UK: Parties Free To Allocate The Risk Of Concurrent Delay In Construction

This Client Alert discusses the recent decision of the Court of Appeal of England and Wales in North Midland Building Limited v. Cyden Homes Limited [2018] EWCA Civ 1744. The decision involved a bespoke extension of time clause in a construction contract that allocated to the contractor the risk of concurrent delay. The Court of Appeal upheld the first instance decision, confirming that parties to a construction contract are free to allocate the risk of concurrent delay and, if the drafting is sufficiently clear, the "prevention principle" will not invalidate the agreed risk allocation.

Introduction

When negotiating a construction contract, the issue inevitably arises as to how the extension of time provisions will operate when delays happen for a combination of reasons, some of which are the contractor's responsibility and some of which are the employer's.  

Where a construction contract is silent on the subject of concurrent delay, a contractor's entitlement to an extension of time for such delay is, as Lord Justice Coulson1 put it in North Midland, "not entirely free from doubt". Having said that, there is first instance authority which supports the granting of an extension of time to the contractor in those circumstances. It is for this reason that parties, as was the case in North Midland, seek to introduce wording to reverse that potential outcome.

The Court of Appeal upheld Mr Justice Fraser's first instance decision, agreeing that parties are free to allocate the risk of concurrent delay in their contract as they see fit and emphasising the primacy of the construction contract, which is "a detailed allocation of risk and reward".  The Court of Appeal also held that a contractor would not be rescued from the inclusion of such an express allocation by reliance upon the "prevention principle". 

The prevention principle dictates that contractual obligations are not enforceable if the party seeking to enforce them has, in fact, prevented its counterparty from performing them, such as where an employer has prevented the contractor from completing by the agreed completion date.

Brief overview of the facts

In 2009, Cyden Homes Limited ("Cyden") appointed North Midland Building Limited ("North Midland") to design and build a house and associated buildings ("the project") under a JCT Design and Build Contract, 2005 Edition with bespoke amendments ("the contract").

The amendments included the following bespoke proviso to the award of any extension of time at clause 2.25.1.3(b):

"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 project was delayed and the contractor, North Midland, applied for an extension of time, which was partially denied on the basis of the proviso at clause 2.25.1.3(b).  Court proceedings were commenced to determine the effect of that proviso in the event of concurrent events causing delay. 

At first instance, in the Technology and Construction Court in London, Mr Justice Fraser held that the effect of clause 2.25.1.3(b) was to allocate the risk of concurrent delay to the contractor.  North Midland sought to appeal that decision.

The Court of Appeal's findings 

In upholding Mr Justice Fraser's decision, the Court of Appeal addressed two grounds of appeal:2 

Ground 1: clause 2.25.1.3 and the prevention principle

The Court of Appeal held that clause 2.25.1.3(b) was unambiguous and plainly sought to allocate the risk of concurrent delay to the contractor.  To use Mr Justice Fraser's words, it was "crystal clear".  During the appeal, North Midland had accepted that that was the case.

In light of that conclusion, the only remaining issue was whether there was any other term in the contract, or some overriding principle of law or legal policy, which would render the clause inoperable.

North Midland did not rely upon any other term in the contract in support of the argument that clause 2.25.1.3(b) ought to be rendered inoperable.  Further, while Lord Justice Coulson was of the view that the prevention principle could only sensibly operate by way of implied terms, North Midland did not seek to make such an argument.

As a result, North Midland's sole line of attack against clause 2.25.1.3(b) was that the prevention principle was a matter of legal policy which would operate to rescue it from the agreed clause.  

The Court of Appeal rejected that submission for the following reasons:

  1. There is no authority for such a proposition.  Indeed, as mentioned above, Lord Justice Coulson had earlier in his judgment opined that the principle could only operate by way of implied terms.
  2. The prevention principle is not engaged in any event as the provisions of clause 2.25.5 set out "acts of prevention" of the employer which give rise to the contractor's prima facie entitlement to an extension of time.
  3. There is no obvious connection between the prevention principle and the separate issues that arise from concurrent delay.  Further, there is no mention of concurrency in the authorities dealing with the prevention principle.
  4. The very purpose of clause 2.25.1.3(b) was to reverse the result of what might otherwise have been the position based on the first instance decisions referred to above which support the granting of extensions of time to a contractor where there is concurrent delay.
  5. Most importantly, clause 2.25.1.3(b) was an agreed term and there is no suggestion in the authorities that the parties cannot contract out of some or all of the effects of the prevention principle.  Indeed, Lord Justice Coulson pointed to Court of Appeal and first instance authority to the contrary.

Ground 2: liquidated damages

As a subsidiary submission, North Midland argued that, even if clause 2.25.1.3(b) was enforceable, such that it was not entitled to an extension of time for concurrent delay, there was an implied term that would prevent Cyden from deducting liquidated damages.

In rejecting that ground, the Court of Appeal gave the following reasons:

  1. The liquidated damages provision is a valid and genuine pre-estimate of loss caused by the delay, there being no suggestion of a penalty.  There was a proper causal link between the delay and the damages irrespective of whether there was one effective cause or two causes of "approximately equal causative potency".3
  2. The express provisions that confer or deny a right to an extension of time are linked directly to the preservation of the employer's right to liquidated damages.
  3. As clause 2.25.1.3(b) is valid, it expressly permits Cyden to levy liquidated damages for concurrent delay because it does not grant North Midland relief from such liability by extending the completion date.  As a result, the implication of such a term as contended for by North Midland would be contrary to the express terms of the contract.
  4. It is clear that the contract works in the form in which it was agreed and there is no need for any implied terms.
  5. Contrary to the submissions of North Midland, a failure to imply such a term would not be "in any way uncommercial or unreal".  As referred to above, first instance authority supports the grant of an extension of time to a contractor despite its default.  By clause 2.25.1.3(b), the parties sought to reverse that outcome.  As Lord Justice Coulson remarked, while either result might be regarded as being harsh on the other party, neither could be said to be uncommercial or unworkable.

Practical implications 

The Court of Appeal has made it clear that parties to a construction contract are free to allocate the risk of concurrent delay.  If they do so clearly and there are no conflicting express terms, such allocation will be enforceable with no scope for the implication of the prevention principle.

Interestingly, in the international arena, the new editions of the FIDIC forms of contract reflect the thinking of Mr Justice Fraser and the Court of Appeal by permitting parties to incorporate special conditions governing how the risk of concurrent delay is allocated.

As the Court of Appeal has stated, a construction contract is a detailed allocation of risk and reward.  The net result of wording such as that used in North Midland is that a contractor will not be entitled to an extension of time in the event of concurrent delays and will be subject to liquidated damages.   

The allocation of risk of concurrent delay could, during negotiations, be shifted to the employer.  Having said that, the balance of power in negotiations might suggest that that is not so likely.

Whatever the parties to the main contract agree to be the appropriate allocation, the contractor will need to ensure that that position is appropriately "dropped down" into its subcontracts.

Finally, as the Court of Appeal did not determine Ground 3, we will have to await appellate consideration and reconciliation of the differing views expressed in first instance decisions and textbooks as to a contractor's entitlement to an extension of time in the event of concurrent delays.

For more information or guidance on this topic, please get in touch with one of the authors of this alert or your usual Reed Smith contact.

  1. Lord Justice Coulson delivered the lead judgment with whom The Master of the Rolls (Sir Thomas Etherton) and The Senior President of Tribunals (Sir Ernest Ryder) agreed.
  2. There was a third ground of appeal, which concerned a subsidiary argument about the circumstances in which delay events qualify as concurrent delays.  However, as the appeal on Grounds 1 and 2 failed, the Court of Appeal considered it unnecessary and undesirable to address Ground 3 as the issue in question did not arise.
  3. Lord Justice Coulson cited this phrase from Adyard Abu Dhabi v. SD Marine Services [2011] EWHC 84 (Comm); which had been derived from John Marrin QC's definition in his article "Concurrent Delay" 2002. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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