental to the beneficial occupation of the building for its designed use as a purpose built facility". The arbitrator found that the air conditioning system was not functioning properly at the disputed date of practical completion, and that Skanska had failed to produce operating and maintenance manuals by that date. For those two reasons alone, applying the more stringent tests set out in the amended Clause 16, the arbitrator held that practical completion had not occurred. The arbitrator then turned his attention to partial possession. He noted that Anglo-Amsterdam had written to Skanska confirming that the proposed tenant for the building, ICL, would commence with its fitting out works at the disputed date of practical completion. From that date, ICL would be responsible for security for the building and Skanska would be allowed access to carry out its remaining works, subject to making necessary arrangements with ICL. Applying an argument that is commonly used on building contracts, Skanska took the view that once the tenants had moved in to commence the building fit out, the employer had effectively taken partial possession of the entirety of the works, and Skanska was therefore no longer obliged to pay liquidated damages for delay. The arbitrator disagreed. In his view, the purpose of Clause 17 was to deal with the situation where an employer takes partial, not complete, possession of the works. Clause 17 could not apply, according to the arbitrator, to a situation in which it was alleged that the entirety of the works had been given over to a tenant to commence fit out activities. Accordingly, Skanska's liability to pay liquidate damages continued until practical completion was achieved as defined by the more stringent Clause 16 requirements. Unsurprisingly, the matter ended up in an appeal in front of His Honour Judge Thornton QC. In an unnecessarily convoluted decision, Judge Thornton disagreed with the arbitrator. In Judge Thornton's view, it was clear that Clause 17, which dealt with partial possession, could operate perfectly well when possession had been taken of all of the works. Clause 17 was not limited to possession of only parts of the works. Additionally, Anglo-Amsterdam had not made out any case that the commencement of fit out works by the tenant should constitute merely "access" as provided for by Clause 23.3.2, as had occurred in the Impresa Castelli case. Judge Thornton concluded that by the employer agreeing to its tenant to commence fit out works, partial possession of the entirety of the works had in fact been taken, with the consequence that Skanska became entitled to repayment of the liquidated damages it had paid out.
CJ-0246
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