Cure better than prevention?

From time to time in these articles I have commented on the many occasions we have encountered Contractors and indeed Sub Contractors effectively depriving themselves of the benefit of claims clauses and in particular extensions of time claims, where they have simply failed to abide by the terms of the notice provisions. Since all four of the CIDB approved standard forms of contract contain clauses which require notice to be given as a prerequisite to a claim, it remains astonishing that so many of these claims are found to be non compliant with those notice provisions. Further, where the notice provision is linked to a strict sanction whereby the failure to give notice results in a loss of rights, i.e. a true time bar, Employers would seem to be well within their rights, as would Main Contractors against Sub Contractors who find themselves in the same position, to strictly enforce their rights and exclude such claims notwithstanding the absolute validity of the claims had notice been properly given.

During the past 12 Months there appears to have been much debate and legal wrangling internationally in regard to whether, in respect of extensions of time claims, where such claims arise as a consequence of the Employer’s own default, the Contractor’s failure to give notice can lead to the exclusion of the claim where the delay is in fact attributable to an act of default by the Employer itself.

This has come to be known as the prevention principle whereby, so it is argued, where actions of the Employer itself have prevented the Contractor performing timeously, this negates any failure on the part of the Contractor to comply with the claims notice provisions, more particularly where such notice provisions constitute a time bar. This article will look at the international case law in an attempt to answer the question whether the prevention principle, in South African standard form contracts, can be overcome by a time bar.

In Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd, McKinney Foundations were the nominated Sub Contractor for piling work to be designed by them. They commenced work in May 1964 and left site some 6 weeks later. On the 2nd October 1964 a pile was discovered which was seriously defective and on the 6th October it was agreed work should cease whilst other piles were investigated. On the 17th November it was agreed the problem should be submitted to an independent consulting engineer. However a month later the Employer refused to be bound by this agreement to accept the Engineer’s opinion as binding. The Engineer was only appointed by the Employer on the 8th February 1965. He visited the site on 8th March but did not conclude his investigational report until 24 May. McKinney then requested permission to carry out immediately the work he recommended but were not authorized to do so until 30th July and completed it in time for the Main Contractor to re-commence on the site on 12th November 1965, 58 weeks after work had been suspended. Peak Construction sued McKinney for damages for the whole of the 58 weeks and were awarded damages of over £40 000. A court of appeal comprising three law lords held that a delay of 58 weeks for remedial work which took only 6 weeks made it impossible to hold that the whole of this delay flowed naturally and in the ordinary course of things from the Defendant’s breach. This being the same test for damages as would be applied under South African law. Part of Peak Construction’s claim had been for the sum of £4 205 being liquidated damages under the main contract which the Employer was alleged to have been entitled to as a consequence of the overall delay. This portion of the claim was disallowed on appeal on the basis that Peak would not have been liable under the main contract to pay any liquidated damages to the Employer since the extension of time clause was to be construed strictly contra proferentum against the Employer. In other words, to the extent that there was any ambiguity in regard to the extension of time clause where delay had been caused by default of the Employer, this would be interpreted against the Employer and the benefit of the doubt given to the Contractor. The Employer held that if the Employer was in any way responsible for the failure to achieve the completion date, the Employer could recover no liquidated damages whatsoever and would be left to prove such general damages as it may have suffered. In any event the extension of time clause provided only a limited basis for extending the time for completion in respect of the actual phrase “delays caused by unavoidable circumstances”. The court held this was not wide enough to embrace delays due to Employer’s own breach and as a consequence time had effectively become “at large”, and the Contractor’s only obligation was to complete the work within a reasonable time.

This reasoning has been applied in numerous judgments subsequently, see for example MacMahon Construction (Pty) Ltd v Crestwood Estates (1971); Rapid Building Group Ltd v Ealing Family Housing Association Ltd (1985) to name but two such cases.

However it appears as though the draftsmen of extension of time clauses were now becoming sensitized to the consequences of such judgments and the evolution of extension of time clauses both internationally and domestically in South Africa, reflected a greater degree of precision in the drafting to ensure the Contractor would be given a right to an extension of time for acts of prevention by the Employer itself. Thus in Turner Corporation v Austotel (1994) in an application to the Supreme Court of New South Wales for leave to set aside an arbitrator’s award the Judge was called upon to consider the application of the prevention principle in the context of an extension of time clause containing a time bar which was a condition precedent to the entitlement to the award of any extension of time. Although not necessary for his decision, because the Judge found that an appropriate extension had in fact been granted, Cole J said:

“If the builder, having a right to claim an extension
of time fails to do so, 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
affect of that preventing conduct.”

This judgment now confirmed that where there was no ambiguity in regard to the extension of time clause in so far as it expressly provided for extensions of time for acts of prevention, the Contractor would still lose its rights to claim an extension if it failed to comply with the notice provisions in the claims clause.

In 2007 in one of a number of disputes arising out of the construction of the Wembley Stadium, in Multiplex Construction (UK) Ltd v Honeywell Control Systems Ltd, the issue again came before the court as to whether time had been set at large by acts of prevention by the main Contractor in respect of its Sub Contractor. Although the Judge felt that he did not have to decide the point for the purpose of his judgment he commented:

“Contractual terms requiring a Contractor to give prompt notice
of delay serve a valuable purpose; such notice enables matters to be
investigated while they are still current. Furthermore, such notice
sometimes gives the Employer the opportunity to withdraw instructions
when financial consequences become apparent. If Gaymark is good law,
then a Contractor could disregard with impunity any provision making proper
notice a condition precedent. At his option the Contractor could set time at large.”

The Judge was referring to an earlier Australian decision referred to the Supreme Court of the Northern Territory of Australia where the prevention principle had been applied. The “Gaymark” decision was however distinguishable on the basis that the extension of time clause had been severely modified to preclude the Employer’s right to grant extensions of time for its own acts of prevention.

A comparison of the South African standard forms in the context of the above judgments makes it clear that the draftsmen of these forms have worded the extension of time clause, in respect of each of the conditions of contract, with sufficient precision to give the Contractor a right to an extension of time for acts of prevention by the Employer. This, whether the act of prevention is in itself a breach or not. Clause 42.2 of GCC 2004, for example, opens the door with the statement “If circumstances of any kind whatsoever which may occur be such as fairly to entitle the Contractor to an extension of time for the completion of the works …”, and this clause is then re-inforced by clause 42.3.3 “any failure or delay on the part of the Employer or his agents, employees or other contractors …”, would constitute circumstances referred to in clause 42.2. It necessarily follows that on the face of clauses 42.2 read with 42.3.3, defaults on the part of the Employer are contemplated. Further, we have had the benefit of judicial interpretation of the wording in clause 42.2 in the case of Group 5 v The Minister of Public Works in which the Judge held that the use of the phrase “circumstances of any kind whatsoever”, is sufficiently wide to encompass Employer’s breach.

Accordingly it may be concluded that Contractors who attempt to rely upon the prevention principle without following the claims procedure will not be able to avoid the consequences of a time bar and will accordingly lose their rights to such claims notwithstanding that the root cause of the delay was Employer’s fault and in particular Employer’s breach. There will however no doubt be continued debate in this regard and Contractors who fail to give notice will continue to seek methods of circumventing their failure. The judgments quoted above from international cases are likely to be particularly persuasive in South Africa and as a consequence Contractors will face an uphill task. The New Engineering Contract Suite will make this task even more difficult in view of the provisions of clause 60.1 (18) which expressly refers to a right to compensation for breach by the Employer as one of the compensation events listed therein.

 

 

Chris Binnington