In the case of Growthbuilt v Modern Touch, Growthbuilt terminated four subcontracts with Modern Touch for failure to complete the works on time. The dispute arose when Growthbuilt sought to recover liquidated damages, completion costs, and the cost of stones purchased for the Putney project. Modern Touch raised defenses, including the application of the prevention principle. In this article, we will discuss the prevention principle in construction contracts and how it applies to this case.
What is the Prevention Principle?
The prevention principle states that a party cannot require the other party to perform a contractual obligation if it has caused the other party’s non-performance. This principle can be particularly relevant in construction contracts, where delays caused by the principal contractor can preclude the recovery of liquidated damages.
Contractual Extension of Time Regime
The operation of the prevention principle can be modified or excluded by contract through a contractual extension of time regime. This mechanism allows the contractor to claim an extension of time in case of acts of prevention occurring within a specified time frame. If a contractor fails to exercise this right, the prevention principle may not operate against the principal.
Growthbuilt’s Position
In this case, Growthbuilt argued that Modern Touch failed to claim any extension of time, rendering any evidence regarding acts of prevention irrelevant. Growthbuilt also relied on the statement of Cole J in Turner Corporation Ltd v Austotel Pty Ltd, which held that a party cannot rely on preventing conduct if it fails to exercise its contractual right to claim an extension of time that would negate the effect of that conduct.
Modern Touch’s Defense
Modern Touch argued that Growthbuilt’s unilateral power to extend the dates for completion under Clause 11 of the subcontract meant that the prevention principle remained an issue. Modern Touch relied on the decision of Peninsula Balmain, which held that a principal must act honestly and fairly in deciding whether to exercise a discretionary power in a contract to grant an extension of time.
The NSWCA Decision
The New South Wales Court of Appeal considered the application of the prevention principle in Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd. The court affirmed the decision in Peninsula Balmain and held that the head contractor must act honestly and fairly in deciding whether to exercise a discretionary power to extend time. However, the court also noted that the operation of the prevention principle depended on the proper construction of the contract.
Conclusion
The Growthbuilt v Modern Touch case highlights the importance of understanding the prevention principle in construction contracts. It also emphasizes the significance of having clear contractual provisions on the extension of time regime to avoid disputes arising from acts of prevention. If you are involved in a construction contract dispute, it is advisable to seek legal advice to ensure that your rights and obligations are properly protected.
