PREVENTING IMPROPER LIABILITY FOR DELAY BUT NOT PREVENTING DISPUTES: RE-THINKING THE IMPLICATIONS OF THE PREVENTION PRINCIPLE IN AUSTRALIA AND ABROAD
KATRINA MAE *
In jurisdictions around the world, the prevention principle serves the important function of ensuring that contractors are not held liable for damages for late completion where delays are caused by principals. However, the implications of the prevention principle (and like Civil Code provisions in civil law jurisdictions) are overly extreme in that they operate to render time “at large” and to wholly deprive principals of their entitlements to liquidated damages for late completion of work. These extreme implications have resulted in principals developing a range of contractual provisions designed to avoid the operation of the prevention principle and to preserve the right to liquidated damages.
An analysis of commonly used contracts in Australia and internationally indicates that principals in Australia have gone further toward avoiding the operation of the prevention principle than principals in other jurisdictions, namely by introducing unilateral extension of time provisions into construction contracts. The current state of the law in Australia, including decisions such as Gaymark Investments Pty Ltd v Walter Construction Group Ltd  NTSC 143, makes the inclusion of these unilateral extension of time provisions in Australian contracts prudent for principals wishing to protect their rights to liquidated damages. However, while unilateral extension of time provisions are designed to avoid disputes in respect of liquidated damages entitlements, cases such as Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd  NSWCA 151 indicate that these sorts of contractual provisions are themselves an ongoing source of disputes.
The extent of argument that centres on these issues – both in our courts and during contract negotiations – indicates that the prevention principle is not achieving a satisfactory result for principals or contractors at present. In this context, it is time to re-think the implications of the prevention principle.
* Graduate of Melbourne Law School, University of Melbourne
Pt 1] Preventing Improper Liability for Delay
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