YOUR TERMS YOU DECIDE [October 2018]
In circumstances of concurrent delay under a standard JCT form of contract, a contractor's entitlement to an extension of time is not entirely free from doubt. While there is no Court of Appeal case authority on that specific matter, the Technology and Construction Court in Walter Lilly and Co Limited v Giles Mackay and Another  EWHC 1773 (TCC) said that a contractor was entitled to an extension of time for concurrent delay.
What is the situation, however, when the parties negotiate and incorporate into the contract provisions dealing with the issue of concurrent delay? That point was addressed in the recent case of North Midland Building Limited v Cyden Homes Limited  EWCA Civ 1744, the facts of which are set out below.
On 21 September 2009, the parties entered into a contract whereby the contractor agreed to design and build a large house and substantial outbuildings known as South Farm, Ashby-cum-Fenby, Lincolnshire (the “Works"). The contract incorporated the JCT Design and Build 2005 Standard Terms and Conditions, together with numerous bespoke amendments.
One of the bespoke amendments which the parties agreed was clause 188.8.131.52(b) which stated that, in assessing an extension of time, "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". The original contract completion date was 18 June 2010. The stated rate of liquidated damages was £5,000 per week.
The Works were delayed and the contractor applied for an extension of time, relying on various causes or Relevant Events allegedly attributable to the employer. The employer’s position was that the contractor had no right to an extension of time because there had been concurrent delays which had been caused by culpable delays attributable to the contractor.
Technology and Construction Court’s decision
The Technology and Construction Court held that there was a clear agreement in clause 184.108.40.206(b) that a delay caused by a Relevant Event would not be taken into consideration when assessing an extension of time if the contractor was responsible for a delaying event which had caused delay at the same time as or during that caused by such Relevant Event.
The contractor sought to rely upon, what has become known as, the ‘prevention principle’ which dictates that one party to a contract (“Party 1”) may not enforce against the other contractual party (“Party 2”) an obligation under the contract which Party 1 has prevented Party 2 from performing.
The case of Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd  EWHC 447 (TCC) laid down the following three propositions which summarise the ambit and scope of the prevention principle:
Actions by the employer which are perfectly legitimate under a construction contract may still be characterised as prevention, if those actions caused delay beyond the contractual completion date.
Acts of prevention by an employer do not set time at large if the contract provides for an extension of time in respect of those events.
Insofar as the extension of time clause is ambiguous, it should be construed in the contractor’s favour.
In that regard, the Technology and Construction Court also held that the prevention principle did not arise.
The contractor appealed the decision of the Technology and Construction Court.
In upholding the decision of the Technology and Construction Court in dismissing the appeal, the Court of Appeal considering the following grounds:
The Court of Appeal held that the clause was unambiguous in that it plainly sought to allocate the risk of concurrent delay to the contractor. Proposition 3 in Multiplex v Honeywell did not, therefore, arise.
The only remaining issue in relation to clause 220.127.116.11(b) was whether there was any reason in law why effect should not be given to that clause. The Unfair Contract Terms Act did not apply and no express terms of the contract were relied upon by the contractor in support of the argument that clause 18.104.22.168(b) was inoperable.
The Court of Appeal held that the prevention principle was not an overriding rule of public or legal policy which would operate to rescue the appellant from the clause to which it had freely agreed. In any event, the court held that the prevention principle was not engaged because there was no contravention of propositions 1 or 2 identified in Multiplex v Honeywell. Any prevention by the employer, whether by act or omission, gave rise to the contractor having a prima facie entitlement to an extension of time. As to proposition 1 set out above, those could be acts or omissions permitted by the contract but which still gave rise to an entitlement to an extension of time. In this way, time was not set at large because the contract provided for an extension of time on the occurrence of those events (proposition 2 as set out above).
The Court of Appeal also held that the prevention principle had no obvious connection with the separate issues that may arise from concurrent delay, in relation to which there was no mention of concurrent delay in any of the authorities on which the prevention principle was based and clause 22.214.171.124(b) was equally unconnected to such principle.
The final reason under Ground 1 (which the court said was the most important and applied if clause 126.96.36.199(b) was connected with the prevention principle) was that clause 188.8.131.52(b) was an agreed term. There was no suggestion in any of the legal authorities that the parties cannot contract out of some or all of the effects of the prevention principle. Indeed, the contrary was plain; it was envisaged in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd 1 B.L.R. 111 that the parties could have drafted an extension of time provision which would operate in the employer's favour, notwithstanding that the employer was to blame for the delay. A building contract was a detailed allocation of risk and reward. If the parties do not stipulate that a particular act of prevention triggers an entitlement to an extension of time, then there will be no implied term to assist the employer and the application of the prevention principle would mean that, on the happening of that event, time was set at large. It was a completely different thing if the parties negotiated and agreed an express provision which stated that, on the happening of a particular type of prevention (such as one which causes a concurrent delay), the risk and responsibility rested with the contractor.
Ground 2: Liquidated damages
The Claimant’s second ground of appeal was that, even if clause 184.108.40.206(b) was enforceable (so that the appellant was not entitled to an extension of time for concurrent delay), there was an implied term which would prevent the respondent in those circumstances from levying liquidated damages. The Court of Appeal held that there was no basis on which the Claimant’s second ground of appeal could succeed.
Firstly, the Court of Appeal held that the liquidated damages provision must be taken to be a valid and genuine pre-estimate of anticipated loss caused by the delay (whether the delay is the result of just one effective cause or two causes of approximately equal causative potency). Accordingly, a proper causal link remained between the delay and the liquidated damages.
Secondly, the extension of time provisions were inextricably linked to the provisions relating to liquidated damages. There could, therefore, be no basis for arguing for a result in respect of liquidated damages that is different to the result in respect of extensions of time.
Thirdly, if clause 220.127.116.11(b) was a valid and effective clause, then it would expressly permit the employer to levy liquidated damages for periods of concurrent delay. Any implied term which sought to take away that entitlement would be contrary to the express terms of the contract and was not necessary to make the contract work. The Court of Appeal did not consider this result in any way to be uncommercial or unreal.
This case provides the construction industry with a conclusive authority that parties are free to agree whatever terms they wish (with the obvious exceptions such as illegality) and to allocate the risk of concurrent delay according to how they see fit. The only way a party will be able to avoid the effect of a clause is to identify and successfully argue that there is another term of the contract, or some overarching principle of law or legal policy, which would render such clause inoperable.
What is an important reminder in this case is that the contractual rights and remedies which the parties negotiate prior to entering into a contract is key. If a contractor is not prepared to lose its entitlement to an extension of time where there is concurrent delay then that should be negotiated at the outset. Always remember… your terms you decide!