A Court of Appeal decision yesterday has upheld the enforceability of contractual provisions which seek to exclude a contractor’s entitlement to extensions of time in circumstances of concurrent delay. The decision clarifies the legal basis of the “prevention principle”, finding it operates by way of implied terms and is subject to any agreement to the contrary between the parties.

North Midland Building Ltd v Cyden Homes Ltd: a recap

North Midland entered into a JCT Design and Build contract with Cyden for the construction of a large domestic residence. The contract amended the standard JCT extension of time wording to include a concurrent delay exclusion as follows: “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 works were delayed and North Midland applied for extensions of time based on a variety of different Relevant Events. Cyden’s response accepted that the Relevant Events relied upon could in theory entitle North Midland to an extension of time, but rejected the majority of the extension applied for on the basis of the concurrent delay exclusion. Save for a small amount of delay attributable to weather, North Midland’s own delays were said to have consumed the delays arising from Relevant Events.

North Midland brought TCC proceedings for a declaration that the concurrent delay exclusion had resulted in time being set at large under the contract. The TCC disagreed, finding that the intention of the exclusion was “crystal clear” and that the “prevention principal" did not stand in the way of such a clause. For our original Law-Now on the TCC’s decision, please click here.

The Court of Appeal

The primary issue before the Court of Appeal was whether the concurrent delay exclusion activated the prevention principle. The prevention principle typically applies where parties to a construction contract have failed to provide an entitlement to extensions of time for acts of prevention by the employer. In such circumstances, employer acts of prevention can cause the contractual date for completion and any liquidated damages connected with it to be replaced with an obligation to complete within a reasonable period and an entitlement to unliquidated damages for delay.

The question raised by this case was whether an express clause stating that acts of prevention were to be left out of account in circumstances of concurrent delay brought the prevention principle into play. This in turn depended on whether the prevention principal was a matter of legal policy, similar to the doctrine of penalties, operating regardless of the express terms of the contract. The Court of Appeal did not think so, finding the prevention principle operated by way of implied terms which could be displaced by the express terms of a contract. As noted by Lord Justice Coulson:

“A building contract is a detailed allocation of risk and reward. If the parties do not stipulate that a particular act of prevention triggers an entitlement to an extension of time, then there will be no implied term to assist the employer and the application of the prevention principle would mean that, on the happening of that event, time was set at large. But it is a completely different thing if the parties negotiate and agree an express provision which states that, on the happening of a particular type of prevention (on this hypothesis, one that causes a concurrent delay), the risk and responsibility rests with the contractor.”

The court also rejected a supplementary argument by North Midland that a term should be implied preventing the levying of liquidated damages in cases of prevention. Such a term would be inconsistent with the concurrent delay exclusion which was an integral part of the extension of time and liquidated damages mechanism under the contract.

Conclusions and implications

This is an important Court of Appeal decision clarifying the legal basis of the prevention principle and confirming that concurrent delay exclusions will be upheld. The court’s findings will provide comfort to employers looking to rely on such exclusions that they are effective and will not risk setting time at large or jeopardising rights to liquidated damages. The use of these clauses had increased after the TCC’s original decision and this trend is likely to continue in light of the Court of Appeal's findings.

References:

North Midland Building Ltd v Cyden Homes Ltd [2017] EWHC 2414 (TCC).

North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744.