I mentioned the other day the pending application for leave to appeal from Bensons Pty Ltd v Key Infrastructure Australia Pty Ltd  VSCA 69, due to be heard shortly.
Until the Benson decision, the law as to whether the prevention principle is a rule of law, or a mere implied term (susceptible to be trampled over by casual express provision) had been usefully summarised in Hera Project Pty Ltd v Bisognin (No3)  VSC 268, affirmed by the Victorian Court of Appeal as Bisognin v Hera at  VSCA 93. I set out that summary below, as extracted for my book Extra-Contractual Recoveries for Construction and Engineering Work (now with the publishers). In short, the answer was that it is a rule of law, and not merely an implied term. Benson, ignoring much authority, came to the opposite conclusion.
Meanwhile, Tony Marshall has kindly made available his further discussion of this vital issue, which had been excised from his paper in ICLR for reasons of length. So, with his further kind permission, I set out that further discussion below.
The importance of the point can be bluntly stated: consider the position where an owner (or head contractor) prevents the contractor (or subcontractor) from doing the contracted work on time, by ordering extra work, or by not giving possession of the site, or some other act of prevention. The prevention might or might not be permitted by the contract, or a breach of contract. The contractor (or subcontractor) is not, for one reason or another, entitled to an extension of time, and so is inevitably in breach of the obligation to complete by the stipulated date, by no fault of his own. The contract contains some weasel words which say there are no implied terms. Is the owner (or head contractor) entitled to liquidated or other damages for the failure of the contractor (or subcontractor) to complete on time? Even more starkly, does the law permit, “I Delay, You Pay” arrangements? If so, what, if any, are the constraints?
 Hera Project Pty Ltd v Bisognin (No3)
Supreme Court of Victoria, Australia
 VSC 268
This decision neatly summarises the common law of Australia relating to the prevention principle.The decision was affirmed by the Victorian Court of Appeal as Bisognin v Hera at  VSCA 93,; this aspect was not revisited.
See page 206 et seq above for time at large generally.
The Prevention Principle
105 The principle, which is of long standing, is that a person cannot take advantage of the existence of a state of things that he has produced himself. Accordingly, a party to a contract who, by his own act, brings about an event to terminate a contract, ‘cannot be permitted … to insist upon the stipulation … because to permit the blameable party to do [so] … would be to permit him to take advantage of his own wrong’.
106 The consequence of the act of prevention is that the relevant term ‘transform[s] from one requiring performance at a specified time to one requiring performance within a reasonable time’.
107 With respect to the application of the principle on a right to rescind a contract of sale of land, the Court of Appeal in Joseph Street Pty Ltd v Tan stated the position as follows:
It is well established that a party wishing to rescind cannot take advantage of its own ineffective or inefficient measures to comply with its contractual obligations, and that where a vendor’s default has deprived the purchaser of a ‘substantial chance’ that the condition would have been fulfilled, the vendor cannot exercise the right of rescission.
108 Although there is authority for the proposition that the principle arises from a term implied into the contract by law, the better view is that the principle is a ‘positive rule of law’ based on fairness and reasonableness. The acts or omissions of prevention may be in breach of the contract including the implied duty to co-operate. However, preventative acts, which enliven the principle, may extend to conduct which is strictly legitimate under the terms of the contract such as ordering extras or variations under a building contract. In SMK Cabinets v Hili Modern Electrics Pty Ltd, Brooking J cites a number of formulations that support the extension of the principle to acts that do not constitute contractual breaches; and notes the following formulation of the principle by Davies J of the Supreme Court of Canada in Ottawa Northern and Western Railway Co v Dominion Bridge Co:
[I]f the owner by the ordering of extra work or by the doing or omitting to do any act which he ought to have done or omitted has delayed the contractor in beginning the work or necessarily increased the time for finishing the work he thereby disentitles himself to claim the penalties for non-completion provided by the contract.
109 The legal burden of proving the fact and effect of the alleged acts of prevention rests with the party so asserting. However, if facts are peculiarly within the knowledge of the party allegedly responsible for the preventing acts, the evidentiary burden may shift to that party ‘because if the vendor does not do this, inferences may be drawn against the vendor, for example by unexplained delays’.
 The Juridical Nature of the Prevention Principle
[This note contains a passage on the above topic which did form a part of my planned ICLR article on the prevention principle, now printed in two parts in the International Construction Law Review (in Part 4 of Vol 37, October 2020, and Part 1 of Vol 38, January 2021). The article was too long, so this section was removed. It specifically considers the juridical nature of the prevention principle – whether it amounts to a rule of the common law (akin, say, to the rule against penalties, or the rule against illegality) or operates by means of an implied term. Some recent pronouncements on this point have favoured the implied term analysis, but appear to have been made with scant, if any, attention to the position as stated in the many 19th and 20th century authorities on the operation of the prevention principle, or indeed to certain of the established criteria for the implying of a term.]
In his judgment in Cyden Homes, Coulson LJ refers to submissions by counsel for the Contractor to the effect that the prevention principle is a “matter of legal policy which would operate to rescue the appellant from the clause to which it had freely agreed”.
Coulson LJ firmly rejects those submissions, saying:
“However, the fact that the mechanism of implied terms does not help (North Midland) on the particular facts of this case does not mean that such terms are not the right vehicle by which, in a conventional case, the prevention principle is given contractual force. In one sense, that is what Merton v Leach was doing: making acts of hindrance and prevention breaches of implied terms of the contract, thereby setting time at large. Moreover, when time is set at large, the obligation to complete by a fixed date is replaced with an implied obligation to complete within a reasonable time (see paragraph 48 of Multiplex). In my view, therefore, the prevention principle can only sensibly operate by way of implied terms. I note that, in The Interpretation of Contracts, 6th edition, at paragraph 6.14, Sir Kim Lewison deals with the prevention principle in the chapter concerned with implied terms.”
His Lordship continues:
“…the prevention principle is not an overriding rule of public or legal policy. There is no authority for such a proposition: it is not expressed in those terms in Multiplex or any of the other authorities noted above. Contrary to Mr Lofthouse QC’s submission, I do not consider that it is analogous to the rule which strikes down liquidated damages as a penalty, a rule which has an entirely different legal provenance.”
However, in fact, the prevention principle is repeatedly referred to in the authorities as a “rule of law” (see our review of the authorities from Holme v Guppy onwards in Sections 2 to 4 of the separate ICLR article). Sir Kim Lewison is himself considerably more hesitant than Coulson LJ suggests, in paragraph 6.14 of The Interpretation of Contracts, as to how the principle operates – saying that it “may be a positive rule of the law of contract”, although he does go on to ”submit” that “it “may properly be categorised as an implied term”.
The concept of the implied term was not mentioned at all in connection with the operation of the prevention principle down the centuries until comparatively recently. The first such mention appears to have been in a case in Victoria, Australia – the case of Aurel Forras v Graham Karp Developments Pty Ltd (13 November 1974).
Aurel Forras concerned two contracts for the erection of two separate buildings by contractor Aurel Forras Pty Ltd for developer Graham Karp Developments. In each case the works were to be completed by a specified date, with a sum to be paid by way of liquidated damages for each week or part of a week that completion was late. The contractor sued for outstanding payments and the employer sought to set-off sums he claimed to be owing by way of liquidated damages. The contractor contended that the liquidated damages provisions had ceased to be applicable, or were not enforceable, because of delays caused by Graham Karp’s failure to give full possession of the site on the date specified in the contract and by instruction for additional work (variations), which had had the effect of setting time at large.
Menhennitt J referred to the relevant section of Hudson’s Building and Engineering Contracts (10th edition) and its summary of 15 cases illustrating the working of the prevention principle (these have grown to 18 cases in the current, 14th edition) and continued:
“I have considered all the fifteen cases referred to in Hudson and the recent decision of the House of Lords in Trollope and Colls v North West Metropolitan Regional Hospital Board  1 WLR 601;  1 All ER 260. The conclusion I have reached is that the question whether a liquidated damages provision is rendered inapplicable by acts of an employer which impede or prevent a builder from commencing contract works on time, or which significantly add to the work to be done so as to render completion on time difficult or impossible, turns on the proper construction of the contract and that, where the liquidated damages provision is rendered inapplicable, it is because there has been implied into the contract a term producing this result…”.
In fact, not one of the summaries of the 15 cases in the 10th edition of Hudson contained any suggestion that the prevention principle operated by way of an implied term.
In a case decided in the English Court of Appeal only a year earlier (Trollope & Colls Ltd v North-West Regional Health Board, Lord Denning MR was clearly of the view that the principle does not operate by way of an implied term (we return to this point in paragraph (f) on page [ ] below). Although his judgment was overturned in the House of Lords, there was no adverse comment in the House of Lords on his distinguishing between (1) the prevention principle approach as in Dodd v Churton and (2) the implied term approach. Menhennitt J’s implied term conclusion in Aurel Forras appears to have been one the learned judge drew himself, without any reference to authority.
Brooking J, following his considerably more thorough review of the relevant authorities in SMK Cabinets in 1984, doubted Menhennitt J’s conclusion on this point. Counsel for Hili, the owner, had contended before Brooking J that application of the prevention principle to remove an obligation to pay liquidated damages depended on whether a term to that effect was to be implied into the contract, and that no such term was to be implied in the present case. Brooking J observed, in response to that submission:
“There are many passages to be found in the reports which suggest that it is a positive rule of law, not an implied term, which bars the attempt of the preventing proprietor to recover liquidated damages, and it will suffice to give some examples. In Holme v Guppy (1838) 3 M & W 387; 150 ER 1195 the language used may be thought more apt to lay down a rule of law than to refer to an implied provision. At times the Court speaks in terms of a rule or principle of law, as in Bruce v R (1866) 2 WW & A’B (L) 193, at p 221; Westwood v Secretary of State for India (1863) 7 LT 736, at p 738, per Crompton J; Roberts v Bury Commissioners (1870) LR 5 CP 310, at pp 326 and 329; Parle v Leistikow (1883) 4 LR (NSW) 84, at p 92; Reynolds v Strelitz (1901) 3 WALR 143, at p 144; Dodd v Churton  1 QB 562, in the judgment of each member of the Court; Stawn Ltd v Keene (1913) 30 WN (NSW) 173, at p 174; cf Amalgamated Building Contractors Ltd v Waltham Holy Cross Urban District Council  2 All ER 452, at p 455 and Budgett & Co v Binnington Co  1 QB 35 at p 38, per Lord Esher MR; but cf Lindley LJ’s approach at p 40.
Of course, to deal with the matter in terms of a rule or principle of law is not to say that that rule or principle will not yield to the contractual intention of the parties. It is clear that, whatever the correct theory may be as to the basis of the doctrine of prevention in relation to liquidated damages, the parties can effectively manifest by their contract an intention that the contractor shall be liable notwithstanding the prevention; it may therefore not be correct to draw the conclusion which Menhennitt J drew in the Aurel Forras case from references in the authorities to the construction of the contract.
One possible view is that the doctrine of prevention in cases like the present is a rule of law (which will, however, give way to the contrary intention of the parties) based on some such broad notion of justice as that a man should not be allowed to recover damages for what he himself has caused: cf 152 American Law Reports, Annotated, 1350. Another possible view is that, while the basis of prevention is the theory of the implied term, the term is one which is implied by the Court as a matter of fairness or policy or in consequence of a rule of law, the Court not being concerned with the intention of the parties except to the extent that the term may be excluded by an expressed contrary intention: see the classification suggested by Glanville Williams, Language and the Law (1945) 61 LQR 71, at p 401 and adopted in Halsbury, 4th e, vol 9, para 351. If this be the correct view, the distinction between prevention as a rule of law and prevention as a matter of implied term is largely of academic interest. For the law will state the doctrine in the same way whether it achieves the desired result directly, by the operation of a principle, or indirectly, by the introduction of a fictitious term. Glanville Williams, op cit, at p 404 suggests that rules like the one now in question are in truth rules of law which apply in the absence of an expression of contrary intent, and that whether we choose to call them implied terms or not is simply a matter of terminology. This is an attractive view….” (underlining added).”
It is not clear why Menhennitt J in Aurel Forras, and now Coulson LJ in Cyden Homes, have felt it appropriate to resort to the implied term theory, given that:
- the prevention principle is recorded as having been applied in English law from as early as the fifteenth century, and is referred to consistently in the authorities as a “rule of law” (this is the case in virtually every one of the authorities reviewed in Section 3 of this paper);
- up until the publication of its 14th edition in 2020, Hudson contained no suggestion that the principle operated by way of an implied term; this suggestion only seems to have appeared now, following Coulson LJ’s intervention on the point in Cyden Homes;
- the courts never suggest that the other rule of law which operates to protect against unjust liquidated damages – the rule against penalties – operates by means of an implied term (both the prevention principle and the rule against penalties operate to relieve a contractor from the burden of paying liquidated damages which would confer on the employer an unconscionable benefit – a payment for a period of delay he has himself caused on the one hand, and a payment out of proportion to any harm he might have suffered as a result of the breach on the other hand). The prevention principle is of enormously greater antiquity than the rule against penalties – indeed, in many of the 19th century cases on the prevention principle in Section 3 above the damages agreed to be paid for delayed completion were freely referred to as “penalties”, apparently pre-dating the sharp distinction later established between penalties and liquidated damages.
- for a term to be implied into a contract, various conditions set down by Lord Simon of Glaisdale in the Privy Council (the highest court for Australia at that time) in BP Refinery (Westernport) Pty Ltd v Shire of Hastings must be satisfied: one is that the term contended for “must not contradict any express term of the contract”; this was reiterated more recently by Tomlinson LJ in Interactive Investor Trading Ltd v City Index Ltd, where he said “It is trite law that a term will not be implied which contradicts the express terms of the contract”).
- another of Lord Simon of Glaisdale’s conditions is that the implied term “must be capable of clear expression” – or, put another way, it must be obvious both that a term ought to be implied, and also what term is to be implied (in R v Paddington and St Marylebone Rent Tribunal ex parte Bedrock Investments Ltd, Lord Goddard CJ said: “No covenant ought ever to be implied unless there is such a necessary implication that the court can have no doubt what covenant or undertaking they ought to write into the agreement”).
- Lord Denning MR, one of England’s foremost judges of the twentieth century, did not regard the prevention principle as operating by means of an implied term – in Trollope & Colls Ltd v North-West Regional Health Board, His Lordship found in favour of the Health Board’s contention that the contract remained in place but with the Contractor under an obligation to complete within a reasonable time. He put this conclusion on two different bases – first, on application of the prevention principle, as enunciated in Dodd v Churton (1897); and, separately (referring to this as “another approach”), via the route of implying a term. There was no hint of a suggestion from Lord Denning that the prevention principle itself operated by means of an implied term.
The prevention principle works in a way which is incompatible with the criterion in (d) above: in a similar way to the rule against penalties, it strikes down and overrides the express agreement of the parties as to the completion date and the accompanying liquidated damages. Just as with the rule against penalties, terms expressly agreed by the parties are excised from the contract by the operation of the principle.
The principle also does not fit well with the criterion in (e) above: neither Menhennitt J in Aurel Forras nor Coulson LJ in Cyden Homes made any attempt, in their judgments, actually to formulate the implied term which they had in mind. Our review of the authorities in Sections 2 to 4 of the separate ICLR paper has not uncovered one instance of a judge doing so through the hundreds of years in which the principle has been applied.
It is not at all clear just how the term would be formulated. It might be suggested that the implied term is the usual implied obligation not to prevent or hinder the contractor from fulfilling his obligations. However, why would that implied term give rise to the altering of certain express terms of the contract, in the way the prevention principle does? If the employer by his act or omission delays the contractor from completing, the employer will be in breach of that implied obligation. The proper consequence of such a breach is a remedy in damages for any loss suffered, not the dismantling of parts of the contract (the agreement as to time and liquidated damages).
Another option might be a term to the effect that, if delay is caused to completion by the employer, the agreed completion date will no longer apply, time will be at large (i.e. there will be a reasonable time for completion), and liquidated damages will cease to be applicable? But this would flatly contradict the criterion at (d) above.
Further, the authorities make it clear that, save in those rare cases (like Jones v St John’s College) where the contractor has, “with his eyes open”, agreed to complete on time regardless of any Employer delay, thus expressly contracting out of the prevention principle (the “first route” referred to in separate ICLR article), the only way to prevent employer delay from setting time at large is to include an express provision in the contract allowing the employer to extend the time for completion (“second route” in ICLR article). Otherwise the prevention principle will automatically apply. So one finds that the prevention principle applies to override express terms, and can only be circumvented by means of an express extension of time provision. This does not fit with the established characteristics of the implied term, any more than the rule against penalties does.
Given the evident difficulties in squeezing the round peg of the prevention principle into the square hole of an implied term, on balance the better view seems to be the one repeatedly enunciated in the authorities (up to and including the judgment of Brooking J in SMK Cabinets), namely that the prevention principle is a rule of law, of similar nature to the rule against penalties (though of much greater antiquity – recorded in the 17th and 18th century digests, but traceable back to 15th century judgments), and which in modern terms is probably to be ascribed to considerations of “public policy”, to the effect that “the performance of a condition shall be excused by the obstruction of the obligee”.
A R Marshall
Hogan Lovells International LLP
 In my book, I consider a number of possible answers to this.