Pardon my ignorance, but why can't you define maximum
principal stress? If there are 3 principal stresses, and one is larger than the other 2, doesn't that make it the maximum principal stress? (I assume the dispute wasn't over the spelling of 'principal' but over the concept of max. principal stress.)
Yield criteria are a completely different discussion. The main reason in my experience for engineers using different yield criteria (of which there are many: max. principal stress, von Mises yield, max. shear stress, etc.) to define failure is that one criterion seems to have worked better in the past than others. Assuming that this experience is based on reliable test data, it is hard to argue against a particular choice of yield criteria. The selection of Yield Criterion seems to be mainly experience based.
Since the criterion given "The Stress level, under load condition, at any point in the structure shall be limited to a level that provides a safety factor of 3 against permanent deformation" seems to be a purely static strength criterion, I agree with rb1957 that this means limit load is 1/3rd of the yield stress for the material.
If the object being designed undergoes fatigue loading, then a completely different method must be used to ensure design safety (for instance, crack initiation or crack propagation).
I am interested in finding out TrapperJohn would propose to 'unify' the selection of Yield criterion (after having made statement "Clearly we should all be designing the same way") given the huge amount institutional bias (prior experience, design tool documentation, informal "best practices" that are defined in most organizations, etc.) in the selection of Yield criterion for design optimization. Define a test or a series of tests that could be used to test criteria?