1. HISTORICAL DEVELOPMENT OF THE PREVENTION PRINCIPLE
The prevention principle is a legal doctrine preventing a party (in the absence of clear terms to the contrary) from taking advantage of its own wrong1.
Typically, construction and engineering contracts require the contractor to complete its works by a fixed, pre-agreed completion date, failing which the contractor will become liable to the employer for liquidated damages for a period of time. If the employer however prevents the contractor from completing its works (either by the employer’s legitimate conduct or by breaching the contract), most construction contracts provide a mechanism for extending the completion date to reflect the employer’s act of prevention. The prevention principle is likely to apply where there is no extension of time (“EoT“) mechanism in the contract, or the mechanism in the contract fails to clearly address what happens to the completion date in the event of an employer caused delay.
The principle is long-established and in the context of construction law it dates back as far as Holme v Guppy2 in 1838, which first introduced the concept of “time at large” and which was later upheld in Dodd v Churton3.
The early case law developed such that if a building owner or employer acts in a manner which requires the contractor to do more and the contractor subsequently fails to meet the scheduled completion date, the employer will be precluded from relying on any liquidated damages provision.
[1] Alghussein Establishment v Eton College [1988] 1 WLR 587.
[2] [1838] 3 M&W 387.
[3] [1897] 1 QB 562.
2. “TIME AT LARGE” – MODERN JURISPRUDENCE
Modern jurisprudence on “time at large” commenced with Lord Denning’s judgment in Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board, which was upheld in the House of Lords4. In this case, it was held that:
“It is well settled that in building contracts – and in other contracts too – when there is a stipulation for work to be done in a limited time, if one party by his conduct – it may be quite legitimate conduct, such as ordering extra work – renders it impossible or impracticable for the other party to do his work within the stipulated time, then the one whose conduct caused the trouble can no longer insist upon strict adherence to the time stated. He cannot claim any penalties or liquidated damages for non-completion in that time.“5
This reinforced the earlier decisions and confirmed that where there is an act of prevention, time is put at large and the employer’s entitlement to liquidated damages is lost. The contractor will instead be entitled to a “reasonable time” for completion, but the contractual EoT mechanism and completion dates are set aside. Effectively, these fall to be determined in a hypothetical common law interpretation and as a consequence, what might constitute a reasonable time for completion in the circumstances remains inherently unclear.
[4] [1973] 1 W.L.R. 601.
[5] [1973] 1 W.L.R. 601 at 607.
3. PREVENTION PRINCIPLE – THE CONSERVATIVE VIEW
The current orthodoxy was established in Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No 2)6. In this case, Jackson J held that:
“In the field of construction law, one consequence of the prevention principle is that the employer cannot hold the contractor to a specified completion date, if the employer has by act or omission prevented the contractor from completing by that date. Instead, time becomes at large and the obligation to complete by the specified date is replaced by an implied obligation to complete within a reasonable time. The same principle applies as between main contractor and sub-contractor.”7
In order to avoid triggering the prevention principle, construction contracts typically include EoT clauses which entitle the contractor to claim an EoT where the works are delayed as a result of an “act of prevention” on the employer’s part and allow the completion date to be extended to a new date from which liquidated damages can be levied. The consequence of such clauses is to preserve the contractual completion date and the employer’s entitlement to claim liquidated damages for any delay beyond the extended completion date. Thus, an EoT clause is actually for the benefit of the employer because it acts to preserve the liquidated damages mechanism whilst simultaneously providing the contractor with certainty as to its financial exposure in respect of such delays and maintaining a contractual
deadline for completion.
In the event that an EoT clause is drafted too narrowly, or there is no clear or effective mechanism to extend the completion date on account of delays caused by the employer (whether permitted under the contract or otherwise), the prevention principle may still apply. In this respect the operation of the prevention principle was summarised in Multiplex Constructions in the following terms:
(i) Actions by the employer which are perfectly legitimate under a construction contract may still be characterised as prevention if those actions cause delay beyond the contractual completion date.
(ii) Acts of prevention by an employer do not set time at large if the contract provides for EoT in respect of those events.
(iii) Insofar as the EoT clause is ambiguous, it should be construed in favour of the contractor.
The first limb is consistent with the generally accepted approach. The second limb however references time at large without discussing its meaning or considering its impact on the contract and how it should be dealt with. As to the third limb, in practice Jackson J noted that where any ambiguity exists, ultimately the contractor will be given the benefit of the doubt and the prevention principle applies.
[6] [2007] EWHC 447 (TCC).
[7] [2007] EWHC 447 (TCC) at 48.
4. CONTRACTUAL RISK ALLOCATION BETWEEN THE PARTIES
Deciding whether the prevention principle applies can create a conflict between freedom of contract on the one hand, whereby the parties are free to enter into the contract on whatever terms they like and on the other hand ensuring fairness. In England and Wales the position taken has been to hold parties to their agreement where it was entered into at arm’s length. In Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd8 and in Stocznia Gdynia v Gearbulk9 the courts have held that parties should not be presumed to be abandoning rights under the general law without clear words to the contrary. Therefore, if the prevention principle is to be disapplied, there must be “clear contractual intention to be gathered from the express provisions of the contract.”10
As noted above, EoT clauses tend to be strictly construed against the employer, such that ambiguity in an EoT clause may be interpreted in favour of the contractor resulting in time being “at large” in the event of an employer act of prevention11. The prevention principle is assumed to operate in circumstances where there is no EoT mechanism. Nevertheless, if the parties have clearly expressed an intention to deal with acts of prevention in a different way, then it is likely that those intentions would be respected by a court or tribunal in accordance with the normal rules of contractual interpretation.
There have indeed been efforts to reallocate such risks between the parties. As an example, many EoT clauses (including in the FIDIC forms) make giving notice a condition precedent to any EoT. This means that the contractor may not be entitled to an EoT even if the employer has delayed the project, unless it provides a notice compliant with the contract.
In Multiplex Constructions12, Jackson J considered notice requirements holding that:
“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 the financial consequences become apparent.“13
Further, some parties have excluded the right to an EoT where there is concurrent delay. The case of North Midland Building Ltd has made it clear that the prevention principle can only operate as an implied term and is not an overriding rule of public or legal policy.
[8] [1974] A.C. 689.
[9] [2010] Q.B. 27.
[10] Richco International v Alfred C. Toepfer International [1991] 1 Lloyd’s Rep. 136 at 144.
[11] Peak Construction (Liverpool) v McKinney Foundations Ltd (1970) 1 BLR 114 at 121.
[12] [2007] EWHC 447 (TCC).
[13] [2007] EWHC 447 (TCC) at 103.
5. CONCLUDING REMARKS
In practice therefore, construction contracts could be drafted to allow a contractor to claim extensions of time for acts of prevention by an employer, otherwise an employer may not be able to enforce the contractual liquidated damages regime. Parties could also consider contracting out of the prevention principle, for example by agreeing that the contractor bears the risk of certain delays notwithstanding that they are caused by the employer. In such instances the application of the prevention principle may be excluded by the express terms of the contract.
