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Be Careful What You Wish For14 Nov 2018

We often say, ‘hindsight is a great tool’. Had we known something before it was started, we may have made an alternative decision. This is often the case with construction projects and contract agreements.

When parties to a construction contract set out their intentions, they are optimistic and positive for a successful outcome. At this time, contractual details are often overlooked or understated. Often the potential consequences and risks of failure are not considered.

The recent Court of Appeal case of North Midland Building Limited (North Midland) v Cyden Homes Limited (Cyden), has received much commentary for how the Court of Appeal dealt with Concurrent Delay and the Prevention Principle. At the heart of the dispute was the validity of a clause included as an amendment to the JCT Design and Build contract.

Cyden employed North Midland to design and build a large house and outbuildings in Ashby-cum-Fenby, Lincolnshire. The Contract used was JCT Design and Build 2005 Standard Terms and Conditions, incorporating bespoke amendments.

Clause 2.25, Fixing Completion Date, was amended. Clause 2.25.1 sets out the employer’s obligations if a notice is issued by the contractor that the progress of the works was, or was likely to be, delayed.

Clause 2.25.3 read as follows:

.3 and provided that

(a) the Contractor has made reasonable and proper efforts to mitigate such delay; and

(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 [emphasis added];

The works were delayed, and a dispute arose over the extension of time due to North Midland. The dispute focused on clause 2.25.1.3(b). Particularly, to what extent Cyden could take this into account when calculating the extension of time.

Whilst North Midland had argued that the clause was contrary to ‘the prevention principle’, in the first court judgement, Fraser J stated the ‘the prevention principle’ is

“something that arises where something occurs, for which it is said the employer is responsible, that prevents the contractor from complying with his obligations”

The question arising was not one of whether a preventing event occurred or whether it was an event that gave rise to an extension of time. Rather, the question was how the contract dealt with the situation where a valid extension of time could be awarded for Employer delay that was concurrent with the contractor’s culpable delay. Were Cyden obliged to consider an extension of time where the delay event was concurrent?

In this regard, Fraser J further stated:

“This is, very simply, that there is no point of construction at issue on the clause in question in these proceedings at all. In my judgment, the prevention principle simply does not arise. This case is purely concerned with the correct construction of the clause agreed by the parties, in this case specifically agreed by the incorporation into it of a bespoke amendment” …

The parties agreed that, in the scenario I have outlined above, if the contractor were responsible for a delaying event which caused delay at the same time as, or during, that caused by a Relevant Event, then the delay caused by the Relevant Event “shall not be taken into account” when assessing the extension of time.

Parties are free to agree whatever terms they wish to agree, with the obvious exceptions such as illegality

there is no rule of law of which I am aware that prevents the parties from agreeing that concurrent delay be dealt with in any particular way”

The court of appeal agreed. Lord Justice Coulson said:

“In my view, clause 2.25.1.3(b) is unambiguous. It plainly seeks to allocate the risk of concurrent delay to the appellant As Fraser J said, the clause is “crystal clear” …

…The consequence of this clear provision is that the parties have agreed that, where a delay is due to the appellant, even if there is an equally effective cause of that delay which is the responsibility of the respondent, liability for the concurrent delay rests with the appellant, so that it will not be taken into account in the calculation of any extension of time

This is a clear direction that clause 2.25.1.3(b) and the concurrent delay arising, resulted in Cyden having no liability for the delay. They were not required to consider the extension of time.

Lord Justice Coulson further stated:

…Clause 2.25.1.3(b) was an agreed term. There is no suggestion in the authorities noted above that the parties cannot contract out of some or all of the effects of the prevention principle

…A building contract is a detailed allocation of risk and reward. …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”

Whilst both judgements looked at Concurrent Delay and the Prevention Principle, central to both judgements is what the parties agreed. Both judgements have been clear: express terms, agreed by both parties, will not be opened up by the courts, even if one party considers he has entered into a bad bargain.

Summary

It is very common for standard form contracts to be amended. Prior to entering into contract, it would be prudent for parties to review the contract provisions, understand the implications and if the contract cannot be amended manage the contractual risks.

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