When can a contractor claim a time extension for delays caused by the client? The case of North Midland Building v Cyden Homes is examined by Theresa Mohammed and Obaid Bin-Nasir.
Developers and employers are always looking for ways to minimise delays and avoid granting extensions of time to contractors. Particularly if the view is that the contractor is causing delay and progressing slowly due to its own defaults.
One popular way has been to amend the extension of time provisions of the contract, so that if a contractor is already in culpable delay, then even if the developer or employer also causes delay, no further time will be granted.
What isn’t clear is whether such provisions could be enforced if the employer has caused delay and prevented compliance with the contractual timescale. This forms what is commonly referred to as the prevention principle.
But if the contract does not account for such circumstances, and allow for an adjustment to the completion date, it has been argued that the contractual provisions are rendered inoperable and time is “at large”. “Time at large” describes the situation on a contract where there is no date for completion or it has become invalid.
This is usually a disaster for a developer or employer as the contractor is only required to complete within what is deemed a reasonable period of time.
In the recent case of North Midland Building v Cyden Homes, the parties had entered into a JCT D&B Contract 2005 for the construction of a country house in Lincolnshire. The contract included bespoke amendments relating to how the extension of time mechanism operated and how “relevant events” that were concurrent with contractor delay were to be treated.
In the JCT suite, “relevant events” usually relate to matters which the employer is responsible for, or are allocated as an employer risk as far as time to complete the works is concerned.
In this case, the parties had amended the contract to reduce the potential entitlement to more time. Clause 2.25 of the contract, as amended, stated that if there was a relevant event that causes delay, the employer would grant an extension of time provided that:
- the contractor made reasonable and proper efforts to mitigate such delay; and
- any delay caused by a “relevant event” was not concurrent with another delay for which the contractor was responsible.
The works were subject to a series of delays, for which North Midland applied for extensions of time in reliance upon a number of relevant events. Cyden Homes took the position that the delays had been consumed by culpable delays attributable to North Midland, thus reducing its entitlement to an extension of time.
Cyden argued that the extension of time provisions meant that in the instance of a concurrent relevant event and a delay event for which the contractor was culpable, there would be no entitlement to an extension of time and it could levy liquidated damages.
North Midland started court proceedings, seeking declarations that clause 2.25 offended the prevention principle and that the associated liquidated damages provisions were void. North Midland argued that Cyden had been responsible for one of the delay events and that this had prevented it from complying with its obligations under the contract.
Agreed bespoke amendments
In support of this argument, North Midland sought to rely on Multiplex Construction v Honeywell Control Systems,which stated that contractually legitimate actions of an employer could still be construed as acts of prevention if such acts caused delays beyond the completion date. As a result, it argued, time was at large.
Mr Justice Fraser rejected North Midland’s argument, holding that the prevention principle was not relevant in this case as the parties had agreed bespoke amendments to the contract that clearly set out the grounds for an extension of time.
Further, clause 2.26 of the contract classified acts of prevention as relevant events which made it plain that the parties had a mechanism for dealing with employer acts of prevention. Therefore, clause 2.25 was held to be operable and time was not at large.
In consideration of the second argument, that liquidated damages must fall away if there was an employer act of prevention, Mr Justice Fraser held that there was no legal authority in support of this proposition and none of the amendments reflected that submission.
This case has clarified that parties are free to allocate the risk of concurrent delay and, as things stand, contract drafting of this nature could be a useful way for developers and employers to deny claims for additional time.
Theresa Mohammed is a partner and Obaid Bin-Nasir is a paralegal with law firm Trowers & Hamlins