On 22 July, the Scottish Inner House (appeal court) in City Inn v Shepherd Construction handed down a significant judgment on an important issue relating to the assessment of concurrent delays in awarding extensions of time.
Determining contractor entitlements to extensions of time where there are competing causes of delay, or "concurrent delay", is a complex area of law. This decision is of substantial interest as it provides the most detailed discussion in the UK courts to date on the issue of concurrency in delay claims.
What is concurrent delay?
Concurrency in construction disputes refers to the situation where a particular delay to the completion of the works may be attributed to two or more events. Contractors will generally have an express contractual entitlement to an extension of time for delays caused by employer-risk events such as inclement weather or instructions to vary the works, however, no such relief will be available for "contractor-risk events", where the contractor itself is responsible for the delay.
In construction projects it is not uncommon for a number of different events to cause delay to the works. The question therefore arises: where both an employer-risk event and a contractor-risk event are competing causes of delay, will the contractor be entitled to an extension of time?
Various approaches of the courts
Over the years the UK courts have applied a number of different tests when determining liability for concurrent delays. The principal theories can be summarized as follows:
- "But for" test: Courts have long applied the "but for" test to matters of causation. This test asks: "would the delay have been occurred but for the event complained of?" If the answer is "yes, it would have occurred in any event", then there is said to be no causal link between the event and the subsequent delay. However, when there are concurrent events that each independently operate to push back a project, the application of this test will produce the nonsensical answer that neither of the events caused the delay, as for each case the delay would have occurred in any event. For this reason, courts have preferred to avoid this test in circumstances where two or more concurrent events are independently sufficient to cause the delay in question.
- Malmaison test: This test arose from the case of Henry Boot v Malmaison (1999)1 where the parties had agreed that where two concurrent events, one an employer-risk event and the other not, commence and finish at the same time the contractor will be entitled to an extension of time regardless of the concurrent delay caused by the contractor.
- First-in-line approach: A later approach, adopted in oyal Brompton (2001) 2, proceeds upon the basis that, where there are two events causing a delay, the event that took place first in time (whether caused by the contractor or by the employer) is the cause of the whole delay. By operating on an all-or-nothing basis this approach is clearly a "blunt sword" that fails to take into account the circumstances of which party was largely responsible for the delay.
- Dominant cause: This approach seeks to resolve the issue of concurrent causes of delay by determining which event was the "dominant cause" of that delay. This will be a question of fact and, unlike the Royal Brompton "firstin- line" approach, is not solved by mere point of order in time. The contractor will be entitled to an extension of time if he is able to establish that the dominant cause of delay is an employer-risk event rather than a contractor-risk event for which he is responsible.
What approach was taken in City Inn v Shepherd Construction?
This case concerns a dispute about the completion of a hotel in Bristol under a contract based on the JCT 1980 Form3. The contractor, Shepherd, sought a substantial extension of time beyond that awarded by the contract administrator and payment of loss and expense. There were competing causes of delay, some of which were the fault of the contractor and some which were "Relevant Events" (the term used for employer-risk events in the JCT Forms) entitling the contractor to an extension of time.
In November 2007, after a long trial, the Outer House (lower court) addressed the issue of concurrency in a lengthy judgment. It made its decision based on what has subsequently been called the "apportionment approach". According to this approach, the contract administrator's duty was to make a determination on a "fair and reasonable" basis and if there was no single dominant event causing delay to completion, then the court was to apportion the delay between the causes. The employer appealed this decision.
On appeal, the Inner House (appeal court) by a majority upheld the lower court's decision on all grounds in relation to concurrency. The court considered earlier cases in Scotland, England and Wales, and other common law jurisdictions but only found them to be of limited assistance. Most importantly, the Inner House disapproved the decision in Royal Brompton to the effect that the contractor will not be entitled to an extension of time where an employer-risk event occurs after a contractor's risk event. The court held that there was no principle to this effect.
The court went on to formulate the following propositions as to the approach that should be adopted when determining extensions of time where there are competing causes of delay:
- it must first be shown that a Relevant Event is a cause of delay and is likely to delay the works. A "common sense" approach should be taken when deciding whether or not the cause of the delay was a Relevant Event.
- any factual evidence may be used to decide the issue of causation.
- although a critical path analysis may be of assistance in determining causation, it is not indispensable.
- if a particular event can be identified as the dominant cause of delay, effect will be given to that delay by leaving out of account any cause or causes which are not material. If the dominant cause is a Relevant Event for which the employer is responsible, the contractor's claim for an extension of time will succeed.
- if there are two causes, one of which is a Relevant Event and the other is the contractor's responsibility, and neither is dominant, the claim for an extension of time will not necessarily fail; the overall delay can be apportioned between the Relevant Event and the other event; and
- above all, the decision-maker under the relevant clause should approach the issue in a fair and reasonable manner.
The court also approved the lower court's decision to the effect that the same approach should be applied to claims for loss and expense under the JCT Form.
Important consequences of this decision
The Inner Court's decision in City Inn is binding on the lower courts of Scotland and will be of persuasive interest for courts elsewhere in the UK. The decision will likely be influential with contract administrators considering the appropriate approach to take when deciding claims under the JCT Form, which requires the administrator to award an extension of time "by fixing such later date as the Completion Date as he then estimates to be fair and reasonable"4.
Decision-makers dealing with other contracts that require "fairness" when making a determination may also find the City Inn judgment persuasive. FIDIC and ENAA are two examples where "fairness" is required when determining extensions of time:
- FIDIC 1999 SC 3.5: the Employer/Engineer is to make "a fair determination in accordance with the Contract, taking due regard of all relevant circumstances"5;
- ENAA at GC 40.1: the Time for Completion shall be extended "by such period as shall be fair and reasonable in all the circumstances and shall fairly reflect the delay or impediment sustained by the Contractor".
The City Inn approach to concurrent delays begins with the contract administrator having to consider all events of which he becomes aware when assessing delays. On the court's view in this case, the issue of when these events occurred may be relevant but does not amount to a bar on consideration of events occurring in a particular sequence, as was suggested in Royal Brompton. Above all, the court stressed that a "common sense" approach must be adopted so as to achieve a fair result between the contractor and the employer. However, the City Inn decision has met with a mixed reception from UK commentators and it remains to be seen whether it will be approved by the courts of England and Wales.