When companies agree with each other to carry out work, they usually stipulate a time for completion of the work.
Where the contract is subsequently varied, the contract may not contain a mechanism to adjust the time to take account of the variations. In cases such as this, time is said to become "at large". As there is no fixed time or date for completion, the obligation becomes one to complete within a reasonable time. A recent case in the Court of Appeal serves as a reminder that the "time at large" concept is still alive and well. It also looks at the circumstances when a right to terminate a contract for delay arises.
The relevant facts
The case was between Shawton Engineering Limited ("S") and DGP International Limited ("D"). It first came before the Technology and Construction Court. The Court of Appeal was then asked by S to review the earlier TCC decision.
The facts of the case were:
S was employed to design and manufacture a number of packages to be used in the construction of a nuclear waste plant at Sellafield.
S subcontracted some of the design work to D
Dís packages originally each had fixed completion dates.
More work was instructed after the original agreement but the parties did not expressly revise the completion dates.
D did not complete their packages. However, they did supply S with 374 drawings from which they were able to manufacture a significant proportion of the work that they were contracted to carry out.
S tried to terminate Dís contract for delay.
D disputed this on the basis that time was at large and a reasonable time had not expired at the time of the purported termination.
The relevant law
Because there was no contractual mechanism for awarding extensions of time, time became at large and D only had to complete within a reasonable time. It was held by the TCC that it was for S to prove on the balance of probabilities (i.e. that an allegation is more probable than not) that D had failed to complete their work within a reasonable time. The Court of Appeal agreed. The TCC said that where time was at large a right to lawfully terminate would only arise if:
- S could show that D was in default because they had failed to meet the contractual deadlines and whilst D was in default S had given them notice to complete making time of the essence (i.e. informing D that completion by a certain date was now critical) and D then failed to meet the deadline/s contained within the notice; or- S could demonstrate that Dís failure to complete within a reasonable time was a breach of such gravity so as to deprive them of substantially the whole benefit which the parties intended would be obtained from the contract.
The Court of Appeal agreed with the TCCís interpretation of the Relevant law, although it suggested that the second circumstance outlined above in which a right to terminate may arise was more of a theoretical possibility as it is very unlikely to arise where the party alleged to be in delay is making some effort to complete.
S had failed, the court said, to establish that it was entitled to serve notice making time of the essence or indeed that it had made time of the essence. Accordingly, Dís obligation remained to complete the works within a reasonable time.
The TCCís decision had been that S had failed to put forward any evidence as to what a reasonable time to complete would have been. Sís submission that a reasonable time should be ascertained by reference to the original contract periods as extended only by the agreed periods for variations was rejected by the TCC.
The Court of Appeal said that what was a reasonable time had to be judged as at the time when the question arises in the light of all relevant circumstances. It agreed with the TCCís decision and said in the circumstances "the original completion dates, and, indeed the original completion periods had ceased to be of any relevance." The evidence suggested that D had made an effort to complete the works on time.
Accordingly, D was not in repudiatory breach of contract by reason of delay and S had not been entitled to terminate the contract.
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
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 07/12/2005.
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The High Court has reminded us that when there are allegedly conflicting terms in a contract the court will analyse whether the terms can be sensibly read together before considering a priority clause.