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Contract wording trumps Prevention Principle

In North Midland Building Ltd v Cyden Homes Ltd, the Court of Appeal confirmed that clear, agreed contractual wording on allocation of liability for concurrent delay was sufficient to place the risk with the contractor.

Background

This dispute arose from the design and construction of a large house in Lincolnshire.  Cyden Homes Ltd was the employer on the project. North Midland Building Ltd was the contractor.

The parties contracted under a significantly amended version of the JCT Design and Build 2005 ("the Contract").  The most significant amendment for this was at clause 2.25.1.3 (b) which dealt with circumstances in which the contractor would be entitled to an extension of time and stated:

"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 definition of a "Relevant Event" included employer delay.

There was a period of delay to the project for which both the employer and contractor were concurrently responsible; i.e. there were two delaying events causing delay, which covered the same time period, one caused by the contractor, the other by the employer.  This delay caused the contractual date for completion of the works to be missed.

  • The employer relied on the above clause to claim entitlement to liquidated and ascertained damages.
  • The contractor relied on the common law "prevention principle" to claim that the employer's element of responsibility for the delay meant that the contractual completion date was "at large", and that as a result the contractor's obligation was simply to complete the works within a reasonable time.  The prevention principle is designed to prevent employers taking advantage of (or deliberately engineering) their own delay so as to expose the contractor to penalties.

First instance decision

Fraser J in the TCC found that the prevention principle did not apply here as it was "crystal clear" that employer and contractor had agreed the relevant contract term in their negotiations. The parties were free to agree how concurrent delay would be dealt with in the contract.

The contractor appealed.          

 Court of Appeal decision

The contractor's appeal was dismissed on the following grounds:

  1. The relevant clause was clear and unambiguous.
  2. The prevention principle would not act as a matter of public policy to extricate the contractor from a clause to which it had freely agreed.
  3. The Court was not prepared to imply terms into the Contract which might assist the contractor.
  4. There is no authority to suggest that parties cannot contract out of the prevention principle.

Comment

This is an important decision in that:

  1. Specifically, it confirms that parties can effectively contract out of the prevention principle.
  2. More generally, it shows that (subject to issues such as legality and public policy) the courts are reluctant to intervene in circumstances where contractual terms are clear, unambiguous and have been freely agreed between parties on an equal footing.

It is of comfort to employers who can rely on these exclusions to enforce rights arising from concurrent delay such as liquidated damages.  It should give pause for thought to contractors as to the risks they are accepting when negotiating/agreeing such terms.

Contact

For more information please contact Mark Jenkyn-Jones, Partner Mark.Jenkyn-Jones@dwf.law

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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