Contracting away concurrent delay

The recent High Court TCC case of North Midland Building Ltd v Cyden Homes Ltd examines the right of parties to contract out of the general principles…

The recent High Court TCC case of North Midland Building Ltd v Cyden Homes Ltd examines the right of parties to contract out of the general principles concerning concurrent delay.  Contractors, employers and insurers should be mindful of its findings and the important implications the case has for D&C and professional indemnity insurance policies.

Background

The issue of concurrent delay is much examined in case law. The prevailing approach of the courts in England and Wales at present is to apply a methodology where in cases of true concurrent delay, the contractor takes the benefit of an extension of time in circumstances where two or more delay events, one of which is the contractor’s risk and one of which is the employer’s, are each effective and of equal causative potency. 

In this case, the contractor, North Midland Building Ltd (“North Midland”) and the employer, Cyden Homes Ltd (“Cyden”), had agreed to amend the extension of time mechanism in the JCT Design and Build Contract 2005 edition at clause 2.25. The parties agreed that when assessing the contractor’s entitlement to an extension of time;

“any delay caused by a Relevant Event [an employer risk event] which is concurrent with another delay for which the Contractor is responsible shall not be taken into account”

The project, construction of a private home in Lincolnshire, completed late. North Midland applied for an extension of time citing Relevant Events. Cyden assessed the claim and arrived at the conclusion that the Relevant Events were in fact concurrent with delays for which North Midland were responsible.  Cyden claimed liquidated damages of £5,000 per week as a result. 

Judgment

Whilst acknowledging the agreed drafting, North Midland sought a declaration from the Court that the amended clause fell foul of the prevention principle. That doctrine holds that where a party to a contract by its conduct (e.g. by issuing variations) renders it impossible or impracticable for the other party to carry out its work within the stipulated time, it cannot insist upon strict adherence to the time stated. The result is that that penalties or liquidated damages cannot be claimed. This would put time at large, obliging the contractor to complete the works within a reasonable time and relieving it from liquidated damages.

In his judgment, Mr Justice Fraser found that the wording of the amended clause was “crystal clear”; the parties had agreed upon the issue of concurrent delay and there were no issues of interpretation whatsoever. The prevention principle did not apply as the case was purely concerned with the correct interpretation of the clause agreed by the parties as a bespoke amendment.

Significance

This case has some significant implications. Firstly, it confirms the courts’ willingness to allow parties to contract as they see fit. The contracting out of the common law position is a matter of commercial negotiation between parties and the wording of such clauses needs to be clear and precise to avoid issues of construction. 

Before rushing to contract out of the common law position concerning concurrent delay, parties need to be alert to the potential repercussions such clauses may have on their insurance positions. Contractors and insurers in particular need to be aware that accepting concurrency clauses which seek to pre-determine liability may well fall foul of the provisions of their professional indemnity and Design & Construction policies. This is primarily because such clauses amount to an expansion or departure from what would otherwise be the position on liability at common law.

Whilst there may be good reasons to welcome North Midland Building Ltd v Cyden Homes Ltd, contractors in particular should still tread carefully.

For further information about Weightmans LLP or to discuss any of the issues in this update, please contact Paul Lowe, Associate on 020 7822 7134 or email paul.lowe@weightmans.com or Adam Stead, Solicitor on 0161 233 1287 or email adam.stead@weightmans.com.

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