Prevention Principle and the implied duty of cooperation

The principles are that:

• When a time is specified for completion of a contract, so that the time is 'of the essence', an act by one party (the client) which prevents the other (the contractor) from completing the work on time, will put the time for completion 'at large'. The principle is that the party preventing the other from completing on time cannot have the benefit of enforcing a contractual obligation - specifically, completion by a certain date (the ‘Prevention Principle’).
• There is an implied duty of cooperation whereby a party to a contract is required to act on all things expressly provided for in the contract as are necessary on its part to enable the other party to have the benefit of the contract.

In an ordinary construction context, the prevention principle is illustrated by this scenario. A client (through the architect) gives a direction to increase part of the building work resulting in the contractor failing to reach practical completion by the date for practical completion. The client claims liquidated damages for the delay. The contractor responds stating that it was required by the contract to carry out the variation, the client received a benefit from this requirement and is now seeking damages for (the effect of) a direction to the contractor that it has benefited from.

Under the Prevention Principle the client would be prevented from applying liquidated damages, because time is 'at large'. However, to avoid this occurrence in a ‘modern’ construction law contract, the contractor is able to claim an extension of time so that the date for practical completion is adjusted by the superintending architect to allow for the time needed to complete the extra work.

Peninsula Balmain v Abigroup Contractors Pty Ltd

The expectation, and practice, until the case of Peninsula Balmain in 2002, was that if the contractor did not claim the extension, there was no extension of the date for practical completion – in other words, if the contractor did not exercise its rights then it bore the consequences.

In Peninsula Balmain, where the Prevention Principle was argued by the contractor, the client argued that the contractor was required to advise the superintendent on whether the direction to vary the contract would affect the date of practical completion and that the contractor failed this contractual requirement.

In Peninsula Balmain, the court held that the superintendent under the AS 2124 terms being used, had a discretionary power to grant an extension of time whether or not the contractor claimed one. As the superintendent was also obliged to act honestly and impartially when administering the contract, the superintendent ought to have exercised this discretion despite there being no claim by the contractor, because, acting honestly and impartially, the superintendent should have known that the additional work would cause a delay.

What does this mean for an architect administering a construction contract?

Virtually all standard form contracts contain similar provisions. On the principle of Peninsula Balmain, the architect (as superintendent) must exercise the discretion to extend the time for practical completion honestly (fairly) and impartially and cannot rely on the failure of the contractor to avoid making a decision that the time for practical completion ought to be extended.

Practically, the need to make this decision without a claim might be avoided by a reminder to the contractor. Otherwise, granting an extension may trigger a response from the contractor as to the adequacy of the extension which can then be assessed against information supplied by the contractor. However, if no action is taken by the superintendent, the Peninsula Balmain case illustrates that the claim can, in effect, come well after the event – when liquidated damages are sought to be applied.

There have been attempts to remove this effect by changing the obligations of the superintendent by altering the terms of a standard form contract. In the case of Hervey Bay and Civil Mining and Construction, the court found that the obligations of the superintendent had been sufficiently modified to exclude the obligation to extend time without a claim.

Even so, as is always the case with special conditions that would modify a contract, only when drafted or checked by a lawyer should special conditions be applied, and both the contractor and the client must agree to the change. The duty of cooperation is in essence a duty to refrain from taking steps that would prevent the other party from performing its obligations.

If relations between the contractor and the principal are deteriorating, the architect administering the contract is responsible for the instructions it issues as the superintendent/agent of the principal. Care must be given when issuing instructions to ensure that the instruction is not designed to cause the contractor harm rather than to achieve the contract goals.

Reference cases:

• Peninsula Balmain v Abigroup Contractors Pty Ltd [2002] NSWCA 211.
• Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd & Ors. [2008] QSC 5 8.
• Key infrastructure Australia Pty Ltd v Bensons Property Group Pty Ltd [2019] VSC 522.