2018年9月7日

Good news for employers

Court of Appeal confirms validity of contractual provisions denying a contractor an extension of time in circumstances of concurrent delay

The recent decision of the Court of Appeal in North Midland Building Limited and Cyden Homes Limited1 provided valuable judicial insight on the application of contractual concurrent delay provisions and the relationship of such provisions to the "prevention principle".

The decision confirmed the validity of a contractual provision which deprives the contractor of an extension of time in circumstances of concurrent delay. The Court also confirmed that the prevention principle, whereby an employer cannot benefit from the employer's own delay caused to a contractor, was not engaged by such a contractual provision.

The facts

North Midland (the "Contractor") was engaged by Cyden (the "Employer") in 2009 to construct a large farmhouse and outbuildings in Lincolnshire under a JCT Design and Build Contract 2005 edition, subject to a bespoke schedule of amendments. The amendment upon which the litigation turned was clause 2.25.1.3(b).

The relevant clause stated that any delay which would entitle the Contractor to an extension of time to complete the works (a "Relevant Event") would not be taken into account if that delay was concurrent with another delay for which the Contractor was responsible.

The works were considerably delayed. The Contractor applied for an extension of time for a variety of reasons. The Employer refused to grant an extension of time for the two key Relevant Events applied for, stating that these delays had been "consumed by culpable delays attributable to North Midland Building." The Employer's refusal to grant an extension of time exposed the Contractor to the payment of considerable liquidated damages.

First instance decision

At first instance, before Fraser J in the Technology and Construction Court2, the Contractor relied on what is often called the "prevention principle" to argue that:

  • the effect of clause 2.25.1.3(b) was to make time at large where the contractor has a claim for an extension of time for a delay caused by a Relevant Event where that delay is concurrent with another delay for which the contractor is responsible; and
  • in such circumstances, the contractor must complete within a reasonable time and liquidated damages are void.

In essence, the prevention principle arises where something occurs for which it is said the employer is responsible that prevents the contractor from complying with his obligations, usually the obligation to complete the works by the completion date.

In his judgement, Fraser J referred to the judgement of Jackson J in Multiplex Construction (UK) Limited v Honeywell Control Systems Limited3 to consider the relationship between the prevention principle and time being set at large.

In Multiplex, Jackson J reviewed the relevant authorities and set out three propositions:

  • Actions by an 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;
  • Acts of prevention by an employer do not set time at large, if the contract provides for extension of time in respect of those events; and
  • Insofar as the extension of time clause is ambiguous, it should be construed in favour of the contractor.

Fraser J considered that the prevention principle did not arise in relation to the Contractor's claim. The parties had agreed a contractual provision which meant that the Contractor was not entitled to an extension of time where a Relevant Event had occurred at the same time as a delay for which the Contractor was responsible. In the Employer's submission, this contractual provision was described as being "crystal clear". Fraser J agreed. In any event, the contract contained a separate contractual provision which made it clear that the Contractor would be entitled to an extension of time for an act of prevention by the Employer, and this accorded with the second of Jackson J's propositions in Multiplex.

Fraser J also disposed of the Contractor's second head of claim in relation to liquidated damages in short order. The Contractor could not point to any authority which stated that a perfectly operable liquidated damages clause would or could not be operated, as a result of an extension of time having been agreed between the parties to be calculated in a particular way.

The appeal

The Contractor appealed the TCC's decision with the principal grounds of appeal being as follows:

  • the clause dealing with concurrent delay was contrary to an overarching principle of law and was of no effect; and
  • the Employer was not entitled to deduct liquidated damages for concurrent delay.

Coulson LJ delivered the Court of Appeal's leading judgement.

In relation to ground one, the Court of Appeal found that clause 2.25.1.3(b) was clear and unambiguous. The third Multiplex principle simply did not arise on the facts of the case. The Contractor's submission that the prevention principle was a matter of legal policy that would operate to rescue the Contractor from the clause to which the Contractor had freely agreed was rejected. In the Court of Appeal's summary view, clause 2.25.1.3(b) represented an allocation of risk which the parties were entitled to agree.

In relation to ground two, in the Court of Appeal's view, the primary purpose of an extension of time provision is to give a contractor relief against the levying of liquidated damages for delay which were not the contractor's responsibility under the contract. If there had been a right to an extension of time, the ability to levy liquidated damages would only have operated in respect of any delay after the extended date. If the right to an extension of time was expressly negated, there is no reason why liquidated damages should not apply to the delay beyond the contractual completion date. In both situations, the express provisions which would confer or deny a right to an extension of time are linked directly to the preservation of the employer's right to liquidated damages. According, the second ground of appeal was also dismissed.

Summary

The Court of Appeal's decision provides authority for the rights of the parties to allocate risk as they see fit in respect of concurrent delay. There is no overarching rule of law which prevents such allocation. The prevention principle is not engaged by such provisions and the rights of an employer to levy liquidated damages for delay beyond the completion date are not affected.

1 [2018] EWCA Civ 1744

2 [2017] EWHC 2414 (TCC)

3 [2007] BLR 195

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