Prevention, liquidated damages and time at large

1. Prevention, liquidated damages and time at large Mr Justice Ramsey

2. The current state of the law: I If A contract provides for completion by 2 April 2011. A contract provides for liquidated damages of £10,000 per month. The contractor fails to complete the works by 2 April 2012. On the first day, the employer has given a variation which delays completion by 1 day. There is no extension of time clause that applies to that variation.

3. The current state of the law: I Then The employer cannot recover liquidated damages. The contractor is not bound to complete by 2 April 2011. The contractor only has to complete within a reasonable time. The employer can only recover unliquidated damages for failure to complete within a reasonable time.

4. The current state of the law: II If A contract provides for completion by 2 April 2011. A contract provides for liquidated damages of £10,000 per month. The employer gives a variation which delays completion by 1 year to 2 April 2012. The contractor delays completion the works by 1 day to 3 April 2012. There is an extension of time clause which applies to that variation. The extension of time clause requires, as a condition precedent to any extension of time, notice of delay within 1 hour of any variation. The contractor gives notice 1½ hours after the variation.

5. The current state of the law: II Then The employer can recover liquidated damages for delay of 1 year and 1 day. The contractor is bound to complete by 2 April 2011. The contractor cannot claim for delay.

6. How has this come about? Holme v Guppy (1838) 150 E.R. 1195 per Parke B at 1196: “if the party be prevented, by the refusal of the other contracting party, from completing the contract within the time limited, he is not liable in law for the default (1 Roll. Abr. 543; Com. Dig. Condition, L.(6)). It is clear, therefore, that the plaintiffs were excused from performing the agreement contained in the original contract; and there is nothing to shew that they entered into a new contract by which to perform the work in four months and a half, ending at a later period. The plaintiffs were therefore left at large; and consequently they are not to forfeit anything for the delay.”

7. Comyn’s digest Comyns’ Digest under “condition” at rule L(6) provides: “So the performance of a condition shall be excused by the obstruction of the obligee: as if a condition be to build a house; and he, or another by his order, hinders his coming upon the land. Or says that it shall not be built. Or interrupts the performance....”

8. The Victorian Era In Thornhill v Neats (1860) 141 E.R. 1392 Willes J stated at 1398 that “when by agreement of the parties a portion of the work is not to be done within the stipulated time, the right to claim compensation is waived. It appears to me that that is substantially what was decided in Holme v Guppy.”

9. The Victorian Era In Russell v Viscount Sa DaBandeira (1862) 143 E.R. 59 ErleCJ said at 82 : “Holme v. Guppy, 3 M. & W. 387, decides that, where a contractor undertakes, under pain of a certain penalty or forfeiture, to perform a work within a given time, and the performance within the time is prevented by the act of the party with whom he contracts, the contractor is exonerated from the penalties.” Byles J said at 83: “Holme v. Guppy, 3 M. & W. 387, is substantially in point.... It is founded upon an old and well-understood rule of law. The authorities will be found collected in Comyns's Digest, Condition (L. 6). Where the condition has become impossible of performance by the act of the grantee himself, the grantor is excused.”

10. The Victorian Era In Roberts v Bury Improvements Commissioners (1869-70) L.R. 5 C.P. 310 at 326 Kelly CB said in relation to breach of an implied term to “do their part within a reasonable time”: “..if they broke that implied contract, the contractor would have a cause of action against them for any damages he might sustain and the commissioners would be precluded from taking advantage of any delay occasioned by their own breach: for it is a principle very well established at common law, that no person can take advantage of the non-fulfilment of a condition the performance of which has been hindered by himself; see Com. Dig. Condition (L); and also that he cannot sue for a breach of contract occasioned by his own breach of contract, so that any damages he would otherwise have been entitled to for the breach of the contract to him would immediately be recoverable back as damages arising from his own breach of contract. These principles have been applied to contracts very analogous to the present, in the cases of Holme v Guppy, Russell v DaBandeira and Westwood v Secretary of State for India”.

11. The end of the Victorian Era Dodd v Churton [1897] 1 Q.B. 562 at 566 per Lord Esher MR: “The principle is laid down in Comyns' Digest, Condition L (6.), that, where one party to a contract is prevented from performing it by the act of the other, he is not liable in law for that default; and, accordingly, a well recognised rule has been established in cases of this kind, beginning with Holme v Guppyto the effect that, if a building owner has ordered extra work beyond that specified by the original contract which has necessarily increased the time requisite for finishing the work, he is therefore disentitled to claim the penalties for non-completion provided for by the contract. The reason for that rule is that otherwise a most unreasonable burden would be imposed on the contractor.

12. The end of the Victorian Era Dodd v Churton [1897] 1 Q.B. 562 Lopes LJ said at 568: “It has been often laid down that, where there is provision that a contractor shall pay penalties for delay as in the present case, no penalty can be recovered where delay has been occasioned by the act of the person endeavouring to enforce the penalties.” Chitty LJ saidat 568: “The case of Holme v Guppy and the subsequent cases in which that decision has been followed are merely examples of the well-known principle stated in Comyns' Digest, Condition L (6.), that, where performance of a condition has been rendered impossible by the act of the grantee himself, the grantor is exonerated from performance of it.”

13. Summary of the Position at 1900 Principle: If the party be prevented, by the refusal of the other contracting party, from completing the contract within the time limited, he is not liable in law for the default. Application: No penalty can be recovered where delay has been occasioned by the act of the person endeavouring to enforce the penalties.

14. How has that developed into: Principle: If the party be prevented, by the refusal of the other contracting party, from completing the contract within the time limited, he is not liable in law for the default. Application: Liquidated damages are not recoverable. The fixed time for completion becomes completion within a reasonable time.

15. How has that developed into: Principle: If the party be prevented, by the refusal of the other contracting party, from completing the contract within the time limited, he is not liable in law for the default. Application: If the party be prevented, by the refusal of the other contracting party, from completing the contract within the time limited, he is not liable in law for the default.

16. Liverpool in the 1960s The Court of Appeal in Peak v McKinney (1970) 1 BLR 111 held that part of a 58 week period of delay was caused by the employer’s breach. On that basis Salmon LJ said at 121: “In my judgment, however, the plaintiffs are not entitled to anything at all under this head, because they were not liable to pay any liquidated damages for delay to the corporation. A clause giving the employer liquidated damages at so much a week or month which elapses between the date fixed for completion and the actual date of completion is usually coupled, as in the present case, with an extension of time clause. The liquidated damages clause contemplates a failure to complete on time due to the fault of the contractor. It is inserted by the employer for his own protection; for it enables him to recover a fixed sum as compensation for delay instead of facing the difficulty and expense of proving the actual damage which the delay may have caused him. If the failure to complete on time is due to the fault of both the employer and the contractor, in my view, the clause does not bite. I cannot see how, in the ordinary course, the employer can insist on compliance with a condition if it is partly his own fault that it cannot be fulfilled: Wells v Army & Navy Co-operative Society Ltd.- Amalgamated Building Contractors v Waltham Urban District Council; and Holme v Guppy. I consider that unless the contract expresses a contrary intention, the employer, in the circumstances postulated, is left to his ordinary remedy; that is to say, to recover such damages as he can prove flow from the contractors’ breach.”

17. Liverpool in the 1960s Edmund Davies LJ said at 126: “The stipulated time for completion having ceased to be applicable by reason of the employer’s own default and the extension clause having no application to that, it seems to follow that there is in such a case no date from which liquidated damages could run and the right to recover them has gone.” Phillimore LJ said at 127: “It follows, once the clause is understood in that way, that if part of the delay is due to the fault of the employer, then the clause becomes unworkable if only because there is no fixed date from which to calculate that for which the contractor is responsible and for which he must pay liquidated damages.”

18. Wembley in the 1960s In Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 Lord Pearson said in relation to the judgment in the Court of Appeal: On the other hand, the majority of the Court of Appeal, Lord Denning M.R. and Phillimore L.J., decided in favour of the respondents. Lord Denning M.R. decided first on a point of construction or perhaps on a rule of law which he derived from Dodd v Churton [1897] 1 QB 562. I will set out a passage from the judgment of Lord Denning, inserting “(1)” and “(2)” to divide it into two parts: “(1) It is well settled that in building contracts — and in other contracts too — when there is a stipulation for work to be done in a limited time, if one party by his conduct — it may be quite legitimate conduct, such as ordering extra work — renders it impossible or impracticable for the other party to do his work within the stipulated time, then the one whose conduct caused the trouble can no longer insist upon strict adherence to the time stated. He cannot claim any penalties or liquidated damages for non-completion in that time. “(2) The time becomes at large. The work must be done within a reasonable time — that is, as a rule, the stipulated time plus a reasonable extension for the delay caused by his conduct.” Then he said: “That was established by Dodd v Churton.” Now Dodd v Churtondoes establish the first part of that passage, which I have marked “(1),” but does not establish, or afford any support to, the second part of the passage which I have marked “(2).”

19. Squatters in Chiswick in the 1980s In Rapid Building Group v Ealing Family Housing Association Ltd (1984) 29 BLR 5 Stephenson LJ said at 15: “It is accepted that a party must elect whether to claim liquidated or unliquidated damages; but as it seems to me, where the claim for liquidated damages has been lost or has gone, as has been rightly held by the judge, the defendants are not precluded from pursuing their counterclaim for unliquidated damages. It is not accepted on behalf of the defendants that if they pursue their claim it has on it a ceiling equal to the amount of liquidated damages claimed. I do not find it necessary to decide that point...”

20. 250 miles North East of Aberdeen in the 1990s In McAlpineHumberoak Ltd v McDermott International Inc (1992) 58 BLR 1 at 21 Lloyd LJ said: “The principle enunciated in Wells v Army & Navy Co-operative Society was not new. It is as old as Holme v Guppy (1831) 3 M & LJ 387, where Baron Parke first used the phrase, often since repeated, of the contractor being “left at large”. In recent times the principle has been applied in such cases as Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 114, The Cape Hatteras [1982] 1 Lloyd’s Rep 518 and SMK Cabinets v Hili Modern Electrics Pty Ltd [1984] VR 391. In all these cases the employer was claiming liquidated damages. In all of them it was held that the claim for liquidated damages must fail since the employer could not rely on the original date of completion, nor on a power to extend the date of completion. In the absence of such a power, there could be no fixed date from which the liquidated damages could run.”

21. Wembley in the 2000s In Multiplex v Honeywell [2007] BLR 195 at [103] Jackson J said this: “I am bound to say that I see considerable force in Professor Wallace’ criticisms of Gaymark. I also see considerable force in the reasoning of the Australian courts in Turner and in Peninsula and in the reasoning of the Inner House in City Inn. Whatever may be the law of the Northern Territory of Australia, I have considerable doubt that Gaymark represents the law of England. 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.”

22. Wembley in the 2000s In Multiplex v Honeywell [2007] BLR 195 at [48] Jackson J said this: “In the field of construction law, 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 by the specified date is replaced by an implied obligation to complete within a reasonable time.”

23. Abu Dhabi in the 2000s In Adyard Abu Dhabi v SD Marine Services [2011] BLR 384 Hamblen J adopted the statement of Jackson J on the prevention principle at [240] but held that it did not apply because there was an extension of time provision. He then considered whether, in any event, there had been delay caused by the alleged act of prevention. He referred to Lord Denning’s speech in Trollope & Colls and said at [282]: “The conduct therefore has to render it “impossible or impracticable for the other party to do the work within the stipulated time”. The act relied on must actuallyprevent the contractor from carrying out the works within the contract period or, in other words, must cause some actual delay.”

24. Camden in the 2000s In JerramFalkus Construction Ltd v Fenice Investments Inc [2011]BLR 644, Coulson J adopted that passage in Adyard and said this at [50]: “Hamblen J’s analysis indicated that, if there were two concurrent causes of delay, one which was the contractor’s responsibility, and one which was said to trigger the prevention principle, the principle would not in fact be triggered because the contractor could not show that the employer’s conduct made it impossible for him to complete within the stipulated time. The existence of a delay for which the contractor is responsible, covering the same period of delay which was caused by an act of prevention, would mean that the employer had not prevented actual completion. Throughout his analysis, Hamblen J stressed the importance of the contractor proving delay to the actual progress of the work as a result of the alleged act of prevention.”

25. Startled Judges The effect of the law has been the subject of judicial comment:. In Peak v McKinney, Phillimore LJ said at 127: “...I would add a word or two about liquidated damages. I do so really because I was somewhat startled when Mr Gardam said in the course of his argument that the moment any part of the delay which has occurred can be attributed to the employer, then any agreement as to liquidated damages disappears. In other words, if in this particular case 50 weeks of the delay was attributable to these defendants due to their breach of contract, and eight weeks was attributable to the inefficient action of the corporation, then this provision for liquidated damages would automatically become ineffective. Mr Rankin conceded that the summary of the effect of the cases set out in Hudson’s Building and Engineering Contracts (9th Edition, 1965 page 478) was correct save only in regard to subparagraph (d), which he suggested went too far. I think his concession was right. “

26. Startled Judges In Rapid v Ealing Lloyd LJ said at 19: “Like Phillimore LJ, in Peak Construction (Liverpool) v McKinney Foundations Ltd, 1 BLR 127, I was somewhat startled to be told in the course of the argument that if any part of the delay was caused by the employer, no matter how slight, then the liquidated damages clause in the contract, clause 22, becomes inoperative. I can well understand how that must necessarily be so in a case in which the delay is indivisible and there is a dispute as to the extent of the employer’s responsibility for that delay. But where there are, as it were, two separate and distinct periods of delay with two separate causes, and where the dispute relates to only one of those two causes, then it would seem to me to be just and convenient that the employer should be able to claim liquidated damages in relation to the other period.”

27. Startled Judges In Balfour Beatty v Chestermount (1993) 62 BLR 1 Colman J expressed similar surprise: “It was common ground that if the contract failed to provide for power to grant an extension of time on account of delays caused by an act of prevention, the effect of the act of prevention was to prevent the employer relying on the completion date/liquidated damages provisions in the contract. The obligation to complete the works was to be performed within a reasonable time, there could be no extensions on account of relevant events and the employer’s only hope of compensation would be to recover unliquidated damages for delay: see Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111. The remarkable consequences of the application of this principle could therefore be that if, as in the present case, the contractor fell well behind the clock and overshot the completion date and was unlikely to achieve practical completion until far into the future, if the architect then gave an instruction for the most trivial variation, representing perhaps only a day’s extra work, the employer would thereby lose all right to liquidated damages for the entire period of culpable delay up to practical completion or, at best, on the respondents’ submission, the employer’s right to liquidated damages would be confined to the period up to the act of prevention. For the rest of the delay he would have to establish unliquidated damages. What might be a trivial variation instruction would on this argument destroy the whole liquidated damages regime for all subsequent purposes. “

28. Rewind the clock Holme v Guppy: where one party is prevented from completion by the other party that party is not liable for the default and is “left at large”. Does that mean that the act of prevention alters the fundamental obligations and rights as to time under the contract? Or rather, should the time and liquidated damages provision remain, with the contractor not being liable for the delay caused by the employer?

29. It depends on “left at large” “Killer left at large by police failures” Or Vacancies left at large: