Practical Law

Adjudication has contributed much to the construction industry since it was introduced by the Construction Act 1996. On the whole, disputes are resolved more quickly (if not more fairly) and, after some initial scepticism, the industry as a whole has come to accept, if not love, this “new” form of dispute resolution. It is perhaps a measure of adjudication’s success that very few disputes progress beyond the provisional but binding decision of the adjudicator. By and large, parties appear to live with the decision or use it as the platform for a negotiated settlement.

However, while adjudication has given much, it has also taken away. There have been close on 400 cases concerning adjudication (relating to jurisdiction, natural justice, what is a “construction operation”? etc), since the introduction of adjudication, but relatively few “traditional” construction disputes going through the courts (on issues such as extension of time and loss and expense). The development of the common law by the courts in England and Scotland has been the victim of adjudication’s success.

The dearth of new case law on causation, concurrency, critical path analysis and similar issues may partially explain the level of interest and comment generated by Lord Drummond Young’s decision in City Inn Ltd v Shepherd Construction Ltd. This was, after all, exactly the type of dispute adjudication effectively removed from the courts.

However, what really provoked discussion about the case was Lord Drummond Young’s apparent rejection of detailed critical path analysis in favour of a more practical assessment of the impact of delay events, together with an “apportionment” exercise where there was no “dominant cause” of delay. (The case is also interesting for its discussion of a bespoke provision (clause 13.8) which City Inn argued barred Shepherd from obtaining any extension of time under the law of waiver).

Background to City Inns v Shepherd

In essence, the dispute was about late completion of a hotel in Bristol. The parties had entered into an amended JCT standard form of building contract, 1980 edition. The contractor had been awarded a 4-week extension of time by the architect and was given an additional 5 weeks by an adjudicator.

City Inn was unhappy with the adjudicator’s decision (and indeed the architect), and raised proceedings in the Court of Session seeking various orders, including a declaration that the contractor was not entitled to a single day by way of extension of time. Shepherd counterclaimed, seeking 11 weeks extension of time and payment of associated loss and expense.

The trial lasted for almost 30 days. From the evidence it was clear that, particularly towards the end of the project, there were various events, some relevant events and some events which were attributable to Shepherd, which were all potentially causing delay to completion – concurrency in a broad sense. Questions of causation and the proper approach to concurrency were therefore in sharp focus.

Lord Drummond Young’s decision

In his opinion, Lord Drummond Young concluded that the task of the decision maker under clause 25 of the contract was to make a “judgment” and, ultimately, arrive at a “fair and reasonable” decision on an extension of time. Where there was concurrency (that is, the relevant event and the contractor risk-event existing at the same time), irrespective of when the events began (or ended), in the absence of one event being “dominant”, achieving a fair and reasonable outcome may involve an apportionment exercise. In reaching this view, Lord Drummond Young also noted that the “but for” test of causation did not apply in the context of clause 25.

Having set out these principles, Lord Drummond Young went on to apply them to the facts as established by him over the 29-day trial and found Shepherd entitled to a 9-week extension of time (the same as had been awarded by the adjudicator). City Inn appealed.

The appeal

All three appeal judges rejected City Inn’s appeal (which ran to 17 grounds) although, on the critical questions of causation and concurrency, two judges follow and elaborate on Lord Drummond Young’s approach, while the third judge takes a different view.

The majority opinion was given by Lord Osborne with whom Lord Kingarth agreed. Having reviewed the authorities and Lord Drummond Young’s analysis, Lord Osborne set out 5 propositions relative to the proper approach to the application of clause 25:

• Before any claim for an extension of time can succeed, it must be shown that the relevant event is likely to delay or has delayed the works.
• Whether the relevant event actually causes delay is “an issue of fact which is to be resolved, not by the application of philosophical principles of causation, but rather by the application of principles of common sense”.
• The decision maker can decide the question of causation (that is, whether the event has caused delay to completion) by the use of whatever evidence he considers appropriate. If demonstrated to be sound, this may take the form of a critical path analysis, but the absence of such an analysis does not mean the claim will necessarily fail.
• If a dominant cause can be identified in respect of the delay, effect will be given to that by leaving out of account any cause or causes that are not material. If the dominant cause is not a relevant event, the claim will fail.
• Where there are two causes operating to cause delay, neither of which is dominant, and only one of which is a relevant event, a contractor’s claim for an extension of time will not necessarily fail. Rather, it is for the decision maker “approaching the issue in a fair and reasonable way, to apportion the delay in completion of the works… as between the relevant event and the other event.”

Lord Carloway concurred in the result, but rejected the concept of apportionment. On his approach, the architect’s sole task is to consider whether the relevant event, viewed in isolation, is going to delay completion. If it is, then the next question is what award of an extension of time would be fair and reasonable. Even for Lord Carloway, however, the matter is one of “common sense”.

All three judges agreed that a critical path analysis was not essential to carry out the exercise (although it may be relevant). All three judges also disagreed with HHJ Seymour QC’s comments in Royal Brompton Hospital NHS Trust v Hammond & Others (No 7) 2001 76 Con LR 148 to the effect that a relevant event falls to be disregarded if a pre-existing contractor default would nonetheless have caused delay.

So what is the likely impact of the decision?

In Scotland at least, the decision is now binding on lower courts. In England, it is not binding, but given that it is an appellate decision, is very persuasive.

All the judges appear to place great weight on the need to reach a “fair and reasonable” decision on extensions of time. Lord Osborne appears to be unimpressed by the various attempts at classification of “concurrent delay” or “concurrent delaying events” stating that:

“It may not be of importance to identify whether some delaying event or events was concurrent with another, in any of the possible narrow senses described, but rather to consider the effect upon the completion date of relevant events and events not relevant events. For that reason, discussion of whether or not there is true concurrency, in my opinion, does not assist in the essential process to be followed under clause 25.”

Lord Carloway speaks about the architect applying “professional judgement” and “using his and not a lawyer’s common sense”.

The decision is also a rejection of the argument that a critical path analysis is essential to demonstrate an extension of time entitlement. The court does not completely discount the value of critical path analysis, but it appears to be for the decision maker to decide if such evidence is of assistance. A claim will not necessarily fail in the absence of such evidence.

A majority of the court supported Lord Drummond Young’s apportionment exercise in the event of concurrency where no cause is dominant, although Lord Osborne does emphasise that it is “open” to the architect to apportion as part of approaching the issue in a fair and reasonable way; he is not compelled to do so.

The case amounts to a statement that common sense, judgement and experience are to be preferred to an overly complicated analysis of causation. However, the case is most certainly not a charter to those who wish to cut corners in the presentation of extension of time claims. Shepherd was successful because the judge found that it was not possible to accurately recreate the critical path through the job. If accurate electronic programming data is available, then a decision maker may take the view that it is relevant, albeit the issue of dominance will also need to be addressed where there is concurrency.

Alastair represented Shepherd Construction Ltd.