The prevention principle

'The 'prevention principle' comes from a generally stated legal principle that a party cannot benefit from its own wrong.
An example of the prevention principle operating within the construction industry is where the contract provides a date for completion of the works, but the employer, through its acts or omissions, prevents the contractor from achieving that date. Except to the extent that the contract provides otherwise, in such a situation, the employer will no longer be entitled to demand completion by the contractual date and will not be entitled to claim liquidated and ascertained damages for the late completion.
Common law
The prevention principle has a very long history in the common law. As long ago as 1838, the court held in the case of Holme -v- Guppy that where the contractor had been prevented from starting the works because of the activities of the employer's other workmen, a fresh contract could not be found and liquidated damages could not be applied.
It is against this background that extension of time clauses are commonly entered into construction contracts essentially for the benefit of the employer since, in the event of prevention or breach by the employer, a contractual date for completion may be maintained and the liquidated damages provisions preserved. For an extension of time provision to be effective in such circumstances, it must clearly give the means to extend the period for completion.
The 1970 case of Peak Construction (Liverpool) -v- McKinney Foundations provides an example where the Court of Appeal held that liquidated damages could not be deducted because the extension of time provisions within the contract did not adequately cover the delay event. The contract provided for an extension of time for various events including 'other unavoidable circumstances'. The failure of the employer to authorise remedial works to defective piling within a reasonable time was held to be a perfectly avoidable circumstance.
In 1984, in the case of Rapid Building Group -v- Ealing Family Housing Association, the contractor was delayed at the start of the works because of a man, his wife and a dog squatting in an old Austin Cambridge car in one corner of the site. The court held that the architect was not entitled to grant an extension of time as the contract did not cover such an eventuality. In consequence, the employer's claim for liquidated damages was rejected.
In 2001, in the case of City Inn Limited -v- Shepherd Construction, the Court of Session in Scotland was asked to consider a modified JCT form, in which the requirement for the contactor to give notice of delay events was stated to be a 'condition precedent' to the contractor's rights to an extension of time. Shepherd failed to give the requisite notices and as a consequence was denied the extension of time to which it might otherwise have been entitled.
Delay damages
Shepherd argued that the application of delay damages in such a situation amounted to a penalty. The court disagreed. The delay damages remained a genuine estimate of the loss suffered by the employer as a result of the delay.
It seems that Shepherd did not argue the prevention principle in defence of its position.
An example of a case in which such an argument was successfully made was Gaymark Investments -v- Walter Construction Group, a case decided by the Supreme Court of the Northern Territory of Australia.
Walter had entered into contract with Gaymark as contractor for the construction of a hotel, retail and office complex in Darwin. The contract provided that the contractor should give a notice within 14 days of the cause of any delay event, followed up by particulars of its claim for extension of time within 21 days, failing which, the employer's agent would have no power to allow an extension of time. Walter had failed to comply with these requirements.
Disputes arose, and these were referred to arbitration. The arbitrator held that Walter had been substantially delayed in carrying out the works by causes for which Gaymark was responsible, but its application for extension of time was barred because of its failure to meet the notification requirements of the contract. Despite this finding, the arbitrator refused to award Gaymark its claim for liquidated damages.
The arbitrator considered that there were a number of options open to him. One was to say that Walter's carelessness in not giving delay notices had simply cost it the right to recover its delay costs and had exposed it to the risk of liquidated damages. This option was unacceptable in the arbitrator's view, since, at least in respect to the delay damages, it amounted to Gaymark being paid for its own errors. In other words, it offended the prevention principle.
The option favoured by the arbitrator was to conclude that the contract failed to provide for the situation where Gaymark delayed the works by an act of prevention that Walter failed to notify. Since the contract had not provided for that eventuality, the obligation to complete by the contract date fell away and was replaced by an obligation to complete within a reasonable time.
Decision upheld
That decision was taken to the Supreme Court on appeal. The court held that the prevention principle did indeed present a formidable barrier to Gaymark's claim for liquidated damages based on delays of its own making. The court agreed with the arbitrator's reasoning that the contract failed to provide for a situation in which Gaymark caused actual delays and Walter failed to comply with the notice provisions. With those observations, the Supreme Court refused to overturn the decision of the arbitrator.
It remains to be seen whether such an argument would succeed in a court in the UK. However, the prevention principle remains a fairly unshakeable principle of English law and, coupled with a contra proferentum ruling applied to the notice procedures of the contract, the argument might well succeed.
Shepherd argued that the application of delay damages in such a situation amounted to a penalty. The court disagreed.
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Summing up
The case
Gaymark Investments Limited -v- Walter Construction Group NTSC,
20 December 1999
The issue
The application of the 'prevention principle' in rebutting claims for liquidated damages.
The implication
A contractual notice provision for extension of time stated as a condition precedent may invalidate the liquidated damages clause where no notice is given, but the employer causes delay by a breach or act of prevention.