International Construction Law Review
SCALING THE PEAK: THE PREVENTION PRINCIPLE IN AUSTRALIAN CONSTRUCTION CONTRACTING
MATTHEW BELL
The University of Melbourne *
I. SYNOPSIS
It has long been recognised that the “prevention principle” may operate to render void any contractual entitlement to liquidated damages for delay. This recognition has resulted in the principle representing a key battleground in commercial contracting, especially in the construction sector. This article tracks the evolution of the prevention principle in Australia through cases and contracting practice. In the light of this survey, the article outlines the current state of the law in Australia, noting both the guidance which can be gleaned from the cases for drafters of construction contracts, and aspects of the law which are in need of reform. In respect of the latter, particular attention is given to the prohibition upon courts and other dispute resolution for undertaking a retrospective apportionment of delay liability for the purposes of awarding liquidated damages. The article proposes that significant benefits for the law and practice of construction contracting may flow from this prohibition being overturned.
II. INTRODUCING THE PREVENTION PRINCIPLE
More than half a century ago, Denning LJ stated that, when engaging a contractor,1
a principal “cannot insist on a condition if it is his own fault that the condition has not been fulfilled”.2
It is said that the effect of this
* BA (Hons), LLB (Hons), MConstrLaw (Melb); Lecturer and Co-Director of Studies for Construction Law, Melbourne Law School, The University of Melbourne; Professional Support Lawyer to the Projects and Construction Group, Clayton Utz. The author acknowledges with gratitude the comments made on a draft of this article by Assoc Prof Fred Ellinghaus. Nonetheless, any opinions expressed, and any errors, are the author’s. This article is based upon a paper submitted by the author for the Masters of Construction Law, The University of Melbourne.
1 The prevention principle applies to all links of the chain of contracts on projects; indeed, two of the leading cases, Peak Construction (Liverpool) Ltd
v. McKinney Foundations Ltd
(1970) 1 BLR 111 and SMK Cabinets
v. Hili Modern Electrics Pty Ltd
[1984] VR 391 (both of these are discussed in detail in Part III, below) involved issues generated primarily from subcontracts. For this reason, and for consistency in terminology, this article refers throughout to the party undertaking work as the “contractor” and the party engaging the contractor (which might, in fact, be a head/main contractor engaging a subcontractor) as the “principal”. “Superintendent” is used to refer generically to the contract administrator/engineer/architect.
2 Amalgamated Building Contractors Ltd v. Waltham Holy Cross Urban District Council [1952] 2 All ER 452, 455.
Pt 3]
Prevention Principle in Australian Construction Contracting
319