Wednesday, June 3, 2009

Construction Law-EOT & Peak Principle?

The Prevention principles was first derived from the case Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111 (“Peak case”) based on the law maxim that no man shall take advantage of his own wrong. As it being applied to issues regarding time in a contract, it can be understood that a principal who have caused delay to the contractor’s progress of work can no longer expects that the contractor will comply with the contractual date for completion.

Furthermore the principal has also lost the rights in recovering liquidated damages (“LD”), if the contractor fails to complete the work within the contract period. However, since the contractor is not bound to complete the works by the contractual date for completion, it would also mean time is set ‘at large’. Since LD is no longer applicable, this will only leave the principal with the right to claim for general damages at law for any unreasonable delay as considered by court. This is only a simple logical law to ensure fairness in the principal’s and contractor’s relationship.

However not all preventions by the principal will automatically cause time ‘at large’. After the prevention principle have been widely known by the people in the industry, most construction contracts have been drafted to allow for provisions that deals with delay caused by the principal. In addition to that, the contractor has been provided with a remedy in the case of principal’s delay. Usually the contract provides that the contractor may apply for extension of time (“EOT”) when a delay has happened that has been caused by the principal. The contract administrator shall then evaluate the application and then grant reasonable EOT within the limit of his/her duty. In addition to the provision, some contracts have been drafted to have a condition precedent to the entitlement of EOT evaluation. The provisions are protecting the principal against sudden claim of time being set ‘at large’. So if the contractor fails to apply for EOT, such act could imply that there is no requirement for EOT and the works can be completed on time.

The judicial backing to this opinion have been dealt with in two cases; Turner Corporation Ltd v Coordinated Industries Pty Ltd (1994) 11 BCL 202 and Turner Corporation Ltd v Austotel Pty Ltd (1994) 13 BCL 378 (“Turner Corp. Cases”), where the court ruled that in the presence of EOT provisions in the contract its has already cover the act of prevention along with the mechanism for determining the EOT. With that, a party to the contract cannot rely upon the prevention principle since there is a contractual rights already provided under the contract.

Therefore, the prevention principle is logical, but contracts should be drafted based on this principle and not against it. As an example, in the case of Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2000) 18 BCL 322 (“Peninsula Balmain”), the project adopted the Australian Standard form of contract named AS 2124-1992 with amendments. The contract provided that when it becomes evident that the completion date will be delayed due to the principal’s prevention , the contractor may submit an EOT claim within 28days from the day of the delay event. However, the contract did also provide that the superintendent have the right to extend time with or without the contractor’s entitlement to EOT. With such power, the contract also requires for the superintendent to act honestly and fairly to respond to the EOT claim. In Peninsula Balmain, the superintendent had breached his duty where he has failed to measure the reasonable EOT to the contractor under his obligation to act honestly and fairly, even though the contractor did not comply with the condition precedent. The duty for the superintendent to act honestly and fairly, should comply with the prevention principle, if required. If the superintendent has been made to have known that there is a delay due to the act of prevention by the principal, he should grant an EOT for the contractor to complete the works within the specified reasonable time.

The case of Hervey Bay (JV) Pty Ltd v Civil Mining and Constructions Pty Ltd [2008] QSC 058 (“Hervey Bay”) agrees with the rule set out in Peninsula Balmain. Such rule gives a new breath to the old prevention principle. According to the old principle, if it is a condition precedent and the contractor have failed to submit a delay notice and claim for EOT, it can be implied that it is the contractor’s own failure to avail itself of the remedy. However the new additional rule to the prevention principle as set out in Peninsula Balmain and Hervey Bay, confirms that in the absence of certain amendments to the standard form of AS2124, the superintendent is required to implement his power to grant an extension of time, honestly and impartially and for the benefit of either the contractor or the principal. For this reason, Peninsula Balmain remains as a good law even though it has been heavily criticize.
It is agreeable that the prevention principle represents a logical and suitable body of law to regulate delay events and rights of parties. However, the contract should be made to compliment it and not exclude it or exempt employer from getting away with his own slip.
From the many cases discussed here, it has been identified that EOT provisions are crucial for construction contracts in setting out the party's obligations, performance, and entitlement to LD in ensuring that the right to LD is not lost due to the prevention principle. Moreover, the superintendent’s discretion to grant EOT without the contractor’s entitlement should be regulated by a better provision under the contract. Conveniently it should create certainty for the parties of the contract to deal with EOT and LD.


Anonymous said...

Appreciate for this useful article on EOT. Just to know more suppose the the standard contracts contains bespoke provision limiting EOT only to Relevant Events for which do not run simultaneouly or concurrently, with the contractor's delay events. In case then the Principal delayes the project and same time wishes to apply LADs clause to recover from the contractor all delays due to the contractor's fault without any EOT, does it also be an act of prevention?

Confession of a Coffeeholic Mama-Miya said...

hi Anonymous (sorry i dont know ur name :P),

1)rule of thumb: provisions of the contract rules!! whatever not listed in there & delayed caused by the principal means its not the contractor's delay & LAD cannot be applied to such delay.

2)LAD only applicable to contractor's delay.

3) delay analysis is not that simple, especially when there is concurrent delay, utilization of floats, entitlement of EOT. however, i would always say it is wise to demonstrate your delay analysis along with your application of EOT. seeing something clearly demonstrated on paper helps the audience to believe the happening of the actual events. you must be thick or a lawyer not to believe what facts u r seeing :D (without prejudice LOL).