Extensions Of Time, Concurrent Delays, And Causation: City Inn v Shepherd Judicial Guidance From The UK Courts At Long Last

Concurrent delay is an issue that arises on most

construction projects. Put simply, the issue arises where a

project has not been completed on time because of two or more

delaying events that operate at the same time—one of the

delaying events is the responsibility of the project owner and

the other is the responsibility of the contractor. For example,

an owner instructs a contractor to undertake additional work

via a change order. The parties acknowledge that completion of

the project will be delayed because of the extra work. However,

at the time of carrying out the additional work, the contractor

has deliberately reduced its labor resources for reasons

unrelated to the variation but, in the event, compound the

delay effect of the variation. The delay caused by the

additional work and the insufficient resources run concurrently

and delay completion of the project by one month.

The question to be answered is, who is responsible for the

one-month delay to completion of the project. Is it the

contractor? In that case, the owner will be entitled to claim

its delay-related damages, which are usually in the form of

liquidated damages. Or is it the responsibility of the owner?

If so, and depending on the terms of the contract between the

parties, the contractor will be relieved from liquidated

damages by extending the time for completion of the project and

may also recover its delay-related losses, such as

prolongation, disruption, and acceleration costs. Or is

responsibility to be shared between the parties? If

responsibility is to be shared, upon what basis is this

determined?

Despite the prevalence of concurrent delays on construction

projects, there has been a dearth of judicial guidance in

Commonwealth jurisdictions on how to resolve the vexing

question of responsibility. The only substantial insight was

found in the English decision of Henry Boot Construction

(UK) Ltd v Malmaison Hotel (Manchester) Ltd [1999] 70 Con

LR 32. The judgment noted the common ground between the parties

that:

it is agreed that if there are two concurrent causes of

delay, one of which is a relevant event [e.g., the

owner's change order], and the other is not

[e.g., the contractor's insufficient resources],

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." (Also see the subsequent decision in

Royal Brompton Hospital NHS Trust v Hammond and

Others (No. 7) [2001] 76 ConLR 148, where it was held

that the contractor "would be entitled to extensions of

time by reason of the occurrence of the relevant events

notwithstanding its own defaults.")

However, it was not necessary in Malmaison for the

court to assess the period of delay caused by the relevant

event. As such, the case stopped short of providing practical

assistance on how the extension of time should be quantified or

measured in circumstances where there are concurrent delays to

project completion.

Possible bases of measurement advanced at an academic level

and within the construction industry include the following

(see John Marrin QC, "Concurrent Delay,"

paper given to the Society of Construction Law Hong Kong (18

March 2003)):

Apportionment—allocation of the time

and money effects of the delay to project completion based on

the relative causative potency or significance of the competing

causes of delay;

The American Approach—the contractor

is granted an extension of time relieving it of liability for

liquidated damages but does not recover delay-related loss and

damage because of its own culpable or inexcusable delay,

i.e., a "zero sum" outcome;

"But For" Test—a simplistic

argument usually raised by contractors. It arises out of

principles of causation in tort cases, the effect of which is

to ignore the contractor's delays and assert that "but

for" the owner-caused delay, the contract completion would

not have overrun;

The Dominant Cause Approach—using

principles of causation under contract law by choosing one

delay event over another according to which is the dominant

cause of the delay to completion of the project, i.e.,

only one delay event is determined to be the cause of the

overrun to the exclusion of all other concurrent delays.

The City Inn Appeal

The recent Scottish appeal decision of City Inn Limited

v Shepherd Construction Limited (Outer House, Court of

Sessions, 30 November 2007) goes the extra yard and deals with

the issue of concurrent delays, in particular the principles to

be adopted when measuring extension of time where there are

concurrent delays. Overall, the decision is based on common

sense and should be welcomed by the engineering and

construction industry. Not surprisingly, the case makes it

clear that the answers to the questions raised by concurrent

delays lie in the terms of the extension-of-time mechanism

under the contract. According to the court, and in the context

of the contract before it, concurrent delays should be dealt

with by apportioning responsibility for the delay to completion

of the project where the extension-of-time mechanism provides

that the quantification of the extensions must be based on what

is fair and reasonable. The court also held that the principle

of apportionment should be applied when quantifying

prolongation costs in circumstances where there are concurrent

delays.

The following commentary analyses the court's decision,

in particular the meaning and practical consequences of the

apportionment method to deal with concurrent delays.

The Facts

City Inn Limited ("Employer") engaged Shepherd

Construction Limited ("Contractor") in October 1997

to construct a hotel in Bristol, England. The contract was an

amended JCT Standard Form of Building Contract (Private Edition

with Quantities)(1980 edition) ("Contract"). The date

of possession under the Contract was January 26, 1998, and the

contractual completion date was January 25, 1999. Liquidated

and ascertained damages were payable at the rate of

£30,000 per week for the period between the contractual

completion date and the achievement of practical completion.

The initial architect appointed by the Employer (i.e.,

the certifying party nominated in the Contact) was a firm

called RMJM. This firm also acted as the structural,

mechanical, and electrical engineer. However, RMJM was

dismissed on December 2, 1998, and replaced by Keppie

Architects ("Architect"). Also, the firm of Blyth

& Blyth was appointed to replace RMJM as structural,

mechanical, and electrical engineers.

The Architect issued a certificate of practical completion

on April 27, 1999, certifying that practical completion was

achieved on March 29, 1999. In fact, the Employer took partial

possession of the works on March 29, 1999, and took possession

of the remaining parts on April 13 and 30, 1999. On June 9,

1999, the Architect issued a certificate extending the

contractual date for completion from January 25, 1999, to

February 22, 1999. On the same date, the Architect issued a

certificate of noncompletion certifying that the Contractor

failed to complete the works by the extended contractual

completion date. Consequently, the Contractor was awarded four

weeks' extension of time (i.e., January 25, 1999,

to February 22, 1999), but the Employer was, according to the

Architect's certificates, entitled to deduct liquidated and

ascertained damages of £30,000 per week for the period of

delay of five weeks between February 22, 1999 (the extended

contract date for completion certified by the Architect) and

March 29, 1999 (the certified date of practical completion).

The Employer then proceeded to deduct the sum of £150,000

for liquidated and ascertained damages for the five weeks of

delay.

Disputes subsequently arose between the Employer and the

Contractor, which were referred to statutory nonbinding

adjudication. The adjudicator held that the Contractor was

entitled to a further five weeks' extension of time

(i.e., a total of nine weeks) and directed the

Employer to repay the sum of £150,000. The Employer

commenced proceedings before the Scottish courts seeking a

declaration in relation to its entitlement to withhold the sum

of £150,000. The court at first instance found in favor

of the Contractor and declared that the contract completion

date should be extended by a further five weeks to March 29,

1999, and ordered that that Employer repay the withheld sum

(see City Inn Limited v Shepherd Construction

Limited 2002 SLT 781). The Employer appealed the first

instance decision to the Scottish Outer House, Court of

Sessions, which was heard and decided by Lord Drummond

Young.

Parties' Respective Positions

The Contractor's position was that it was entitled to an

extension of time of 11 weeks from January 25, 1999, to April

14, 1999, despite practical completion having been certified as

being achieved two weeks earlier on March 29, 1999. The

Contractor asserted that the 11-week delay for which it was

entitled to extensions of time was caused by a number of late

instructions by the Architect ("Relevant Events").

Some of these delay events were concurrent with each other.

In addition, the Contractor claimed £27,069 for direct

loss and expense (i.e., prolongation costs) incurred

as a result of the Architect's instructions and the

resultant alleged 11-week delay.

The Employer argued that the Contractor was not entitled to

the extension of time sought on the following bases:

The Contractor failed to comply with the notice

requirements under the Contract. (The Judge upheld the

decision at first instance and concluded that the notice

provisions relied on by the Employer were not applicable to

...