Gaymark: the story continues

In October 2004 I wrote an article about Gaymark Investment vs Walter Construction Group. This Australian case was concerned with whether an employer could recover liquidated damages for delay from a contractor when that delay had been caused by the employer. The general rule is that if the employer delays the contractor, he cannot insist on completion by the original completion date, nor recover damages for the contractor’s failure to do so. For this reason a properly drafted construction contract will include a power for the time for completion to be extended if the employer delays the contractor. In this way even if completion is delayed by the employer’s act of prevention, its ability to claim damages for other delays is preserved.

The position becomes complicated when the contract prohibits any extension being granted if the contractor has failed to comply with contractual provisions as to giving notice of delay – an increasingly common provision. The particular problem thrown up by Gaymark was this. The contractor had been prevented by the employer from meeting the completion date. The contract provided that no extension could be given if the contractor had failed to serve notice of delay. The contractor had so failed. Without an extension, the contractor was automatically at risk of having to pay liquidated damages. The employer claimed the damages, but the claim was dismissed. The delay had been caused by the employer. It would be quite unmeritorious if the employer received payment from the contractor for a delay which it, the employer, had caused.

This seemed to make sense and I expressed the view that an English court faced with the same situation would follow the Gaymark line. However, in Multiplex vs Honeywell (considered by Dominic Helps, 11 May), Mr Justice Jackson cast doubt on Gaymark. As he said in his judgment, he did not have to decide whether or not it represented the law in England, but he expressed doubt that it did. He referred to various views expressed by courts and commentators, most of which, it has to be said, do not support Gaymark.

So is this the end of the road for Gaymark?

It is a rule that a party cannot claim damages for a delay it has caused. The issue is whether a failure to give notice of the delay renders this inapplicable

I don’t think so. Criticisms have certainly been made, but any court should hesitate before allowing an employer to be paid liquidated damages for a delay it has caused. On this point there is still an argument that Jackson did not have to decide.

It is clear that the facts of Multiplex were materially different from Gaymark. Certainly it was a condition precedent to the grant of an extension that the contractor had complied with the notice provisions – and as Honeywell had not done so, no extension could be granted. However, the result of this was not that the employer became automatically entitled to liquidated damages. The judge pointed out that under the contract terms, Multiplex could only recover for loss and damage caused by Honeywell. The contract did not provide an automatic liability to liquidated damages if the completion date was missed. In other words, the critical issue in Gaymark did not arise in Multiplex.

It has long been an established rule of law that a party cannot recover damages for what it has caused. This rule underpins the prevention principle that has been applied in construction cases for over a century: see SMK Cabinets, Roberts vs Bury, and others. It has consistently been applied by courts to prevent a party taking advantage of its own wrong: for example, Alghussein vs Eton College.

On the face of it the proposition that an employer is entitled to recover liquidated damages for delay that it has caused runs counter to this basic rule. The issue is whether the contractor’s failure to give notice of the delay renders this rule of law inapplicable? Unless these are clear words in the contract showing that this was the parties’ intention, there is still a respectable argument that a court should refuse to award liquidated damages to the employer in that situation. Gaymark has certainly been weakened by Judge Jackson’s doubts, but I don’t think the story is yet over.