A recent decision of the Queen’s Bench Division of the English High Court (EWHC) has affirmed in no uncertain terms that:
- the ‘prevention principle’ will not operate where a construction contract allows for extensions of time for acts of prevention;
- parties can agree who bears the risk of ‘concurrent delays’ in construction contracts; and
- contractors must prove actual delay to completion if they wish to rely on the prevention principle to have time set ‘at large’ under a construction contract.
The case reinforces the importance of considering, and clearly understanding, the allocation of the risk of concurrent delays under construction contracts. Although an English decision, it is nonetheless of relevance to Australian construction law principles.
Refresher on the prevention principle and time at large
Construction projects are often carried out on strict timelines, with the contractor normally subject to pre-agreed ‘liquidated damages’ if they fail to deliver the project by the agreed completion date. What about when a delay in completion is caused by an act or omission of the principal, commonly known as an ‘act of prevention’?
Most standard form construction contracts provide a mechanism which enables an extension of time where the contractor is delayed by an act of prevention, thus avoiding liability for liquidated damages to the extent of that delay.
In the absence of such a contractual mechanism, acts of prevention will normally enliven the prevention principle and set time ‘at large’. Where time is set at large, the contractor is no longer bound by the contractually agreed completion date, liquidated damages fall away and the contractor must instead complete the project within a reasonable time. In this event, the principal can generally still claim damages for delayed completion from the contractor, but is left to try to prove its actual loss, which is often difficult or impracticable. As a result, it is common for contractors to play the time at large ‘card’ where a project suffers delay, in a bid to avoid liability for liquidated damages.
However, does the prevention principle still apply where there are concurrent delays to completion? Consider the situation where:
- an act of prevention by the principal (Event X) is concurrent with another delay, separately caused by the contractor for which there is no contractual entitlement to extra time (Event Y); and
- the parties have agreed that the contractor is not entitled to an extension of time where there are such concurrent delays.
Does the prevention principle still operate to set time at large? Based on the decision of Justice Fraser in North Midland Building Limited v Cyden Homes Limited  EWHC 2414 (TCC), the answer is a resounding “no”.
North Midland Building Limited (Builder) agreed to build a substantial residential building for Cyden Homes Limited (Principal), under an amended standard form JCT Design and Building Contract (Contract).
The Contract included a clause which enabled the Principal to deduct “Liquidated and Ascertained Damages” if the Builder failed to complete the project by the agreed completion date (LAD Clause). It also included a mechanism to extend the completion date if progress was delayed by “Relevant Events”, which was defined to include acts of prevention by the Principal.
However, the parties had amended the Contract such that where any delay caused by a “Relevant Event” was concurrent with another delay for which the Builder was responsible, then when assessing the extension of time, the “Relevant Event shall not to be taken into account” (Concurrent Delay Clause).
Completion of the project was delayed past the contractual completion date. The question for the Court was whether the effect of the Concurrent Delay Clause, where the Principal was responsible for one of the concurrent delays, was to either:
- set time at large in accordance with the prevention principle, meaning that the Contractor must complete within a reasonable time; or
- make the Contractor bear the risk of such concurrent delays, with no adjustment to the contractual completion date.
The Builder was not entitled to an extension of time for concurrent delays and time was not set at large.
The Court confirmed that:
- subject to illegality, parties are free to bargain on any terms they wish and can agree who bears the risk of concurrent delays to the completion of the work; and
- where there is concurrent delay, it cannot be said that the principal had actually preventedcompletion since the contractor would have not completed on time anyway, due to its own delays.
Principals are likely to be buoyed by this case, given the strong language used by Justice Fraser in upholding a clearly worded contractual term placing the risk of concurrent delays on the contractor. It is therefore a useful reminder that:
- parties should turn their minds at tender stage as to who should bear the risk of concurrent delays under the construction contract;
- where a proposed contract contains a concurrent delay clause (as is commonly the case), contractors should be alive to the risks associated with it and the effect that it may have on their tender; and
- principals and contract administrators should pay careful attention to the terms of the contract to ensure that they understand when extensions of time claimed by contractors may be properly refused.
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Published: 16 October 2017