In last month's Construction Disputes Avoidance Newsletter we considered the operation of the prevention principle, what it means for time to be 'at large' under a construction contract, and how a time at large situation can be avoided by a properly drafted extension of time clause.
Some extension of time clauses require the contractor to give notice of its claim as a condition precedent to the contractor's entitlement to an extension of time. If the contractor fails to give the required notice within the time stipulated in the contract, then it may lose its right to claim an extension of time1.
In this Newsletter we consider the question that then arises: if the contractor has lost its right to claim an extension of time by failing to comply with the contractual notice requirements, is the employer still allowed to claim liquidated damages when it was the employer who caused the delay in question?
Gaymark v Walter Construction
The starting point for this analysis is the Australian case of Gaymark v Walter Construction2 which concerned an employer's claim for liquidated damages for delays in the construction of a hotel in Darwin.
The arbitrator decided that the contractor's failure to comply strictly with the contract notice requirements meant that the contractor's application for an extension of time was barred. However, as the delay was caused by acts of prevention by the employer, the arbitrator went on to find that time had been put at large and the employer was therefore prevented from recovering liquidated damages for delay.
The Supreme Court of the Northern Territory of Australia upheld the arbitrator's award, saying that to allow the employer to claim liquidated damages in such a situation "would result in an entirely unmeritorious award of liquidated damages for delays of [the employer's] own making".
The Gaymark decision was widely criticised in England where, although not binding, Australian cases can be persuasive where there is no authority from the English courts.
Multiplex v Honeywell
This issue first came before the English courts in Multiplex v Honeywell3. As in Gaymark, Multiplex v Honeywell was concerned with a contractual extension of time clause that provided that the contractor had to comply strictly with the notice provisions in the contract in order to claim an extension of time.
While he did not actually have to decide the point, the Judge suggested that the employer would be free to claim liquidated damages for delays caused by the employer's own acts, if the contractor had failed to comply with the condition precedent notice provisions in the contract.
The Judge placed considerable emphasis on the valuable purpose that contractual notice provisions served; not only in that they allow matters to be investigated while they are still current, but also in that they give the employer the opportunity to withdraw its instruction in the event that it becomes clear that the consequences in terms of delay or additional cost will be too great.
The Judge considered that, if Gaymark was good law, then the contractor could deliberately ignore the contractual notice provisions in order to set time at large and effectively take away the employer's right to claim liquidated damages. The contractor would then be better off ignoring the notice requirements than complying with them. The Court considered that this situation would be unacceptable.
Steria v Sigma
Steria v Sigma4 concerned delays arising in relation to a heavily amended standard form of Sub-Contract under which Steria contracted to build a computer aided despatch system for Sigma.
The Court in Steria v Sigma addressed this issue directly. Having applauded the Judge's views in Multiplex v Honeywell, the Court went on to point to the "commercial absurdity of an argument which would result in the contractor being better off by deliberately failing to comply with the notice condition than complying with it" and stated that a decision that would allow the contractor to benefit from its own breach "would be the converse of the prevention principle and hence might be said to be equally objectionable".
The Judge concluded that the prevention principle did not mean that a failure to comply with the notice requirement in that case put time at large.
It is unlikely that a contractor will be able to disregard contractual notice provisions and rely on the prevention principle to avoid paying liquidated damages. A contractor should strictly follow the contractual notice requirements. If it fails to do so it risks losing its right to an extension of time, and thereby being exposed to a claim for liquidated damages, even if it was the employer that caused the delays to the works.