Practical Law

Saga Cruises BDF Ltd v Fincantieri SpA is a recent decision of Ms Sara Cockerill QC sitting in the Commercial Court and concerning a contract to dry dock, repair and refurbish a cruise ship. It provides a welcome opportunity to revisit the principles governing a contractor’s entitlement to an extension of time for completion of the work in circumstances where there are, or are purported to be, concurrent causes of delay.

The problem of concurrent delay

The starting point when considering concurrent delay is to recall the “prevention principle“, which is the familiar rule that an employer cannot hold a contractor to a specified completion date and claim liquidated damages for late completion if the employer has by act or omission prevented the contractor from completing by that date. It is to avoid the consequences of the prevention principle that virtually all sophisticated construction contracts include an extension of time mechanism.

The term “concurrent delay”, as it is used in the context of construction and engineering projects (on- and off-shore alike), generally refers to the situation in which a period of delay is caused by two events, one the contractor’s contractual responsibility and one the employer’s contractual responsibility. While it is thought to be unnecessary that the events causative of delay occur simultaneously, it is necessary that the consequences of the two events are felt at the same time (that is, that the delays are felt concurrently). An important clarification in this regard was given by HHJ Seymour QC in Royal Brompton Hospital National Health Trust v Hammond (No. 7):

“It is… necessary to be clear what one means by events operating concurrently. This does not mean… a situation in which, work already being delayed, let it be supposed, because the contractor has had difficulty in obtaining sufficient labour, an event occurs which is a relevant event and which, had the contractor not been delayed, would have caused him to be delayed, but which in fact, by reason of the existing delay, made no difference. In such a situation… [the] relevant event simply has no effect upon the completion date. This situation obviously needs to be distinguished from a situation in which, as it were, the works are proceeding in a regular fashion and on programme, when two things happen, either of which, had it happened on its own, would have caused delay, and one is a relevant event, while the other is not. In such circumstances there is real concurrency as to the causes of the delay. It was circumstances such as these that Dyson J was concerned with in the passage from his judgment in Malmaison…”

When it arises, it can be seen that concurrent delay will often give rise to a difficult problem in the application of a contractual extension of time mechanism (or, absent such a mechansim, the prevention principle): is the contractor entitled to an extension of time (or for time to be treated as being at large) in circumstances where both the employer and contractor have caused the period of delay in question?

The problem is, at root, a problem of causation. The basic common law test for factual causation is the familiar “but for” test: whether X would have occurred “but for” the occurrence of Y. However, where there is concurrent delay, neither of the competing causes of delay can pass the “but for” test because the delay would have occurred absent either cause.

The orthodox approach

The orthodox solution to this problem, known as the Malmaison approach after the decision of Dyson J (as he then was) in Henry Boot Construction Ltd v Malmaison Hotel (Manchester) Ltd, is that in cases of concurrent delay the contractor is entitled to an extension of time (which acts as a defence to the employer’s claim for liquidated damages) but is not entitled to recover any time-related costs. The key passage of the judgment reads as follows:

“…it is agreed that if there are two concurrent causes of delay, one of which is a relevant event, and the other is not, 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… Thus, to take a simple example, if no work is possible on a site for a week not only because of exceptionally inclement weather (a relevant event), but also because the contractor has a shortage of labour (not a relevant event) and if the failure to work during that week is likely to delay the works beyond the completion date by one week, then if he considers it fair and reasonable to do so, the architect is required to grant an extension of time of one week. He cannot refuse to do so on the grounds that the delay would have occurred in any event by reason of the shortage of labour.”

In Malmaison, the court went on to hold that it was a question of fact in any given case whether a relevant event had caused or was likely to cause delay to the works beyond the completion date.

It can be seen that the Malmaison approach therefore involves a curious legal sleight of hand. While the cause of delay is ostensibly treated as a question of fact (which would, on ordinary principles, require the “but for” test to be satisfied), the contractor is nonetheless entitled to an extension of time where there is concurrent delay (even though, as set out above, true concurrent delay necessarily involves two events neither of which could, alone, satisfy the “but for” test).

The Malmaison approach has been developed and refined by subsequent case law, including Royal Brompton Hospital National Health Trust v Hammond and others, Adyard Abu Dhabi v SD Marine Services, De Beers UK Ltd v Atos Origin IT Services and, more recently, Walter Lilly & Co Ltd v Mackay.

Saga v Fincantieri

In 2011, Saga contracted with Fincantieri (one of the world’s largest shipbuilding companies) for the dry docking, repair and refurbishment of Saga’s cruise ship, the “Saga Sapphire”.

The work was originally scheduled to start on 9 November 2011 and to be completed by 17 February 2012. The parties later agreed, on 16 February 2012, to postpone the completion date to 2 March 2012. However, in the event, the vessel was not redelivered to Saga until 16 March 2012. The causes of delay were numerous and, for present purposes, it suffices to note that some of the delaying events were Saga’s contractual responsibility and others Fincantieri’s contractual responsibility.

Saga made two claims:

• A claim for damages arising from the failure of a luboil cooler onboard the vessel during its inaugural cruise. (This claim did not concern delay and I do not address it further here.)
• A claim for liquidated damages in respect of the delay between 2 and 16 March 2012, which (as a result of a cap agreed by the parties) amounted to €770,000.

Fincantieri’s defences to the second claim included the submission that, insofar as the completion date had been delayed by two concurrent events, one of which was Fincantieri’s responsibility and the other of which was Saga’s responsibility, no liability for liquidated damages should arise in respect of that period.

Decision

Having reviewed the authorities, the court came to the following conclusions regarding the principles applicable to concurrent delay (relying in particular on Adyard and the earlier case of Balfour Beatty Building Ltd v Chestermount Properties Ltd, which was cited with approval in Malmaison):

• Concurrent delay is:
  

  “…a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency.”

• It is important to distinguish between (on the one hand) a delay which, had the contractor not already been delayed would have caused delay but, because of an existing delay, made no difference, and (on the other hand) a delay that is actually caused by the event relied on. The judge quoted from paragraphs 279 and 282 of Adyard:
  

  “There is only concurrency if both events in fact cause delay to the progress of the works and the delaying effect of the two events is felt at the same time… The act relied upon must actually prevent the contractor from carrying out the works within the contract period, or, in other words, must cause some delay.”

• Accordingly, unless there is a concurrency actually affecting the scheduled completion date, the contractor cannot claim the benefit of it:
  

  “Causation in fact must be proved based on the situation at the time as regards delay.”

Applying these principles in Saga, the court held that:

• Events for which Fincantieri was responsible had delayed the completion date between 2 and 16 March 2012. This gave Saga a prima facie entitlement to liquidated damages running between those dates (subject to the agreed cap).
• While a number of events for which Saga was responsible had occurred within that period which might have been capable of causing delay, they did not operate to “cancel out” the delays Fincantieri caused.
• Fincantieri was not entitled to rely on delays for which Saga was responsible as stopping time running under the liquidated damages clause. Saga was entitled to liquidated damages.

Discussion

While the judge’s reasoning on the point is concise, it appears she considered that the delaying events Saga was responsible for were, in effect, supervening events that occurred against the backdrop of Fincantieri’s existing delay from 2 to 16 March 2012, and which therefore had no effect upon the completion date.

If so, in light of the extracts from Royal Brompton and Adyard set out above, her conclusion that Fincantieri was not entitled to rely on the delaying events caused by Saga was plainly right. On a proper analysis, this was not a case of true concurrent delay at all, as the effect of the delaying events was not felt concurrently.

The more difficult part of the judgment is the explanation given for why any distinction is drawn in law between:

• The situation where a supervening delaying event caused by one party occurs against the backdrop of a pre-existing delay caused by the other.
• The situation where each party causes a delaying event and the effect of both is felt concurrently.

She said:

“Causation in fact must be proved based on the situation at the time as regards delay.”

Assuming that the reference to “causation in fact” is a reference to causation proved on the basis of the traditional “but for” test, it can be seen that this is not an adequate explanation for the distinction. As set out above, the “but for” test is not satisfied in the case of true concurrent delay any more than it is in the case of a supervening delaying event occurring against the backdrop of existing delay.

A stronger justification for the distinction may be that, as a matter of contractual interpretation, by setting up an extension of time mechanism, the parties are to be taken to have agreed to allocate the risk of certain events occurring to the employer, and therefore to have impliedly agreed that in cases of true concurrent delay, it is not incumbent on the contractor to satisfy “but for” causation (which would cause the contractual allocation of risk to break down). This justification was hinted at by Edwards-Stuart J in De Beers, where he said:

“It… does not matter if the contractor would have been unable to complete by the contractual completion date if there had been no breaches of contract by the employer (or other events which entitled the contractor to an extension of time), because he is entitled to have the time within which to complete which the contract allows or which the employer’s conduct has made reasonably necessary.”

Conclusion

The judgment in Saga provides a useful summary of the principles that apply in cases of actual or purported concurrent delay, and is consistent with the existing authorities on the question. However, it does not take us any further forward so far as an answer to the causation problem posed by the Malmaison approach is concerned.