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24 Sep 2018

Contractors – beware of concurrent delay clauses

by Stephen Rayment, Group Managing Director -

1. Legal Historic Background
During the life of a construction or EPC contract, events occur that cause delay to the completion date for which a party is responsible.

When the contractor is responsible for the delay, he has to bear his own prolongation costs as well as, whenever the contract so provides, the burden of liquidated damages for delay (“Delay Damages”).

When the employer is responsible for the delay, the contractor should be entitled to an extension of time (an “EoT”) pursuant to the terms and conditions of the contract and no Delay Damages should be due over such
extended period.

1.1 The Prevention Principle
If the contract fails to provide adequately for an EoT when the employer caused at least part of the delay, the contractor may invoke a common law principle known as the “prevention principle” against the act of prevention of the employer. Case law dating as far back as the 19th century, starting with the case of Holme v Guppy (1838) 3 M&W 387, has held that in such circumstances, it was wrong for the employer to claim Delay Damages and time was set at large. The contractor is thus no longer bound by the contractual completion date and may complete the works within a reasonable time. In such circumstances, he is however not entitled to claim for prolongation costs.

With the development of sophisticated EoT provisions addressing delays attributable to the employer in standardised construction and EPC contracts, the prevention principle had largely fallen into disuse, until it was invoked again in support of concurrent delay claims.

1.2 Concurrent Delay
The more recent concept of “concurrent delay” has added complications to the entitlement of the contractor to an EoT and relief from Delay Damages, when both parties have somehow contributed to a delay at about the same time and over the same period. There has been much debate about the consequences of a single delay period arguably attributable to both parties.

First instance jurisdictions in England have been divided for some time between a contractor-friendly and an employer-friendly solution regarding this issue.

The contractor-friendly approach has emerged from two decisions of the Technology and Construction Court (“TCC”) regarding civil construction disputes. The case of Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester Ltd [1999] Con LR 32 (TCC) (the “Malmaison case”) was confirmed and elaborated upon by the high profile case of Walter Lilly & Company v Mackay 1 Anor [2012] EWHC 173 (the “Walter Lilly case”).
Akenhead J. held, in relation to a JCT standard form contract: “where delay is caused by two or more effective causes, one of which entitled the contractor to an extension of time as being the Relevant Event, the contractor is entitled to a full extension of time”.

The employer-friendly approach has emerged in parallel from a decision of the Commercial Court in relation to a shipbuilding dispute in the case of Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (the “Adyard case”).

Hamblen J. held: “the conduct [of the employer] therefore has to render it impossible or impracticable for the other party to do the work within the stipulated time. The act relied upon must actually prevent the contractor from carrying out the works within the contract period or, in other words, must cause some actual delay”.

The approach of the Adyard case has been construed in the subsequent shipbuilding case of the Commercial Court, Saga Cruises BDF Ltd and Others v Fincantieri SPA [2016] EWHC 1875 (the “Saga Cruises case”), as meaning that concurrent delay could entitle the contractor to an EoT only where the employer’s delay was the first in time to occur. Otherwise, the employer’s delay was cancelled by the contractor’s delay in terms of causation.
Such decision was considered as enticing employers to take undue advantage of the situation and impose variations without granting the necessary EoT, when the contractor had first incurred delay.

The line between the TCC and the Commercial Court regarding their respective approach to concurrent delay was blurred when Coulston J. (as he was then) followed the directions of the Adyard case in Jerram Falkus Construction Ltd v Fenice Investments Inc [2011] EWHC 1935 (TCC) (the “Jerram Falkus case”).

He stated: “If there were two concurrent causes of delay, one which was the contractor’s responsibility, and one which was said to trigger the prevention principle, the principle would not in fact be triggered because the contractor could not show that the employer’s conduct made it impossible for him to complete within the stipulated time”.

1.3 The SCL Delay and Disruption Protocol
The 2nd Edition of the SCL and Disruption Protocol published in 2017 sided with the Adyard case.

Section 10.10 reads: “Concurrent delay only arises where the Employer Risk Event is shown to have caused Delay to Completion or, in other words, caused critical delay …. The Protocol cautions that this recommendation would have to be reconsidered were an appeal court to have a different approach on this issue”.

2. The North Midland Appeal Case

2.1 The North Midland TCC cases
Fraser J. in North Midland Building Ltd v Cyden Homes Ltd [2017] EWHC 2414 (TCC) (the “North Midland TCC case”) confirmed the validity and enforceability of a clause expressly denying an EoT to the contractor in case of concurrent delay (the “Concurrent Delay clause”).

As an amendment to the EoT provision of the JCT Design & Build standard form contract, the Concurrent Delay clause read:

“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”.

Such concurrent delay having occurred and the EoT claim of the contractor being denied on the basis of the Concurrent Delay clause, the employer was entitled to levy Delay Damages for the delay he had contributed to. The prevention principle could not assist the contractor in having such “crystal clear” clause set aside.

The North Midland TCC case was confirmed in July 2018 by a judgment of the Court of Appeal delivered by Coulston LJ in North Midland Building Ltd v Cyden Homes Ltd [2018] EWHC 1744 (the “North Midland Appeal case”).

2.2 The Concurrent Delay Clause prevails over the Prevention Principle
Having referred to the authorities which defined the Prevention Principle, Coulston L.J. was grateful for the definition relied on by Hamblen J. in the Adyard case of concurrent delay consisting of “a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency”.

Having outlined the current division between contractor-friendly and employer-friendly cases regarding the entitlement of the contractor to an EoT in case of concurrent delay, Coulston L.J. stated that there was no Court of Appeal authority in this respect. He expressed doubts as to the construction of the standard JCT EoT clause by Akenhead J. in the Walter Lilly case but concluded that it was unnecessary to resolve this potential difference of opinion in this appeal case.

Coulston LJ held that the Concurrent Delay clause of the case at hand was clear and unambiguous. There was therefore nothing to prevent its application.

He then confirmed his position expressed in the Jerram Falkus case concerning the irrelevance of the prevention principle with regards to concurrent delay disputes and based his appeal decision on the following main grounds:

“The prevention principle is not an overriding rule of public or legal policy”.

Short of illegality, the freedom of contract prevails. There is no authority for the proposition that the parties cannot contract out of some or all the effects of the prevention principle.

He concluded on this point as follows:

“A building contract is 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. But it is a completely different thing if the parties negotiate and agree an express provision which states that, on the happening of a particular type of prevention (on this hypothesis, one that causes a concurrent delay), the risk and responsibility rests with the contractor”.

2.3 The Concurrent Delay Clause entitles the employer to levy Delay Damages
The contractor claimed that it would be bizarre if the employer could recover liquidated damages for a period of delay for which he was responsible.

Coulston J. disagreed as follows:

“I do not consider that this result is in any way uncommercial or unreal. A period of concurrent delay, properly so-called, arises because a delay has occurred for two separate reasons, one being the responsibility of the contractor and one the responsibility of the employer. Each can argue that it would be wrong for the other to benefit from a period of delay for which the other is equally responsible. In Walter Lilly and the cases cited there, under standard JCT extension of time clauses, it has been found that the contractor can benefit, despite his default. By clause 2.25.1.3 (b), the parties sought to reverse that outcome and provided that, under this contract, the employer should benefit, despite the act of prevention. Either result may be regarded as harsh on the other party; neither could be said to be uncommercial or unworkable”.

The North Midland Appeal case is now authority for the proposition that a clear and unambiguous concurrent delay clause will be enforceable, no matter how unfair it may be on either party.

3. Takeaway of this case

Traditionally, standard form construction contracts have remained silent on the issue of concurrency, leaving potential disputes to be resolved by the courts. For contracts governed by the law of England and Wales, the lack of provisions regarding concurrent delay was largely due to the uncertainty about whether express provisions allocating risks of concurrent delay would be enforceable.

This case provides employers with some judicially approved wording that allocates the risks to the contractor in case of concurrent delay. Concurrent delay clauses will therefore soon be on the rise.

Accordingly, when negotiating the next construction or EPC contract, contractors will be faced with the following options:

  1. Avoid the insertion of any concurrent delay clause. This would be a risky choice flawed with uncertainty, considering that the contractor-friendly approach of the Walter Lilly case was disapproved by the Court of Appeal;
  2. If the contractor is in a weak negotiating position, he should try to mitigate the effects of the harsh wording of the concurrent delay clause that the employer will now try to impose. The concept of concurrent delay should be narrowly defined and the entitlement of the employer to levy Delay Damages should be excluded or at least limited, whenever the employer is in whole or in part responsible for the delay.
  3. If the contractor is in a strong negotiating position however, there is nothing to stop him from putting forward a concurrent delay clause to the effect that the contractor-friendly solution of the Walter Lilly case should be enshrined in the contract.

The FIDIC Red, Yellow and Silver new second edition 2017 is certainly open to the addition of any such provision. The contractor’s entitlement to an extension of time in the event of concurrent delay is to be assessed in accordance with the rules and procedures to be stated on the Special Provisions. If none are stated, the assessment is “…as appropriate taking due regard to all relevant circumstances”, which, considering the Court of Appeal’s position, will not be very helpful to the contractor.

Whatever the circumstances of the contractor, he should take professional legal advice before tackling this new challenge.

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