Construction

Why the delay? Prospective and retrospective delay analysis in Fluor v Shanghai Zhenua Heavy Industry Co Ltd [2018] EWHC 1 (TCC)

There are generally two methods of assessing damages following an event causing delay in a construction contract.

The ‘prospective’ approach considers the critical path at any particular point in time as viewed contemporaneously by those on the ground. Alternatively the ‘retrospective’ approach considers subsequent events to determine whether the material event actually delayed completion.

In Walter Lilly v Mackay (No 2) [2012] EWHC Civ 1773 (TCC), 143 ConLR 79 Akenhead J found the debate about the merits of each approach was sterile because if each approach was done correctly they should produce the same result. The recent decision of Fluor has re-ignited the debate by suggesting the two different approaches do not always provide the same conclusion.

C was employed to construct 140 wind turbine generators in an offshore wind farm. C subcontracted D to fabricate materials for the turbines.  Following delivery C discovered defects in the welds of materials provided by D. Consequently C could not immediately install the materials but instead had to carry out a lengthy inspection and repair operation. This led to substantial delay and enormous additional cost.

C claimed damages of around $40 million from D for breach of contract. At a  liability hearing the TCC held materials supplied by D were not fit for purpose. The court reconvened to assess damages in January 2018 and there was extensive debate about the correct approach to delay analysis.

The TCC found the assessment of loss was complicated by subsequent events. For example, the rim of the steel piles provided by D were not completely round, and electrical transformers to be in inserted into transistor pieces were defective. These additional defects led to further delay distinct from D’s original breach of contract.

Having considered two expert delay reports Sir Anthony-Edwards Stuart held neither was much use and rejected a straightforward prospective analysis of the loss. As he explains at paragraph 275 of the Judgment, a prospective analysis is correct when considering matters such as an extension of time. In a case with numerous competing factors causing delay a retrospective analysis was more appropriate.

The Judge further held any difficulties in formulating loss because of the hypothetical nature of the exercise should be resolved by making assumptions favourable to the claimant. This is the principle derived from Armory v Delamirie (1721) 1 Stra 505, 93 ER 664: a defendant who has made it difficult for a claimant to adduce relevant evidence as to the consequences of his breach of duty must run the risk of adverse factual findings.

The Judgment therefore lends weight to the retrospective approach but it remains to be seen whether this becomes the standard in similarly complex cases.

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There are generally two methods of assessing damages following an event causing delay in a construction contract.