The prevention principle is not an overriding principle of law: express terms allocating risk of concurrent delay still prevail

The Court of Appeal judgment in North Midland Building Limited v Cyden Homes Limited [2018] EWCA Civ 1744, which was handed down last week, firmly upholds the first instance decision (on which we provided a Legal Briefing in 2017); and confirms that the prevention principle is not an overriding rule of public or legal policy, which prevails over an express contractual provision that allocates the risk of concurrent delay between the parties.

Commentary

Concurrent delay clauses

Having an effective extension of time mechanism in a construction contract is crucial to preserve the contractual completion date and the employer's entitlement to delay liquidated damages. However, when negotiating a construction contract, the issue inevitably arises as to how an extension of time mechanism should be operated if delays occur due to a mixture of reasons; some of which are the contractor's responsibility and some are the employer's.

Clauses seeking to allocate the risk of delays arising from such competing causes (commonly referred to as concurrent delay clauses) between contracting parties have increasingly become a common feature of construction contracts, particularly in relation to complex and large-scale projects. Lately, this practice has been recognised in industry standard forms such as the 2017 FIDIC suite and the JCT Major Projects Construction Contract 2016.

However, the way in which construction contracts address the issue of concurrent delay differs depending on the contract. More importantly, the relationship between concurrent delay clauses and the well-established doctrine of prevention has remained unclear until now.

The relationship between the prevention principle and concurrent delay clauses following North Midland Building v Cyden Homes

The Court of Appeal judgment in North Midland Building v Cyden Homes (which is summarised further below) confirms that the prevention principle is essentially a contractual construct. It is not an overriding principle of law, which necessarily prevails over express contractual provisions that seek to allocate the risk of concurrent delay between the parties.

The Court of Appeal judgment also confirms the legal basis for the proposition that the prevention principle is not an overriding principle of law. The prevention principle can only sensibly operate by way of implied terms; and it cannot be implied into a contract if it contradicts an express term (i.e. one seeking to allocate the risk of concurrent delay).

It is worth noting, however, that the concurrent delay clause that was the subject of North Midland Building v Cyden was "unambiguous" and "crystal clear". The contract also included an extension of time mechanism, which expressly provided for an employer act of prevention as a ground for an extension of time. Given the general lack of uniformity in the manner in which construction contracts deal with concurrent delay, it remains possible that the prevention principle will apply where, for example, the relevant concurrent delay clause has been drafted ambiguously, or there are gaps in the extension of time mechanism, such that a particular kind of employer act of prevention is not adequately covered.

Parties will therefore need to remain cognisant of the interrelationship between extension of time, liquidated damages, and concurrent delay provisions, and draft accordingly to ensure that these provisions operate together in the manner intended. Great care will still need to be taken when considering introducing concurrent delay provisions into construction contracts.

The Court of Appeal Judgment

Background and recap of the first instance judgment

North Midland Building Limited ("NMB") and Cyden Homes Limited ("Cyden") entered into a JCT Design and Build Contract with bespoke amendments. The contract included a clause that entitled NMB to an extension of time for a relevant event, provided that: "any delay caused by a Relevant Event which is concurrent with another delay for which [NMB] is responsible shall not be taken into account" (the "Concurrent Delay Clause").

The works were delayed and a dispute arose between the parties as to the proper extension of time due to the contractor, NMB. NMB argued that the Concurrent Delay Clause should be interpreted such that, where delay caused by a relevant event was concurrent with delay for which NMB was responsible, time became "at large" (i.e. the prevention principle essentially overrode the Concurrent Delay Clause); accordingly, NMB was only obliged to complete within a reasonable time and liquidated damages were void.

The court of first instance found that the parties could validly allocate the risk of concurrent delay, and confirmed that such express contractual provision was not overridden by the prevention principle. NMB subsequently appealed.

Court of Appeal judgment

The principal issue considered by the Court of Appeal was whether the Concurrent Delay Clause was contrary to the prevention principle, and therefore ineffective (ground 1). The Court also considered a new argument advanced by NMB that, even if NMB was not entitled to an extension of time, there was an implied term, which prevented Cyden from levying liquidated damages for concurrent delay, and such term was necessary to make the contract work (ground 2).

In relation to ground 1, the Court agreed with the first instance decision that the Concurrent Delay Clause was "unambiguous", and that it plainly sought to allocate the risk of concurrent delay to NMB. The Court further considered whether there were any other express or implied contractual terms or overarching principle of law, which would render the Concurrent Delay Clause inoperable. It found none. In this regard:

• Whilst the Court acknowledged that the prevention principle could operate by way of an implied term, it found that such term could not be implied on the facts, as it would cut across an express term of the contract that entitled NMB to an extension of time for an employer act of prevention.
• The Court also rejected NMB's proposition that the prevention principle would operate to rescue a party from the clause to which it had freely agreed; and further emphasised that the parties were free to contract out of some or all of the effects of the prevention principle.

Ground 2 was also rejected on several grounds, including on the basis that extension of time provisions and liquidated damages provisions were closely interlinked. This meant that NMB could not argue a result in respect of liquidated damages that was different from the result in respect of extensions of time. It was also found that the prevention principle was not required to be implied to make the contract work. Further, the result of the Concurrent Delay Clause was neither uncommercial nor unworkable. The appeal was dismissed.