UK: Prevention Principle And Expressly Agreed Terms

Last Updated: 26 April 2019
Article by Mark Macaulay and Charmandip Bhart

Key points:

  • Parties to a construction contract may allocate the risk of concurrent delay without being in contravention of the common law doctrine of prevention
  • In North Midland, the building contract provided that, where there was a delay caused by an event for which the contractor was responsible and this delay was 'concurrent' with a delay for which the employer was responsible, then the parties were free to allocate that responsibility of concurrent delay as they saw fit
  • If parties agree that the contractor bears the risk of concurrent delay, and therefore is not entitled to an extension of time and must pay liquidated damages for the period of delay, the courts will give effect to that provision in a contract
  • The prevention principle will not operate to avoid the application of a clearly drafted contract term
  • This reverses a usual and common law position that was generally regarded as settled

The Court of Appeal has handed down its judgment in North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744.

The facts in the case

North Midland Building Ltd (NMB) entered into a JCT Design and Build 2005 contract with Cyden Homes Ltd (CHL) for the construction of a large house and substantial outbuildings in Lincolnshire. The contract contained bespoke amendments.

The contract included the usual clause permitting an extension of time (EoT), but cl 2.25.1.3(b) of the contract was amended by the parties to state:

'...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'.

'Relevant Events', being events justifying an EoT under the building contract, included acts of prevention by the employer.

Delays occurred, the completion date for the works was missed and a dispute arose between the parties as to the proper extension of time due to NMB.

NMB applied for an EoT of approximately six months, citing the occurrence of various Relevant Events. NMB was, however, only granted a partial EoT of nine days due to the weather, as the other delays had been 'consumed by culpable delays' on NMB's part; the EoT was therefore reduced in accordance with cl 2.25.1.3(b).

It was CHL's position that if there were two delaying events occurring at the same time, causing concurrent delay to completion of the works, NMB would not be entitled to an EoT where one delay would otherwise entitle NMB to an EoT and the other delay was one for which NMB was responsible.

NMB brought proceedings to challenge cl 2.25.1.3(b) and the calculation of the EoT relying on the long-established but infrequently used prevention principle. The prevention principle provides that, if an employer causes delay so that a contractor is unable to complete by the agreed completion date, the contractor is relieved of its obligation to complete by that date and time is 'at large'.

The consequences of applying the 'prevention principle' would mean:

  • time would be at large, so that the contractor would only have to complete the works within a 'reasonable time'; and
  • CHL could not levy liquidated damages against NMB for the delay.

Decision at first instance

NMB argued that the prevention principle was a matter of legal policy and was an overarching principle of law which would operate to rescue NMB from the clause to which it had freely agreed. It argued that the doctrine of prevention meant that cl 2.25.1.3(b) could not be taken into account in determining the EoT due. However, Mr Justice Fraser at first instance stated that the prevention principle was not relevant and simply did not arise in this case. The only issue was the correct interpretation of cl 2.25.1.3(b).

Court of Appeal decision

Lord Justice Coulson endorsed Fraser J's reasoning at first instance, holding that the clause in question was unambiguous and raised no issues of contractual interpretation. The contract plainly allocated the risk of concurrent delay to NMB.

The decision by the Court of Appeal explored a number of issues, as detailed below.

What is concurrent delay?

The issue of concurrent delay arises where an employer risk event and a contractor risk event arise at the same time, causing delay to the completion of the works.

In Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm), Mr Justice Hamblen (as he was then) stated that:

'...there is only concurrency if both events in fact cause delay to the progress of the works and the delaying effect of the two events is felt at the same time'.

For the delay to be considered concurrent, the courts have adopted the 'John Marrin QC definition' of 'concurrent delay'. Hamblen J stated:

'... a useful working definition of concurrent delay in this context is a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency – see the article "Concurrent Delay" by John Marrin QC (2012) 18(6) Const. L.J. 436.'

The Court of Appeal gave its approval to and adopted this definition in this case.

However, the court did not have to decide on whether there was concurrent delay in this case or provide any further clarification on the meaning of concurrent delay.

The principal issue considered by the Court of Appeal in this case was whether the concurrent delay clause was contrary to the prevention principle and, therefore, was void and ineffective.

What is the prevention principle?

Where an employer prevents a contractor from completing works within the agreed time stipulated in the building contract and there is no operable contractual mechanism for the time to be extended, time will be at large and the employer will not be entitled to liquidated damages for delay for failure to complete the works by the contractual completion date. The contractual date falls away and the contractor need only complete the works within a reasonable period of time. This is due to the so-called 'prevention principle', a long-standing common law doctrine, albeit one that has not been considered at great length in the Technology and Construction Courts.

Can the prevention principle override express contractual terms?

On appeal, Coulson LJ considered the concept of prevention and referred to Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No 2) [2007] BLR 195. In this case, Jackson J (as he was then) derived three propositions from previous case law which neatly summarise the ambit and scope of the prevention principle in the following terms:

(i) actions by the employer which are perfectly legitimate under a construction contract may still be characterised as prevention if those actions cause delay beyond the contractual completion date;

(ii) acts of prevention by an employer do not set time at large if the contract provides for an EoT in respect of those events; and

(iii) insofar as the EoT clause is ambiguous, it should be construed in favour of the contractor.

NMB contended that cl 2.25.1.3(b) contradicted the above points comprising the prevention principle. However, the Court of Appeal stated that there was no contravention of the above principles identified in Multiplex. The contract expressly allowed for any delays caused by the employer to be disregarded in the event of there being a concurrent delay. Principle (iii) above simply did not arise on the facts of the case. According to Coulson LJ, in his view:

'... clause 2.25.1.3(b) is unambiguous. It plainly seeks to allocate the risk of concurrent delay to the appellant [NMB] and, as Fraser J said, the clause is "crystal clear" ... Thus, principle (iii) in Multiplex simply does not arise on the facts of this case.'

Coulson LJ identified that the prevention principle itself is not an overriding rule of public or legal policy. Instead, as in this case, it is open to the parties to agree that concurrent delays should operate to prevent an EoT, notwithstanding one of those delay events being an act of prevention. The court held that the prevention principle operated merely as an implied term, which could not contradict express terms of the contract.

No connection between prevention principle and concurrent delay

Coulson LJ simply stated that the prevention principle has no obvious connection with the separate issues that may arise from concurrent delay and the case is purely concerned with the correct construction of the clause agreed by the parties. In this case, the EoT clause was specifically agreed by the incorporation into the contract of a bespoke provision. Clause 2.25.1.3(b) was an agreed term and there is no suggestion in previous case law, rule of law or statutory restriction that the parties cannot contract out of some or all of the effects of the prevention principle or which stops the parties agreeing on how to deal with concurrent delay.

What about liquidated damages?

The Court of Appeal also considered a new argument advanced by NMB that, even if NMB was not entitled to an EoT, there was an implied term in the building contract that would prevent the employer from levying liquidated damages for concurrent delay. This was on the basis that it would be 'bizarre' if the employer could recover liquidated damages for a period of delay for which it was itself responsible.

This second ground was rejected by the Court of Appeal for the following reasons:

  • there remained a proper causal link between the delay and the liquidated damages;
  • the EoT provisions and the liquidated damages provisions were inextricably linked, therefore there can be no basis for arguing for a result in respect of liquidated damages that is different to the result in respect of EoTs;
  • any implied term which sought to take away the employer's entitlement to levy liquidated damages would be contrary to the express terms of the contract; and
  • in previous cases, under standard JCT EoT clauses, it had been found that the contractor can benefit, despite his default. Notwithstanding the harsh effect on the other party, the result was not in any way uncommercial or unreal.

Where do we go from here?

The decision of this case will encourage parties to agree provisions which clearly and unambiguously allocate concurrent delay risk. It will also undoubtedly be welcomed by employers. It will, however, make it even more difficult for contractors to be granted EoTs where express clauses are written into contracts to allocate the EoT risks since the common law will generally not enable parties to depart from their express intentions. Contracting parties are quite simply free to agree whatever terms they wish to agree. There is no rule of law that prevents the parties from agreeing that concurrent delay be dealt with in any particular way.

Parties might now consider more carefully the degree to which each party undertakes responsibility for concurrent delay. Contract drafting might become more complex and parties will need to take care that their drafting is clear and unambiguous. Such amendments will need to be agreed by both sides; employers should note that contractors will be more reluctant to accept clauses under which they accept the risk of concurrent delays.

This article first appeared on 4 March 2019 in Construction Law (here).

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