19 December 2018

The Prevention Principle v Agreed Contractual Terms

North Midland Building Limited v Cyden Homes Limited [2018] EWCA Civ 1744 (“NMBL v Cyden”)

In this recent Court of Appeal case, the court confirmed its previous decision that the prevention principle was not an overriding rule of public or legal policy.

What happened in the case?

  • Cyden employed NMBL under standard the JCT Design and Building Contract 2005 – but with agreed bespoke amendments.
  • One of the agreed amendments was clause 2.25.1.3(b) which stated “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 in relation to extension of time.”
  • The work was delayed and NMBL applied for an extension of time, relying on Relevant Events attributable to Cyden.
  • Cyden responded that the delay caused by Relevant Events was concurrent with delays caused by NMBL, therefore they would not agree an extension of time.
  • As a result of the delay, Cyden levied liquidated damages under the contract.
  • NMBL appealed on three separate points.

Decision

The Court of Appeal dismissed the appeal in favour of Cyden. The basis of the decision was as follows:

  • The judge denied NMBL’s first point of appeal - that Clause 2.25.1.3(b) was ambiguous.
  • The second point of appeal was that the prevention principle should override the agreed term. However, the court disagreed and held that the prevention principle was not an overriding rule of public or legal policy which could rescue the contractor from freely agreed clauses.
  • Third point of appeal was with regards to liquidated damages. The judge held that there remained a proper causal link between the delay and liquidated damages. The extension of time provisions were inextricably linked to those relating to liquated damages implying otherwise would cause an uncommercial and unreal result.
  • All three points of appeal were dismissed.

Conclusion

NMBL v Cyden confirms that when unambiguous clauses are freely agreed, the prevention principle will not override the agreed term with regards to extension of times. As such, the prevention principle cannot be used to release parties from agreed contractual terms.