The TCC recently handed down its judgment in Thomas Barnes & Sons plc (in administration) v Blackburn with Darwen Borough Council [2022]. The 278-paragraph judgment covers a lot of ground and is well worth a read in full (you can access it here). However, this article focusses on two thorny issues that take centre stage in the judgment and which are often the cause of construction disputes: concurrent delay, and termination.
Background
The dispute arose out of an amended JCT contract under which the Council employed Thomas Barnes to construct Blackburn Bus Station. Although the bus station was ultimately shortlisted for a design award (we endorse the Court’s recommendation to Google the reasons why!), its construction was the subject of significant cost increases and delay overruns, which ultimately led to the Council purporting to terminate Thomas Barnes’ employment under the contract and proceeding to have the work completed by a replacement contractor.
Thomas Barnes fell into in administration in 2015 and alleged that the Council’s wrongful termination was a key factor in this. The administrators therefore advanced a claim against the Council for monies said to be due on a proper valuation of the works done (including a claim for loss and expense as a result of the delays for which the Council was alleged to be responsible) and damages for wrongful termination (which were said to represent its lost profit on the remaining works). The sum claimed at trial was £1,788,953.76, although the judgment notes that this was considerably less than was originally pleaded.
In response, the Council disputed the claim in full and alleged that, because the Council was entitled to charge Thomas Barnes the extra amount it had to pay to have the works completed, Thomas Barnes actually owed it £1,865,975.00. However, the Council did not advance a counterclaim for this sum given Thomas Barnes’ financial situation, which meant that there was no realistic prospect of recovery.
Concurrent Delay
Schools of thought
As a reminder, concurrent delay generally refers to a period of project overrun which is caused by two (or more) simultaneous events, one being an employer risk event and the other a contractor risk event.
There are three broad schools of thought as to how concurrent delay should be addressed:
- The “dominant cause” approach – the traditional approach which requires the two delay events to be of equal causative potency for there to be concurrent delay. In the event that there are two delay events impacting the critical path but one is more dominant than the other, the less dominant one is excluded from the delay analysis.
- The “reverse but for test” approach – this approach asks whether the employer event would have delayed completion in the absence of a contractor delay event, in which case it is deemed to be an effective cause of delay and there is no need to consider whether it is of equal causative potency with the other contractor delay event.
- The “first-in-time” approach – this approach considers when the delay events occur and says that if an existing employer event has caused delay, any subsequent contractor delay event is treated as not being causative unless it increases the existing employer delay.
Support for the “first-in-time” approach can be found in two recent Commercial Court decisions (Adyard Aby Dhabi v. SD Marine Services and Saga Cruises v. Fincantieri SPA) as well as in the SCL Delay and Disruption Protocol. However, it has been criticised in other decisions, most notably in the Scottish case of City Inn Limited v Shepherd Construction Limited where the court considered it to be “unnecessarily restrictive which would militate against… [making] a judgment on the basis of fairness and a common-sense view of causation”.
Application in this case
The contractual date for completion was 19 January 2015, although the Council granted an extension of time to 13 April 2015 during the course of the works.
At trial, Thomas Barnes claimed that it was entitled to a further extension of time to 8 November 2015. It said that the Council was responsible for the design of the structural steelwork and that follow-on works after the erection of the structural steelwork that were on the critical path were delayed because of a steel frame deflection issue to the roof beams in the hub area which required remedial works.
The Council’s case was that the initial delays to the commencement of the steel frame and to the removal of deflected steel in the hub area justified an extension of time up to 13 April 2015 only (i.e. what it had already awarded) and that, at the same time that the hub steel deflection issue remained unresolved, the critical path was delayed by a separate delay in the relation to the roof coverings which it alleged was Thomas Barnes’ responsibility.
The TCC therefore noted that there was a dispute between the parties relating to the criticality of the roof covering works and that it would need to consider whether the hub steel deflection issue and the roof coverings issue were concurrent causes of delay. Taking each of those points in turn:
- The TCC favoured the Council’s expert who opined that the baseline programme showed the roof coverings on the critical path and meant that the roof cladding, the concourse glazing and the majority of the internal finishes could not be progressed until those roof coverings were in place. It was critical of Thomas Barnes’ expert who made only passing reference to other potential causes of delay to the hub building in his analysis and therefore (erroneously) opined that there was no need to consider the importance of the roof coverings.
- The TCC found that the hub steel deflection issue and the roof coverings issue were concurrent over the relevant period of delay. That is because completion of the remedial works to the hub structural steelwork was essential to allow the concrete topping to be poured and the hub steel frame system to be installed without which the hub finishes could not be meaningfully started, but completion of the roof coverings was also essential for the hub finishes to be meaningfully started. It was not sufficient therefore for Thomas Barnes to say that the roof coverings were irrelevant because the remedial works to the hub structural steelwork were continuing both before and after that period of delay.
Interestingly, the parties agreed at trial that a key quote from Keating on Construction Contracts, a leading text book, was settled law. This states:
“In respect of claims under the contract:
- depending upon the precise wording of the contract a contractor is probably entitled to an extension of time if the event relied upon was an effective cause of delay even if there was another concurrent cause of the same delay in respect of which the contractor was contractually responsible; and
- depending upon the precise wording of the contract a contractor is only entitled to recover loss and expense where it satisfies the “but for” test. Thus, even if the event relied upon was the dominant cause of the loss, the contractor will fail if there was another cause of that loss for which the contractor was contractually responsible.”
Applying this, the TCC found that Thomas Barnes was entitled to an extension of time of 119 days as a result of the hub steel deflection issue but that, because it was concurrent with the roof coverings issue, it was only entitled to recover loss and expense for 27 days (i.e. the delay period less the period of concurrent delay). This had a significant impact on Thomas Barnes’ delay-related claim for loss and expense.
The judgment therefore appears to lend its support to the “reverse but for test” approach and casts further doubt on the application of the “first-in-time” approach that has garnered recent favour from the Commercial Court and the SCL Protocol. However, because the TCC simply adopted what the parties in the case considered to be settled law as per Keating, it did not directly address what it considered to be the correct approach when assessing concurrent delay claims under English law. So although this case led to an interesting discussion of the correct position, it does not equate to proper judicial guidance.
Termination
Termination is the option of last resort and the courts continue to make clear that the consequences of getting it wrong can be severe. In particular, an invalid termination notice by one of the parties may itself constitute a repudiatory breach and entitle the other to accept that breach, terminate the employment under the contract and seek the recovery of their associated losses. Here, had the TCC found that the Council had issued an invalid termination notice, Thomas Barnes might have been entitled to its lost profit on the remainder of the works.
In this case, the Council’s solicitors sought to issue a termination notice on various grounds that included Thomas Barnes allegedly failing to proceed regularly and diligently with the works and substantially suspending the carrying out of the works. The notice expressly relied on a contractual right to terminate as well as its rights under common law. However, the issue for the Council was that the notice was initially sent by email, which was not a permitted method of service for notices under clause 1.7.4 of the JCT contract, and Thomas Barnes was removed from the site the very same day. The notice was subsequently sent by post but, pursuant to the contract, deemed service took effect two business days later by which time Thomas Barnes had already been removed.
However, despite Thomas Barnes’ removal from site two business days before the purported termination notice could take effect under the contract, the TCC held that this did not prejudice Thomas Barnes and did not amount to a repudiatory breach by the Council. In coming to this decision, the TCC found that there was no adverse impact on Thomas Barnes because it had already ceased all meaningful activity on site and the grounds for termination were justified such that Thomas Barnes could have been removed from site two business days later in any event.
As such, the TCC found that the Council would have been permitted to contractually terminate Thomas Barnes’ employment under the contract as at the date of deemed service of the notice, and also to terminate under common law for Thomas Barnes’ repudiatory breach for delay as at the date on which Thomas Barnes was removed from site. The court appeared to be influenced by the fact that the notice expressly stated those two alternative grounds for termination, and that clause 8.3.1 of the contract reserved the Council’s rights in addition to its contractual rights to terminate.
All of this meant that, while the Council had not validly terminated Thomas Barnes’ employment under the contractual provisions, the Council had been entitled to do so under common law as a result of it accepting Thomas Barnes’ repudiatory breaches and, in turn, the Council was entitled to recover and set off the costs it had incurred engaging a replacement contractor to complete the works. As these costs undoubtedly exceeded any entitlement to loss and expense, the TCC concluded that Thomas Barnes’ claim failed and it was not necessary to consider quantum any further.
Take Aways
The judgment in this case has perhaps introduced even greater uncertainty as to how concurrent delay should be approached for the purposes of assessing a contractor’s entitlement to an extension of time. Prior to the judgment, the most recent trend was to make an assessment adopting the “first-in-time” approach but it would now appear that this has fallen out of favour. Proper judicial guidance, ideally from the Court of Appeal to address the competing authorities, is needed now more than ever.
As for termination, although the Council got away with it on this occasion, it is still the case that a party should follow the termination provisions in their contracts to the letter when terminating, or else it risks the termination being invalid and opening itself up a damages claim for wrongful termination. This judgment is a valuable lesson on the importance of carefully drafting and serving a termination notice – had the Council got it right from the outset, it’s possible this claim might never have been brought.
This article originally featured in December 2022’s edition of our Aggregate newsletter: to read the complete edition, click here.
About the author
Adam Brown is a Senior Associate Solicitor specialising in disputes. Read more about him here.
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