Construction contractors and principals alike should be mindful of a construction contract clause recently construed by a court, says HHG Legal Group’s Daniel Morris.
That clause, considered in the case of North Midland Building Limited v Cyden Homes Limited  EWHC 2414 (TCC)affects the application of the prevention principle in disputes involving construction delay. The clause read 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”.
We looked at the prevention principle in a recent article: http://www.hhg.com.au/blog/prevention-principle-restated-contractors-be-aware-owners-head-contractors-and-local-governments-be-. To recap:
- A construction contract generally sets the last date for completion of construction works.
- The contractor generally takes the risk of liability under the contract for late completion of the works.
- However, the law will not allow the contractor to be exposed to liability for late completion when it was prevented by the principal’s conduct from completing the works by the contractual date for completion.
- Therefore, if timely completion under the contract was to any degree prevented by the principal’s conduct, the contractor will be relieved of its obligation to complete the works by the date for completion set under the contract and the completion time will be set “at large”. Setting time at large basically means that it will be left to a court or arbitrator to determine on the evidence what, in all the circumstances, would have been a reasonable time for the contractor to complete the works.
- Since the contractor is then no longer bound to complete the works by the contractual date for completion, the principal will lose its right to liquidated damages for the delay of construction works past that date.
It may be considered fairly easy to apply this principle where there is a single, clear cause of delay: in that case, principal-caused delay, if not “cured” by an extension of time, may cause the prevention principle to apply; other causes of delay usually will not. (Note that in some cases, a principal’s rejection of a contractor’s valid extension of time claim and a principal’s failure to grant an extension of time unilaterally even when the contractor has not sought one, has been treated as an act of prevention by the principal. Such cases are beyond the scope of this article.)
The position is not as clear in the case of concurrent causes of delay: that is, where two things happen, one within and one outside the contractor’s control, either one of which, by itself, would have been sufficient to cause the resulting delay. Most standard form construction contracts deal with such cases by splitting responsibility for the delay between principal and contractor. However, as the Court pointed out in CASE, this is a contractual position that the parties can change simply by inserting the clause quoted above into their construction contract.
By those words, the parties effectively agreed that when principal and contractor concurrently cause one and the same delay, the principal’s conduct will be disregarded in attributing contractual responsibility for that delay. According to the Court, this meant that such delays were to be treated under the contract as if they had been caused by the contractor alone. This left no room for the application of the prevention principle and so, the principal’s right to liquidated damages for concurrently caused delay was preserved.