When agreeing contractual terms at the outset of a project, apportioning the risk of delays is a common point of negotiation between developer and contractor.
In the recent case of North Midland Building Ltd v Cyden Homes Ltd, the Court of Appeal considered the validity of a clause in a building contract (based on an amended JCT Design and Build, 2005 Edition). It provided that, where the contractor is responsible for the cause of a delay, and that delay was concurrent with a delay for which the developer was responsible, such concurrent delay would not be considered when calculating any extension of time to the contract completion date. The issue before the Court was whether such a clause was contrary to 'the prevention principle' (whereby a party may not enforce a contractual obligation against the other party where it has prevented the other party from performing that obligation) and therefore unenforceable.
In North Midland, the defendant developer engaged the claimant contractor to design and build a large house and substantial outbuildings in Ashby-cum-Fenby, Lincolnshire. The original contract completion date was 18 June 2010, and the contract stated a rate of liquidated damages of £5,000 per week. The works were delayed, and a dispute arose between the parties as to the proper extension of time due to the contractor. A major element of that dispute centred on the extent to which the developer could rely on the relevant clause concerning concurrent delay when calculating the appropriate extension of time sought by the contractor.
Concurrent delay is a challenging concept in English law, and one which legal practitioners frequently struggle with. The Court in North Midland adopted the widely acknowledged definition of concurrent delay put forward by John Marrin QC in 2002, being 'a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency'. The Court ruled the relevant clause was unambiguous and did not give rise to any questions of contractual interpretation: it plainly sought to allocate the risk of concurrent delay to the contractor, and the contractor did not rely on any other express term of the contract which meant that the relevant clause 'should be ignored or rendered nugatory'.
The Court then turned to the contractor's proposition that the prevention principle was a matter of legal policy which would operate to rescue it from the clause to which it had freely agreed. The Court rejected this argument and stated, inter alia, there is no authority for the proposition that the prevention principle is an overriding rule of public or legal policy: the prevention principle operates by way of implied term and can therefore be negated by express provisions in the contract. Further, the Court stated that there was no suggestion in established law 'that the parties cannot contract out of some or all of the effects of the prevention principle: indeed, the contrary is plain.'
The judgment came as no great surprise to most in the industry. The Court also reiterated that, under the JCT standard forms (that is, without bespoke amendments), a contractor's entitlement to an extension of time in circumstances of concurrent delay is not entirely free from doubt, given there is no Court of Appeal authority on the issue. In Walter Lilly and Co Limited v Giles Mackay and Another, the High Court stated that a contractor was entitled to an extension of time for concurrent delay, but the opposite view has been supported by one of the leading construction law texts (citing two first instance decisions in support). It remains to be seen whether developers – looking to expressly allocate the risk of concurrent delay to the contractor – will attempt to adopt verbatim the amendments to the JCT standard terms that were found in North Midland, although many contractors are unlikely to accept such wording without a suitable increase to the contract sum to cover off the risk, if at all.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, September 2018