New Case Law Underlines Contractors Need to Be Wary of Contract Terms

Emily Leonard, Managing Associate, and Hannah Gardiner, Solicitor at law firm Womble Bond Dickinson here describe a recent Court of Appeal case that  once again shows ‘contract is king’.

The case between a building contractor and its client – North Midland Building Ltd v Cyden Homes Ltd  – shows that all contractors should be very careful to scrutinise the terms of the contracts they sign, because if a contract is disputed its terms will be upheld, even if they are not in line with established legal principles.

The case involved consideration of the legal principles of ‘prevention’ and of ‘concurrent delay’, balanced against the terms agreed upon in a contract. The judges considered if a contract contradicts those principles whether the contract terms or the legal principles should be upheld.

The legal principle of prevention has previously ensured that when a client has prevented its contractor from carrying out part of its contractual obligation, the contractor cannot be held to that contractual obligation.

Similarly, concurrent delay is a term used to describe when both the client employer and contractor have both caused a delay which run alongside each other.

If there is a delay, a construction contract will usually set out whether a contractor is entitled to an extension of time to the completion date for the works by considering the reason for the delay. However, standard published forms of construction contracts are often silent on what happens if there is a concurrent delay.

In this case, the client, Cyden Homes Limited hired contractors, North Midland Building Limited to design and build a large newbuild house in Lincolnshire.

In their contract, both parties had agreed that the contractor would be solely responsible for any delay (‘Relevant Event’) even if the employer client, Cyden Homes itself had caused a concurrent delay which ‘would not be taken into account’.

The contract used was an amended JCT Design and Build Contract 2005 form. Under the Contract, the Employer was to give a fair and reasonable extension of time to the Contractor, unless certain conditions expressly provided otherwise:

“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”.
Clause 2.25.1.3 (b)

This left the contractor exposed when a delay (caused by the employer) did occur, as it was unable to have an extension of time.

The case appeared in court, and the judges ruled in the employer’s favour. It was decided that when the terms of a contract are clear and agreed upon, if the contract contradicts the principles of prevention and concurrent delay, those principles cannot be relied upon. The court decided that the freedom of contract was to take precedence over those principles.

Hannah Gardiner, solicitor at Womble Bond Dickinson

Emily Leonard and Hannah Gardiner, solicitors at Womble Bond Dickinson comment: “The North Midland case is an important judgment as it confirms that parties are free to allocate concurrent delay risk.

“Some may argue that there is certainty in reliance on the general common law principles, such as the prevention principle, and that the rejection of such principles (unless illegality arises, of course) can affect that “certainty and stability in the law”.

“Conversely, if parties have expressly agreed a provision, then, so long as this is not an illegal obligation, arguably those parties should have the certainty that those express terms will be upheld.

Emily Leonard, solicitor at Womble Bond Dickinson

Where do we go from here?

“When negotiating a construction contract, parties will need to consider carefully whether or not they are going to expressly allocate the risk of concurrent delay. Given the certainty that an amendment along the lines of clause 2.25.1.3 (b) offers to employers as a result of this judgment, then we expect that there may be a trend in employers wishing to include express provisions as amendments to standard forms of contracts (which are generally silent on concurrent delay).

“At the same time, contractors need to be aware that they cannot look to the prevention principle to save them from an express clause apportioning the risk of concurrent delays.”

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