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Contracting out of liability for concurrent delay and the prevention principle

  • United Kingdom
  • Construction and engineering - Articles

15-11-2018

North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744 (30 July 2018)

It is a well-established principle under English law that where a party to a contract is prevented from fulfilling its obligations by the act of the other party, the first party is not liable in law for the default.  This is the so-called ‘prevention principle’.  In the context of construction contracts, where a Contractor is prevented from meeting the contractual completion date owing to delays that are the Employer’s responsibility and there are no adequate mechanisms to extend the completion date then time will be said to have gone ‘at large’, meaning the Contractor would only be obliged to complete the works within “a reasonable time” (which is to be interpreted on a case by case basis) and would not be liable for liquidated damages in respect of the delay.  To avoid this situation from arising, standard form construction contracts specify those delays for which the Employer bears the risk (such as exceptionally adverse weather conditions and deferment of the giving of possession of the site).  In JCT contracts these delays are known as Relevant Events.  The usual position is that where the Contractor notifies the Employer of a Relevant Event it is entitled to an extension of time.

But what of a situation where a project experiences a delay to the completion date caused by an event for which the Contractor is responsible and that delay overlaps with another delay to the completion date for which the Employer is responsible?  Where the two delays are of equal causative potency, this situation is known as concurrent delay and whilst standard form contracts do not address this situation, under an existing line of case law, where concurrent delay arises, the Contractor is entitled to an extension of time for the entirety of the period of concurrent delay. 

In a recent judgment the Court of Appeal looked at a situation where the parties to a building contract had sought to contract out of the usual position on concurrent delay by including an amendment which shifted the burden of concurrent delays entirely onto the Contractor.  Whilst the result was not unexpected, the judgment offers some helpful insight for those parties considering taking a similar approach to the issue of concurrent delay and more generally on the courts approach to the prevention principle. 

Background

NMBL (the Contractor) and Cyden (the Employer) entered into a JCT Design and Build Contract 2005 with bespoke amendments.  Amongst these was an amendment that changed the position on Relevant Events.  The amendment introduced by the parties at clause 2.25.1.3 sought to reverse the usual position so that any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible would not entitle the Contractor to an extension of time. 

A dispute arose between the parties as to whether or not the contract administrator was entitled to refuse the Contractor’s request for an extension of time on the basis of clause 2.25.1.3.  The central question raised by the Contractor was whether the Employer’s reliance on the amendment to clause 2.25.1.3 fell foul of the prevention principle which would set time at large and leave the Employer with no entitlement to liquidated damages. 

At first instance, Fraser J held in favour of the Employer on the basis that the prevention principle did not apply as the language in the contract was “crystal clear” and moreover, clause 2.26.5 of the contract included as a Relevant Event “any impediment, prevention or default, whether by act or omission”.

Rejecting the Contractor’s argument, Fraser J concluded that:

“for the prevention principle to apply, the contractor must be able to demonstrate that the employer’s acts or omissions have prevented the contractor from achieving an earlier completion date and that, if that earlier completion date would not have been achieved anyway, because of concurrent delays caused by the contractor’s own default, the prevention principle will not apply”.

Decision

Agreeing with Fraser J, the Court of Appeal held again in favour of the Employer.  In particular, the Court held that:

  • the prevention principle operates by way of an implied term and is capable of being excluded by way of an express contractual term; and
  • parties to a contract are free to apportion liability for concurrent delay. 

Practical Implications

Although it is said to very rarely occur, the spectre of concurrent delay often makes an appearance when parties disagree over the Contractor’s entitlement to an extension of time.  For this reason, Employers will no doubt be keen to include a similar amendment into their building contracts but equally they should be aware that Contractors are likely to either resist such an amendment or price for the risk accordingly. 

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