Mr Justice Jackson vs Gaymark

This article concerns one of the few old chestnuts left in UK construction law. It is also hugely important from a commercial point of view.

Most construction contracts require the contractor to complete the work by a particular date and provide the employer with a right to liquidated (or pre-ascertained) damages if it fails to complete by it. However, as a matter of general principle the employer will not be entitled to those damages to the extent that it has caused the delay itself by, for instance, issuing variations or failing to give timely access to the contractor or through some other “act of prevention”.

But the wording of extensions of time provisions is important since, if they are not drafted widely enough, there is a danger that time will become “at large”, depriving the employer of the right to liquidated damages.

This will happen where an act of prevention occurs causing delay for which the contractor is not expressly entitled to an extension. Generally, that is bad news for the employer, which loses the right to offset the agreed damages against money payable to the contractor; the employer must now prove

that it has suffered a loss as a result of the delay in question. For the contractor, instead of having to finish by a fixed date, it is obliged to complete within a reasonable time which, if necessary, has to be established as a matter of fact.

Most contracts impose tough obligations upon the contractor to give notice and subsequently particulars where something for which it is not responsible has caused, or is likely to cause, delay. There has been an increasing tendency to make the contractor’s entitlement to an extension conditional upon its compliance with those requirements, such a requirement being known as a “condition precedent”.

So, what happens if the contractor fails to comply? That does not alter the fact that it was the employer’s act of prevention that caused late completion. Indeed, since the position now is that, having failed to comply with a condition precedent, the contractor is no longer entitled to an extension of time surely, so the argument goes, time is “at large” with the consequences outlined?

The judge, Mr Justice Jackson, was of the view that if Gaymark was good law, contractors could in effect disregard conditions precedent altogether

Just so, held the Supreme Court of the Northern Territory of Australia in Gaymark Investments vs Walter Construction Group, thereby giving birth to the “Gaymark principle”, a view that, incidentally, was shared by Timothy Elliott in these pages (29 October, 2004).

However, other foreign decisions have cast doubt upon the Gaymark principle.

At last, the English courts have taken the opportunity to consider the Gaymark principle, although as Mr Justice Jackson pointed out in Multiplex vs Honeywell Control Systems (No 2), the underlying facts of that case were different from those in Gaymark.

In Gaymark, unlike this case, the consequence for the contractor if it failed to give the required notice was automatic liability to pay liquidated damages. In those circumstances Multiplex would still have to prove that Honeywell had caused the delay in question.

Nevertheless, in casting considerable doubt on whether the Gaymark principle represented good law in this jurisdiction the judge commented that provisions requiring the contractor to notify and give particulars of delays “serve a valuable commercial purpose”, enabling matters to be investigated before it was too late and enabling the employer to withdraw instructions once their financial consequences had become plain.

Most tellingly, the judge was of the view that if Gaymark was good law, contractors could in effect disregard conditions precedent altogether; indeed, they would be able to set time “at large” at will simply by not complying with such provisions.

I remember a senior barrister I know explaining that he had never known a decent case to fall because of a failure to comply with notice provisions. I am not so sure about that in view of this decision and it certainly looks unlikely that a time at large argument would work as a “get out of jail” card when it does.