Construction

Concurrent delay, the prevention principle, and freedom of contract:

What the Court of Appeal told us in North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ

An appellate decision on extensions of time, the prevention principle and concurrent delay has been long awaited by practitioners. Even Coulson LJ acknowledged, however, that the Court of Appeal decision in North Midland Building Ltd v Cyden Homes Ltd is far from being the final word in this controversial area. Giving the only substantial judgment in the Court of Appeal (with which the Senior President of Tribunals, Sir Ernest Ryder P, and the Master of the Rolls, Sir Terence Etherton, agreed), Coulson LJ did confirm that parties can validly contract that concurrent delay will not be taken into account when calculating an extension of time. Such a clause will not be neutered by a doctrine that has come to be known as the prevention principle.

The decision, therefore, is of value for those drafting bespoke amendments to standard form contracts who intend to push the risk of concurrent delay away from employers and on to contractors (or, indeed, from main contractors on to subcontractors). It does not decide the point one way or the other as to where there is concurrent delay it can be said that the employer has delayed the contractor at all. Fraser J’s comments at first instance, therefore, remain the most useful guidance on this point.

What is the ‘prevention principle’?

Keating on Construction Contracts (10th edition) at 8-014 states that the basis of the prevention principle is ‘the notion that a promise cannot insist upon the performance of an obligation which it has prevented the promisor from performing’. It is not necessary for the act of prevention to be a breach of contract.

Coulson LJ provides a useful distillation of the issues surrounding extension of time clauses and their legal historical background in his judgment. At [10] – [14], he noted that by the nineteenth century the courts had concluded that it was wrong as a matter of principle for an employer to hold a contractor to a fixed completion date (with a corresponding effect on liability for liquidation damages if this date was not met) where at least part of the delay was caused by the employer. Parke B in Holme v Guppy (1838) 3 M&W 387 noted that there were clear authorities to the effect that “if the party be prevented by the refusal of the other contracting party from completing the contract within the time limited he is not liable in law for the default…”. As a result, construction contracts began to include extension of time clauses that provide for the postponement of the date for completion. These clauses protect the employer: if there is a delay for which the employer is responsible but no contractual basis to extend the time for completion, time is set ‘at large’ (i.e. the works must be completed in a ‘reasonable time’) and no liquidated damages can be levied (Peak v McKinney (1970) 1 BLR 111).

The starting point for the contemporary analysis of extension of time clauses is the decision of Jackson J (as he then was) in Multiplex Constructions (UK) Limited v Honeywell Control Systems Limited (No.2) [2007] BLR 195. In that case the extension of time clause was lengthy and detailed. It was submitted that the clause omitted to identify directions issued by the main contractor to the sub-contractor as a relevant event justifying an extension; such instructions, it was argued, constituted an act of prevent and therefore rendered time at large. This submission was rejected by Jackson J, who held that the relevant directions were covered by the extension of time clause.

At [56], Jackson J summarised the relevance of the prevention principle to extension of time clauses:

“(i) Actions by the employer which are perfectly legitimate under a construction contract may still be characterised as prevention, if those actions cause the delay beyond the contractual completion date.

“(ii) 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.

“(iii) Insofar as the extension of time clause is ambiguous, it should be construed in favour of the contractor.”

What Coulson LJ did not flag is that the prevention principle is also found at work in other aspects of English commercial and land law as a more general negative obligation on contracting parties not to hinder the other party from performing the contract. For example, these principles were applied in the context of a development agreement in Alghussein Establishment v Eton College [1988] 1 WLR 587, HL. The Court of Appeal did not refer, either, to its decision earlier this year in Clin v Walter Lilly & Co Ltd [2018] EWCA Civ 490, where it was noted by LJ that between the parties , ‘there was no dispute that there is an implied term in the contract to the effect that each party is not to prevent the other from discharging its obligations, as well as the usual implied term to the effect that each is to co-operate with the other so far as is necessary for the other’s obligations to be discharged’. (my emphasis).

Concurrent delay

One particular issue that vexes construction law practitioners is the issue of ‘concurrent delay’. It is straightforward to consider that a contractor will not benefit from an extension of time for delay caused by its own fault (e.g. inadequate labour provided for the project) but will benefit from an extension of time for delay caused by the employer (such as a delay in being given possession of the site). The analysis becomes more problematic where there are two, parallel (or concurrent) reasons for the delay. Coulson LJ referred to the standard definition at [16]: in Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm), Hamblen J (as he then was) said:

“A useful working definition of concurrent delay in this context is ‘a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency’ – see the article Concurrent Delay by John Marrin QC (2002) 18(6) Const. L.J. 436.”

How courts (of different jurisdictions, applying different applicable laws), arbitrators and adjudicators deal with this situation is a matter of some controversy. Keating at 8-014 states that “where there are concurrent causes of delay (one the contractor’s responsibility and the other the employer’s) the prevention principle would not be triggered because the delay would have occurred anyway absent the employer delay event”, citing Adyard Abu Dhabi in support, as well as Jerram Falkus Construction Ltd v Fenice Investments Ltd [2011] EWHC 1935 (TCC) per Coulson J at [49]–[52]. This view is also recommended by the Society of Construction Law’s Delay and Disruption Protocol (2nd edition) at paragraph 10.10, which states that “where an EOT application relating to the situation referred to in paragraph 10.7 above [i.e. concurrent delay] is being assessed, the Employer Risk Event should be seen as not causing Delay to Completion (and therefore there is no concurrency).” The authors caution, however, that an appellate court might take a different approach. This caution is well-advised as a different conclusion was reached in other cases, including Walter Lilly and Co Limited v Giles Mackay and Another [2012] EWHC 1773 (TCC); [2012] 28 Const. L.J. Issue 8, page 622, per Akenhead J.

The Court of Appeal did not need to provide a definitive statement of the law in North Midland Building Ltd v Cyden Homes. This debate will have to be resolved another day.

The facts of North Midland Building Ltd v Cyden Homes Ltd

On 21 September 2009 the claimant entered into a contract with the defendant, which incorporated the JCT Design and Build Contract 2005 (as amended), pursuant to which the claimant agreed to build the defendant a house and outbuildings. The contract was subject to a number of bespoke amendments.

The relevant part of the contract for the issue on appeal read as follows:

“2.25.1 If on receiving a notice and particulars under clause 2.24:

  1. any of the events which are stated to be a cause of delay is a Relevant Event; and
  2. completion of the Works or of any Section has been or is likely to be delayed thereby beyond the relevant Completion Date;
  3. and provided that

(a) the Contractor has made reasonable and proper efforts to mitigate such delay; and

(b) 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;

then, save where these Conditions expressly provide otherwise, the Employer shall give an extension of time by fixing such later date as the Completion Date for the Works or Section as he then estimates as to be fair and reasonable.”

The author’s emphasis is in bold above. Any delay caused by a Relevant Event which is concurrent with a delay for which the contractor was culpable could not form part of the extension of time. From a legal perspective, this drafting drives straight at the heart of the debate about concurrency and sets up a private law solution to the problem, and adopts the SCL Delay and Disruption Protocol recommended approach. The question was whether the prevention principle invalidated the term.

Suffice to say, the works were delayed. There as a significant dispute as to the extent to which the respondent to the appeal could take this clause into account when calculating the extension of time.

The first instance decision

The first instance Part 8 claim was heard by Fraser J ([2017] EWHC 2414 (TCC), 174 ConLR 1). The Judge held that the meaning of the clause was clear: if the contractor was responsible for a delaying event that caused delay at the same time as, or during, that caused by a relevant event, then the delay caused by the relevant event should not be taken into account when assessing an extension of time. Fraser J then went on to hold that there was no rule of law preventing the parties from agreeing how to deal with concurrent delay.

Fraser J placed the freedom of the parties to contract and allocate risk above the prevention principle. The author of the Construction Law Report editorial comment summarised the position succinctly: “If the parties wish to allocate the risk of such concurrent delays on to the contractor, there is no reason why they should not be permitted to do so.”

Fraser J also went on to commend the approach in Adyard and Jerram Falkus in an albeit passage at the conclusion of the judgment. He advised at [29] that “cost-effective resolution of those other disputes is more likely if those parties proceed on the basis that the two authorities to which I have referred are correct”. Given the position of Coulson LJ (as he now is) in Jerram Falkus and Fraser J in the instant case, litigating parties might be wise to heed this advice carefully.

The Court of Appeal decision

Coulson LJ agreed with Fraser J that the relevant sub-clause was “crystal clear” [22]; the third principle in Multiplex, therefore, simply did not arise. As a consequence, “the parties have agreed that, where a delay is due to the appellant, even if there is an equally effective cause of that delay which is the responsibility of the respondent, liability for the concurrent delay rests with the appellant, so that it will not be taken into account in the calculation of any extension of time.” [23]

Although the appellant did not rely (correctly) on giving effect to the prevention principle by way of an implied term (as in, for example, London Borough of Merton v Stanley Hugh Leach Limited [1985] 32 BLR 51), Coulson LJ acknowledged at [28] that this was one vehicle to give the prevention principle contractual force. He then went on to consider that, in fact, “the prevention principle can only sensibly operate by way of implied terms”.

In fact, Coulson LJ held that the prevention principle was simply inapplicable in the instant appeal. There was no contravention of the first and second principles in Multiplex. At clause 2.25.5, “any impediment, prevention or default, whether by act or omission, by the Employer” gave rise to a prima facie entitlement on the part of the appellant to an extension of time.

Not an ‘overriding rule of public or legal policy’?

It is noteworthy that the Court of Appeal rejected any suggestion that the prevention principle is an ‘overriding rule of public or legal policy’ such as, for example, the rules in respect of liquidated damages ([30]). Coulson LJ instead held that such rules had an ‘entirely different legal provenance’. At first instance, Fraser J remarked at [19] that “Parties are free to agree whatever terms they wish to agree, with the obvious exceptions such as illegality.” For both experienced construction judges, freedom of contract would trump the prevention principle when it comes to the allocation of risk for concurrent delay.

It is not straightforward to reconcile this short passage in Coulson LJ’s judgment with a run of earlier cases that Lord Jauncey cited in the Alghussein case. In Rede v Farr (1817) 6 M. & S. 121, Lord Ellenborough C.J. said, at pp. 124–125:

In this case, as to this proviso, it would be contrary to an universal principle of law, that a party shall never take advantage of his own wrong’

In Doe d. Bryan v. Bancks (1821) 4 B. & Ald. 401, Best J concluded that:

Besides, I take it to be an universal principle of law and justice, that no man can take advantage of his own wrong. Now it would be most inconsistent with that principle, to permit the defendant to protect himself against the consequences of this action, by afterwards setting up his own wrongful act at a former period.”

By the early twentieth century, this ‘universal principle’ had been clarified to be a rule of construction. In the much-cited New Zealand Shipping case in the Court of Appeal [1917] 2 K.B. 717, Viscount Reading C.J. said, at pp. 723–724:

Unless the language of the contract constrains the Court to hold otherwise, the law of England never permits a party to take advantage of his own default or wrong. In Malins v. Freeman (1838) 4 Bing. N.C. 395, 399 Coltman J. said: ‘It is so contrary to justice that a party should avoid his own contract by his own wrong, that unless constrained, we should not adopt a construction favourable to such a purpose.’”

In the House of Lords ([1919] AC 1), the long-standing policy of this rule was emphasised, with Lord Finlay LC (at p8) tracing the principle back to “Lord Coke (Co. Litt. 206b) that a man shall not be allowed to take advantage of a condition which he himself brought about.”

Coulson LJ in the Court of Appeal was clear, however: it was possible to contract out of some or all of the effects of the prevention principle. He referred to passages in Peak v McKinney and Walter Lilly v Giles Mackay that supported this conclusion at [35] – [37]. He then went on to make an important point of general principle about the freedom of parties to allocate risk in a construction contract at [38]:

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.”

Drawing the strands together, therefore, there is a universal principle of English law that a party cannot take advantage of its own wrong; this can be expressed by way of an implied term (as in Walter Lilly v Clin); and it can be excluded by the construction of the contract (as seen, of course, in the North Midland Building Ltd v Cyden Homes case).

CONCLUSION

Both Fraser J at first instance in the TCC and the Court of Appeal refused to allow the prevention principle to override an express agreement as to the allocation of risk in a construction contract. It is relatively straightforward to see how this is consistent with similar English law decisions on time bars in decisions such as Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No 2) [2007] EWHC 447 (TCC), 111 ConLR 78.

It is less easy to reconcile this with repeated dicta at the highest appellate level that can be traced back for centuries that a party cannot take advantage of its own wrong. But, as both Fraser J and Coulson LJ noted, in North Midland Building v Cyden Homes the prevention principle was not even engaged as prevention caused by the employer was dealt with as a Relevant Event. Furthermore, beyond the broader statements of policy expressed in those earlier decisions, there does emerge a trend that parties can agree to contract out of the principle (or, more accurately, to contractually allocate the risk of concurrent delay).

This decision is unlikely to be the last word on the topic, given the competing approaches. It might be the case, however, that the debate will return to a more straightforward discussion about causation in respect of concurrent delay, as opposed to the invocation of this particular common law doctrine.

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