North Midland Building Ltd v Cyden Homes Ltd

This is the hearing of a Part 8 claim brought by the claimant against the defendant in relation to what is said to be a point of contractual interpretation of one of the clauses of the contract agreed between the parties for the construction by the claimant of a sizeable house in the Midlands. The house is said, by the claimant, to be the most important private house to be constructed in the country for many years. The house is called South Farm, Ashby-cum-Fenby, Lincolnshire, but the works included not only construction of the house but also substantial outbuildings, barns and associated works.

The defendant is a corporate vehicle through which different members of the Dyson family chose to structure the different transactions involved in constructing the house. The Dyson family decided to have the house constructed, and were to live in it once finished. The defendant does not admit the claimant’s description of the house’s national importance. This may be through understandable modesty, and also because formally to admit such a claim would require a considerable amount of research in order for them to be confident that it were correct. However, suffice it to say that the house is exceptionally large, and was to be exceptionally expensive to construct. The nature of the house in comparison to more modest projects is not material to the issues central to the Part 8 claim.

The claimant, the contractor, and the defendant, the employer, agreed certain bespoke amendments to the standard form of contract which was that of the JCT Design and Building Contract 2005 form. One of these amendments concerned the way in which extensions of time would be dealt with in certain circumstances. It is in respect of this clause that the claimant seeks declarations in these proceedings. The clause in question is Clause 2.25.1.3(b) of the JCT Design and Building Contract 2005, as amended by the Special Conditions in the contract executed between the parties on 21 September 2009. The contract was executed as a deed. Although there were further documents referred to as the Supplemental Agreement dated 6 October 2010, and a further Supplemental Agreement referred to as the “Parting of the Ways Agreement” executed as a Deed on 28 October 2016, the legal effect of these are not wholly agreed, and are not material to the issues on this Part 8 Claim. Occupation and use of the building(s) took place on 11 November 2016. The content of neither Supplemental Agreement is relevant to the clause in issue in these proceedings.

The clause as amended reads as follows, dealing with delay and the circumstances where:

“2.25.

The declarations sought are:

Sub-clause (3) is the part of the clause that has been added by the parties to the standard clause. The clause as amended therefore added into the extension of time machinery in the contract the proviso that, in assessing an extension of time, “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”. It is that passage in respect of which, it is said by the claimant, that a point of construction arises. This assertion is made in the witness statements of Mr Westlake served in support of the Part 8 proceedings. I also have a witness statement from Ms O’Dwyer served on behalf of the defendant. None of the relevant facts are in dispute, and this matter is entirely suitable for Part 8 proceedings.

In order to understand the context of the clause in which the amended sub-clause sits it is necessary to consider the concept of concurrent delay. However, before that is done I will deal briefly with the factual background to these proceedings. The facts are simply to put the proceedings into their context, and resolving issues of fact is no part of the function of Part 8 proceedings.

The works were delayed and the claimant applied for an extension of time for a variety of reasons. This application, which was followed by various other notices of delay, relied upon a variety of different causes, or Relevant Events. This led to an Employer’s Response to the claim for an extension of time (which also had accompanied a claim for loss and expense) which was provided to the claimant dated 29 June 2011. In it, different delay events were considered as, in theory, potentially entitling the claimant to an extension of time. These were lighting to the main house (Delay Event 1), Asphalt Roofing (Delay Event 9). Each of these, in terms of days, had caused substantial delay (163 and 26 days respectively). 9 days of delay was considered in the assessment as having been caused by the weather. However, in reliance upon the clause which is central to these proceedings, Clause 2.25.1.3(b), the response to the contractor’s claim stated:

“Whilst no consideration has been made with regards to ‘reasonable and proper efforts to mitigate such delay’, the delays resulting from Delay Events 1 and 9 have been consumed by culpable delays attributable to North Midland Building [ie the claimant], thus reducing entitlement to an award of an Extension of Time”.

The only delay event which had not been “consumed by culpable delays attributable to” the claimant was the weather, which entitled the claimant to an extension of time of 9 days. In summary, the defendant maintains that if there are two delaying events, to which I shall refer for these purposes as Event X and Event Y, occurring at the same time and causing concurrent delay to completion of the works, with Event X otherwise entitling the claimant to an extension of time, and Event Y being “another delay for which the Contractor is responsible”, then the claimant would not be entitled to an extension of time in respect of those two delaying events. The claimant disagrees.

Although, in the years that have passed since these events, much water has passed under the bridge, the parties remain divided as to the correct approach in law of applying the amended clause in question. In submissions before me, that was the justification used for mounting the point of contractual interpretation, or point of construction to use the words of the claimant’s solicitor.

However, before me the position of the claimant became rather more subtle. Reliance was placed by Mr Lofthouse QC for the claimant upon what is known as the doctrine of prevention. In Multiplex Construction (UK) Limited v. Honeywell Control Systems Limited [2007] BLR 195, Jackson J (as he then was) considered what is often referred to as “the prevention principle”, both specifically in relation to the sub-contract before the Court in that case and generally. Essentially the prevention principle is something that arises where something occurs, for which it is said the employer is responsible, that prevents the contractor from complying with his obligations, usually the obligation to complete the works by the completion date. It should be remembered that there are other clauses of the contract in the instant case in these Part 8 proceedings (and in most of the standard forms) that operate in conjunction with the clauses entitling a contractor to an extension of time for completion. Failure to complete the works by the completion date, or the completion date as extended, will usually (and does in the instant contract) entitle the employer to deduct liquidated and ascertained damages (“LADs”) from sums otherwise due to the contractor. These are almost invariably pre-estimated in advance in a particular sum per week, and were here; the amount was to be £5,000 per week of delay after the completion date (as extended) had passed. Although this might be thought to be so elementary as to constitute re-inventing the wheel for practitioners in this field, if a liquidated damages clause (for whatever reason) becomes inoperable, the contractor does not enjoy immunity from damages for late completion. Damages are assessed differently, and on the basis of actual loss. In this case, rather than so many weeks multiplied by £5,000 to give an easily calculable total, the employer would have to prove the financial loss caused by the delay. For some employers, such as schools, private individuals and others, it can be difficult to assess actual financial loss caused by delay. Even for those who are constructing purely economically producing assets (such as an employer constructing an office block to be rented out at a particular rental), the exercise in proving financial loss caused by delay is far more complex than a calculation of a particular amount of money in LADs per week of delay. In order to be able to reach that situation, clauses dealing with extensions of time and LADs are almost invariably included in construction contracts. Similarly the concept of “time at large” does not mean that the contractor has an indefinite time to complete the works. If the completion date in the contract, and the mechanism for having that extended by means of awarding so many weeks to an originally agreed completion date, are inoperable or for some other reason no longer applicable, in general terms the contractor’s obligation becomes one to complete the works within a reasonable time. That is what the shorthand expression “time at large” is usually understood to mean.

Concurrent delay is an expression that refers to a situation where the delay to completion is caused by two or more different events. The phrase “of equal causative potency” is used, that phrase having been originally used by Mr Marrin QC, a distinguished practitioner and author in this specialist field. Consideration both of the principle of concurrent delay – which the clause in question clearly deals with – and the prevention principle are relied upon by the claimant in these proceedings to justify the grant of the declarations sought.

In Multiplex, Jackson J considered the relationship between the prevention principle and time at large. Having reviewed the relevant authorities, at [56] he set down three propositions of wide application. They are:

At [57], he added the following:

“The third proposition must be treated with care. It seems to me that, insofar as an extension of time clause is ambiguous, the court should lean in favour of a construction which permits the contractor to recover appropriate extensions of time in respect of events causing delay. This approach also accords with the principle of construction set out by Lewison in The Interpretation of contracts (3^rd edition 2004). That principle reads as follows:

‘Where two constructions of an instrument are equally plausible, upon one of which the instrument is valid and upon the other of which it is invalid, the court should lean towards that construction which validates the instrument.’ ”

The way that this authority is prayed in aid by the claimant is put in the following terms in its skeleton argument:

“it is not a question of the Contract being unworkable but, rather, a consequence that, applying Multiplex and in particular by the application by the first and second propositions referred to above, time is at large.”

The claimant considers that dealing with concurrent delay in the way that the employer has dealt with it in response to the application for an extension of time is unfair and not in accordance with the terms of the contract. The claimant considers that an extension of time ought to be granted without taking account of concurrent delays for which the claimant is responsible, and disallowing those latter periods. Mr Lofthouse QC, despite the extremely delicate path that he attempted to tread in seeking to demonstrate that the clause meant what the claimant wished it to mean, faced a rather insurmountable obstacle. This is, very simply, that there is no point of construction at issue on the clause in question in these proceedings at all. In my judgment, the prevention principle simply does not arise. This case is purely concerned with the correct construction of the clause agreed by the parties, in this case specifically agreed by the incorporation into it of a bespoke amendment.

In so far as it is necessary to consider the principles that apply in construing contract terms, a very useful statement of high authority can be found in the decision of the Supreme Court in Wood v Capita Insurance Services Ltd [2017] 2 WLR 1095 at [8] to [15] in which their Lordships recently reaffirmed the well-known principles. This follows the well known earlier case of Arnold v. Britton [2015] 2 WLR 1593. The task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The starting point is the language itself; the words the parties have themselves chosen. In the case of this term of the contract in these Part 8 proceedings, the objective meaning of this provision is barely in issue between the parties at all.

The defendant submits that the amendment could be said, understandably, to be crystal clear in terms of the meaning of the words. If there is any realistic doubt about that, I am happy to confirm that in my judgment it is crystal clear. The parties agreed that, in the scenario I have outlined above, if the contractor were responsible for a delaying event which caused delay at the same time as, or during, that caused by a Relevant Event, then the delay caused by the Relevant Event “shall not be taken into account” when assessing the extension of time. I fail to see how that raises any issues of construction whatsoever. The dicta of Jackson J in Multiplex does not have any effect upon that conclusion at all, in my judgment. It is a clear agreement dealing with the proper approach to consideration of the appropriate extension of time in situations of concurrent delay, when one cause would otherwise entitle the contractor to such an extension (absent the concurrent event) but the other cause would not. The contractor is not entitled to an extension of time in that situation.

When this point was explored during oral submission, the argument that was advanced by the claimant was that such an interpretation (if interpretation it is) was “not permitted”. That phrase was expressly used. This approach is more akin to a Civil Code view of contracts, than one under the common law. Parties are free to agree whatever terms they wish to agree, with the obvious exceptions such as illegality. There is a statutory restriction within the field of construction contracts so far as dispute resolution and payment terms are concerned, as certain minimum requirements are imposed by statutes such as the Housing Grants Construction and Regeneration Act 1996 and the later statutes that govern the same areas. Parties cannot freely agree not to include certain required provisions, or if they do, Parliament has decided that those terms will be imposed upon them. But there is no rule of law of which I am aware that prevents the parties from agreeing that concurrent delay be dealt with in any particular way, and Mr Lofthouse QC could not direct me to any. Multiplex and the doctrine of prevention are so far off the point, with respect, as to be dealing with something else entirely.

The final nail in the coffin of the claimant’s submissions concerning the applicability of Multiplex, if there were anything left to bury of them at all, is that clause 2.26 of the contract in this case contains the contractual definition of Relevant Events. Clause 2.26.5 includes as Relevant Events the following:

“any impediment, prevention or default, whether by act or omission…..”

This sub-clause therefore specifically classifies acts of prevention as Relevant Events. This clause also had words added to it by specific amendment by the parties. In those circumstances, how extensions of time were agreed to be dealt with in terms of acts of prevention is clear. Such acts of prevention were, as Relevant Events, to be taken into account expressly in the way identified in clause 2.25.1.3. This was the specific agreement of the parties. This is four-square within the second of Jackson J’s propositions in Multiplex. Rather than supporting the claimant’s case, this is directly contrary to it, and application of the proposition is to the effect that time is not at large in these circumstances.

That disposes of the primary issue in these proceedings, namely the meaning of the words. To apply that meaning to the way that I raised a worked example in paragraph 9 above, on the meaning of this clause, results in the following. The contractor would not be entitled to any extension of time for Event X (for which he was not responsible) in so far as delay caused by that event was concurrent with delay caused by Event Y (for which he was). In my judgment, the point is really very simple and does not merit of further intricate elaboration.

Mr Lofthouse also had an alternative argument in relation to the second declaration, to the effect that regardless of the court’s conclusion on the interpretation of the extension of time clause 2.25.1.3(b), the liability on the part of the contractor to pay LADs “fell away” (by which he meant were invalid or became ineffective) if there were an act of prevention. I can deal with this alternative argument, which was not advanced to any appreciable degree, very shortly. Mr Lofthouse could point to no authority that stated that a perfectly operable LAD clause (in the case of this contract, clause 2.29 in the standard form) would or could, as a result of an extension of time having been agreed by the parties to be calculated in a particular way, not be operated. This remains my view, notwithstanding Mr Lofthouse’s reliance upon Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111, which is not authority for that proposition. In the absence of any authority, it is difficult to see the rationale for the submission. Secondly, the parties in this case chose to make a considerable number of amendments to the standard form clauses, yet made only very modest ones to clauses 2.29.2 (concerned with notification provisions) and 2.29.3 (which added the words “or allow” to the phrase “shall pay or repay” amounts recovered). Neither amendment comes close to the effect for which the claimant contends, albeit with understandably limited enthusiasm. Yet further, given that the definition of Relevant Event includes acts of prevention, there is no sensible basis for considering that the obligation upon the contractor to pay LADs would only arise if a Relevant Event were one other than included in clause 2.26.5. There is no such differentiation anywhere in the contract and in my judgment no basis for such a differentiation is justified.

Finally, there is a further point that arose as part of the extensive submissions on acts of prevention. It is not necessary to dispose of the issues on these Part 8 proceedings, but it may prove of assistance to avoid similar misunderstandings occurring in future cases. In Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm), Hamblen J (as he then was, now Hamblen LJ) considered the relationship between the principle of prevention and causation at [257] to [292]. That case concerned the rescission of two shipbuilding contracts for two 50m Moorings and Special Operations Support Vessels, Hulls 10 and 11 (which are referred to in the judgment as "the vessels") being built at a shipyard in Abu Dhabi. In those paragraphs the judge considered what were, at that time, the directly relevant authorities on concurrent delay, although as the judgment predated that of Akenhead J in Walter Lilly v Mackay [2012] EWHC 1773 (TCC) that authority for the correct approach to apportionment is not referred to, for obvious reasons. However, in considering the conclusion to a claim by Adyard that it could rely upon the prevention principle, effectively, regardless of what could be called the “causation in fact” analysis, the judge stressed at [282] the following when considering the prevention principle:

"The conduct therefore has to render it "impossible or impracticable for the other party to do the work within the stipulated time" The act relied on must actually prevent the contractor from carrying out the works within the contract period or, in other words, must cause some actual delay".

His conclusion was at [292] in the following terms:

“I hold that in relation to both its extension of time claim and its claim in reliance on the prevention principle it [ie Adyard] has to establish causation in fact, which means showing that the variations were likely to or (as the case may be) did cause actual delay to the progress of the works.”

The very same point was considered by Coulson J (as he then was, imminently to become Coulson LJ) in Jerram Falkus Construction Ltd v Fenice Investments In (No.4) [2011] EWHC 1935 (TCC). Having considered the passages to which I have referred in Adyard, he said at [50] that:

“Hamblen J's analysis indicated that, if there were two concurrent causes of delay, one which was the contractor's responsibility, and one which was said to trigger the prevention principle, the principle would not in fact be triggered because the contractor could not show that the employer's conduct made it impossible for him to complete within the stipulated time. The existence of a delay for which the contractor is responsible, covering the same period of delay which was caused by an act of prevention, would mean that the employer had not prevented actual completion. Throughout his analysis, Hamblen J stressed the importance of the contractor proving delay to the actual progress of the work as a result of the alleged act of prevention.”

He then dealt with some discussion on the point from other sources but concluded at [52]:

“Accordingly, I conclude that, for the prevention principle to apply, the contractor must be able to demonstrate that the employer's acts or omissions have prevented the contractor from achieving an earlier completion date and that, if that earlier completion date would not have been achieved anyway, because of concurrent delays caused by the contractor's own default, the prevention principle will not apply.”

Before me, as part of his exposition of the prevention principle, Mr Lofthouse QC submitted that the statements of Coulson J at [52] in Jerram Falkus were obiter, and also that they were wrong or should not be followed. He relied in this respect upon a variety of published articles and other passages in text books, in which some debate was entertained to that effect.

There are two points that ought to be made about that. Firstly, I do not read those statements in that authority as obiter, rather than being part of the ratio decidendi. For example, in at least one law report of the case these findings appear in the headnote; see [2011] BLR 644, 646 points (8) and (9) of column 1. In my judgment, they are probably part of the ratio. However, even if that were wrong, they would still be highly persuasive, and in any event the dicta of Hamblen J (as he then was) cannot in my judgment be said to be obiter. Two identical conclusions on the same point from specialist judges in different fields, on precisely the same point, in almost identical terms, merit serious attention, even without taking into account the fact that both the judges who came to those conclusions became appellate judges.

If the point were open to me for decision, which it is not in this case, I would apply and follow the same reasoning, and come to the same conclusions, as both Hamblen and Coulson JJ did in those cases, on the very same point. In so far as there may be other disputes where the parties find themselves at odds concerning the dicta in both Adyard and Jerram Falkus on the one hand, and other writing, commentary or articles which suggest such dicta are wrong on the other, cost-effective resolution of those other disputes is more likely if those parties proceed on the basis that the two authorities to which I have referred are correct. In my judgment, I agree with the analysis of each of them and would proceed on the basis that they both clearly are.