WLC v Mackay [2012] - Observations

This post sets out some observations regarding the assessment of Extension of Time (‘EOT’) contained in the UK case of Walter Lilly & Company v Mackay [2012].

Background

The project at the heart of the dispute involved construction a new residential building in London. This essentially included 3 RC framed houses on piled foundations. The luxury houses were each 5 stories, with the main residence including a swimming pool, library and cinema.

The Employer DMW appointed WLC as the Main Contractor to undertake the works. The original contract price was around £15.5 million. The contract period was 78 weeks, starting on 12 July 2004 and finishing by 23 January 2016.

Unfortunately, the works did not proceed well from the outset, and the Employer quickly fell out with the Contractor and Architect (among others). The works were eventually considered practically complete on 7 July 2008, i.e. 128 weeks late. In the words of the presiding judge the project was “…. a disaster waiting to happen …”.

Ultimately the judge found largely in favor of the Contractor WLC. This included awarding an EOT for the full extent of the actual overrun.

The process of assessing EOT

The Court reiterated that its first task was to consider what the Contract between the parties required in relation to fixing an appropriate EOT.

Under the JCT-type Contract being considered, the Architect could grant EOT in 2 circumstances:- (a) prior to practical completion, i.e. a prospective EOT, “….which is effectively a best assessment of what the likely future delay will be as a result of the Relevant Events in question…”; or (b) within 12 weeks after practical completion, i.e. a retrospective EOT, which is “…fair and reasonable having regard to any of the Relevant Events”.

The later of which was considered to be akin to the exercise done by the Court who “….must decide on a balance of probabilities what delay has actually been caused by such Relevant Events as have been found to exist…”. Nonetheless the Court also suggested that when read together and in context, the related sub-clauses “…essentially mean the same thing…”.

The net method

In reference to Balfour Beatty v Chestermount [2003], the Court reconfirmed that the ‘net’ method was correct when assessing EOT, with respect to JCT-type contracts. This essentially means that if a contractor is already in culpable delay, and receives a variation which further pushes back completion, it should only be entitled to EOT for the net additional delay. A ‘gross’ EOT on the other-hand would be equivalent to net additional delay, plus any culpable delay that had occurred prior to the variation being issued.

As a consequence of this ‘contractual based approach’, the Court said that “…one cannot therefore do a purely retrospective exercise. What one can not do is to identify the last of a number of events which delayed completion and then say it was that last event at the end which caused the overall delay to the Works. One needs to consider what critically delayed the Works as they went along.”

Concurrent delays

The Court compared the English and Scottish approaches in dealing with concurrent delays with respect to entitlement to EOT (where one cause is a Relevant event and the other is not).

The English approach being that the Contractor is entitled to a full EOT in such circumstances, e.g. Henry Boot v Malmaison Hotel [1999], De Beers v Atos Origin [2011], Adyard v SD Marine [2011]. The Scottish approach on the other hand is that the Contractor should only get a reasonably apportioned part of the concurrently caused delay, e.g. City Inn v Shepard [2010].

The Court in this instance much preferred the English Approach. It stated “….where there is an extension of time such as that agreed upon in this case and where delay is caused by two or more effective causes, one of which entitles the Contractor to an extension of time as being a Relevant Event, the Contractor is entitled to a full extension of time”. This was based on:- (a) the prevention principle; and (b) there being nothing in the contract to suggest that EOT for a Relevant event should be reduced if there was actual concurrency.

Delay analysis methods used by the programme experts

With respect to analysis carried out by the programme experts, the Court made a number of salient points.

• The lack of formally submitted programmes was not a bar to carrying out a sensible and objective analysis of EOT.

• The definition of Practical Completion “…means completion for all practical purposes and what that completion entails must depend upon the nature, scope and contractual definitions of the Works, as they may have developed by way variation of Architect’s instructions”. The Court also added that “…de minimis snagging should not be a bar to Practical Completion unless there is so much of it that the building in question cannot be used for its intended purposes”.

• The Court preferred the much more objective approach of one expert. That approach was apparently based on determining the longest sequence of activities to complete remaining works, assessed at roughly monthly intervals, and then assigning responsibility for the intervening slippage. Moreover it included a ‘reality check’ of what actually happened, such that if a variation was in good faith anticipated to take 25 weeks, but in fact only took 2 weeks, then the later would take precedence.

• The Court was not impressed by use of a method based solely on the experts’ subjective view of how ‘significant’ a particular issue was.

• The experts agreed that whether the programme analysis was ‘prospective’ or ‘retrospective’ meant little, because if done correctly, they should produce the same result.

• It was incorrect to ignore possible causes of delay on the basis that they ‘might’ have been omitted by the Architect, especially when this never actually happened. As the Court said, it “…should be very cautious about taking into account, in the exercise of determining what delays were caused by what events, theoretical possibilities as to what one party or the other might have done (but in fact did not do)”.

• It was also incorrect to give too much ‘significance’ to possible causes of delay at a point in time, when the facts later showed the issue to be a non-event. For example, one of the experts assessed delay to the project had been caused when problems surfaced that a lift shaft was potentially out-of-alignment, and if so, could take 6-9 months to rectify. However, in the following months this was proved not to be the case and no substantial rectification work was necessary.