Hogan Lovells Publications | 31 August 2018

How to draft for concurrent delay wherever your projects are

A new English Court of Appeal decision shows how to allocate concurrent delay risk successfully. Our worldwide construction team helps your drafting reflect this growing tendency for courts and arbitrators globally to prefer parties' freedom to contract over preventing them benefitting from their own breach.

The "Relevant" clause

In North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744, Cyden employed North Midland as contractor to design and build a luxury house under an amended JCT Design and Build Contract 2005.

Clause 2.25.1.3(b) stated:

"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".

Relevant Events (those pushing actual completion beyond the contractual completion date and entitling the contractor to an extension of time) included wide-ranging employer acts of prevention and default.

The works were delayed and the contractor applied for an extension of time. A partial extension was allowed. However, relying on clause 2.25.1.3(b), the employer stated that:

"the delays resulting from Delay Events 1 and 9 have been consumed by culpable delays attributable to North Midland Building, thus reducing the entitlement to an award of an extension of time".

In other words, a portion of the extension of time claimed by the contractor was refused as two of the employer-caused delaying events were concurrent with delays for which the contractor was responsible.

The contractor sought the interpretation of clause 2.25.1.3(b) and a declaration as to whether the clause offended the prevention principle (which maintains that where an employer prevents a contractor from meeting the original completion date and the contract gives no extension of time for that delay, the employer cannot insist the contractor meets the original completion date).

The "irrelevant" principle

The first instance judge found no point of interpretation arose. Clause 2.25.1.3(b) clearly allocated concurrent delay risk to the contractor. The contractor's submission on the prevention principle was "off the point" as the principle would not override the wording.

The contractor's main ground of appeal was that clause 2.25.1.3(b) contradicted the prevention principle, an overarching principle of law. In a unanimous Court, Lord Justice Coulson forcefully rejected this for five reasons:

1. There is no authority treating the prevention principle as a rule of law or policy – it operates only by way of implied terms.
2. The prevention principle was not engaged because the contract provided for an extension of time for "any impediment, prevention or default, whether by act or omission, by the Employer". Time was not "set at large" on the occurrence of these broadly defined events.
3. Historically, concurrent delay is not connected to the prevention principle. Prevention principle cases only started mentioning concurrency in the late 1990s.
4. Clause 2.25.1.3(b) was simply designed to reverse the way Walter Lilly & Co Ltd v Mackay [2012] EWHC 1773 (TCC) said concurrent delay liability should be allocated (although, in significant obiter comments, the Court opened the door to argue in future that even where a contract is silent on concurrency, a contractor should not automatically be granted an extension of time for periods of concurrent delay).
5. Parties are free to contract out of some or all of the effects of the prevention principle. If parties agree an express provision, an implied term is inappropriate.

The second ground was that even if clause 2.25.1.3(b) was enforceable, there was an implied term precluding the employer from levying liquidated damages, as it would be odd if the employer could recover them for a period of delay for which it was responsible. The Court rejected this argument. It failed the tests for implying terms and was contrary to the express wording in clause 2.25.1.3(b).

The Court did not address the employer's submission that where there is concurrent delay, it cannot be said the employer has actually delayed the contractor (meaning the prevention principle would not be engaged). This was unnecessary for disposing of the appeal and unwise without full argument.

Should I now draft for concurrency?

This decision encourages parties to agree provisions which clearly and unambiguously allocate concurrent delay risk and gives contract drafters a model clause.

Even if the Cyden wording is not used, parties may feel it is now appropriate to state that concurrent delays will be apportioned reasonably between the parties, even though this creates uncertainty due to subjective views of what is fair and equitable. At the very least, since clear wording trumps the prevention principle, parties may consider making an extension of time more difficult to obtain, perhaps by expressly requiring the contractor to make reasonable efforts to mitigate delay.

The case also means an express condition precedent that a contractor submits notice of its claim in a specified time period or otherwise loses its entitlement to an extension would also be upheld even where concurrent delay occurred, despite eminent construction law commentators in various jurisdictions thinking otherwise.

However, such drafting options will not always work because:

• where acts of prevention and default are defined more narrowly than the drafting in this case, the Court's assertion that "the fact that the mechanism of implied terms does not help the appellant on the particular facts of this case does not mean that such terms are not the right vehicle by which, in a conventional case, the prevention principle is given contractual force" could apply; and
• cases could still turn on arguments neither tackled by the Court (that an employer does not actually cause delay to a contractor where concurrency occurs) nor raised by the contractor (that liquidated damages are a penalty as the employer cannot prove it has sustained losses caused by the contractor's delay where the employer is also in delay). However, the Court made it hard to run this second argument by saying that paying liquidated damages when concurrency occurs is commercially acceptable (because two equally potent causes of delay mean allocating liability to either party is necessarily harsh on that party) and therefore fails the test for establishing a penalty.

As for contracts not governed by English law, construction lawyers in our global network say the Cyden approach would broadly:

• succeed in common law countries such as Australia, Hong Kong, Singapore and the United States;
• be followed in Continental European and Latin American civil law countries like Germany, Italy, Mexico and Spain, where clear drafting overrides general rules of fairly apportioning concurrent delays, allowing the parties' actual will and contractual terms entered into at arm's length to prevail; and
• be rejected in civil law countries influenced by Sharia law, like the UAE, because of underlying principles which focus more on outcomes (such as good faith and abuse of rights), meaning a party cannot seek redress against another party for non-performance if the party seeking redress has itself caused that non-performance. Judges and arbitrators from these countries would try to reflect what the parties have agreed whilst also apportioning delay between them, with the unpredictability that such an approach brings.

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