On 22 July, the Scots Inner House dismissed the appeals in City Inn v Shepherd Construction, some ten years since the action was commenced and some two and a half years since the decision given by the Outer House, a decision which rocked the delay analysis community at the time and has continued to create doubts in particular over the proper approach to dealing with concurrent delay when assessing claims for extension of time (EoT) under JCT-style contracts.
Click here and here for the two Law-Nows which covered the 2007 Outer House decision, the first dealing with the concurrency issue and the second dealing with the treatment of the time bar clause. In similar style, we are issuing two Law-Nows now to explore the decision on appeal on these two topics, of which this is the first, on concurrent delay and loss and expense. Click here for the second, on the time bar clause.
Decisions of the Scots courts are not binding on courts south of the border, but they are persuasive. Since the Outer House decision in 2007, a case with relevant facts and issues has not been before the English courts to enable them to analyse the Scots decision and decide to adopt it as part of English law, or not. This decision from the Inner House is thus very significant, despite the fact that it remains Scots rather than English law and that it is weakened by the strong dissenting voice of Lord Carloway, who disagreed heartily with the central tenets of the majority Opinion.
City Inn brought seventeen grounds of appeal against the Outer House's decision in respect of EoTs to be granted to Shepherd Construction arising from the construction of a hotel at Temple Way, Bristol, of which seven focus in particular on issues of concurrent delay and consequent entitlement to EoT and loss and expense.
An appeal to the Inner House cannot challenge the lower court Judge's assessment of the facts or his preference for one party's expert evidence over the other's (unless the applicant can show that no judge acting reasonably could have made such a finding on the evidence). The Outer House's conclusions may only be challenged if they evidence the commission of some error of law.
Ground of Appeal 1
City Inn challenged the court's interpretation of clause 25 of the JCT contract (the EoT clause) including the way in which the court applied the rules of causation in relation to it. In response, following an examination of the authorities, Lord Osborne, representing a two out of three judge majority in the Inner House, set out a series of propositions in relation to the application of the EoT clause:
- the Relevant Event must be a cause of likely or actual delay to the completion of the works;
- whether or not the Relevant Event is a cause of delay is a question of fact to be resolved by common sense (not philosophical principles of causation);
- the decision maker in making his decision in a fair and reasonable way, may rely on any factual evidence acceptable to him, which may include critical path analysis or it may not;
- if one of the causes of delay is dominant, other, non material causes will be left out of account;
- where two causes are operative, one of which is attributable to a Relevant Event (giving an entitlement) and the other a contractor's risk event (giving no entitlement), it will be open to the decision maker, acting fairly and reasonably between the parties and bearing in mind both the claim for EoT and the alternative claim for liquidated damages, to apportion the delay in the completion of the works between them.
Propositions (3) to (5) may be contentious under English law, not least, in relation to propositions (4) and (5), due to the operation of the prevention principle, which, in the context of a liquidated damages clause, will not allow an employer to recover liquidated damages if he has been the cause of, or taken the risk of an event occurring which has caused, delay to completion.
Having formulated these principles, the majority Opinion of the court found nothing to object to in the way the Outer House interpreted the EoT clause and then applied it to the particular circumstances of this case.
The minority Opinion of Lord Carloway, in a convincingly straightforward manner, cuts though the Outer House and majority Inner House's reasoning, and characterises the role of the architect under clause 25 as simply to form an opinion on whether a matter complained of is a Relevant Event and "whether the completion of the Works is likely to be delayed thereby beyond the Completion Date". If he does so determine, then he must fix a later date "as he then estimates to be fair and reasonable". In other words, the architect is tasked to look at what the contract required within the timeframe permitted and to allow the contractor such additional time as is fair and reasonable, taking into account the Relevant Event. This does not involve any analysis of competing causes of delay, which, in Lord Carloway's view, are irrelevant so far as the operation of the EoT clause goes. Similarly, "apportionment of delay is not an exercise warranted by any term of the contract". In short, Lord Carloway does consider that the Outer House misconstrued in 2007 the exercise required by clause 25, and he allows the grounds of appeal 1, 3 and 4. Nevertheless, the majority Opinion in the Inner House prevails, which is therefore the focus of this Law Now.
Ground of Appeal 2
This ground of appeal is not clearly expressed but concerns the circumstances in which a contractor might make a successful claim for an EoT having not received instructions "in due time"(that is, in a reasonable time). The wording of the Relevant Event at clause 25.4.6 states that any analysis of whether an application has been made and instructions received in a reasonable time must be done "having regard to the Completion Date". Applications must be "neither unreasonably distant from nor unreasonably close to the date on which it was necessary for [the contractor] to receive the same".
Shepherd argued that the contractual completion date, allowing for any extension, must always set a criterion against which the timing of the issue of instructions should be judged. City Inn argued that the lateness or otherwise of an instruction could only be assessed against the actual progress of the works at the relevant time, not against the current contractual completion date. The Outer House preferred Shepherd's interpretation, on the basis that "the contract envisages that information will be provided by the architect in such a way as to enable completion in accordance with the contractual Conditions", which include the obligation to complete by the completion date. As a matter of interpretation of the contract, a matter of law, the Inner House agreed with the Outer House's interpretation.
This core decision on the interpretation of clause 25.4.6, coupled with the Outer House Judge's clear preference for the evidence of Shepherd's delay expert rather than City Inn's, informed the main decisions in relation to delay events taken by the Outer House in 2007. Shepherd established eleven incidences of delayed instructions by reference to the contractual Completion Date which the court confirmed constituted Relevant Events, as against two delaying events established by City Inn which were contractor risk events.
The application of clause 25.4.6 to the EoT procedure, which was also challenged by City Inn, was approached by the Judge in the following manner. The period of delay in relation to each Relevant Event was established depending on whether the activity delayed by the late instruction occurred before or after the Completion Date, as amended. If the activity took place after the Completion Date, the period of delay attributable to the Relevant Event was established by reference to a theoretical exercise by Shepherd's expert, accepted by the Judge, which calculated the difference between the date that the instructions should have been received to enable Shepherd to complete by the Completion Date, as compared with the date the instructions were actually received. The period of delay to completion caused by the delay to progress caused by the Relevant Event, was then assessed by reference to factual evidence of when the delayed work was actually done. The criticality of the activity was established by reference to its necessity to and relationship with the works overall.
In this ground of appeal, City Inn, it appears, objected to Judge's interpretation of and approach to the application of clause 25.4.6. As stated above, the Inner House agreed with the Outer House on the point of interpretation. As regards the approach to the application of the clause, the Inner House merely refers to the Judge's preference for one expert's evidence over the other's, and says this was a course he was quite entitled to take. This implies that the proper application of the clause is not a matter of law, which is surprising. It would have been helpful to see some consideration by the Inner House of the method adopted by the Outer House to analyse the delay to progress and to completion caused by the Relevant Events.
Ground of Appeal 3
City Inn argued that the Outer House had erred in treating delays as concurrent, not on the basis that the actual consequences resulting from the Relevant Event overlapped, but rather on the basis that the estimated extended dates for completion arising from the Relevant Events overlapped. This ground of appeal appears to stem from the theoretical exercise relied upon by Shepherd's expert, as described above, which was adopted by the Outer House. Criticism is also made of how the Outer House assessed how a period of concurrent delay was to be defined, how it was to be assessed, and how periods of concurrent delay were to be treated in terms of EoT.
The Inner House struggled to understand the meaning of the particular points being made in this ground of appeal, and did not answer them. In relation to the general points, it described the conceptual difficulty with the words "concurrent delay", in that they are often used to cover a number of different situations. Whether the analysis of delay is undertaken upon application during the course of the works or after the Completion Date, the cause for the delay is a matter for the decision maker's judgment, upon a fair and reasonable view. The court goes on to suggest that it may not be important to identify whether one event was concurrent with another, but "rather to consider the effect upon the completion date of relevant events and events not relevant events". Insofar as there are two causes of delay, one entitling an EoT and one not, the majority of the Inner House approved the apportionment approach, presumably on the same basis as in the court below, namely that the requirement for fairness and reasonableness allows a decision maker a wide discretion to apportion time "fairly" as between the employer and contractor.
The Inner House's approach puts a large burden upon the decision maker, possibly giving greater emphasis to "judgment" above "analysis", which may not be appropriate in complicated projects where substantial sums are at stake, particularly where the decision maker's judgment may be influenced by his own involvement in (or culpability for) the events which may have given rise to applications for extension of time.
Ground of Appeal 4
This ground of appeal concerned the finding in the Outer House that delays for which Shepherd were found to be responsible were not "dominant" delays. The Inner House does not find any error of law or perverse finding in relation to the facts, and again, City Inn's appeal is dismissed.
Grounds of Appeal 5 -7
In these grounds of appeal, City Inn argued that the Outer House's decision did not provide reasoning for apportioning loss and expense in accordance with the apportionment of responsibility for delay, alternatively misinterpreted clause 26 (the loss and expense clause) and failed to apply the proper rules of causation to the claim for loss and expense.
In the Outer House, City Inn argued that even if Shepherd were entitled to an extension of time, they were not automatically entitled to loss and expense, or prolongation costs, for an identical period. Shepherd should only be entitled to recover direct loss and expense to the extent that it was able to identify the additional costs caused by employer delay, as opposed to contractor delay.
In making its decision, the Outer House relied on the Scots decision in John Doyle Construction Ltd v Laing Management (Scotland ) Limited, which is authority for the apportionment principle in relation to loss and expense caused both by events for which the employer is responsible and the events for which the contractor is responsible. On this basis, the Inner House found these grounds of appeal without merit.
Conclusion
As stated above, a Scots decision is not legally binding in the English courts, but is persuasive. Until a case comes before the English courts which clarifies the position under English law, the safest route for contracting parties not wishing to risk being bound by this most recent judgment, is to amend JCT style contracts to address their agreed intention expressly in relation to the following matters:
- whether the contractor should establish the effect of delay to completion by reference to a critical path;
- to provide agreed guidance for the decision maker on how to define concurrent causes of delay, how to assess them and how they are to be treated in any claim for EoT;
- whether, where concurrent delay takes place (as defined), the decision maker acting fairly and reasonably shall be entitled to apportion periods of delay and/or loss and expense as between the employer and the contractor (but further advice should be taken on the validity of the liquidated damages clause if delay is apportioned); and
- whether the wording of clause 25.4.6 (or equivalent) should be amended to state that an assessment of whether an instruction is late shall be made against the actual progress of the works at the relevant time.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 27/07/2010.
