Introduction

In this Update we look at whether a contractor is entitled to an extension of time (“EOT”) to complete their building work when the principal causes a delay. The issue also frequently arises when a head contractor delays a subcontractor in completing their work.

The Prevention Principle

A well established legal maxim says that no person can take advantage of their own wrong. This was restated in 2012 in the Spiers case1 as: ‘A party cannot insist on the performance of a contractual obligation by the other party if it is the cause of the other party’s non-performance.’ The maxim has become known as “the prevention principle”.

Peak v McKinney

One case that dealt with the issue is the Peak case.2  Peak contracted to build three multi-storey apartments for Liverpool. Liverpool nominated McKinney as subcontractor to design and construct the foundations. By chance, a serious fault was found in the foundations. Peak asked for directions as to how to rectify the fault. Liverpool’s expert delayed for over three months in providing instructions. When the works were completed, Liverpool claimed liquidated damages against Peak who then claimed against McKinney. Most of the delay was caused by Liverpool. Under the contract, there was no mechanism entitling Peak to an EOT for a delay by Liverpool in providing instructions.

The Court said that if Liverpool wanted to recover liquidated damages for Peak’s failure to complete on time in spite of the fact that some of the delay was due to Liverpool’s own fault or breach of contract, then the EOT clause should have provided for an EOT on account of such a fault or breach on the part of Liverpool.

As the EOT clause did not entitle Peak or McKinney to any EOT for Liverpool’s breach of contract no liquidated damages could be applied. The date for completion was rendered meaningless and McKinney’s obligation became to finish the works within a reasonable period of time. Such a finding about a completion date is often described as “setting time at large”.

Gaymark v Walter Construction Group

In Gaymark,3 the Northern Territory Supreme Court applied the prevention principle.  In that case, Walter Construction would have been entitled to EOTs for Gaymark’s breach of contract had it applied for them within time.

However, Walter had failed to lodge applications for EOTs within the time required by the contract. The contract terms stated that a failure to ask for an EOT within the time frame agreed meant Walter lost any entitlement to an EOT and Gaymark was thus entitled to deduct liquidated damages, even though it was Gaymark who had delayed the works.

The Court said that Walter’s failure to ask for an EOT in the time window allowed in the contract resulted in it being “prevented” from obtaining any EOT. The Gaymark case has been criticised as the contractor in that case had put itself in the position of having no entitlement to an EOT by failing to exercise its right to ask for an EOT within the allotted time frame. However, the decision remains good law in the NT.

Turner v Austotel

In Turner v Austotel4 the NSW Supreme Court held that a failure by the contractor to make an application for an EOT within the time allowed does not mean that the contractor can later argue the “prevention principle”. The Court said that where the contractor had an option to obtain the EOT but failed to do so, it was not “prevented” from obtaining the EOT. This is clearly at odds with the Gaymark decision of the NT Supreme Court. Subsequent decisions in other Courts support the views expressed in Turner v Austotel.

Turner v Co-ordinated Industries

In Turner v Co-ordinated Industries5 the Court considered a similar argument in relation to another standard form contract, the NPWC3. In that contract, the contractor was entitled to an EOT if the principal breached the contract and accordingly the Court said that the prevention principle did not apply.

The Court listed three considerations to make before the prevention principle will apply:

  1. If the contract includes any provision that entitles the contractor to an EOT when the principal breaches the contract, then time cannot be set at large by the principal’s breach of contract.
  2. In the absence of such a clause, the principal’s actions must cause “actual” delay for the Prevention Principle to apply.
  3. Further, one must determine what the overall effect of the action of the principal was. A small actual delay by the principal does not allow other delays by the contractor to be eradicated from consideration on the basis of the prevention principle.

Subsequent cases other than Gaymark have adopted the line of reasoning set out in the Turner cases.

Peninsula Balmain v Abigroup

Under the AS2124 standard form contract, the Superintendent retains discretion to award a contractor an EOT even if the contractor has failed to ask for it within the time period allowed. In the Peninsula Balmain case,6 the Court found that the Superintendent was in those circumstances required to give an EOT to the contractor even though the contractor was out of time to make the EOT request. Therefore, under AS2124, the prevention principle is unlikely to apply to rescue a contractor who fails to request EOTs within the time period allowed for two reasons:

  1. The Superintendent is required to award any EOT that is due; and
  2. The contractor would have been entitled to an EOT for the principal’s breach if requested within the time bar period.

As a consequence of the Peninsula Balmain case, principals have amended AS2124 for subsequent projects. The effect of the common amendment is that the Superintendent is not obliged to exercise any discretion to award unclaimed EOTs in favour of the contractor. This effectively removes the first of the two reasons stated above for non-application of the prevention principle.

Hervey Bay v Civil Mining and Constructions

In the Hervey Bay case,7 the Court considered such an amended form of the AS2124 contract and found that the Superintendent was not obliged to award an EOT to a contractor who had not requested the EOT within time, even though on the merits the contractor was probably entitled to the EOT had it claimed within time.

This raises an interesting question in the light of recent commercial contracts that include very short time frames for requesting an EOT.  If a principal using the amended form of AS2124 described in Hervey Bay breaches the contract and prevents the contractor from completing on time, will the Courts look unfavourably at clauses requiring a contractor to make application for an EOT within say 2 days of the delaying event?

Short time periods for requesting EOTs

Many commercial construction contracts require the contractor to provide considerable information with its EOT request.  If the timeframe to provide the information is short, it may be impractical for the contractor to comply, particularly if it is required to provide a full critical path analysis supporting the EOT request.  Would a Court reviewing such a clause consider that the prevention principle might be available to the contractor on the basis that the EOT time bar provision allowed insufficient time and was in effect a prevention of the right to apply for an EOT?

Finally, as discussed in Update 1402 onerous time bar clauses may be void as a penalty following the recent High Court decision in the ANZ bank fees case.

Conclusion

Contracts should allow for an EOT to the contractor in the event of a breach by the principal. Otherwise time will be set at large if the principal prevents the contractor from completing work on time.

It remains to be seen what Courts will say about the very short time frames allowed for requesting an EOT that are now commonly used in construction contracts. There is a risk that these provisions will enliven the prevention principle (setting time at large), or be found void.

Contributor: Tom Grace

 

[1] Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) [2012] WASCA 53.

[2] Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 69 LGR 1.

[3] Gaymark Investments Pty Ltd v Walter Construction Group Ltd (1999) 16 BCL 449.

[4] Turner Corp Pty Ltd (recv & mgr apptd) v Austotel Pty Ltd (1994) 13 BCL 378.

[5] Turner Corp Ltd (in liq) v Co-ordinated Industries Pty Ltd (1994) 11 BCL 202.

[6] Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322.

[7] Hervey Bay (JV) Pty Ltd v Civil Mining and Constructions Pty Ltd (2010) 26 BCL 130.