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Adyard Abu Dhabi v SD Marine Services [2011]

Last year, the case of City Inn Limited v Shepherd Construction Limited [2010] CSIH 68 was finally laid to rest in a landmark decision that saw the Inner House agree that the Lord Ordinary had not erred in law when finding that the extension of time to which Shepherd was entitled should be assessed by apportioning the delay between the delay resulting from relevant events and the delays for which Shepherd was itself responsible taking account of the relative causative importance and degree of culpability for those delays.

Despite being a Scottish case, lawyers and academics alike began to question whether the decision in City Inn v Shepherd was an illustration of the correct approach to be taken by English courts when dealing with such matters.  One year on, however, and the debate continues in the Commercial Courts with the recent case of Adyard v SD Marine.

Adyard, a small to medium-sized shipyard, contracted under two separate shipbuilding contracts with SD Marine, a commercial supplier of services to the public sector, for the construction of two sea vessels which were to be ready for sea trials by contractually agreed dates.  Both contracts gave SD Marine the right to rescind in the event that the vessels were not ready.  Inevitably works were delayed, the contracts were not completed within the time stated in each contract and SD Marine purported to exercise its right to rescind. 

In the construction industry, it has become a well known occurrence for both parties to argue that the other caused delays to the completion of the works.  This case was no different.  The contracts stated “to the extent that any delays are caused by the Buyer’s default or any Permissible Delay, [the Sea Trial Dates] shall be extended to the same extent”.  Adyard asserted that firstly, SD Marine was not entitled to rescind as SD Marine had issued two variations to the contracts shortly before the date for completion and that further, and in the alternative, it was entitled to an extension of time for both vessels.  On the other hand, however, SD Marine disputed Adyard’s claims stating that it was entitled to the return of the price paid.

The prevention principle was soon at the forefront of this case, that being summarised in Trollope & Colls Ltd v. North West Metropolitan Regional Hospital Board as follows: “It is well settled that in building contracts – and in other contracts too –when there is a stipulation for work to be done in a limited time, if one party by his conduct – it may be quite legitimate conduct, such as ordering extra work – renders it impossible or impracticable for the other party to do his work within the stipulated time, then the one whose conduct caused the trouble can no longer insist upon strict adherence to the time stated. He cannot claim any penalties or liquidated damages for non-completion in that time.”

To support its argument, Adyard relied heavily upon the prevention principle, raised also by the dissenting opinion of Lord Carloway in City Inn v Shepherd, that the effect of the Buyer’s risk event has to be measured against the contractual completion date and that this does not require any analysis of competing causes of delay for which the Builder might be responsible.

The judge did not accept this approach nor did he accept the suggestion of Lord Carloway that it is not necessary to show that the relevant event is an operative cause of delay to the progress of the works.  According to the judge, City Inn v Shepherd was an extension of time case rather than a prevention principle one.  The judge stated that Adyard was required to show that the variations were likely to or did cause actual delay to the progress of the works and, for that reason, the judge suggested that apportioning of delay as in City Inn v Shepherd did not reflect English law.  The fact that the project was in critical delay at the time of the variations meant that no actual delay had occurred as a result of any changes made by SD Marine and so Adyard’s case was rejected.

The information provided in this article is not a comprehensive analysis of the law and must not be treated as a substitute for legal or professional advice.  To the extent permitted by law, Kerrigans will not accept or otherwise be held liable for any loss or damage incurred in relying upon the contents of this article. Should you require any legal or professional advice about any of the topics covered in this article we recommend that you contact Kerrigans. 

07/12

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