Who bears the risk of concurrent delay?
The English Court of Appeal has now spoken.
We previously reported on a very significant decision in the English courts about who bears the risk of concurrent delay.
In this decision, North Midland Building Limited v Cyden Homes Limited  EWHC 2414 (TCC), the Technology and Construction Court (the specialist English court which deals with construction disputes) decided that a concurrent delay "carve-out" clause, which makes the contractor responsible for concurrent delay, was enforceable.
The clause in question said 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 [in assessing an extension of time]"
Under the language of the contract, a "Relevant Event" would entitle the Contractor to an extension of time. Clauses of this type are increasingly common in construction, offshore and shipbuilding contracts. These clauses reverse what is often taken to be the "standard" position that, where there is no such "carve-out", the contractor should be entitled to an extension of time, despite its own culpable concurrent delays.
In the TCC, the Contractor tried to argue that the clause was ineffective because making it liable for concurrent delays would be contrary to the prevention principle, so was "not permitted". The TCC judge rejected this argument for the following reasons:
- Having agreed how the risk of concurrent delay should be allocated, it was not open to the parties to seek to argue otherwise.
- Parties should be free to agree whatever contractual terms they wish to agree, save for illegality or statutory restrictions.
- There is no of rule of law which prevents parties from agreeing how to treat concurrent delay.
The Contractor appealed against the TCC's decision to the English Court of Appeal. The appeal was recently decided and was unsuccessful – see North Midland Building Ltd v Cyden Homes Ltd  EWCA Civ 1744.
The Court of Appeal upheld the TCC's decision that parties are free to allocate the risk of concurrent delay in their contract. In so doing, the Court of Appeal approved what is sometimes called the "John Marrin" definition of concurrent delay, which has been widely accepted by the lower courts and which provides as follows:
“A useful working definition of concurrent delay in this context is ‘a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency’ – see the article Concurrent Delay by John Marrin QC (2002) 18(6) Const. L.J. 436.”
The overall outcome of is not surprising, but the Court of Appeal's decision is interesting in the following respects.
- The Court of Appeal said the only way that the Contractor could avoid the effect of the clause was (i) by identifying either another term of the contract or (ii) through relying on some overarching principle of law or legal policy, which would render the clause inoperable.
- Since there were no other terms of the contract which would render the clause inoperable, the Contractor tried to argue that the prevention principle was a matter of legal policy.
- This argument was rejected by the Court of Appeal, who simply said that there was no authority for that proposition.
- On that basis, the Court of Appeal decided that the Contractor could not avoid the effect of the clause.
The Contractor also ran a second argument that, if it was not entitled to an extension of time for concurrent delay, there was an implied term that prevented the Employer from deducting liquidated damages ("LDs") in these circumstances. The Contractor said there must be an implied term to this effect, since the Employer should not be permitted to recover LDs for a period of delay for which it was responsible.
The Court of Appeal rejected that argument on the following grounds:
- The LDs must be taken to be a valid and genuine pre-estimate of the anticipated loss which would be caused by any delay to completion. That would remain the case, whether the delay is the result of just one effective cause or two causes of "approximately equal causative potency". There is therefore a proper causal link between the delay and the LDs.
- Extension of time provisions and LDs are inextricably linked. If it is right that time should not be extended, then it must also be right that LDs should be deducted if the completion date is missed.
- The parties had already agreed that concurrent delay would not entitle the contractor to an extension of time. That meant the Employer was expressly permitted to deduct LDs for periods of concurrent delay. Therefore, the implication of the term contended for by the Contractor would be directly contrary to the express terms of the contract, so would not be allowed.
The decision of the Court of Appeal in North Midland Building Limited confirms that there is no rule of law preventing parties from agreeing how to allocate responsibility for concurrent delay.
The commercial importance of this decision to the construction, offshore and shipbuilding sectors remains very significant. Where there is a concurrent delay "carve- out", as a matter of English law, the contractor will bear the risk of concurrent delay. Such allocations could be worth millions of dollars and merit very careful consideration.