The decision of a Scottish court in July last year dismissing appeals in the City Inn litigation continues to provoke debate in England over delay analysis under extension of time clauses. In our previous Law-Now, we commented on a recent Technology and Construction Court decision which was consistent with the minority judgment in City Inn rather than the apportionment approach adopted by the majority. A subsequent decision of the Commercial Court in Adyard v SD Marine has now raised doubts over both the majority and minority views in City Inn.

Adyard was a small to medium-size shipyard situated in Abu Dhabi. It contracted with SD Marine Services to construct two sea vessels in time for sea trials to be held on specified dates (the “Sea Trial Dates”). Two separate contracts each allowed SD Marine a right of termination if the vessels were not ready for sea trials on their respective Sea Trial Dates. The works were delayed and SD Marine gave notice of termination very shortly after the Sea Trial Date for each vessel.

The contracts stated that, “to the extent that any delays are caused by the Buyer’s default or any Permissible Delay, [the Sea Trial Dates] shall be extended to the same extent”. Adyard accepted primary responsibility for the delays which had occurred, but alleged that two relatively small variations had been made to the works which justified an extension of time (“EOT”). As SD Marine had given notice of termination within a week of the original Sea Trial Dates, Adyard only needed to establish a small extension of time.

Adyard’s own very long delays meant that it was unable to show any actual delay caused by the alleged variations. The project was already in irretrievable critical delay before the variations arose and Adyard had admitted that no additional delay had been caused. Instead, Adyard relied upon Lord Carloway’s minority opinion in City Inn to argue that the alleged variations justified an EOT regardless of existing delays and regardless of whether the variations had any actual impact on the progress of the works. Adyard’s argument, like Lord Carloway’s opinion, was based substantially on the prevention principle and can be summarised as follows:

  • the parties had agreed that Adyard was to have a certain amount of time to be ready for sea trials and that in the event of variations, Adyard would receive any necessary additional time; 
  • variations had occurred which in the ordinary course would have required additional time; Adyard was not to be deprived of that additional time merely because the variations could be accommodated within its existing period of culpable delay;
  • to deny Adyard’s claim would be to deprive Adyard of the time which the parties had agreed that Adyard would have to complete the works.

This is one way of expressing the prevention principle and is often advanced on the authority of Wells v Army and Navy Co-operative. In that case (decided in 1903), the Court of Appeal held that where a contract limits the time in which a builder is to perform work, “that means, not only that he is to do it within that time, but it means also that he is to have that time within which to do it … that limitation of time is clearly intended, not only as an obligation, but as a benefit to the builder”. The decision in Wells formed the basis of Lord Carloway’s opinion in City Inn, but would not appear to have been cited specifically by Adyard. 

Adyard’s argument was rejected, along with Lord Carloway’s opinion. Mr Justice Hamblen sitting in the Commercial Court found that under English law it is essential to prove that an employer risk event or a Relevant Event (to adopt JCT-language) had caused actual delay to the progress of the works. Given that Adyard’s own delays were already operative at the time of the alleged variations, no actual delay had occurred due to the variations. The court noted that this requirement for actual delay was in accordance with the majority opinion in City Inn, but ruled out any ability to apportion delay under English law. The court made no reference to the decision in Wells.

Mr Justice Hamblen’s decision marks out three distinct approaches to the assessment of EOT claims for concurrent or parallel delay:

  1. A Relevant Event is to be considered on its own and an assessment made of the delay it would have caused to the then current completion date in the absence of any culpable delays. The assessment is hypothetical i.e. what delay “would” the event have caused, not “did” cause. This reflects the approach submitted by Adyard and adopted by Lord Carloway in City Inn (based in turn on the decision in Wells).
  2. The Relevant Event must be considered alongside all of the other circumstances affecting the works at the time and an assessment made of the delay actually caused by the Relevant Event. This is the approach adopted by Hamblen J in the Commercial Court, largely in reliance on the English authorities of Malmaison and Royal Brompton.
  3. Actual delay caused by a Relevant Event, as per (2) above, may be apportioned if there are other concurrent delays which can also be said to have caused the same delay and for which there is no entitlement to an EOT (and none of the competing causes can be said to be dominant). This is the approach adopted by the majority in City Inn.

In our previous Law-Now commenting on the De Beers decision (click here), we noted that Mr Justice Edwards-Stuart appeared to approve of Lord Carloway’s reasoning. In De Beers, a full EOT was allowed for a variation order despite the fact that the delay was also said to be attributable to other causes which appeared to have pre-dated the variation (such as unrealistic tender assumptions). Applying Hamblen J’s approach, it is difficult to see how the variation order could have been said to have caused actual delay for the period which the project had already been delayed due to the contractor. In other words, the variation order in De Beers, as in the present case, could have been wholly or partly accommodated within existing culpable delay, yet in De Beers a full EOT was given.

The Commercial Court’s decision represents an interesting development in the debate over City Inn. It appears to reinforce a robust causative approach to EOT in distinction to both the majority and minority opinions in City Inn. Given the support for Lord Carloway’s approach to be found, at least to a certain extent, in De Beers and in other non-judicial commentary on City Inn, the correct English approach to the problem remains uncertain. Adding to this uncertainty is the fact that neither judge in Adyard or De Beers placed any reliance on the language of the EOT clause agreed by the parties, preferring instead to approach the question as one of general legal principle.

To view our original law-now reporting the Inner House’s decision in City Inn, please click here.

Reference: Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848

To view a pdf version of this law-now, please click here.