October 1, 2018

Construction Law Update - Excluding Concurrent Delay and the Prevention Principle

In North Midland Building Ltd v Cyden Homes Ltd (2018) EWCA Civ 1744, the Court of Appeal of England and Wales (CA) held that a clause excluding a contractor's entitlement to an extension of time for concurrent delay was enforceable. More controversially, in reaching its decision, the CA also suggested that parties to a construction contract could contract out of the prevention principle.*

Facts of the Case

  • North Midland (contractor) and Cyden (employer) entered into a contract based on an amended JCT 2005 form. The clause in question, Clause 2.25.1.3(b), stipulated that where North Midland caused delay, and such delay was concurrent with delay caused by Cyden, Cyden need not need to take such delay into account when calculating North Midland's entitlement to an extension of time ("EOT").
  • This clause was therefore intended to reverse the generally accepted position – where a contractor's delay to completion occurs or has effect concurrently with an employer's delay, the contractor's concurrent delay should not reduce any EOT due.
  • There were delays to the works. North Midland applied for an EOT of about 6 months. Cyden relied on Clause 2.25.1.3(b), excluded concurrent delay from its calculation and granted North Midland 9 days of EOT.
  • North Midland's lawyers argued that the prevention principle rendered Clause 2.25.1.3(b) unenforceable and that time was set at large. The argument was premised on the fact that it  was denied extensions of time on account of delay caused by Cyden (which was concurrent with delay caused by North Midland) under Clause 2.25.1.3(b), and this contravened the principles in Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No 2) [2007] BLR 195 ("Multiplex").*

CA’s Decision

  1. The CA opined that the prevention principle operated by way of an implied term. However, it disagreed with North Midland's lawyers, finding that Clause 2.25.1.3(b) was enforceable for the following reasons (among others):
  2. The prevention principle is not an overriding rule of public or legal policy that could be used to strike down Clause 2.25.1.3(b).
  3. The prevention principle did not apply as Clause 2.25.1.3(b) did not contravene the principles (1) and (2) in Multiplex.* This was because there were clauses in the contract that still entitled North Midland to an extension of time for acts of prevention by Cyden (except where such delay was concurrent with delay caused by North Midland).
  4. The prevention principle is not connected to issues arising from concurrent delay as the prior authorities on which the prevention principle is based do not mention concurrent delay at all.
  5. In any case, parties are not prohibited from contracting out of some or all of the effects of the prevention principle.

In relation to the last point above, the CA stated:

"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."

Consequence of Decision

  • With this decision, the industry is likely to see more clauses similar to Clause 2.25.1.3(b) excluding concurrent delay when calculating a Contractor's entitlement for EOT. Contractors and subcontractors should therefore take note that where such clauses exist in their contract, concurrent delays no longer afford them extensions of time. Given that concurrent delay is quite a common feature in many extensions of time claims, this potentially means that extensions of time due to contractors and subcontractors are likely to be significantly reduced where concurrent delay has been contractually excluded from consideration.
  • It remains to be seen however whether the industry will adopt more radical amendments to construction contracts excluding the operation of the prevention principle entirely. There is no compelling reason to allocate risk that Employers are usually better placed to deal with (e.g., delays to handing over of sites and employer-instructed variations) on to Contractors.  Nonetheless, given the suggestion in the CA decision that it is possible to contractually exclude the prevention principle altogether, contractors and subcontractors are well advised to keep an eye out for these clauses when tendering or entering into contracts, lest they inadvertently assume risks that are entirely out of their control which would leave them at the mercy of the other party’s caprices.

*The prevention principle was summarised in Multiplex in the following terms:

  1. A promisee cannot insist upon the performance of an obligation which he has prevented the promisor from performing. The employer cannot hold the contractor to a specified completion date if it has by act or omission prevented the contractor by completing by that date. Instead, time becomes at large and the obligation to complete is now “within a reasonable time”.
  2. Further, legitimate actions by the employer under a contract can be characterised as prevention if actions cause delay. However, acts of prevention do not set time at large if the contract provides for an EOT in respect of those events.
  3. Finally, ambiguous EOT provisions should be construed in favour of the contractor.