Liquidated Damages and the Prevention Principle

  • October 22, 2018

A party who prevents another party from performing its obligations under a contract cannot make a claim in respect of that non-performance. This is commonly known as the “Prevention Principle”.

Most commonly, the Prevention Principle is raised as a a means of attacking a party’s entitlement to liquidated damages for delay in achieving practical completion. For example, a liquidated damages claim by a Principle against a Head Contractor or Head Contractor against a subcontractor.

Generally speaking the Prevention Principle is that an Owner or Head Contractor will lose the right to claim liquidated damages for delayed completion where the Owner or Head Contractor (or their agents) causes delay to the completion of the works.

The Prevention Principle applies even where:

  1. The Owner or Head Contractor (or their agents) cause only some of the delay;
  2. The contractor would have been unable to achieve completion by the contractual date for completion in the absence of a delay by the owner; or
  3. There are contractual time bars for extension of time claims and a contractor applies for an extension of time out of time.

What should Owners/Head Contractors do? 

Owners and Head Contractors should ensure that their contracts are carefully drafted and include a provision allowing for extension of time claims to be granted for such delay. Where applicable, such extension of time claims should be granted.

How can we help?

If you are a contractor facing a liquidated damages claim contact us to discuss whether the Prevention Principle will apply to your circumstances.

If you are a head contractor or owner, contact us for advice in drafting your contract to give you the best opportunity of overcoming the Prevention Principle and maintaining an entitlement to liquidated damages.

Bryce Richards

Bryce joined the Keystone team in July 2016. He completed a Bachelor of Economics and Bachelor of Laws/Diploma of Legal Practice at the University of Newcastle. Prior to joining Keystone, Bryce worked in the commercial litigation team of a large Newcastle based law firm. During his time in this role, Bryce gained significant experience in a variety of commercial disputes with a focus on the building and construction industry, insolvency and debt recovery. He regularly advises and represents clients at all stages of disputes, including in respect of claims made in the NSW Civil & Administrative Tribunal, Local Court, District Court and Supreme Court.