Hong Kong – Court Considers Application Of The Prevention Principle.

3 March, 2017

 

Background

 

CMA Assets Pty Ltd v John Holland Pty Ltd [2015] WASC 217, is an Australian case concerning costs, delay and variation. The Plaintiff and Defendant were respectively the subcontractor and main contractor of a project to upgrade and extend a wharf.

 

Completion was originally scheduled for March 2007, but there were significant delays, some of which were caused by the Defendant. Disputes arose between the Plaintiff and Defendant about who should bear the costs of the delays and complications arising during the course of the project. The Plaintiff brought proceedings claiming for variations and delay. The Defendant counterclaimed for disruption to its work and liquidated damages for delay.

 

Readers may be interested in that part of the judgment about exclusion of the application of the prevention principle, which is frequently raised by contractors when they have failed to comply with the contractual time limit for applying for an extension of time. On the other hand, some employers may include provisions in their contract seeking to exclude the application of such principle.

 

Contractual Provisions

 

Clause 10.12 of the subcontract contained certain conditions precedent for the subcontractor to comply with in order to apply for an extension of time, such as a notice requirement and the taking of reasonable steps to minimize the extent and consequences of the delay.

 

Clause10.13 provided for the consequences of failure to comply with the conditions precedent and exclusion of the prevention principle, as follows:

 

“If the subcontractor fails to comply with General Conditions Clause 10.12…. then:

 

(a)   the Subcontractor shall have no entitlement to an extension of time; 

 

(b)   the Subcontractor shall comply with the requirements to carry out the work under the Subcontract by:

 

(i)             any Milestone Date; 

(ii)            the Date for Practical Completion; and

 

(c)    any principle of law or equity (including those which might otherwise entitle the Subcontractor to relief and the (‘prevention principle’) which might otherwise render:

 

(i)             any Milestone Date; 

(ii)            the Date for Practical Completion;

       unenforceable and render liquidated damages penal shall not apply. ”

 

Exclusion of Prevention Principle

 

The Court held that the Plaintiff had failed to comply with the conditions precedent provided in Clause 10.12, so that it could not enjoy the benefit of an extension of time. The Court then had to consider whether and to what extent the Plaintiff was liable for the delays.

 

In response to the Defendant’s counterclaim for liquidated damages for delay, the Plaintiff argued that the delay was caused by the Defendant. In particular, that it was prevented from carrying out the works under the Subcontract in accordance with the requirements of its construction programme because the Defendant had failed to give access to the site. In the alternative, the Plaintiff argued that the Defendant had suffered no damage, or had not suffered the damage claimed, as the delay in completion of the Defendant’s works was not caused or contributed to by any breach by the Plaintiff.

 

The Court noted that the Plaintiff’s arguments above raised the issue of the prevention principle. In brief, “a party cannot insist on the performance of a contractual obligation by the other party if it itself is the cause of the other party’s non-performance”. It further noted that the prevention principle “applies to delays in practical completion of a contract caused by acts or omissions of the principal within the scope of the contract that prevent practical completion within the time stipulated in the contract”.

 

In other words, if the Plaintiff was prevented by the Defendant from achieving practical completion on time and there was no contractual mechanism to substitute a new date, then no liquidated damages were recoverable.

 

The Court held that the application of the prevention principle had to be considered in the context of the Subcontract. In this case, as it had been expressly agreed between the parties that the prevention principle was to be excluded the Plaintiff was liable for liquidated damages even though the delay was caused by the Defendant.