Australia: Construction Law Update: Time At Large

Last Updated: 11 January 2008
Article by Ian Cocking and Judy Man


The essence of the prevention principle is that the promisee cannot insist upon the performance of an obligation which he has prevented the promisor from performing.

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 the project by the specified date is replaced by an implied obligation to complete within a reasonable time. The same principle applies between the main contractor and sub-contractor.

In order to avoid the operation of the prevention principle, most construction contracts and sub-contracts include provisions for an extension. There is a strong argument that extension of time clauses exist for the protection of both parties to a construction contract or sub-contract. The recent decision, made by Mr Justice Jackson of the Technology and Construction Court in London turned upon the operation of the prevention principle, and explored a number of other interesting ways it can be argued that time has been put at large.

Multiplex Constructions (UK) Limited v Honeywell Control Systems Limited (No 2) [2007] EWHC 447

Wembley National Stadium Limited (WNSL), a wholly owned subsidiary of the Football Association, famously contracted with Multiplex Constructions (UK) Ltd (Multiplex), under a main contract to construct the new Wembley National Stadium. Multiplex engaged Honeywell Control Systems Limited (Honeywell) under a subcontract to design, supply and install various electronic systems for communication and control of the building, including the BMS (Subcontract).

By the time Honeywell entered into the subcontract, substantial delays to the project had already occurred. Multiplex issued three revised programmes to Honeywell extending the completion date to 31 March 2006. Subsequently, the date passed and completion was not achieved. No further programmes

were issued by Multiplex. Honeywell maintained that by reason of the issue of the three programmes it was entitled to claim prolongation costs and other financial relief.

Honeywell commenced adjudication proceedings pursuant to the subcontract, concerning the effect and financial consequences of the three programmes.

Decision by adjudicator

The adjudicator awarded prolongation costs to Honeywell, and found that issuance of the programmes constituted a variation instruction. However, the adjudicator established that the subcontract did not contain any appropriate extension of time regime (for extending time in respect of the delay caused by a variation instruction), and hence time had been put at large.

Multiplex was aggrieved by the adjudicator's decision and commenced the present proceedings.

The issues

There were essentially four ways in which Honeywell argued that time had been set at large (all ultimately unsuccessful). These were:

  • That the adjudicator was correct in his conclusion, that on a proper interpretation of the subcontract any direction for a variation under the relevant clause (Clause 4.2) that affected the completion date, put time at large. This was referred to as 'the construction point'.
  • Multiplex had by its conduct made the extension of time machinery inoperable. This was referred to as 'the operation point'.
  • If the extension of time mechanism was still operable, Honeywell's non-compliance with the conditions precedent put time at large. Reliance was placed on the decision of the Supreme Court of the Northern Territory of Australia in Gaymark Investments PTY Limited vs Walter Construction Group Limited [1999] NTSC 143 (the Gaymark point)
  • That a settlement agreement negotiated between Multiplex and WNSL put time at large.
The Decision

The Construction PointThe first issue before the court was whether under the particular wording of the subcontract, the subject variation instruction constituted a 'Relevant Event' under the extension of time clause. Honeywell contended that a variation instruction was not a Relevant Event, and hence put time at large.

Surprisingly (and rather unusually), a variation instruction was not specifically listed as a Relevant Event under the Subcontract. However, the term Relevant Event covered, amongst other things, an instruction to postpone the design or construction work under the Subcontract, and 'delay caused by any act of prevention or default by the Contractor...'.

The judge cited several well known authorities relevant to the operation of the prevention principle, in particular, Holme v Guppy (1838) M & W 387, Dodd v Churton [1897] 1 QB 566, Peak Construction (Liverpool) Limited v McKinney Foundations Limited [1970] 1 BLR 111 and Trollope & Colls Limited v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 and derived the following propositions:

  • 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.
  • Acts of prevention by an employer do not set time at large if the contract provides for extension of time in respect of those events.
  • In so far as the extension of time clause is ambiguous, it should be construed in favour of the contractor.

In relation to 3., the judge stressed that this proposition must be treated with care. It appeared to him that the extension of time clause was ambiguous, and the court should lean in favour of a construction that permits the contractor to recover appropriate extension of time in respect of events causing delay.

In argument, Honeywell submitted that Multiplex had the right to issue directions and variation instructions under clause 4.2, and Multiplex had the right to compel Honeywell to comply with those directions; however such instructions, lawfully given, could not be an act of prevention within the meaning of the EOT clause.

The judge was not persuaded by these submissions. The correct analysis was that directions under clause 4.2 do not automatically qualify for consideration under the EOT clause (clause 11):

'Many directions issued under clause 4.2 will have no effect at all upon the duration of the works. Contractors or sub-contractors frequently seek, or receive directions when matters of doubt arise in the course of their works. Nevertheless, if Multiplex issues a direction under clause 4.2 which constitutes a variation, and which leads to completion on a later date, then such variation prevents Honeywell from completing on the due date. Thus, such a direction constitutes an act of prevention within the meaning of [clause 11.10.7]. The fact that such a direction is permitted by the contract does not prevent it being an act of prevention (see Dodd v Churton and Trollope & Colls Limited v North West Metropolitan Hospital Board).'

Honeywell argued that a direction causing delay was at most an act of hindrance, not prevention, and this fell outside the EOT clause. Again, the judge was not persuaded.

'If a variation instruction affects the date upon which Honeywell is going to complete by a small period, one may say that this is a hindrance; it does not in any sense make the installation of the electronic systems impossible. On the other hand, that matter does prevent completion on the due date and it should be characterised as 'prevention'.'

His Honour affirmed the adjudicator's decision that issuance of the programmes constituted a variation instruction under the Subcontract. However, the judge differed from the adjudicator by holding that while such a variation instruction was not specifically listed as a Relevant Event under the Subcontract, it would qualify as either an act of prevention by Multiplex, or a postponement instruction. Both of which were a Relevant Event under the Subcontract; therefore, on this basis, time had not been set at large.

The Operation Point

Honeywell argued that updated programmes and programming information should have been provided by Multiplex. Multiplex had, by failing to provide the updated information, rendered the extension of time machinery inoperable because it was impossible to identify the critical path, or the extent of delay, and hence Honeywell could not comply with the notice requirements.

As a consequence, time was set at large. In support of the argument, Counsel for Honeywell relied upon witness statements and correspondence, to show that in light of Multiplex's programming breaches, it had been impossible to comply with its interpretation of the requirements of the conditions precedent in the EOT clause. Counsel for Multiplex submitted that Honeywell's argument had one fatal flaw. Namely, that based on Multiplex's interpretation, the EOT clause on its particular wording did not impose upon the subcontractor an obligation to provide anything further by way of notices and particulars, than he is able to provide.

The judge considered the relevant provisions under the Subcontract, and navigated a careful course through the Subcontract to find that there was no absolute requirement to serve notices immediately pursuant to its terms, but only after the delays became 'apparent', and to provide information 'if practicable'. He held that these obligations in fact required Honeywell 'to do his best as soon as he reasonably can'. Hence, based on the wording of this particular sub-contract, Honeywell needed only to submit notices and supporting information to the extent possible.

Furthermore, even though Honeywell was not able to properly ascertain the precise consequences of delay due to the lack of programming information, the fact that Honeywell had served many delay notices demonstrated its compliance with the extension of time clause in the judge's view.

On this basis, the judge concluded that the extension of time machinery under the Subcontract remained fully operational, and Honeywell was entitled to claim EOT.

The Gaymark Point

The mandatory nature of the requirement to give notice has been held in a number of cases to be a pre-condition to proceeding with the extension of time claim, so that when there was a failure to give notice within the time limit, the right to claim an extension of time was lost. The underlying logic is that notice of delay, and claims for extension of time, should be given within such time as will permit some remedial attention by the employer to the cause of delay.

Honeywell argued that even if compliance with the notice provisions remained possible, Honeywell's failure to comply with the extension of time clause was sufficient to put time at large. If it were otherwise, Multiplex would be able to recover damages for a period of delay which Multiplex had caused.

Honeywell based its argument on the principles set down in the Australian case of Gaymark Investments Pty Ltd v Walter Construction Group Limited [1999] NTSC 143, in which the employer's inability to grant an extension of time, because of the contractor's failure to provide a notice, caused wholly or partially by the employer, meant that time could be set at large.

The judge referred to the great debate in Keating and Hudson, and finally decided in favour of Ian Duncan Wallace's criticisms of Gaymark and the reasoning of Turner Corporation Limited (Receiver and Manager Appointed) v Austotel Pty Ltd 1997 13 BCL 378 and City Inn Limited v Shepherd Construction Limited 2003 STL 885. He also referred to the decision of the New South Wales Court of Appeal in Peninsula Balmain Pty Limited v Abi Group Contractors Pty Limited [2002] NSW CA 211 where Gaymark was not followed.

In these decisions, the contractor still had to comply with any notice provisions before an extension of time application could be entertained.

Drawing from these authorities, Mr Justice Jackson stated at paragraph 103:

'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. If Gaymark is good law, then a contractor could disregard with impunity any provision making proper notice a condition precedent. At his option the contractor could set time at large.'

The judge said that he had 'considerable doubts' whether the Gaymark case represented the law of England and concluded at paragraph 105, that:

'If the facts are that it was possible to comply with clause 11.1.3 [the extension of time clause] that Honeywell simply failed to do so (whether or not deliberately), then those facts do not set time at large.' On this basis, his Honour concluded that Honeywell's failure to comply with the notice requirement did not set time at large.

Settlement agreement

Honeywell also argued that by the terms of the sub-Contract, any extension was limited to the extension of time granted under the main contract. Since there had been a settlement between WNSL and Multiplex, no such extension will ever be given, and time was at large.

His Honour dismissed Honeywell's submission and confirmed that the settlement agreement as between WNSL and Multiplex had the effect of removing the cap on the extension of time under the subcontract. Therefore, Honeywell's right to claim an extension of time under the Subcontract was preserved, and the settlement agreement did not set time at large under the Subcontract.

The moral of the story

So what is to be gleaned from this case and, what are we likely to remember? One of the things that makes the case interesting is its context, namely that there was no express provision in this Sub-contract to extend time for a variation. This is certainly unusual in practice, but as a result it offers us fresh perspectives on some old questions.

First of all, is a variation capable of being an act of prevention? Well, in line with earlier cases such as Dodd v Churton, the answer still appears to be yes – where the extras ordered necessarily delay the works. This of course is to be distinguished from the situation where there is an absolute contract (a relatively rare occurrence, but on the wording of the contract the contractor has bound himself absolutely to complete the contract work with extras within the stipulated time).

judge found that the extension of time mechanism was not inoperable, because on its particular wording there was no absolute requirement for notice. It would seem that time could, in principle, have been set at large if on the wording of the Sub-contract, immediate notice with specific particulars had been stipulated. The judge drew considerable relief from the fact that Honeywell had actually served notices. Nevertheless the answer may have been different if the regime under the Sub-contract had been more onerous, and Honeywell had been able to convince the judge that it was not possible to comply with the EOT clause. It will be interesting to see whether this sort of argument will be taken up by others in future.

And finally, to the Gaymark point. It is possible that this decision will be the last we ever hear of Gaymark. Despite the criticisms, is it still fair to follow the Duncan Wallace line of thinking in circumstances where it is not even apparent that the contractor has a right to apply for an extension of time? The cases referred to such as Turner and Balmain relate to situations where there was a clear right to an extension of time but the contractor failed to exercise it. What happens if (as was alleged in the present case) you do not think you have any right to an extension. Surely it would be a harsh if the employer could still deduct liquidated damages based on his own delay.

The moral of this story? As always, be ever so careful in the drafting of those extension of time clauses, and give notice even when you are not sure whether there is any entitlement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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