‘Prevention’ causing ‘time at large’:
what does this all mean?
“Time at large” is a common law principle which means that the contract date for completion becomes ineffective. The contractor’s obligation will then be to complete the work within a reasonable time and the employer will have no entitlement to deduct liquidated damages for late completion. The time at large principle is based on the “prevention principle”.
The court in the New South Wales case of Turner v Co-ordinated Industries (1994) described the concept of the prevention principle as follows:
“Essentially it is that a party to the contract has been prevented from fulfilling its contractual obligations by virtue of conduct of the other party. The consequence is said to be that the “preventing party” cannot rely upon the failure by the other party to comply with its contractual obligations, even if the other party is otherwise in breach so that it could not have complied with its contractual obligations in any event. It is said this flows from a generally stated principle that a party cannot benefit from its own wrong. Whilst the so-called principle may be stated in general terms it seems to me it can only have that application, usually, in circumstances where the contract does not provide for the effect of breach causing prevention.”
In Multiplex v Honeywell (2007), the court conducted a case law review in relation to the prevention principle and derived the following three propositions:
- Actions by the employer which are perfectly legitimate under a contract may still be characterised as prevention if those actions caused delay beyond the contractual completion date;
- Acts of prevention by an employer do not set time at large if the contract provides for extension of time in respect of those events; and
- In so far as the extension of time clause is ambiguous, it should be construed in favour of the contractor.
Where does the prevention principle come from?
The origin of the “prevention principle” is in the legal maxim “no person can take advantage of his or her own wrong”. As a result of this legal maxim, unless the express provisions of the contract provide otherwise, an employer is unable to hold a contractor liable for a breach for which the employer caused the contractor to make.
Unless there is a provision in the contract to extend time for completion of the work due to employer delay, the law implies a term that the contractor shall complete the work within a reasonable time.
The prevention principal is not universal
In the US, the prevention principle was rejected in Robinson v United States (1923). In this case there was a delay of 121 days and the government considered that it caused 12 days of the delay. The government therefore claimed liquidated damages for 109 days’ delay. However, the US court held that the government was responsible for 61 days’ delay and the contractor then asserted that, as a result of government delay, regardless of the duration of the government-caused delay, the liquidated damages provision was inapplicable because time was at large and that therefore the government was not entitled to deduct liquidated damages. The court considered that the government was entitled to deduct liquidated damages for the total period of the contractor-caused delay.
The Peak principle
The prevention principle is illustrated in Peak Construction (Liverpool) v McKinney Foundations (1970) where the English Court of Appeal did not accept the argument that damages could be apportioned. The Court of Appeal considered that the employer was unable to deduct liquidated damages because there was no mechanism in the contract to make liquidated damages payable. The court said:
“The liquidated damages clause contemplates failure to complete on time due to the fault of the contractor… If the failure to complete on time is due to the fault of both the employer and the contractor, in my view, the clause does not bite. I cannot see how, in the ordinary course, the employer can insist on compliance with a condition if it is partly his own fault that it cannot be fulfilled.”
The Court of Appeal in Peak Construction considered that the liquidated damages provision could not operate because there was no fixed date from which to calculate liquidated damages. The employer had caused delay and, as there was no contract mechanism to extend time for completion because of that employer delay, there was therefore no agreed date for completion.
An issue that complicates whether time is at large is in relation to the contractor’s entitlement to additional time where the contractor would ordinarily be entitled to an extension of time for employer-caused delays but, due to the contractor’s own fault, is time barred in making an application for additional time. In relation to this scenario, the New South Wales court in Turner Corporation v Austotel (1994) said:
“If the builder, having a right to claim an extension of time fails to [claim an extension of time], it cannot claim that the act of prevention which would have entitled it to an extension of time for Practical Completion resulted in its inability to complete by that time. A party to a contract cannot rely upon preventing conduct of the other party where it failed to exercise a contractual right which would have negated the effect of that preventing conduct.
Here the Builder claimed an extension of seven days arising from the alleged act of prevention. It was granted the time claimed. Therefore, so it seems to me, it cannot assert that it was prevented from completing on time, that is by the date for Practical Completion, in consequence of the alleged preventing act.”
In CMA v John Holland (2015), the Supreme Court of Western Australian upheld a strict time bar on CMA’s claim for an extension of time, even though John Holland caused the delay. John Holland subcontracted some of the work to CMA. Under the subcontract, CMA was entitled to claim an extension of time if it was or would be delayed “in a manner which will prevent it from achieving completion of the works”.
John Holland rejected CMA’s claim for an extension of time on the basis that CMA’s claim was time barred. CMA contended that, “as a matter of construction, the strict time bar should not be enforced; the conduct of John Holland meant it was ‘estopped’ from enforcing the time bar; and liquidated damages did not apply because John Holland had caused the delay.”
CMA argued that it was prevented by the conduct of John Holland. However, the court considered that the application of the prevention principle must be considered in the context of the particular contract. In this case, the contract between John Holland and CMA provided that if CMA failed to comply with the notice procedures in the subcontract, CMA shall have no entitlement to an extension of time and any principle of law or equity which might render the date for practical completion unenforceable shall not apply. The court said that “CMA is precluded from the benefit of an extension of time and is liable for liquidated damages, even where the relevant delay was caused by John Holland”.
In Gaymark Investments v Walter Construction Group (1999), the Walter Construction did not have a right to an extension of time for the delay in question. An arbitrator considered that Gaymark’s entitlement to liquidated damages was barred following the application of the prevention principle. On review of the arbitrator’s award, the Northern Territory Supreme Court considered that the arbitrator’s decision was correct.
The court in Gaymark, due to the manner in which the case was advanced, was limited to deciding between two options:
- To allow the employer to deduct liquidated damages for delays caused by the employer; or
- To accept that the arbitrator was correct in his finding that the prevention principle precluded the deduction of liquidated damages.
The court, by applying the legal maxim “no person can take advantage of his or her own wrong”, did not accept that the employer was able to deduct liquidated damages for delays of its own making.
Gaymark is not without its detractors. In Multiplex v Honeywell (2007), the court distinguished the cases on the basis that in the Multiplex contract there was a provision that the contractor was only able to recover for loss caused by the subcontractor. This provision meant that there was no breach of the legal maxim “no person can take advantage of his or her own wrong.”
In Multiplex v Honeywell (2007), the court considered Gaymark. The court said that the correctness of Gaymark has been a matter of some debate. For example, Hudson and Keating take a different view, and the court also emphasised that the New South Wales Court of Appeal in Peninsula Balmain v Abigroup Contractors (2002) declined to follow Gaymark.
Discretionary extension of time provisions
A discretionary extension of time provision can be used to overcome the prevention principle biting and is a contract provision which gives a unilateral power to extend time in the situation where any mandatory extension of time provision has not been complied with.
In the New South Wales case of Peninsula Balmain v Abigroup Contractors (2002), Abigroup did not have an entitlement to an extension of time. However, under the contract there was a discretionary power to grant an extension of time in the event that Abigroup did not have a right to claim additional time. As a result, there was no bar to Abigroups’s entitlement to an extension of time following its failure to make the claim. In making its decision, the court relied on Turner v Austotel (1994).
Exclusion of the prevention principle
In CMA v John Holland (2015), the court said that the application of the prevention principle must be considered in the context of the particular contract. The subcontract between John Holland and CMA provided that if CMA failed to comply with the notice procedures it shall have no entitlement to an extension of time and any principle of law or equity which might render the date for practical completion unenforceable shall not apply. Expressly, the prevention principle was excluded. In the court’s view, it was effective in doing so and this precluded CMA from the benefit of an extension of time and CMA was therefore liable for liquidated damages — even where the relevant delay was caused by John Holland.
In summary, the “prevention principle” as applied to construction projects, is a legal doctrine that will protect a contractor from paying liquidated damages for delays caused by the employer where there is no contractual mechanism to extend time for employer-caused delay. This is because a party to a contract cannot benefit from its own default; unless of course, the contract expressly provides otherwise.
The next article will address the often-debated issue of float in a construction program, and will cover:
- What is float;
- How is float, and/or should float, be used; and,
- Who owns the float; the contractor and/or the employer?
Author: Robert Gemmell, Director