Concurrent Delay: Allocating the Risk
Concurrent delay is an issue which continues to be a topic of much debate. Recently, the spotlight has turned to the enforceability of clauses which seek to allocate the risk of concurrent delays.
In last year’s Annual Review Jeremy Glover reported on the decision of Mr Justice Fraser in North Midland Building Limited v Cyden Homes Limited.1 In July of this year the case came before the Court of Appeal.2
The dispute concerned a contract based on a heavily amended 2005 edition of the JCT Design and Build standard form, under which Cyden Homes had engaged North Midland as contractor on a project to design and build an exceptionally large home, together with substantial outbuildings, for members of the Dyson family.
The works were delayed for various reasons, and a dispute arose between the parties as to North Midland’s entitlement to extensions of time. A major point of dispute related to whether a bespoke amendment, which incorporated a new sub-clause 2.25.1.3(b) into the extension of time machinery, took effect to exclude North Midland’s entitlement to an extension of time for delay where Relevant Events were concurrent with delay events for which North Midland was responsible. Sub-clause 2.25.1.3(b) stated as follows:
“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”.
Essentially, the intention of this new clause was to reverse the accepted position under the unamended JCT extension of time provisions, which was to maintain the contractor’s entitlement to an extension of time in the event of concurrent delay (a position which has obtained judicial approval3
In the Part 8 proceedings before Mr Justice Fraser sitting in the TCC, North Midland had sought two declarations. First, that the effect of sub-clause 2.25.1.3(b) was to render time “at large” in circumstances where a delay caused by a Relevant Event is concurrent with any delay for which North Midland is responsible. Second, that in such circumstances, North Midland’s obligation was to complete its works within a reasonable time, thus rendering the liquidated damages provision void.
North Midland sought to rely on the doctrine of prevention, arguing that it had been prevented from completing its works by Cyden Homes, and therefore time had been set at large. In dismissing this argument, Mr Justice Fraser held that the prevention principle simply did not arise and that this case was purely concerned with the correct construction of the clause in issue. As to the meaning of sub-clause 2.25.1.3(b), Mr Justice Fraser found that it was “crystal clear”.
Mr Justice Fraser made clear that save in certain specific cases such as illegality, parties are free to contract on whatever terms they choose, and such terms will override any common law doctrine such as the prevention principle.
North Midland appealed that decision on two grounds: (1) that the clause allocating risk in relation to concurrent delay is contrary to the overarching principle of law or public policy and is of no effect, and in the alternative (2) that a term ought to be implied which would prevent Cyden Homes from deducting liquidated damages in respect of periods of concurrent delay. Here, we are interested in the first ground of appeal.
The Court of Appeal Decision
Whilst Mr Justice Fraser’s judgment was received positively by most, there were some who expressed doubt about it. However, the Court of Appeal unanimously upheld Mr Justice Fraser’s decision, confirming that clauses which seek to allocate the risk of concurrent delay to the contractor are, in principle, valid and enforceable. The lead judgment, which was given by Lord Justice Coulson, provides a useful reminder of the principles of freedom of contract and prevention. It also provides some helpful comments in relation to concurrent delay.
Clear and unambiguous terms
Lord Justice Coulson held that clause 2.25.1.3(b) of the contract was unambiguous, and agreed with Mr Justice Fraser that it was “crystal clear”. Its meaning and effect was that on the happening of two concurrent delay events, one being a Relevant Event, and the other being an event for which North Midland was responsible, there would be no entitlement to an extension of time.
Freedom to allocate risk
Lord Justice Coulson made clear that the most important reason for rejecting the first ground of appeal was that clause 2.25.1.3(b) was a term which had been expressly agreed between the parties. Having examined the authorities, he confirmed the position (as stated by Mr Justice Fraser at first instance) that the parties were free to contract out of some or indeed all of the effects of the prevention principle.
The prevention principle
In light of the clear and unambiguous nature of clause 2.25.1.3(b), and in the absence of express or implied terms which might have assisted North Midland (there were none on the facts), the only way North Midland could have avoided the effect of the clause was to persuade the Court that the clause was rendered inoperable by reason of some overarching principle of law or legal policy.
North Midland argued that the prevention principle was a matter of legal policy which would operate to prevent Cyden Homes enforcing the clause. However, North Midland’s arguments in this regard were rejected by the Court of Appeal.
In addressing this argument, Lord Justice Coulson provided a useful reminder of the origins of the doctrine of prevention and its operation. He noted the importance of the decision of Jackson J in Multiplex Constructions (UK) Limited v Honeywell Control Systems Limited (No.2) [2007] BLR 195, referring to Jackson J’s neat summary of the ambit and scope of the prevention principle in that case, i.e. that (1) legitimate actions by an employer under a construction contract which cause delay to completion may be characterised as prevention; (2) where the contract provides for an extension of time in respect of those events, time will not be set at large, and (3) any ambiguity in the extension of time clause should be construed in favour of the contractor.
Lord Justice Coulson held that here the prevention principle was “not engaged” as there was no contravention of either of the first two principles identified by Jackson J in Multiplex. He noted that among the list of Relevant Events identified at clause 2.26, was “any impediment, prevention or dispute, whether by act or omission, by the Employer…” which gave rise to an entitlement on the part of Cyden Homes to an extension of time. Accordingly, time would not be set at large by the occurrence of those events. In relation to the third principle, Lord Justice Coulson said this was not triggered since the meaning of the clause in question was “crystal clear”.
In any event, Lord Justice Coulson made clear that the prevention principle does not have the status of an overriding rule of public or legal policy, and that it can only operate by way of implied terms. As such, the prevention principle is not capable of overriding an express term of the contract.
Freedom to allocate risk
Lord Justice Coulson made clear that the most important reason for rejecting the first ground of appeal was that clause 2.25.1.3(b) was a term which had been expressly agreed between the parties.
Having examined the authorities, Lord Justice Coulson confirmed the position (as stated by Mr Justice Fraser at first instance) that the parties were free to contract out of some or indeed all of the effects of the prevention principle. In effect, that is exactly what North Midland and Cyden Homes had done, in terms that were crystal clear.
Concurrent delay
Whilst the question of whether there was in fact concurrent delay was not an issue to be decided in this appeal, Lord Justice Coulson addressed briefly the issue of concurrent delay. In doing so he gave the Court of Appeal’s approval to the definition of concurrent delay put forward by John Marrin QC in his article “Concurrent Delay” published in the Construction Law Journalin 20024 and again in his 2013 SCL paper entitled “Concurrent Delay Revisited”.5 That definition is as follows:
“A period of project overrun which is caused by two or more effective causes of delay which are of approximate equal causative potency.”
Lord Justice Coulson left open the debate about whether or not an employer could be said to have prevented completion by the contractor in circumstances of concurrent delay, given that the contractor would have been in culpable delay in any event. Although it was raised in the proceedings, a finding on this question was considered unnecessary for the purposes of disposing of the appeal, and unwise without hearing full submissions on the point.
Comment
This decision confirms the already accepted position that absent any specific public policy grounds which might justify a departure from the express agreement of contracting parties, the principle of freedom of contract will prevail. Therefore, a clearly worded agreement which seeks to remove a contractor’s entitlement to an extension of time in the event of concurrent delays will be valid and enforceable. From a practical perspective, the judgment is helpful in that it effectively approves a form of wording that would achieve this aim in a contract based on the JCT forms, and which could easily be adapted to suit other standard and bespoke forms of construction contract.
It is worth mentioning that as well as reversing the accepted position in respect of the unamended extension of time machinery in the JCT standard form, clauses such as the one in this case will also be in conflict with the approach adopted in the Society of Construction Law’s Delay and Disruption Protocol (2nd edition) in relation to concurrent delay. However, there has for a while been a growing trend towards amending standard form contracts to provide certainty in relation to how the risk of concurrent delay is allocated. This trend is already starting to feed into standard forms, albeit with neutral wording which simply highlights the issue of concurrent delay, leaving it to parties to include special conditions allocating the risk.6
The financial consequences of clauses such as the one in this case will be plain to contractors: where there is a period of concurrent delay to completion, the contractor will no longer be entitled to loss and expense for that period and will face deductions or claims for liquidated damages. Therefore, employers may well find contractors are reluctant to accept such clauses or, if they do, the additional risk will be reflected in their price. That said, whilst concurrent delay is an issue that is often raised on delayed projects, true concurrency of the type defined by John Marrin QC rarely occurs.
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- 1. Neutral Citation Number: [2017] EWHC 2414 (TCC).
- 2. Neutral Citation Number: [2018] EWHC Civ 1744.
- 3. See Walter Lilly and Co Limited v Giles Mackay and Another [2012] EWHC 1773 (TCC).
- 4. 18(6) Const. L.J. 436.
- 5. SCL Paper 179, February 2013, available at http://scl.org.uk
- 6. See for example the 2017 FIDIC forms of contract.