The limit to liquidated damages prescribed in the Appendix will add to the

arguments of a Contractor seeking to demonstrate that the provision represents

a penalty. They will argue, pursuant to Dunlop Tyre v. New Garage (1915) AC
1979 that as the same amount of damages could be recoverable whether a
substantial proportion of the works had been handed over on time or not, the
provision cannot represent a genuine pre-estimate of loss as the losses would be
very different in the two cases. It is submitted that an arbitrator should be
reluctant to overturn the liquidated damages provision on this ground as parties
should be at liberty to prescribe limits to the damages recoverable. Of course, if
the provision was overturned the question would then arise as to the damages
recoverable at common law. Would they be unlimited or would the daily and
overall figures be imposed as limits to general damages? In the absence of a
breach of contract by the Employer (which would give rise to the argument that
the Employer should not benefit from his own breach), it is very difficult to
support any such limitation. Thus, an Employer wishing to escape from the limits
on liquidated damages in the Appendix, could be found arguing that the
liquidated damages scheme amounts to a penalty clause.

Two Hong Kong cases in which a minimum amount of liquidated damages was
prescribed are Arnhold & Co. v Attorney-General of Hong Kong (1989) 47 BLR
129 and Philips (Hong Kong) v Attorney-General of Hong Kong (1990) 50 BLR
122. In both cases, the liquidated damages provision, which also had a sliding
scale proportionate to the value of the works taken over, was held to be void for
uncertainty. See also the English decision in Bramall and Ogden referred to
above.

English courts will generally interpret a liquidated damages clause strictly against
the Employer seeking to rely upon it. However, if, on the one hand, the Employer
is endeavouring to avoid the clause in order to claim his actual damages or if, on
the other hand, the Contractor is advancing the clause as a limitation upon his
liability, the courts' approach might well change.

47.2 Clauses such as this have caused difficulty in the past because of the
difficulty of ascertaining the value of the part handed over: see for example
Bramall and Ogden v Sheffield City Council (1983) 29 BLR 73. One solution that
has been adopted is for the certifier to specify the value of the part taken over,
which specified value is deemed to be the value for the purposes of the clause.
Such arguments are unlikely to make much impact in jurisdictions without the
sensitivity of the English courts to penalties.

Under clause 60.3(a), the Engineer is given the power to determine the relevant
proportion of work handed over in relation to the release of retention monies. A
similar provision here would have reduced the scope for dispute as to the value
of the part.

For a comment on extensions of time for "part of the Works" see Clause 44.1
(Extension of time for completion).

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CLAUSE 48 : Taking over / Substantial Completion

This clause provides for the Engineer to issue a certificate of substantial

completion, known as a Taking-Over Certificate. The Contractor notifies the
Engineer when he believes the work to be complete and the Engineer either
agrees and so certifies or specifies the works necessary to be completed before
substantial completion. In the latter case, the Contractor receives his certificate
within 21 days of completing the listed work.

Taking-Over Certificates may be issued in respect of specified Sections or parts

of the Works, which are either complete or are incomplete but have been taken
over by the Employer.

The Engineer is given a discretion to issue an early Taking-over certificate in

respect of completed but unoccupied parts.

Early Taking-Over Certificates do not cover ground or surfaces which require

reinstatement unless the Certificate expressly says so.

Although the changes to this clause for the 4th Edition are mainly matters of
vocabulary, item (c) of sub-clause 48.2 is entirely new. The obligation in sub-
clause 48.3 to complete outstanding work "with due expedition" is also an
innovation.

48.1 For guidance on the meaning of "substantially completed" and "practically

completed", see Hoenig v Isaacs (1952) 2 All ER 176. Substantial completion is
generally taken to refer to a sufficient degree of completion to enable the
Employer to take beneficial use of the works concerned. "Substantial
completion" or "completion pursuant to Clause 48" must be kept distinct from
completion of "the Works" or of "the Contract". Clause 62.1 (Defects Liability
Certificate) makes it clear that "the Contract" will only be considered complete
when a Defects Liability Certificate has been issued by the Engineer. The title of
clause 33.1 (Clearance of Site on completion) and the term "Statement at
Completion" in clause 60.5 do not maintain the distinction. There is, however,
little scope for confusion.

In contracts where the Contractor is given the task of designing any part of the
Works, clause 7.2 (Permanent Works designed by Contractor) adds an additional
requirement to those set out in the current clause before substantial completion
is certified, namely, to submit and have approved by the Engineer operation and
maintenance manuals and as-built drawings.

In theory, the Contractor is only entitled to notify the Engineer of substantial

completion once the works have achieved such completion. Thus, an Engineer
may decline to produce a list of outstanding works. In practice however, the
Contractor will want to know where he stands in relation to substantial

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completion; but if the Contractor gives notice too early, the Engineer may well
refuse to act.

The somewhat complex provisions concerning defects are no doubt intended to

ensure that the Engineer's list is considered definitive and may only be added to
in respect of new problems that emerge. Otherwise, the Contractor is entitled to
his certificate once the listed works have been completed. A Contractor is at
liberty to argue, when an Engineer seeks to add a defect to the list of work to be
done prior to substantial completion, that the defect "appeared" before the
Engineer's list and thus may not now be added to the work to be completed prior
to issue of the certificate.

In the penultimate sentence, the second occurrence of "Works" should, it is

suggested, read "works".

The Taking-over certificate is significant. Firstly, in relation to the date of its

issue: under clause 20.1 (Care of Works), responsibility for care of the works
passes to the Employer; under clause 21.2 (Scope of cover), the Contractor's
obligation to insure the whole of the works ends; under clause 60.3 (Payment of
retention money), one half of the retention is released; and under clause 60.5
(Statement at Completion), time begins to run for the statement at completion.
Secondly, in relation to the date of substantial completion stated in the certificate:
under clause 47.1 (Liquidated damages for delay) liquidated damages cease;
and under clause 49 (Defects Liability Period), the Defects Liability Period starts
to run;

There is no mechanism for listing the outstanding work. It is submitted that a

general undertaking is sufficient under this clause, without any attempt to define
the work to be done after substantial completion. Under clause 49.2 (Completion
of outstanding work and remedying defects), there is a general obligation to
complete the work but no instruction is required. In reality, the Engineer or a
member of his team will issue snag lists and no distinction is normally drawn
between defects and work to be completed.

48.2 Alternative (c) is new to this edition and covers the (presumably rare)
situation where the Employer takes permanent occupation of an area which is
incomplete beyond merely requiring reinstatement of surfaces. It does not fit
conveniently into clause 48.2 because of the reference to "the procedure set out
in Sub-clause 48.1" which deals with completion and satisfaction.

This clause seems to proceed on the assumption that the Employer has a right to
take over any part of the works whether complete or incomplete. Whereas in
some contracts, early possession must be with the agreement of the Contractor,
there is no corresponding requirement here. Clause 42.1 (Possession of Site and
access thereto) deals with the giving of possession to the Contractor but does
not deal with the Employer's re-entry. Clause 47.2 (Retention of liquidated
dmages), which deals with the reduction in liquidated damages where parts are
taken over by the Employer, is also silent. The only reference to the Contractor's

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agreement is in sub-clause 48.2(c) which envisages agreement between the
Employer and Contractor of use by the Employer "as a temporary measure".

Whilst a Contractor in delay or one seeking to take advantage of a bonus would

generally be content for the Employer to take early possession, a Contractor who
is on time or is somehow in dispute with the Employer may well wish to exclude
him until the time for completion. As discussed under clause 42.1 (Possession of
Site and access thereto), unless the contrary is stated, construction contracts
assume that possession is given to the Contractor until the works are
substantially completed whereupon possession is returned to the Employer.
Clause 51.1 (Variations) item (b) makes it clear that the Employer is not entitled
to omit elements of the works in order to do the work himself or by another
contractor. The Contractor might have a case for alleging repudiation if the
Employer retakes possession of an incomplete part of the site without the
Contractor's consent. (If the Employer through the Engineer issues a variation
lawfully omitting the balance of the work to the relevant part of the site, then the
part is not incomplete and item (c) does not apply). The Employer's answer will
be to point to item (c) and argue that it shows the intention of the contract to be
that the Employer may retake incomplete parts of the works and that the
Contractor is compensated by a right to early substantial completion of the part
and early release of the corresponding retention money. Even if this is right,
there remains the anomaly in relation to the omission of the incomplete work.
Thus it would have been helpful if this point had been made clear. ICE 6th also
now addresses premature use by the Employer in a similar fashion.

If the Employer causes delay by his occupation, clause 44.1 (Extension of time
for completion) item (d) "any delay, impediment or prevention by the Employer"
may apply but if the contract allows such occupation or the Contractor has
agreed to it, the Engineer may refuse.

A Taking-Over Certificate for a Section or part triggers the release under clause
60.3 (Payment of retention money) of a proportionate amount of retention.
However, it has no relevance to the final release of retention or the grant of a
Defects Liability Certificate under clause 62.1 as these both refer to the expiry of
the last Defects Liability Period.

48.3 This clause gives the Engineer a discretion to issue a Taking-Over

Certificate where a part is complete but not occupied by the Employer. Contrast
the obligation to certify under the preceding sub-clause.

This clause does not relate back to the procedure at clause 48.1 and is not
initiated by a notice or request by the Contractor. Thus the Engineer has power
to take over part of the works whether or not the Contractor wishes to lose
possession of it and whether or not the Employer wishes to take occupation. It is
difficult to see that the Engineer would exercise his discretion under this clause in
any other fashion than at the request of and pursuant to the interest of the
Employer but this would seem to run counter to clause 2.6 (Engineer to act
impartially).

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