With extension of time provisions under a contract, can you rely on the prevention principle?

Citation: Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm)

Keywords: Rescission of contract, prevention principle, delayed performance

The Facts

Adyard (C) is a small to medium sized shipyard operating in Abu Dhabi. SD Marine (D) is a commercial supplier to the public sector. Under a PFI contract with the UK Government, D entered into a 15 year output contract for the delivery of marine port services of which, D appointed a subcontractor to supervise the construction projects of 32 new builds. The dispute between the parties concerned whether or not D was entitled to rescind two shipbuilding contracts for two vessels for a price of $14,837,000 and $13,932,000. The two vessels under the contract were to be ready for sea trials by a specified date.  In the event that the vessels were not ready by the contractually agreed dates, then D under the contract was permitted to rescind. D exercised its right to rescind where C, unless it commenced proceedings, would be liable to repay all instalments back to D. C commenced proceedings as D was not entitled to rescind because it was prevented from completing the vessels for sea trials by D’s acts and/or C was entitled to an extension of time to complete. C claimed that it was delayed by new designs as instructed by D. D of course denied that the new designs were variations and disputed any delay caused by D.

Held (Hamblen J)

C’s factual case on variation failed and essentially C’s case depended on whether it could rely on the prevention principle.  C’s entitlement to do so as a matter of law turned on whether or not the contract provided for an extension of time in respect of the relevant event.  A summary was found in the case of Multiplex v Honeywell [2007] Bus LR Digest D109 “…the employer cannot hold the contractor to a specified completion date, if the employer has by act or omission prevented the contractor from completing by that date… time becomes large… implied obligation to complete in a reasonable time… in order to avoid the operation of the prevention principle…many contracts… include provisions for extensions of time… exists for the protection of both parties.” C was not entitled to rely on the prevention principle as there was an option under the contract to agree an adjustment to time, albeit that it was ambiguous. C’s causation claim also failed as variations would not have caused any further delay as the project was already in critical delay. As a consequence, D was entitled to rescind the contract and was entitled to payment of the instalments paid and interest.