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 Since LD is no longer applicable, this will only leave the principal with the right to claim for general damages at law for any unreasonable delay as considered by court.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.
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.
Allternative Dispute Resolution..next best thing after litigation?
Different type of dispute may require different type of avoidance, management and resolution method. The already existing alternative dispute avoidance and dispute resolution methods are dispute avoidance procedures such as ‘Dispute Review Boards’ (“DRBs”), ‘Dispute Adjudication Board (“DAB”) and ‘Dispute Resolution Adviser’ (“DRA”) and alternative dispute resolution methods include Expert Determination, Negotiation, Mediation and Arbitration.
In comparison of the DRBs, DAB and DRA to litigation, these disputes avoidance procedures are cheaper and cost lesser time than litigation. However, not all of the decisions from these methods are final and binding. DRBs only has a non-binding recommendation and methods such as DAB and DRA may produce a final and binding decision with room for it to be challenged through litigation or arbitration within a period specified. Never the less these methods are great only in trying to avoid from major disputes from taking place. They can be a good tool to avoid litigation proceedings but not as an alternative method to litigation.
As for dispute resolution through the method of expert determination, it is an appropriate method to be adopted when technical issue has arisen and requires an expert’s opinion. Usually it is not related to legal matters and litigation is not necessarily required. Moreover, the method can give a fast result, but the determination is not final and binding unless the parties have agreed to it. If the parties fail to reach an agreement, then they will have to seek resolution through arbitration or litigation.
A different approach to dispute resolution, yet have long been established in the business world, negotiation is a method where the parties communicate to seek resolution on the dispute matter. If the parties are open to compromise on the issues, it is a cost efficient method for clarification and resolving misunderstanding. The result from the negotiation is also easily enforceable and binding if the parties have made the agreement in a form of contract or deed. However since negotiation is about the power of persuasion, this method does have a weakness where the result of the negotiation result may be one-sided to the stronger party. If the weaker party feels that the result is unfair, they can choose to proceed with litigation (on the absence of mediation or arbitration provision in the existing contract).
Mediation is also a familiar method of alternative dispute resolution recognize in the industry. It is now a common method to be pursued prior to arbitration or litigation. Mediation is similar to arbitration where a neutral person is being elected as a regulator or facilitator in a proceeding to help the parties to achieve an agreement to a solution to the issue in dispute. Moreover alike to negotiation and expert determination, the result from mediation is only enforceable if a contract or deed has been made. Besides, if conducted well it will not jeopardize the working relationship between parties and even further create a better understanding between parties. However, since the objective of mediation is to reach settlement, it might take longer time and would increase the proceeding cost too. In this kind of situation, it is better for the parties to opt for arbitration or litigation.
Finally, among the most recognized method for alternative dispute resolution in the industry, arbitration is usually the next best method if the parties fail to seek resolution through mediation or negotiation. It is a dispute resolution method where a single or multiple independent arbitrator/s mutually elected by the parties in private proceedings. The arbitrator elected is usually an expert in the fields that is in dispute. With this, the arbitrator can make the best decision within his jurisdiction, especially if it is a technical dispute that the parties are facing. In these private proceedings, the parties are free to determine the scope, nature and rules. At a glance, it can be seen a less formal proceeding that can achieve the same result as litigation proceedings. Yet, arbitration method could be much faster than litigation and since it is faster, more cost can be saved too. Furthermore the arbitration award is final and binding and easily enforceable domestically and internationally. This would be a good alternative to litigation if the parties in disputes are in an international construction and trading contract.
From these comparisons, it can be distinguished that the most suitable method as an alternative to litigation is arbitration. Litigation is a rigid legal proceeding in court or tribunal with the most formal resolution method that is expensive and has potential for long delays, while arbitration is faster and cost efficient proceeding in a friendlier environment. Both proceedings can achieve a final and binding result, but arbitration might achieve a better result if the issue in dispute is a technical issue and not a legal issue.
--this is what I answered in one of my exam. i scored 15 of 25..not bad, but i know next time i can do better..correto mundo!
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