Topic Review

Prevention Principle
Reviewed by Goh Hweh Tze
Date: April 2016

The prevention principle is a long established England common law doctrine.

Generally, the prevention principle means that a party may not enforce a contractual
obligation against the other party when the party has prohibited the other party from
carrying out that obligation (Stewart & Fillion, 2014). 1 The prevention principle is to
ensure a party cannot obtain benefit from the fault that the party had done (Pickavance
J; Mendelblat M; Smith H, 2011; Stewart & Fillion, 2014).2 Hence, the purpose of this
principle is seem fair to the contractual parties. In the construction industry, the
contractor is responsible to complete the project within the agreed period. If the
employer causing delay and do not grant extension of time, prevention principle
would be enlivened result the time became at large and the liquidated damages regime
would unenforceable. This principle had some significant issues that related to
construction industry and I would like to cover this in the following report.

However, recently the England court have question to the necessity of

prevention principle. In the case of Bluewater Energy Services BV v Mercon Steel
Structures BV and others, 3the court highlighted that if the contract had a good
extension of time (EOT) provisions, the prevention principle was no need to be
considered. Ramsey J said that:

1 Stewart, J. & Fillion, A., 2014. The Prevention Principle- Pitfalls for
Principals. [Online] Available at:
http://www.minterellison.co.nz/the_prevention_principle/ [Accessed 4 April
2016].
2 Pickavance, J., Mendelblat, M. & Smith, H., 2011. The Peak Effect- Issues.
[Online] Available at: http://www.herbertsmithfreehills.com/-/media/HS/L011211-6%20(3).pdf [Accessed 5 April 2016].
3 [2014] EWHC 2132

The principle is of some antiquity and has a surprising effect on the

contractual obligations as to the time for completion. As I have found that
there is an extension of time mechanism for acts of prevention and I am able,
so far as is necessary, to determine the appropriate adjustments to the Schedule
of Key Dates, this is not the opportunity to consider the underlying basis for
the principle.4
This arise a question that whether the prevention principle still applied in
Malaysia. The case of Kerajaan Malaysia v Ven-Coal Resources Sdn Bhd 5 was the
latest case that related to prevention principle in construction context in Malaysia. In
the case of Kerajaan Malaysia v Ven-Coal Resources Sdn Bhd [2014] 11 MLJ 218,
there was a contract between the plaintiff and defendant. The contract was about to
complete a temporary building, demolish the school and construct a school. The
plaintiff granted an extension of time because of the increase of price and shortage of
building materials. Everything was run smoothly until the temporary building was
completed but the headmaster refused to move in. The headmaster requested the
defendant to construct a store as a condition to move in the temporary building. At
that time, the contractor had no other things to do except demolition. The contractor
constructed the store after obtaining the drawings. The students moved into the
temporary building after the store was constructed completely.
After that, the piling test was failed. A variation (VO) instruction was given to
increase the piling depth from 36 meters to 48 meters for 144 piles. There was delay
of work because of the failed of load test, specially ordered for new piles and waiting
the result for new pilings load test. The defendant requested extension of time (EOT)
due to these variation works. However, the superintending officer (SO) refused to
grant an extension of time (EOT). Later, the plaintiff terminate the contract. Then, the
plaintiff brought this matter to the Court and wanted to claim cost to engage a new
contractor while the defendant counter claimed for wrongful termination. In the High
Court, the judge Lee Swee Seng held that when the SO improperly refused to grant an
EOT, the time for completion is set at large. Lee Swee Seng said:
4 Ibid., p.140.
5 [2014] 11 MLJ 218

The refusal and neglect of the plaintiff in granting the EOT requested by the
defendant was, in the cir-cumstance of the case, unconscionable, unreasonable
and improper.
When the SO improperly refused to grant an EOT in a situation that would
warrant an EOT, then time for completion is set at large. As was held in the
Singapore Court of Appeal case of Soh Beng Tee & Co Pte Ltd v Fairmount
Development Pte Ltd [2007] 3 SLR 86 :
... the concept of time being set at large is not at all alien to construction
disputes. It is firmly established that, as mentioned above, time may be set at
large due to acts of prevention where there is no contractual provision
governing the situation or where the architect fails to properly grant an
extension of time under the contract. See also, IN Duncan Wallace QC,
Hudson's Building and Engineering Contracts (Sweet and Maxwell, 11th Ed,
1995) vol 2 at para 10.040; Keith Pickavance, Delay and Disruption in
Construction Contracts (Lloyd's of London Publishing Ltd, 3rd Ed, 2005) at ch
6 ... (Emphasis added.)
Based on the case of Kerajaan Malaysia v Ven-Coal Resources Sdn Bhd, 6 the
prevention principle still applied in Malaysia when there had extension on time
provision. This is because superintending officer (SO) refused to grant the extension
on time to the contractor. Hence, the prevention principle is still usable in Malaysia
since that are people unwilling to follow the term in the contract. In Malaysia,
prevention principle is still importance although the contract has adequate extension
on time provision. This is for the fairness toward both of the contractual parties.

In relation to this principle, one of the issues that often discussed by the researchers is
the extent of the action of employers that will trigger the prevention principle.
Referred to the Malaysian case above, it seems that as long as the extension of time
6 [2014] 11 MLJ 218

(EOT) does not issue accordingly, even the contract provide extension of time
provision, the prevention principle can be enlivened.

In addition, according to Pickavance, Mendelblat, & Smith (2011), there are

uncertainty for English and international courts in applying the prevention principle in
construction law issue. There are some international cases hold that any employer's
act will cause the prevention principle. It is quite startled because of the extent toward
the action that would enliven the prevention is very wide. However, there are case
hold that things likes variation would not create the prevention principle. Hence, there
are suggestion that there should be an extent for employer's act that can cause
prevention principle (Pickavance, et al., 2011).

In the case of SMK Cabinet v Hili Modern Electrix [1984] VR 391 and the
case of Rapid Building Group v Ealing Family Housing Association (1984) 29 BLR 5,
the courts held that include any act of employer will trigger the prevention principle.

In the case of S M K Cabinets v Hili Modern Electrics PTY LTD,7 the

prevention principle can be triggered by the variation orders after the due date for
completion the work, except the contract had an extension of time provision. In this
case, the contract was about to supply and install cupboards at premises in Fawkner. S
M K Cabinets was the contractor and Hili Modern Electric Pty Ltd was the owner.
Hili Modern Electric Pty Ltd ordered a variation after the due date. The project was
delayed and the Hili Modern Electric Pty Ltd wanted to claim liquidated damages.
However, S M K Cabinets argued that the prevention principle was triggered and the
liquidated damages provision should be inoperative. This case brought to arbitration
and arbitrator found that variation made by Hili Modern Electric Pty Ltd had delayed
the completion date. This case was later brought to the court. The Supreme Court held
that the liquidated damages was unenforceable because of the proprietors action that

7 [1984] VR 391

causing delayed of the project and there was no extension of time provision in the
contract. Brooking J said that:
That the ordering of variations after the due date which must substantially
delay completion will, unless the contract provides otherwise, and in the
absence of an applicable extension of time clause, disable the proprietor from
recovering or retaining liquidated damages which might otherwise have
accrued after the giving of the order, the employers right in respect of
amounts that have already accrued by way of liquidated damages not being
affected.

In the case of Rapid Building Group v Ealing Family Housing, 8 the contract
did not had a provision for extension of time for late of giving the site possession.
There was approximate 43 weeks late than the agreed date of completion. There was
about three weeks late because of the employer late giving the possession of the site.
This was because of the presence of the squatters. The court held that time became at
large and the date for completion the works became reasonable time. The Employer
cannot claim for liquidated damages but can claim for unliquidated damages. The
judge, Lloyd LJ was startled because of extend of the employer action that was trigger
the prevention principle was very wide. The judge said at para 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 employers
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
8 (1984) 29 BLR 5

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.

On the other hand, Act of employer that will trigger the prevention principle
does not have to be a breach of the construction contract. Oppositely, the action that
trigger the prevention principle is entirely expected or allowed event (Sharpe
Pritchard, 2015) for example increase the work load. This is also similar in Malaysia,
the case of Kerajaan Malaysia v Ven-Coal Resources Sdn Bhd.9

However, the decision was opposite in the case of Balfour Beatty Building Ltd
v Chestermount Properties Ltd (1993) 62 BLR 27. In this case the Court held that the
variation order could not destroyed the liquidated damages regime.

From the above mentioned cases, it can be concluded that the extent of action of the
employer that would trigger the prevention principle is still unclear until now. But
generally the extent of the employers act that would enliven the prevention principle
is very wide.

Another issue that related to this principle is: when the contract expressly
stated that the notice to claim extension of time is the condition precedent to entitle
the contractor with extension of time, in the event that the contractor failed to apply
for extension of time to contract administrator and the extension of time does not
issue to the contractor, whether the prevention principle will applied and the time will
be set at large?

9 [2014] 11 MLJ 218

In the construction industry, the prevention principle is related to liquidate

damages (LAD). Construction industry is a very complex and involve a lot of parties.
For a construction contract, there usually will have an agreed fixed completion date.
Delay in completion the construction works may be caused by many reasons. The
contractor needs to pay liquidated damages (LAD) to employer if the contractor late
to complete the work. However, if the employer prevents the contractor to perform the
work, the employer would lose the right to claim liquidated damages (LAD) and right
to depend on the contracted completion date (Stewart & Fillion, 2014). 10 The
exceptions for the prevention principle in this situation is an extension of time (EOT)
is allow for delay (Stewart & Fillion, 2014). 11 Hence, the prevention principle is
caused when the employer results a delay and the contract does not offer for an
extension of time (EOT).
The prevention principle will cause some risks toward employer. In order to
claim extension of time (EOT), the contractor needs to follow the rules of claims for
extension of time as stated in the contract. If the contractor failure to comply with the
condition precedent to claim for extension of time (EOT), the contractor might argue
that the extension of time (EOT) will become impossible to be granted and triggering
the prevention principle and the liquidated damages (LAD) would be disabled. In the
case of Tumer Corp v Austotel Pty Ltd (1997) 13 BCL 378, the contractor argued that
the condition precedent for extension of time (EOT) was fail to fulfilled and this
caused the extension of time (EOT) cannot be granted and triggered prevention
principle and the contractor became not liable to pay for liquidated damages (LADs).
The Court disallowed the contractor claimed. However, the court held the opposite
decision in the case of Gaymark Investments Pty Ltd v Walter Construction Group
Limited (1999) 16 BCL 449.

10 Stewart, J. & Fillion, A., 2014. The Prevention Principle- Pitfalls for
Principals. [Online] Available at:
http://www.minterellison.co.nz/the_prevention_principle/ [Accessed 4 April
2016].
11 Ibid.

From the research of Sim (2009), with reference to the cases of Gaymark
Investments Pty Ltd v Walter Construction Group Limited12; Peninsula Balmain Pty
Ltd v Abigroup Contractors Corp Pty Ltd13; City Inn Ltd v Shepherd Construction
Ltd14; Multiplex Constructions v Honeywell Control System15; and Steria Ltd v Sigma
Wireless Communication Ltd16, it can be concluded that the Court of law will tend to
reject the prevention principle provided that the notice to claim extension of time is
clearly made as a condition precedent. There was only one case, Gaymark
Investments Pty Ltd v Walter Construction Group Limited 17 had a difference decision.
In the Gaymarks case,18 the judge held that even the contractor did not apply for
extension of time, the employer still had the right to grant extension of time to the
contractor. Therefore, the employer could not avoid the prevention principle and
benefit from his own fault thus the time is set at large.
However, the other cases held that the prevention principle did not apply in this
situation because the contractor had waived his right to claim extension of time by his
failure to operate the extension of time correctly and failure to make a successful
application. Therefore, the time is not set at large.
Hence, the properly drafted condition precedent provision has the effect that, if
a contractor fails to comply with its requirements he not only loses his entitlement to
an extension of time under the provision. But he will incurs a potential liability to pay
liquidated damages if he fails to meet the contract completion dated. A contractor still
has to comply with the properly drafted condition precedent requirements even
12 Ibid.
13 [2002] NSWCA 211
14 [2003] SLT 885 Scot SC 146
15 [2007] EWHC 447 (TCC)
16 [2007] EWHC 3454 (TCC)
17 Supra.
18 Supra.

though, the contractor has a clear right to an extension of time due to delay caused by
employer.
In conclusion, although the prevention principle is a long established England
common law doctrine, this principle is still useful in Malaysia. This can seem from
the case of Kerajaan Malaysia v Ven-Coal Resources Sdn Bhd.19 Next, generally the
extent of the employers act is very wide to apply prevention principle. Lastly, the
prevention principle will not apply even an extension of time did not granted to the
contractor. This occurred when the contractor did not successfully claim the extension
of time and the contract requires the contractor to give notice to claim extension of
time as a condition precedent.

19 Supra.

References
Pickavance, J., Mendelblat, M. & Smith, H., 2011. The Peak Effect- Issues.
[Online]
Available at: http://www.herbertsmithfreehills.com/-/media/HS/L-0112116%20(3).pdf
[Accessed 5 April 2016].
Sharpe Pritchard, 2015. Preventing Prevention: A Summary of The
Prevention Principle and Its Potential Impact on The Parties under
Construction Contracts. [Online]
Available at: http://www.sharpepritchard.co.uk/news/preventing-prevention
[Accessed 9 April 2016].
Sim, K., 2009. Condition Precedent Notice in Extension of Time
application, Johor: University Teknology Malaysia.
Stewart, J. & Fillion, A., 2014. The Prevention Principle- Pitfalls for
Principals. [Online]
Available at: http://www.minterellison.co.nz/the_prevention_principle/
[Accessed 4 April 2016].