In North Midland Building Limited v Cyden Homes Limited, the Court of Appeal found that clear wording in a building contract was effective to allocate the risk of concurrent delay to a contractor. The "prevention principle" will not undermine express contractual wording, although the position remains uncertain where the contract is silent on concurrent delay.
What was the dispute about?
The parties had entered into an amended JCT Design & Build contract (2005) for the design and build of a large house and substantial outbuildings in Lincolnshire. The works were delayed due a number of separate delay events caused by both the contractor and the employer, and a dispute arose between the parties as to the proper extension of time due to the contractor.
The amended Clause 188.8.131.52(b) of the contract specified that "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" when calculating any extension of time due to the contractor. Acts of prevention or impediment by the employer were specifically categorised as a "Relevant Event" under the contract.
The central argument of the contractor was the proposition that, though the clause was clear, the prevention principle was a matter of legal policy which would relieve the contractor from the effect of a clause that it had agreed to.
|Reminder: The prevention principle dictates that is wrong for an employer to hold a contractor to a completion date (and oblige them to pay liquidated damages for failing to meet that completion date) where the employer has prevented the contractor from being able to complete the works on time. If the prevention principle applies, time for completion of the works is "at large", meaning that the works must be completed within a reasonable time.|
What did the Court of Appeal decide?
Coulson LJ (delivering the judgment of the Court) held that clause 184.108.40.206(b) (which had been freely agreed by the parties) was clear and unambiguous in its allocation of risk in the event of concurrent delay, and there was no basis upon which it could be struck down or rendered inoperable by the prevention principle. Liquidated damages were therefore payable by the contractor, including to the extent that any delay caused by the contractor was concurrent with a delay caused by the Employer.
What about the prevention principle?
Coulson LJ's judgment went on to address the scope and role of the prevention principle, including the following points:
Prevention principle acts by implied terms
"The prevention principle is not an overriding rule of public or legal policy. There is no authority for such a proposition"…"In my view…the prevention principle can only sensibly operate by way of implied terms."
The contractor had not argued in this case for any specific term(s) to be implied into the contract, so this was not considered further. Had it done so, the Court would have adopted the normal (restrictive) approach to considering whether a term based on the prevention principle should be implied into this contract. Accordingly, there would be no room for the application of implied terms where there are express terms in the contract that address the matter in question.
To use Coulson LJ's own words, "[t]here is no suggestion in the authorities…that the parties cannot contract out of some or all of the effects of the prevention principle: indeed, the contrary is plain".
Could the prevention principle apply in instances of concurrent delay?
The first instance TCC decision commented (obiter) that the prevention principle will not apply in instances of concurrent delay. The judge differentiated between:
- circumstances in which there has been one cause of delay for which the Employer is (at least in part) responsible; and
- circumstances where there have been two or more separate causes of delay, each of which are caused by different parties.
In the latter, concurrent delay scenario, can the employer be said to have delayed the contractor at all (given that the contractor delay would have occurred anyway, irrespective of the occurrence of an employer delay event)?
This argument was raised by the employer again on appeal but as the appeal was dismissed on other grounds, Coulson LJ did not decide on this issue, commenting that "other than to note that there are differences of view expressed in both the first instance cases and the textbooks, it seems to me that it would be unwise to decide the issue without full argument."
It is for this reason that Coulson LJ noted that the position as regards responsibility for concurrent delay under the unamended JCT Design and Build contracts is "not entirely free from doubt". Resolution of this question will therefore need to be saved for another day.
- It is possible to allocate the risk of concurrent delay to a contractor under a building contract. Where this is agreed between the parties, this should be done in a way that is clear and unambiguous. The Court of Appeal has sanctioned the wording above as being clear for this purpose.
- The prevention principle is not an overriding legal policy which will undermine clear drafting.
- It is not entirely clear where the responsibility for concurrent delay will fall if a contract remains silent on the allocation of risk in such circumstances. As such, if the parties have reached an agreement as to where responsibility for concurrent delay should fall, it is prudent to spell this out clearly in the contract.
- This case provides yet another example of the approach of the courts to give effect to the clear bargain struck between contracting parties.