Freedom of contract trumps doctrine of prevention

Publication | November 2017

Introduction

A decision of the English High Court, handed down last month, should have those involved in engineering and infrastructure projects and real estate developments sitting up in their seats.

In part, the case concerns an old chestnut - the 'prevention principle', the long established principle under English law that prohibits a party to a contract from enforcing an obligation against its counterparty in circumstances where the party seeking to enforce has prevented the counterparty from performing.

A recent High Court decision

In North Midland Building Limited v Cyden Homes Limited [2017] EWHC 2414, the Technology and Construction Court (TCC) had to consider the enforceability of a provision in a building contract that expressly excluded the contractor’s entitlement to an extension of time in circumstances where there was concurrent delay.

The issue is one that frequently crops up in contract negotiations – not just in relation to building contracts in the built environment sector, but also in relation to major engineering and infrastructure contracts. Developers, and their lenders, will frequently have as a commercial aim the achievement of as much risk transfer to the building or engineering contractor as possible. Accordingly, they will often seek such exclusions. Yet all good construction lawyers know that care must be exercised when excluding entitlements to claim an extension of time. Without careful drafting, time can be rendered "at large" because of the operation of the prevention principle, unravelling the liquidated damages regime.

The project in question was the construction of a house in Lincolnshire which was (as noted by the judge) “exceptionally large” and “exceptionally expensive”. It was to be occupied by the Dyson family once completed. The building contractor, North Midland Building Limited, brought a Part 8 claim against its employer on a point of contractual interpretation. Cyden Homes, a company set up by a number of members of the Dyson family, was the defendant employer.

The building contract was based on the form of the JCT Design and Build Contract 2005 edition, to which the parties agreed bespoke amendments. One of the bespoke amendments clearly concerned the way in which extensions of time were to be dealt with.

A bespoke amendment to the JCT standard form clause

The clause in question provided that the contractor could claim an extension of time if delay was caused by a “Relevant Event”, but also included an amendment that “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".

The Part 8 claim brought by the contractor was to obtain two declarations, from the court, as to the meaning and effect of the amended provision – namely that:

  1. Where the contractor had a claim to an extension of time for a delay caused by a Relevant Event where that delay was concurrent with another delay for which the contractor was responsible, time would be made "at large"; and
  2. In such circumstances, the contractor would be required to complete the works within a reasonable time, and the liquidated damages for delay would be void.

The English High Court found itself confronted by two common construction issues – concurrent delay and the prevention principle.

Meaning of “concurrent” delay

The formulation of concurrent delay that is commonly referred to is the one put forward by John Marrin QC and most recently re-iterated in his presentation to the Society of Construction Law in London in December 2012 (and appearing in his subsequent paper Concurrent Delay Revisited): “ … a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency” and the phrase ‘of equal causative potency’ was cited by Mr Justice Fraser in the judgment handed down by the court.

The reality is that true ‘concurrency’ (as defined by John Marrin QC) is rare – yet how to deal with it in construction and engineering contracts seems to crop up time and time again in transactional negotiations.

The court held that the amended JCT clause was valid and enforceable and it now seems clear that, under English law, the issue of concurrency may be dealt with expressly by the parties in their contractual arrangements.

What about the prevention principle?

The claimant placed reliance on Multiplex Construction v Honeywell Control Systems (2007) and argued that the ‘doctrine of prevention’ meant that time was at large and that they simply had to complete the works within a reasonable time.

In coming to his conclusion, the judge paid particular attention to the drafting of the clause in question. He said (para 16) that “…the prevention principle simply does not arise” and the case “...is purely concerned with the correct construction of the clause agreed by the parties, in this case specifically agreed by the incorporation into it of a bespoke amendment.”

“The starting point is the language itself; the words the parties have themselves chosen…”

The judge cited the Supreme Court’s decision earlier this year in Wood v Capita Insurance Services Ltd (2017) that followed Arnold v Britton (2015) and he stated that (para 17) “The starting point is the language itself; the words the parties have themselves chosen. In the case of this term of the contract in these Part 8 proceedings, the objective meaning of this provision is barely in issue between the parties at all.”

The parties had quite clearly agreed that, if the contractor were responsible for a delaying event which caused delay at the same time as, or during, the delay caused by a Relevant Event, then the delay caused by the Relevant Event would not be taken into account when assessing the extension of time. In reaching its decision, the court noted (“the final nail in the coffin”) that the definition of "Relevant Event" included any act of prevention and that acts of prevention were accordingly to be taken into account expressly in the way identified in the extension of time clause.

Interestingly, the court did not refer to what is known as ‘the Malmaison approach’ (after the decision in Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999)), which is often thought by commentators to be the favoured approach to resolving issues of concurrency of delay events of equal causative potency in extension of time claims. Under this approach, where there are two concurrent causes of delay, one of which is a relevant event, and the other is not, the contractor is entitled to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event.

The decision is another in a line of cases in which the courts have held up the principle of freedom of contract and given emphasis to the words used by parties in their agreements. The doctrine of prevention is not superior to an express term to the contrary, especially where there was no ambiguity in the term. The decision conflicts with the approach to concurrent delay taken by the Society of Construction Law in the Second Edition of its Delay and Disruption Protocol published earlier this year. It is a decision that will very much be welcomed by employers and their lenders. Contractors will no doubt take notice and seek to negotiate out such wording, given the potential for concurrent delays to occur on construction and engineering projects.


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