Legal notes: breach of contract

Some legal concepts seem to have almost mythical qualities and are destined to be pulled out of their pockets by lawyers with an appropriate flourish at just the right time. For my 20-odd years of legal practice, the doctrine of prevention (commonly known as the prevention principle) has been one such concept. However, a recent judgment suggests that the principle might not be quite as magical as this humble hack (and, I suspect, others) previously felt to be the case. Fraser J, giving his judgment in North Midland Building Ltd v Cyden Homes Ltd [2017] EWHC 2414 (TCC), described the concept in the context of a building contract: “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.” If the contractor can show that the prevention principle has been infringed, then it is no longer required to complete the building work by the agreed contractual completion date and its obligation to pay liquidated and ascertained damages (LADs) for delay is void. That is not to say that it escapes scot-free. It still has to complete the work in a reasonable time (time is said to be “at large”) and the employer can still claim for the actual loss it suffers as a result of the delay in place of LADs. However, because proving loss for delay can be a tricky hurdle for employers to overcome, showing that the principle has been infringed is normally a boon for a contractor. It will get more time to complete the work and any damages for its failure to complete the work within a reasonable time may need to be less than the agreed LADs. And that is certainly what the claimant contractor wanted to achieve in North Midland. Prevention: the theory To do so, it relied on the most-definitive recent explanation of the principle from Jackson J’s decision in Multiplex Construction (UK) Ltd v Honeywell Control Systems Ltd [2007] EWHC 447 (TCC). There are three key propositions: ■ actions by the employer which are perfectly legitimate under a construction contract might still be characterised as prevention if they cause delay beyond the completion date; ■ acts of prevention do not set time at large if the contract provides for extensions of time in respect of those acts; and ■ any ambiguity in an extension of time clause should be construed in favour of the contractor. The dispute North Midland related to the design and construction of an “exceptionally large… exceptionally expensive” house. The defendant was a corporate structure through which the house was procured. The contract was an amended version of the 2005 edition of the JCT design and build form. As usual, the JCT form provided for the contractor to claim extensions of time for certain relevant events. One of the amendments to clause 25 stated that it was not entitled to any extension if the relevant event in question was “concurrent with another delay for which the Contractor is responsible”. Concurrent delay has perhaps best been described (a description approved by Fraser J) by distinguished construction barrister John Marrin QC as “a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency”. The issue most often arises where the employer has responsibility for one of the causes and the contractor the other. The clause in North Midland attempted to stop the contractor from claiming an extension of time in such circumstances. There were a number of delay events which the employer tried to rebuff, in part by arguing that there was contractor concurrent delay. The contractor therefore brought Part 8 proceedings arguing that the amended clause 25 breached the prevention principle, that time was at large and the LADs provisions were void. The decision In a judgment that brings welcome certainty to a tricky area, and again shows the court’s ongoing determination to give effect to the contractual terms actually agreed by commercial parties, Fraser J had no difficulty rejecting the contractor’s argument. First, he held that the amended clause was “crystal clear” in its meaning. Secondly, he did not think that the prevention principle or any of the propositions put forward by Jackson J in Multiplex had any effect on that conclusion. Quite simply, they were of no relevance: “…there is no rule of law…that prevents the parties from agreeing that concurrent delay be dealt with in any particular way… Multiplex and the doctrine of prevention are so far off the point… as to be dealing with something else entirely.” In fact, the judge felt that the wording of the amended clause 25 fell within the second of the propositions from Multiplex: acts of prevention do not make time at large where the contract, as here, makes them subject to an extension of time. Finally, and perhaps most importantly of all going forward, Fraser J cited the judgments of Hamblen J in Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm) and Coulson J in Jerram Falkus Construction Ltd v Fenice Investments (No 4) [2011] EWHC 1935 (TCC) and their conclusions that the prevention principle could not be triggered in cases of concurrent delay. Fraser J stressed that parties should proceed on the basis that both judgments were correct on this point. The reality The prevention principle is not the magic solution it is sometimes portrayed as being, and does not have any application in disputes involving concurrent delay. Stuart Pemble is a partner at Mills & Reeve