Concurrency and the cost of delay

Concurrent delay occurs where events attributable to both principal and contractor cause delay to a construction project over the same period of time.

Janine Stewart And Rob Harris

Questions then arise as who is entitled to the benefit of the delay – and who should bear the cost.

It is a common issue in construction projects, causing difficulty in determining entitlement to both extensions of time (EOT) and liquidated/ common law damages.

Concurrent delay has not been conclusively addressed in New Zealand and is debated in overseas jurisdictions. This article considers the direction New Zealand may take in light of the approaches adopted by courts in the United Kingdom and Australia.

Time is money

A construction project’s completion date is a common source of disputes. When a project runs overtime, liquidated damages may be triggered, or a non-liquidated claim can arise for the damages caused by the delayed completion.

The completion date is not fixed. It can either be pushed back (with contractual EOTs) or dispensed with altogether (where time is made “at large” – permitting the completion of the project in a “reasonable time”). “Time at large” also means that a principal is not entitled to damages (liquidated or at common law) for project delay beyond the original completion date but within a “reasonable time”.

This approach aligns with the prevention principle, which dictates that a party to a contract may not enforce a contractual obligation against the other party where it has prevented that party from performing that obligation. If the prevention principle operates, time is at large, thereby disabling any liquidated damages clause (see “The Prevention Principle: Pitfalls for Principals” by Janine Stewart and Amelie Fillion, Law News Issue 40, 14 November 2014).

Most construction contracts contain EOT clauses. The grant of an EOT will operate in place of the prevention principle (“time at large”) and protect the principal’s entitlement to liquidated damages under the contract.

What is concurrent delay?

Concurrent delay is a period of project overrun caused by two or more effective causes of delay which are of approximately equal causative potency (Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm) at [276]). These events may occur at different times and have different effects, but are deemed concurrent if they impact on the progress and/or completion of the project over the same period of time.

A common example is where site access is delayed by the principal (a principal risk) and during that same period, the contractor does not have sufficient resources to progress the works (a contractor risk).

Each delay event must have an impact on the critical path to the original or extended completion date. Similarly, global claims of delay rarely succeed. Events that do not impact the completion date will not meet the threshold for a delay claim.

In addressing the concurrent delay situations, the key focus is who receives the benefit of time. In a practical sense, can the contractor avoid liquidated damages, or is the principal entitled to collect them?

When concurrent delay arises in a construction dispute, the terms of the construction contract must be closely analysed in the first instance. If there is an express clause dealing with concurrent delay, this will override any common law position.

However, New Zealand construction contracts seldom provide an explicit position on how concurrent delay is to be treated and there is scarce New Zealand case law to assess the common law position.

Because of this, it is necessary to examine New Zealand standard form clauses in the context of the common law approach to concurrent delay abroad.

On review of the UK and Australian law, there are three broad approaches:

  • in cases where a principal risk event occurs, an EOT is granted to the contractor in accordance with the Malmaison approach;
  • an alternative (but rare) approach is to hold culpable the party responsible for the dominant cause of the delay; and
  • a further approach is to apportion the cost flowing from the delay between the parties (apportionment approach).

Which approach will New Zealand take?

England

The leading authorities in England favour the Malmaison approach, which ties into the prevention principle.

The courts have considered concurrent delay in the context of the UK standard form agreement JCT 1980, which permits the Architect (contract administrator) to extend the completion date in the case of principal risk events to a later date that is estimated to be “fair and reasonable” (Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 32).

Malmaison is widely regarded as the leading decision in this area, and states that if there are two concurrent causes of delay (one of which is a principal risk event and the other is not) then the contractor is entitled to an EOT for the full period of delay caused by the relevant principal risk event notwithstanding the concurrent effect of the other event (Hudson’s Building and Engineering Contracts, 12th ed, Sweet & Maxwell, London 2010 at 6-060).

The “dominant cause” approach has been unsuccessfully tested in England (H Fairweather & Co Ltd v London Borough of Wandsworth (1987) 39 BLR 106). The dominant cause test presupposes that parties intend that any delay should be attributed by the contract administrator to only one – dominant – delay.

This approach operates on an all or nothing basis and presents a very difficult task of assessment where you have overlapping concurrent delays. This can be capable of creating hardship on a party to a construction dispute.

Scotland

Interestingly, the Scottish case of City Inn Ltd v Shepherd Construction Ltd [2010] CSIH 68; 136 Con LR 5 held that the words “fair and reasonable” in the JCT 1980 clause could be interpreted so as to allow the concurrent delay to be apportioned between principal and contractor and that such apportionment will frequently be appropriate in concurrent delay issues.

In this context, apportionment means that both principal and contractor will suffer consequences (either EOT in favour of the contractor, or liquidated damages in favour of the principal) based on the degree of fault of each party.

However, the apportionment approach has been heavily criticised (see Hudson’s at 6-061 – 6-062). The English approach to concurrent delay appears to reflect a desire to preserve the operation of the prevention principle.

It maintains that assessing concurrent delay involves looking at the relevant event and the effect it has on the original or extended completion date. If the relevant event occurs (no matter when), then the fact that the works would have been delayed, in any event because of the contractor default (in the context of an EOT claim) is likely to be irrelevant. Where a contractor can show that the principal risk event was an operative cause of delay, it is entitled to an EOT because a principal cannot benefit from its breach (in accordance with the prevention principle).

Commentators have suggested that the words “fair and reasonable” are related to the exercise of fixing a new EOT date once causation is determined rather than addressing causation itself.

Australia

In Australia, there is no clear judicial guidance on how to approach the concurrent delay issue. The courts have taken conflicting approaches to the application of the prevention principle and it is difficult to extract a cogent common approach regarding the position on concurrent delay.

Two NSW Supreme Court cases indicated Australia was trending away from a strict application of the Malmaison approach, and that the apportionment “common sense” approach was more favourable.

In these cases, EOTs were not granted to contractors where the contractors had failed to comply with the contractual notice requirements of the construction contract (a condition precedent).

Consequently, liquidated damages were available to the principal even though the delays were caused by principal risk events (Turner Corporation Ltd (Receiver and Manager Appointed) v Austel Pty Ltd (1997) 13 B.C.L. 378, 384 (Cole J), Turner Corporation Ltd (In provisional Liquidation) v Co-Ordinated Industries Pty Ltd and Others (1995) 11 B.C.L. 202).

A contrary decision of the Supreme Court of the Northern Territory held that liquidated damages are not recoverable by the principal in circumstances of principal risk delay where the contractor fails to comply with the notice requirements of the EOT clause.

This decision is consistent with the Malmaison approach and aligns with the prevention principle but has been either criticised or sought to be constrained to the particular facts of the case. See Multiplex Constructions (UK) Limited v Honeywell Control Systems Limited (No.2) [2007] EWHC 447, where Jackson J addressed the role of the EOT notification regime and said that “contractual terms requiring a contractor to give prompt notice of delay serve a valuable purpose”.

Australian commentators indicate that the apportionment “common sense” approach will be adopted when causation is an issue but appears to be on a case by case basis (see D McNair and B Linke, “Concurrent Delay”, ACLN 150, May/June 2013).

Ultimately, the approach to determining concurrent delay issues is uncertain in Australia in the absence of express terms in a construction contract.

New Zealand

New Zealand courts have yet to be called on to determine their approach to concurrent delay. If the issue arises in the future, it will likely be in respect of the commonly used standard form contract NZS 3910:2013 (3910).

The clause of the UK’s standard form JCT 1980 considered in the leading UK cases is comparable to clause 10.3.1 of 3910 in that a fairness test applies as to whether an Engineer (contract administrator) decides to grant EOTs to a contractor:

“The Engineer shall grant an extension of the time for completion of the Contract Works or for any Separable Portion if the Contractor is fairly entitled to an extension …” [Emphasis added]

It would therefore be appropriate to assume that when it comes time to determining concurrent delay, the New Zealand courts would look to the UK for guidance, due to the similar wording “fairly entitled” between the 3910 standard EOT clause and the JCT 1980 clause.

Arguably, New Zealand courts would follow the Malmaison approach on the basis that there is an inherent unfairness in reducing an otherwise entitled EOT.

However, the New Zealand courts may also find an apportionment approach attractive in a case where a contractor’s behaviour warrants it. If a contractor is otherwise entitled to an EOT, but because of its own conduct a full EOT is not seen to be fair, the Court may grant a partial EOT on the basis that it accurately reflects fault.

Such an argument seems at least tenable under 3910, but the weight of English authority (and the authors of Hudson’s) would favour adoption of the Malmaison approach and the allowance of the full EOT

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