New Wembley result: EOT clauses 2, time at large 0

The new Wembley stadium has so far generated seven interesting court judgments. The most important so far for the industry was given last week. It is the first case for years on a golden rule and its avoidance:

• A party to a contract generally cannot insist upon the performance of an obligation which he has prevented the other party from performing (the prevention principle). In construction that means an employer, say, cannot hold his contractor to a specified completion date if the employer prevents the contractor from completing by that date. Instead the time for completion becomes “at large” (that is, the contractor must complete within a reasonable time).
• Often the contractor is required to pay liquidated damages (LDs) to the employer for late completion of his works. However he is not when the time for completion becomes at large (as there is no specified date from which the LDs can run) and the employer is left to claim general damages.
• To avoid the prevention principle many construction contracts provide for the completion date to be extended. Extension of time (EOT) clauses are therefore said to benefit both contractors (who are given longer to complete when employers delay completion) and employers (who retain specific completion dates and their rights to LDs). The wording of EOT clauses is critical as it was in Multiplex v Honeywell.

Mr Justice Jackson held that:

• Instructions given by Multiplex requiring Honeywell (as its sub-contractor) to comply with main contract programmes were caught by the EOT clause which included “delay caused by any act of prevention … by [Multiplex]”. The judge said that ambiguous EOT clauses should be construed in favour of permitting EOTs in respect of events causing delay. This is an interesting development because older authorities suggest the contrary.
• It did not matter that Multiplex’s instructions were validly given under the contract. Actions, which are legitimate under the contract (as well as breaches), may be acts of prevention if they cause delay beyond the completion date.
• If Honeywell had not complied with the notification requirements of the EOT clause, which made Honeywell’s prompt notification a condition precedent of an EOT, time was not rendered at large (and potentially Honeywell was not entitled to the non-notified EOT). Jackson J doubted that an Australian case (Gaymark) that suggests the contrary represented English law. He said: “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”.

This case provides comfort that time is unlikely to become at large under contracts with a sweep-up provision in the EOT clause (like the JCT 2005 forms) and contracts with strict notification requirements (like the NEC 3 form, which is to be used for Olympic projects). It does, however, highlight the risks of inadequate EOT clauses.