The Prevention Principle and the Extension of Time Clauses in English Law Shipbuilding Contracts

Abstract

This paper deals with a well-established English law principle known as the “prevention principle“ in the context of shipbuilding contracts. Under the principle, no party to a contract should benefit from its own failure to perform. In the context of shipbuilding contracts, this principle should give protection to a shipyard in the event of delays in delivery of the vessel that are caused by the buyer, and no liquidated damages should be payable by the shipyard, and the contractual delivery date should be replaced by a time reasonably required to complete the vessel. In other words, where the buyer’s default (such as delay in the buyer’s supplies, interfering with agreed modifications, failure to promptly provide and approve the vessel’s design and drawings, late payments of the contract price, etc.) affect the build schedule which results in a delay in construction and in the delivery of the vessel. Such ac-tions by the buyer might represent an act of prevention. In consequence, the delivery date set out in the shipbuilding contract should not be further binding on the builder and the contractual time for delivery of the vessel should become time at large. On the other hand, it is equally common that most shipbuilding contracts contain extension of time clauses granting shipyards an extension of the delivery period in certain events. However, pursuant to a number of English court cases, the prevention principle does not apply where the shipbuilding contract contains extension of time clauses governing permissible delays, and the liquidated damages shall still be payable, subject to extension of time clauses. This paper deals with a difficult question: if the shipyard fails (or is time barred) to claim the application of the extension of time clauses for delays caused by the buyer’s default(s), does the prevention principle still apply?