It’s a common story: the project is in delay. Working as a construction solicitor in Manchester it is something I often see. The contractor blames the employer. The employer blames the contractor. There seems to be multiple causes of the delay. Who foots the bill? That’s a toughie but the Walter Lilly case has made things a little clearer.
This dispute had been knocking around since 2005 and the legal costs in the saga totalled £10m against an ultimate award of £2.3m. Giles McKay was a wealthy chap who, along with two other wealthy chaps, purchased a cracking building plot in the well-to-do Chelsea. The three of them set up a company to develop the plot and the idea was that they’d each build a house on the plot but would pool resources through the development company thereby achieving savings.
That didn’t quite work out and Mr McKay ended up engaging the main contractor, Walter Lilly & Company Limited, directly to build his house. There was the usual raft of professionals and consultants involved too.
The job went badly. It got underway in mid-2004 and reached practical completion on 7th July 2008.
The job was also held up by a staggering series of client-driven changes, late information and alleged defects; all the usual stuff. Unsurprisingly, the contractor claimed a full extension of time up to the practical completion date and his costs (“loss and expense”) to cover the extended contract period.
The matter came before the Courts and went all the way to trial. The contractor won; he got his extension of time and loss and expense. Mr McKay lost; he got a bill for £9million in legal costs. In the process, the Judge offered some wise and important words on the issue of “concurrent” delay.
Concurrent delay – what is it?
Let’s start with the basics: what does “concurrent delay” actually mean? Most would understand “concurrency” to mean a situation where two or more overlapping delaying events are both said to be responsible for a delay to the completion date.
To give an example, a construction contract might dictate that the risk of bad weather is the contractor’s risk but the planning risk stays with the employer. But what if a bad weather event and a planning delay happen at the same time such that both delaying events are equally responsible for the delay? Well, you have concurrent delay.
Why is it important?
No one wants to accept responsibility for the late delivery of a project.
From a contractor perspective, if he finishes late, he is exposed to liquidated damages and his own prolongation costs: a costly double blow.
If the employer has to accept responsibility for the delay, he will end up paying the contractor loss and expense and he may well have to compensate others for late delivery, for instance, an incoming tenant. Again, a double blow.
Why is concurrent delay a problem?
Construction contracts don’t expressly deal with a situation where there is concurrent delay, including the major forms like JCT and NEC3. Most simply have a procedure where the contractor is required to give notice and particulars when a delay event happens that is the risk of the employer. The employer (or typically a contract administrator/certifier) will then be under an obligation to assess what extension of time may be due to the contractor.
In making that assessment, the employer may be reluctant to grant the contractor an extension of time if he feels the contractor was in delay because they were under-performing anyway for the same period.
A debate then ensues as to whether the contractor is entitled to any extension of time if he was also in delay for the same period.
The case law
The position under English law has ebbed and flowed somewhat.
Before Walter Lilly, the most significant English case was Henry Boot Construction v Malmaison in 1999. The judge ruled that if there are two concurrent causes of delay, one of which is a Relevant Event, and the other is not, then the contractor is entitled to an extension of time for the period of delay caused by the Relevant Event notwithstanding the concurrent effect of the other event.
The ‘Malmaison’ approach was harsh on employers as it took no account of concurrent delays caused by the contractor. However, it was legally workable and certain and, if there is certainty, parties can price and manage risk accordingly.
Then came City Inn v Shepherd in 2010, a Scottish case so it was not binding on English Courts but the decision certainly had an impact. Again, this case was under a JCT form. The Scottish Courts decided that if there are concurrent causes of delay, the issue should be approached in a fair and reasonable way and responsibility for the delay should be apportioned as between the Relevant Event and the contractor risk event. In short, the parties share responsibility if there is concurrent delay. This has become known as the “apportionment” approach.
The problem with City Inns
The apportionment approach sounds sensible but it simply doesn’t follow the words of the JCT. The JCT states that when a Relevant Event occurs, the contractor gets his extension of time. There is no scope for apportionment and the words “concurrent delay” or “apportionment” don’t even feature.
Further, whilst an apportionment approach seems like a “common sense” approach, it creates a great deal of uncertainty. With the apportionment approach in play, if a job is delayed, surely the culpable party would inevitably try to identify some form of concurrent delay in an effort to get some of the delay apportioned between itself and its contracting partner. This will only lead to more disputes.
Unsurprisingly, Walter Lilly confirms that the English Courts have rejected the apportionment approach. English law favours certainty and upholds the strict words of the contract. The apportionment approach is inconsistent with these general principles.
With these principles in mind, in Walter Lilly the Court dismissed the apportionment approach and went back to Malmaison. If there is a Relevant Event, the contractor gets his extension of time regardless of any concurrent delay that might be his own fault.
In coming to this decision, the Court found that the JCT wording simply did not support the apportionment approach. The JCT forms are pretty clear and whilst the contract administrator is required to grant a “fair and reasonable” extension of time, that does not open the door on apportionment as the City Inns Judge had found. The reference to the contract administrator being required to grant a “fair and reasonable” extension of time simply refers to the fact that the contract administrator must assess the length of the extension of time objectively.
Walter Lilly seems like a blow for employers who are stuck with under-performing contractors. In time, this is unlikely to prove to be the case as Walter Lilly provides all-important certainty as to responsibility for delay. Employers and contractors can build in the risk of delay more effectively if they know in what circumstances they will be responsible for delay. This is likely to decrease the risk of disputes in the long run. For these reasons, Walter Lilly is good news.
Crafty employers might be thinking that a few subtle tweaks to their chosen T&Cs or contracts could make a contractor responsible for delay in the event of concurrent delay. In other words, some might be thinking a provision could be written into a contract so that if there are concurrent delays, the contractor must share responsibility.
I would advise people not go there. It is unlikely to work because of the “prevention principle”. The prevention principle dictates that an employer cannot benefit from his own act of prevention. In other words, an employer cannot delay a contractor and still require the contractor to meet the original completion date. Many of the Relevant Events in JCT encompass acts of prevention. Any attempt to bypass responsibility for these is likely to result in your extension of time mechanism being struck out and with it go your right to liquidated damages.
Tom Holroyd, expert construction solicitor at Pannone LLP