Author(s):Rini Agrawal

Preventive Principle and Extension of Time

Time and again we have discussed the level of dynamicity in the sectors and industries such as construction, maritime, cryptocurrency and the like. Today, we are going to analyze why these areas in specific are comparatively more dynamic than others – mainly because projects and transactions in these sectors include numerous parties who operate on different stages. It is a mechanism for various individuals who perform their contractual obligations that are guided by internationally accepted norms. For instance, in the construction industry, engineering contracts usually are governed by the contract templates released by the Fédération Internationale Des Ingénieurs-Conseils (FIDIC), Engineering Advancement Association of Japan (or popularly known as the ENAA) among others. These templates or default contracts are in place to minimize the dynamicity that we had earlier discussed; however, they are not always viable because – every project is different from each other. No two plans or transactions are structured the same way since each project has its peculiarity in the number of parties involved, the financing structure in place, the estimated timeline for project completion and the like.

Now, coming back to the topic I was initially assigned. In this article, we have elucidated the facts and issues of a landmark case that arose due to sector dynamicity between Adyard Abu Dhabi LLC (a company established in Abu Dhabi, United Arab Emirates) and SD Marine Services (a company incorporated in the United Kingdom). The case of Adyard Abu Dhabi (or Adyard or Claimant) v SD Marine Services (or SD or Defendant)[i] came before the High Court of Justice (Queen’s Bench Division Commercial Court). Th court had to decide whether there a contractor can extend the time to complete to project when a delay that falls within the ambit of ‘prevention principle’ has taken place.

Facts of the Case

Adyard was an SME (small to medium size enterprise) that specialized in shipbuilding in Abu Dhabi, and SD provided commercial services in the maritime industry to the public sector in the United Kingdom. The Defendant had contracted with the Government of the United Kingdom to deliver sea-port services, navigational services and the like to the Royal Navy of the United Kingdom over a period of fifteen (15) years. SD appointed another company, SERCO, as the subcontractor and overlooked the project.

The Defendant had engaged the Claimant to construct and assemble two (2) moorings and SOSVs (special operations support vessels) under a contract dated 14 December 2007 (the Contract). The Contract had stated that the Claimant had the liability to manufacture, assemble and ready the two (2) SOSVs by 30 September 2009 and 30 November 2009 for sea-trials. Article II of the Contract had also provided that the Defendant had the right to revoke the Contract in case the SOSVs were not ready for sea-trials by the dates agreed. Clause 3.3 of article II reads as follows:

‘If the Builder fails to complete either of the stages contained in Clause 3.1(c) or (e) by the dates specified therein, then the Buyer may, at its option, rescind this Contract. However, it should be by the provisions of Article X hereof, always provided that, to the extent that any delays were due to the Buyer’s default or any Permissible Delay, that the increment in the period shall be to the same extent.’

Clause 2.1 of article X of the Contract states that Adyard had the liability to refund all the amounts it had received from SD if they had not commenced the proceedings. However, the SOSVs were not ready for the decided dates, and SD subsequently exercised its right to rescind the Contract vide letters dated 7 October 2009 and 14 December 2009.[ii]

Contentions

Claimant’s Contentions

Adyard commenced proceedings by article X on 15 October 2009 and 14 December 2009[iii] claiming that the delay had occurred due to SD. They also contended in the circumstances that they were entitled to an extension and therefore, were not liable to refund the installments paid by SD. The primary contention of the Claimant was that SD and the Maritime Coastguard Agency had instructed them to make numerous changes in the designs of the vessels in June and July 2009. Adyard stated that the delay was not caused due to them as the variations arose from the changes in the safety standards of the Maritime Coastguard Agency.

They also submitted that the ‘preventive principle’ would apply in their matter since their scope of work was amended to include the variations after the contract had commenced. It has also established in the Trollope & Colls Ltd v. North West Metropolitan Regional Hospital Board[iv] case that when the employer amends or increases the scope of work for the employee by asking the latter to do an additional job. In such cases, it would become impractical for the employee to complete the scope of work in the estimated or granted time. Therefore, the employer will not be liable for any liquidated damages due to the non-completion of the project on time. Adyard stated before the court that SD had asked them to undertake extra work (variations) and refused to negotiate on any adjustments or intention of time for completing the project.

Defendant’s Contentions

SD, on the other hand, claimed that the design items ordered by them were not variations and also stated that there were no changes in the safety standards of the Maritime Coastguard Agency. They contended that the Maritime Coastguard Agency had merely reported that vessels would have to comply with the safety requirements of the SPS Code. They claimed that even if there were any variation in the scope of work (as Adyard had requested), it would not contribute to any additional delay. SD also emphasized on the Claimant’s failure to furnish notice by Article VIII, clause two which mandated the latter to provide the cause of delay’.

The Decision of the Court

The court identified that there were contractual and factual issues in this case since the parties had raised their contentions on both grounds. The claimant successfully contended and established that there were variations in Article V, clause 2 of the Contract. However, Adyard’s case ultimately depended on the applicability of the precautionary principle in this specific case. The learned court referred to the explanation of the preventive law in the judgment of Multiplex v Honeywell[v], in which Jackson J stated that one party could not insist the other side perform an obligation that the latter could not complete due to specific hindrances put forward by the former. In the construction sector, employers cannot hold the contractor liable if they could not meet the completion date due to variations (act or omission) of the employer. Instead, the contractor should be provided with reasonable time to complete the project considering the degree of difference. Extension of time clauses in construction contracts aims to protect and safeguard the rights and liabilities of both the parties. There are three (3) general propositions formulated by Jackson J that is still followed in the construction sector, being:

Legitimate actions by the employer could be termed as preventive if it causes the delay beyond the date specified in the contract; Preventive measures by the employer that does not set time at large (provided the agreement provides for EOT or extension of time clause for those specific issues); When the parties have concluded that there is ambiguity regarding the expansion of time clause – such uncertainty should favor the contractor.

The court found that the Adyard failed to enforce the precautionary principle since they did not have any substantial claim for an extension of time. The court also observed that Article II, clause 3.3 and article VIII had laid down the circumstances when the contractor could claim for an extension of time to complete the project. However, Adyard failed to furnish notice by Article VIII, clause 2 to enforce these provisions. On the other hand, even if there were no requirements regarding the announcement, the actual reason for the delay should be analyzed to understand the extension of time. Once, they identify and analyze the right or cause of suspension; they must add the period of suspension to the initial contractual date. However, the Claimant continued to argue that the Defendant had not agreed to make any adjustments towards the completion date (date of sea-trials). Therefore, the court held that the Defendant had the right to rescind the Contract since Adyard failed to complete the work before the day of the sea-trials. The court also observed that this delay was not caused due to the Defendant and ruled the case in favor of SD.