Shepherd Construction’s court victory and why it matters

Last week there was an important court of appeal decision in the long-running case of City Inn vs Shepherd Construction, which will have a bearing on how contract administrators, arbiters, contractors and employers approach the perennial issue of extensions of time and concurrent delay.

The case goes back to 1988 when City Inn employed Shepherd under an amended JCT 80 contract to construct a hotel in Bristol. The project was late in completion and after a series of adjudications, Shepherd were awarded a five week extension of time. 

City Inn raised proceedings in the Court of Session (although the hotel was in Bristol, the contract provided that Scots Law applied and the Scottish Courts had jurisdiction), seeking a declaration on the extension of time and payment of liquidated damages.  Shepherd Construction lodged a counterclaim, seeking a further extension of time and payment of loss and expense.

Following a hearing which lasted almost 30 days, Shepherd were successful and Lord Drummond Young awarded them an extension of 9 weeks and payment of loss and expense.  The decision of Lord Drummond Young has been much discussed because of the approach taken by him to assessing a contractor’s entitlement to an extension of time where there are “concurrent” causes of delay. 

In essence, he held that the task of the architect is to reach a “fair and reasonable” assessment and that where there is concurrency, it can be appropriate to “apportion” the effect of the various delay events.  City Inn appealed against the decision.

On Thursday last week three appeal judges rejected City Inn’s appeal.  In doing so, the majority of the court approved and elaborated on Lord Drummond Young’s approach, taking the view that “principles of common sense” ought to prevail over “the application of philosophical principles of causation.”   

The court agreed with Lord Drummond Young that in certain circumstances it was appropriate to apportion delay between relevant events and other events. They re-iterated that the architect’s task under clause 25 is to exercise his judgment and fix a completion date that is “fair and reasonable.”

Lord Drummond Young’s decision was been regarded by many as a criticism of electronic critical path analysis because he rejected City Inn’s analysis and preferred the less technical, pragmatic approach adopted by Shepherd’s expert. 

In truth, he simply had to decide which evidence he preferred and given the absence of Shepherd’s original logic linked programme, any retrospective attempt to second guess the original critical path logic was always going to be difficult.

an extension of time claim will not necessarily fail in the absence of a supporting critical path analysis

What is clear, however, from Lord Drummond Young’s decision and now the decision of the Inner House is that an extension of time claim will not necessarily fail in the absence of a supporting critical path analysis. While the Inner House was clearly driven by the need to take a pragmatic and common sense approach, where reliable critical path data is available, that will obviously be of value so long as tempered with a healthy dose of common sense.

The case is also a useful reminder, however, to parties (and contract administrators) of the importance of having a detailed knowledge of a contract’s terms and how they ought to be applied. 

Contractors may take heart from the fact that the court was prepared to hold that City Inn were not entitled to rely on a contractual provision in court (the clause 13.8 mechanism which would have barred certain extension of time claims) that it had failed to utilise while the contract was progressing or in various subsequent adjudication proceedings. 

The court found that, in the circumstances, the right to rely on clause 13.8 had been waived.  However, what was critical was that City Inn were implicated in the waiver as there had been face to face meetings between the parties at which no mention had been made of the provision. 

In the absence of direct involvement from the employer, a court is unlikely to hold that the actings of the architect or contract administrator alone would be enough to waive the employer’s right.

If City Inn and their architects had been aware of the existence of clause 13.8, then no doubt matters would have turned out very differently.

Alastair Walls is a senior associate at Pinsent Masons which acted on behalf of Shepherd Construction in this case. You can read more detailed analysis of the judgment from Alastair Walls as well as Tony Bingham in Building magazine in issue of 6 August.