As usual I have, when time allows (this is not every day) been making progress with my book on Extra-Contractual Recoveries.
In the last day or so, I have been particularly focused on the question of whether it is possible to contract out of the time at large principle by a generalised exclusion clause along the lines of, “Nothing we do will set time at large under this contract“. In Australia, at any rate, the usual answer is “yes”, and the brigade of solicitors who march up and down the relevant corridors in grey suits or black trouser suits now regularly insert a clause to that effect in pretty much every contract or subcontract over which they have control.
But is it true? The usual authority relied on is the judgment of Justice Brooking in SMK, but the more I look at it, the more I have come to the view that it does not bear the weight that is typically put upon it.
The current draft of Extra-Contractual Recoveries says this about the topic (obviously, the internal page references will not work for this extract). I am conscious that this is not merely an important point, but also somewhat contentious one. And so if readers of these pages have any observations, I would be interested to hear them, so that I may take account of them before the book is finalised.
Contracting out of the Principle?
- Is it possible to contract out of the prevention principle, and/or the time at large principle? The answer to this question is not obvious, and certainly a good deal less obvious than is sometimes assumed in Australia. It has become an important question, because many bespoke contracts and subcontracts now contain clauses purporting to exclude the principle. If the principle may be excluded by such a clause, the effect is not infrequently to render a contractor (or more typically a subcontractor) liable to pay significant liquidated damages for delays of the owner’s (or more typically head contractor’s) making.
- It seems that there is no reason why the parties cannot agree, if they so wish, that the contractor is bound to complete the works by a stipulated date, without any extension of time and regardless of the prospect that the owner might well order additional work which makes that obligation more onerous, or even impossible. It is an unusual arrangement, but not entirely unknown. It means that the contractor is accepting potential liability in circumstances that are not of his doing, but again, that is not entirely unknown. After all, insurers regularly compensate people who are careless enough to burn down their own homes or crash their own cars.
- But what of a provision, typically tucked away unnoticed in lengthy boilerplate conditions, that purports to disapply the principle as a matter of generality?
- In Australia, the answer is usually given that it is possible to disapply the principle by such provision. The authority typically relied on is an obiter remark in SMK Cabinets v Hili (1983). Justice Brooking declined to reach a conclusion as to whether the principle was one of implied term or of a rule of law, regarding that distinction as “largely of academic interest” and “simply a matter of terminology”. He said, however, that “of course” the principle yields to contractual intention, and that the parties can effectively manifest by their contract an intention that the contractor shall be liable for liquidated damages notwithstanding the prevention. It is not clear what Justice Brooking had in mind by manifest contractual intention. Did he have in mind an express agreement that the contractor should be liable for liquidated damages regardless of the ordering of additional work? Or was he contemplating some general words disapplying the principle without any express manifestation of what that would mean? In any event, he did not find any intention to exclude the principle, and found that time was at large.
- It may be that the obiter remark in SMK is even more restricted. In Probuild v DDI, McColl J said that the operation of the prevention principle can be modified or excluded by contract, citing SMK as authority. But she went on: