Fenwick Elliott Grace Legal Notes


The law of mitigation and constructive acceleration

The American Principle of Constructive Acceleration

It is well known that, in the United States, there is a doctrine of constructive acceleration. To cut a long story short, the position there is that if an employer causes delay but refuses to grant an extension of time for it, and the contractor accelerates to win back the lost time, the refusal of the employer or his certifier is treated as a constructive instruction to accelerate, for which the contractor is entitled to compensation under the contract.

The principle has been applied in Canada (see eg Morrison Knudsen v  V British Columbia Hydro (No 2) (1978) 85 DLR (3d) 186 (BC Ct App), but what is the position in Australia?

The Tension


There is a tension between two conflicting considerations here:

1.   On the one hand,  it offends against the principle that no one should be permitted to benefit from his own wrong, and some mechanism thus recommends itself for ensuring that the employer does not benefit from a wrongful failure to grant an extension of time that is due, conversely

2.   If a contractual provision for delay damages does not contain any express mechanism for payment for acceleration in these circumstances, it offends against ordinary principles for the implication of terms to invent one. Thus Hudson criticises the doctrine as fictitious.  And, at any rate in jurisdictions where Pacific v Baxter holds sway, the employer is not to be treated as vicariously liable in damages for the certification failures of the certifier.

Disruption Clauses


UK contracts typically contain clauses whereby the contractor is entitled to compensation under eh contract for disruption that might or might not delay the contract completion. These clauses will typically allow the contractor to recover acceleration costs under the contract where he has accelerated to overcome an employer-caused delay.  There is thus no need for a doctrine of constructive acceleration.

AS4000


The Australian form AS4000 does not contain a disruption clause. The contractor is entitled to delay damages under clause 34.9 only for "every day the subject of an EOT for a compensable cause...". So, prima facie, no delay, no damages under the contract. However, Clause 20 of AS4000 obliges the employer (Principal) to ensure that the certifier (Supervisor) fulfills all aspects of the his role and functions reasonably and in good faith.

Further, Pacific v Baxter does not hold the same sway in Australia as it might in England. The position is neatly set out  in Multiplex Constructions Pty Ltd v SOR Pty Ltd and Woodhead International Pty Ltd [2000] SASC 414 by Duggan J:

Mr Dal Cin submitted that the principal in a construction contract would not be liable for the negligence of a superintendent acting in his capacity as a certifier. He referred to Hudson's Building and Engineering Contracts (11th ed) Vol 1 para6-097. The learned author of Hudson relies on Pacific Associates v Baxter [1990] 1 QB 993 for this proposition. In my view this is stating the matter too broadly. In P & E Phontos Pty Ltd v McConnell Smith & Johnson Pty Ltd (1993) 9 BCL 259 Cole J expressed the view that the decision in Pacific Associates turned on the particular circumstances of that case and that the court should approach each case in which negligence is alleged by considering the particular circumstances said to establish a duty of care. Cole J was of the view that in the imprecise area of the law of negligence the burden upon an applicant seeking to strike out a summons is greater because of the developing nature of the concept of duty of care. That statement is just as true now as it was when it was made by Cole J in 1993. (cf Perre & Ors v Apand Pty Ltd (1999) 198 CLR 180). Nor do I agree with Mr Dal Cin's argument that the contractual relationship necessarily excludes the existence of a duty of care. In my view the pleadings disclose a reasonably arguable cause of action against SOR based on breach of duty of care.

and accordingly there may be a parallel liability in tort.

The Damages

 

And so, if the certifier (Superintendent) unreasonably or negligently fails to grant an extension of time, the employer may be liable in  damages. But it there a sufficient causative link between the breach (delay/failure in certification) and the loss (the cost of acceleration)?


The 3 Rules of Mitigation

The first rule of mitigation is well known; the others less so.

The point can readily be illustrated by an example. A plumber fails to seal a pipe, which starts to leak. The owner sees the leak.  He knows or ought to know that if he does nothing to catch the drips, the leaked water will bring his ceiling down. The three rules apply as follows:

Rule 1:    The owner must put a bucket under the leak.
Rule 2:     If he does so, such that the ceiling is not damaged, he cannot recover the cost of repairing the ceiling that would have arisen but for placement of the bucket.
Rule 3:    If he had to go out and buy a bucket from the corner shop, he can recover the cost of the bucket. Under this head, he can recover the cost of a reasonable attempt to mitigate, regardless of whether the attempt proves successful; or not.

It is under this third rule - that the innocent party can recover the cost of reasonable attempts to mitigate (whether they are successful or not) - that a contractor can probably claim the cost of the acceleration.