What happens when a contractor agrees to certain terms in a contract that it later considers to be unfavourable? Is the contractor still bound by those terms or can it use common law doctrines to change or avoid its contractual agreement?
These questions were addressed this month by Mr Justice Fraser (“the Judge”) in the case of North Midland Building Ltd v Cyden Homes Ltd [2017] EWHC 2414 (TCC), where he considered the effect of a concurrent delay exclusion.
The facts
North Midland Building Ltd, (the Contractor) agreed to carry out the construction of South Farm a sizable house in Ashby-cum-Fenby, Lincolnshire, with outbuildings, barns and associated works. Its client was Cyden Homes Ltd (the Employer).
Contractor and Employer agreed certain bespoke amendments to the standard form JCT Design and Build Contract 2005. The most relevant amendment was to clause 2.25.1.3(b), which amended the extension of time machinery as follows: “Any delay caused by a Relevant Event which is concurrent with another delay for which the contractor is responsible for shall not be taken into account”.
When the works were delayed the Contractor applied for an extension of time, claiming associated loss and expense. Its application relied on a variety of Relevant Events.
The Employer responded by asserting that most of the substantial delays caused by the Relevant Events in the Contractor’s application were concurrent with the delays caused by the Contractor.
Relying on Clause 2.25.1.3(b) (above), the Employer argued that, apart from one event relating to weather, the delay events were “consumed by culpable delays attributable to” the Contractor. This caused a drastic reduction to the Contractor’s claim for an extension of time.
However, the Contractor disagreed and brought Part 8 proceedings against the Employer seeking the following declarations:
o that the effect of Clause 2.25.1.3(b) made “time at large”, in a situation where the Contractor had a claim to an extension of time for a delay caused by a Relevant Event which was concurrent with another delay the Contractor was responsible for; and
o that the Contractor was therefore obliged to complete within a reasonable time rendering the Employer’s contractual claim for liquidated and ascertained damages (LADs) void.
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In support of this, the Contractor relied on the common law doctrine of prevention, often referred to as the prevention principle.
The prevention principle is “something that arises where something occurs, for which it is said the employer is responsible, that prevents the contractor from complying with its obligations, usually the obligation to complete the works by the completion date”.
Decision
The Judge rejected all of the Contractor’s arguments.
This case was purely concerned with the correct construction of the clause agreed by the parties. The Judge found the clause to be properly constructed, and stated that the agreement between the parties, regarding appropriate situations for the granting of an extension of time, was “crystal clear”.
He found that the prevention principle simply did not apply to this case. First the parties had expressly included acts of prevention within the definition of Relevant Events and clause 2.25.1.3(b) applied to these. Second, following Coulson J’s comments in the Jerram Falkus case, the Judge noted: “….. for the prevention principle to apply, the contractor must be able to demonstrate that the employer’s acts or omissions have prevented the contractor from achieving an earlier completion date and that, if that earlier completion date would not have been achieved anyway, because of concurrent delays caused by the contractor’s own default, the prevention principle will not apply”.
The Employer’s interpretation of the clause was therefore correct and it was within its contractual powers to respond to the Contractor in the way it did.
Conclusion
In deciding this matter, the Judge took the approach that parties are free to agree whatever terms they wish to agree so far as the terms are not illegal and are sufficiently certain (as they were on the facts of this case).
This case is an important decision regarding exclusions to extension of time clauses and concurrent delays. It serves as a sobering reminder to parties to ensure that they fully appreciate the implications of the terms they are agreeing to. The Court remains reluctant to interfere with the contractual agreement of the parties. For a contractor this may ultimately result in its achieving a much shorter extension of time than it had thought it was entitled to.
About the author: Abiola Aderibigbe is a construction paralegal with Irwin Mitchell Solicitors
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