Concurrent delay and the allocation of risk

Last year, North Midland Building Ltd v Cyden Homes Ltd[1] provoked much discussion as to whether the prevention principle should take precedence over freedom of contract, in circumstances where parties had agreed on the allocation of the risk of concurrent delay.

In the first instance decision, Mr Justice Fraser said that the prevention principle did not arise because the contract term concerned was “crystal clear” and the employer and contractor were free to expressly agree how concurrent delay was to be dealt with in a construction contract.

The contractor appealed and so the case was heard before the Court of Appeal on 12 July 2018, with the judgment handed down yesterday[2]. The Court of Appeal unanimously dismissed the appeal. Here Emily Leonard, Managing Associate, and Hannah Gardiner, Solicitor at law firm Womble Bond Dickinson consider this in more detail.

What is concurrent delay?

In summary, concurrent delay is a period of critical delay concerning two or more (separate) employer and contractor events, each of “equal causative potency“[3], ie there are two delays running alongside one another, one caused by the employer, the other by the contractor.

If there is a delay, a construction contract will usually set out whether a contractor is entitled to an extension of time to the completion date for the works by considering the reason for the delay. However, standard published forms of construction contracts are often silent on what happens if there is a concurrent delay.

What is the prevention principle?

The prevention principle dictates that a party cannot enforce a contractual obligation on another party where the party enforcing that obligation has itself prevented the other party from performing. So if an employer delayed a contractor from completing construction works by the contract date for completion, the employer could not enforce that completion date. Case law tells us that that completion date will then fall away and time will be at large (eg the works should be completed within a reasonable period of time[4] rather than by a set completion date), unless the contract expressly provides for a contractor to have an extension of time to the completion date.

There is some debate as to whether the prevention principle would in fact be triggered where there is concurrent delay on the basis that the contractor would have been in delay anyway (notwithstanding the employer delay), however the Court of Appeal decided that it was not necessary to resolve this point[5].

Background

Cyden Homes Ltd (Employer) had employed North Midland Building Ltd (Contractor) to carry out the design and construction of a large property in Lincolnshire. According to the Contractor, this was the most important private house to have been constructed in the UK for years. Fraser J commented that “suffice it to say that the house is exceptionally large, and was to be exceptionally expensive to construct“.[6]

The Contractor was engaged under bespoke amendments to the JCT Design and Build Contract 2005 (Contract). Under the Contract, the Employer was to give a fair and reasonable extension of time to the Contractor, unless certain conditions expressly provided otherwise.

Clause 2.25.1.3 (b) of the amended Contract stated that:

“any delay caused by a Relevant Event which is concurrent with another delay for which the contractor is responsible shall not be taken into account“.

The Contractor sought two declarations:

1. that the effect of the above clause is to make time at large where the Contractor has a claim to an extension of time for a delay caused by a Relevant Event, where that delay is concurrent with another delay for which the Contractor is responsible, and
2. in such circumstances, the Contractor must complete within a reasonable time and liquidated damages are void.

The Contractor argued that the above declarations should be granted as a result of the prevention principle (see Multiplex Construction (UK) Limited v Honeywell Control Systems Limited[7]). The Multiplex case set out three propositions summarising the scope of the prevention principle (discussed further below).

TCC decision

Fraser J upheld the amendments to the JCT standard form and rejected the Contractor’s request for the two declarations.

Fraser J said that the prevention principle did not have a part to play in this scenario and the claim turned on the construction of the amended clause, a clause which was “crystal clear“. The parties had expressly agreed what should happen in circumstances where there was an act of prevention by the Employer, as the definition of “Relevant Event” in the Contract included any act of prevention by the Employer. The prevention principle did not prevail over the express wording agreed by the parties.

Court of Appeal

The appeal by the Contractor was dismissed. It was held that:

1. the clause was clear and unambiguous and therefore did not fall within the Multiplex principle (iii) (see paragraph 15 of the judgment) that, if an extension of time clause is ambiguous, it should be construed in favour of a contractor,
2. there were no implied terms which would help the Contractor,
3. there was no contravention of Multiplex principles (i) and (iii) (see paragraph 15 of the judgment). The prevention principle is not a matter of legal policy which would operate “to rescue the [Contractor] from the clause to which it had freely agreed“[8]. This is not an overriding rule of public or legal policy, time was not set at large because the Contract did provide for an extension on the occurrence of an act of prevention by the Employer, and there is no obvious connection between the prevention principle and concurrent delay. Importantly, there is no authority that parties cannot contract out of some or all of the effects of the prevention principle, and
4. there was no implied term which would prevent the Employer from levying liquidated damages.

Lord Justice Coulson further stated that:

“A building contract is a detailed allocation of risk and reward. If the parties do not stipulate that a particular act of prevention triggers an entitlement to an extension of time, then there will be no implied term to assist the employer and the application of the prevention principle would mean that, on the happening of that event, time was set at large. But it is a completely different thing if the parties negotiate and agree an express provision which states that, on the happening of a particular type of prevention (on this hypothesis, one that causes a concurrent delay), the risk and responsibility rests with the contractor.”[9]

Commentary

The North Midland case is an important judgment as it confirms that parties are free to allocate concurrent delay risk. Some may argue that there is certainty in reliance on the general common law principles, such as the prevention principle, and that the rejection of such principles (unless illegality arises, of course) can affect that “certainty and stability in the law“[10].  Conversely, if parties have expressly agreed a provision, then, so long as this is not an illegal obligation, arguably those parties should have the certainty that those express terms will be upheld.

Where do we go from here?

When negotiating a construction contract, parties will need to consider carefully whether or not they are going to expressly allocate the risk of concurrent delay. Given the certainty that an amendment along the lines of clause 2.25.1.3 (b) offers to employers as a result of this judgment, then we expect that there may be a trend in employers wishing to include express provisions as amendments to standard forms of contracts (which are generally silent on concurrent delay). At the same time, contractors need to be aware that they cannot look to the prevention principle to save them from an express clause apportioning the risk of concurrent delays.

[1] [2017] EWHC 2414 (TCC)

[2] North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744: link to bailli: http://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWCA/Civ/2018/1744.html&query=(Cyden)+AND+(Homes)+AND+(Limited)

[3] A common definition adopted in English cases is: “a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency“, by Mr Marrin QC, as cited by Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm)

[4] Keating on Construction Contracts, tenth edition, para 8-013

[5] Paragraphs 17 to 18

[6] Paragraph 2

[7] [2007] BLR 195

[8] Paragraph 29

[9] Paragraph 38

[10] Extensions of Time and Concurrent Delay Following North Midland Building Ltd v Cyden Homes Ltd, Philip Harris (2018) 34 Const. L.J., Issue 2

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