The illusion of the prevention principle

The law will not allow a person to take advantage of his or her own wrongdoing.

As a matter of a policy, this is uncontroversial and stands to reason.

But how is this idea manifested in the law? Is it a rule of common law or a principle of equity? And what are the consequences of its application?

In 289 Grange Road Developments Pty Ltd v Dalle Projects Pty Ltd [2017] VSC 409, Randall AsJ reviewed the application of the so-called “prevention principle” in the context of an application to set aside a statutory demand. His Honour referred to Alghussein Establishment v Eton College [1988] 1 WLR 587, which he said “has been widely applied and cited in Australia and can generally be used to support the proposition that a party cannot take advantage of its own failures or breaches”. His Honour then, by reference to the the High Court’s decision in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, quoted Lord Atkinson’s seminal dictum on the topic in New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1:

But if the stipulation be that the contract shall be void on the happening of an event which one or either of them can by his own act or omission bring about, then the party, who by his own act or omission brings that event about, cannot be permitted either to insist upon the stipulation himself or to compel the other party, who is blameless, to insist upon it, because to permit the blameable party to do either would be to permit him to take advantage of his own wrong, in the one case directly, and in the other case indirectly in a roundabout way, but in either way putting an end to the contract.

Relying on a number of authorities, his Honour went on (footnotes omitted):

This area of law is uncontroversial and the principle is widely established. A more recent adaption of these principles has led to the formulation of the ‘prevention principle’ which states that ‘a party cannot insist on the performance of a contractual obligation by the other party if it itself is the cause of the other party’s non-performance.’ The maxim has been rephrased in certain cases so that it ‘only applies to the extent of undoing the advantage gained by the wrongdoer and not the extent of taking away a right previously possessed.’

The burning question, though, is why? What is the juridical basis of the so-called “prevention principle”? The principle is broadly stated and can be explained by the application of various doctrinal underpinnings. It also does not, of itself, fully articulate the consequences in all cases of an act of “prevention”.

This question has been asked before. Young J said in Sanctuary Investments Pty Ltd v St Gregory’s Armenian School Inc (1998) 9 BPR 16,823:

As I have said on previous occasions (see for instance Woodcock v Parlby Investments Pty Ltd (1988) 4 BPR 9568 at 9571) the precise legal analysis behind the rule laid down in the New Zealand Shipping case is obscure. One can think of various different ways of putting the proposition based on the old law of failure of conditions, equity and unconscionability, or various types of implied terms. I will not lengthen these reasons by going further.

New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France concerned a contract for the construction of a steamer for a shipping company. It was a term of that contract that if the steamer were not completed by a certain date, the contract would become void. Lord Atkinson held that parties could include such a stipulation and it would be effective according to its terms, albeit subject to the principle articulated above: [1919] AC 1, 9.

In Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235, Dixon CJ stated the principle as follows at 246-7:

it was always the law that, if a contracting party prevented the fulfilment by the opposite party to the contract of a condition precedent therein expressed or implied, it was equal to performance thereof … But a plaintiff may be dispensed from performing a condition by the defendant expressly or impliedly intimating that it is useless for him to perform it and requesting him not to do so. If the plaintiff acts upon the intimation it is just as effectual as actual prevention.

The principle has had frequent application in building cases, where an owner sues for liquidated damages following a builder’s failure to complete by a stipulated date, but the builder avoids liability by identifying delays brought about by the owner’s conduct (such as requesting additional works or not granting timely or sufficient access to the site). It has been said that in such circumstances, time for completion becomes “at large” (Alexander v Housing Commission (Unreported, Supreme Court of Victoria, Nicholson J, 17 May 1983) citing, inter alia, Dodd v Churton [1897] 1 QB 562), but to say as much inaccurately articulates the operation of the underlying doctrines. In Dodd v Churton [1897] 1 QB 562, Lord Esher MR said at 566:

a well recognised rule has been established in cases of this kind, … to the effect that, if the building owner has ordered extra work … which has necessarily increased the time requisite for finishing the work, he is thereby disentitled to claim the penalties for non-completion …

In Trollope Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, Lord Pearson said at 607 that Dodd v Churton did not support the proposition that time becomes at large. His Lordship also observed at 608 that the trial judge in Dodd v Churton had held that the owner, by his conduct, “had waived the stipulation for penalties in respect of non-completion of the work” by the due date. This is consistent with what Dixon CJ said in Peter Turnbull.

In cases where A is required to perform works for B, but A is delayed because B caused some delay (be it by B asking A to perform extra works or by B physically hindering A’s ability to perform), the law does not re-write the contract to set time at large. That would be a doctrinal anomaly. The rational, principled explanation for the so-called rule is that B is taken to have waived the requirement for A to complete the works by a stipulated date, and the contract otherwise stands on its own terms.

In Trollope, Lord Denning (sitting in the Court of Appeal, whose decision was under appeal before the House of Lords) posited an alternative doctrinal approach: the implication of a term. The House of Lords considered that the contract in that case did not, on a proper analysis, lend itself to the suggested implied term.

A further doctrinal explanation that may be apt in a particular case is estoppel. Where rights of an innocent party depend on the timing of events or certain conditions being met, but the other party to the contract has engaged in some kind of conduct that misleads the innocent party to acting in its best interests to achieve those conditions in the time required, it may complain that the other party is estopped from relying on its perceived rights. Equity’s remedies thus become available, and the innocent party may be entitled to, for example, an injunction. Ordinarily, the appropriate relief is the minimum to do equity: Giumelli v Giumelli (1999) 196 CLR 101, 112-4.

In 289 Grange Road, Randall AsJ rejected the submission by the principal (plaintiff) that the contractor (defendant) was not entitled to rely on the contract provisions that, in effect, deemed claims to be debts payable by the owner in certain circumstances. In support of its submission, the principal relied on the absence of the appointment of a superintendent to whom payment claims were to be made. The deeming provisions assumed that appointment. After identifying the responsibility for the appointment of the superintendent lay with the owner, and that a superintendent is sometimes regarded as the principal’s agent, his Honour said at [40]-[41]:

Therefore, it is arguable that the failure by the plaintiff to appoint a superintendent (as agent), means that the responsibility reverts to the plaintiff. Given that the progress claims were provided directly to the plaintiff, in lieu of the agent, should not mean that the contractual provisions cannot be relied upon, as the plaintiff submits. As the appointment of the superintendent was the responsibility of the plaintiff, this argument fails due to the fact that the plaintiff would be taking advantage of its own failure pursuant to the contract, in accordance with the principles outlined above.

The consequence of the failure to appoint the Superintendent was that the claims were provided directly to the plaintiff, which acknowledged receipt. I am not satisfied that there is any genuine dispute raised with respect to this point.

In the language of the “prevention principle”, the principal in that case prevented the contractor from being able to submit a claim to the superintendent as contemplated by the contract. But so what? What is the legal analysis? In my view, the possibilities include the following:

  • variation of the contract (one of those rare cases where there is an agreement in the absence of offer and acceptance, because the parties have clearly, by their conduct, assented to a particular course of conduct);

  • estoppel (whether vanilla equitable estoppel or estoppel by convention);

  • waiver.

In a different context, Sloss J appears to have adopted an equitable estoppel approach to the analysis in Bisognin v Hera Project Pty Ltd [2016] VSC 75. (One of her Honour’s orders, which is not presently relevant, was reversed on appeal: [2016] VSCA 322.) In that case, Hera bought a parcel of land. The contract contained a special condition requiring it to use its best endeavours “to expedite and procure” the registration of a plan of subdivision, and the vendors had an obligation (in broad terms) to use their best endeavours to assist Hera. If that plan were not registered by 25 August 2015, either party was entitled to give notice in writing terminating the contract. Questions as to the interpretation of the contract arose, and Hera complained that it had lost the opportunity to perform its obligations. At [315]-[316], her Honour said (footnote omitted):

Hera also sought relief by way of declaration and injunction, declaring that the vendors are not entitled to terminate the contract pursuant to special condition 8, and an injunction restraining them from terminating or purporting to terminate the contract pursuant to special condition 8, together with an injunction restraining them from selling, encumbering or otherwise dealing with the land the subject of the contract. I am not satisfied that it is appropriate to grant relief of this kind. Rather, in circumstances where I have found that conduct on the part of the vendors operated to deny Hera the opportunity to demonstrate that it was possible for it to achieve registration of the plan of subdivision by 25 August 2015, I propose to order that the period of time specified in special condition 8 for registration of the plan of subdivision be extended.

The period between 16 June 2015 (when the planning permit was notified to the vendors’ solicitor) and 25 August 2015 is a period of approximately 70 days. In my view, because of conduct on the part of the vendors, Hera effectively lost the benefit of that period of time. Fairness suggests that Hera should be provided a further period of 70 days or thereabouts to enable it to seek to achieve registration of the plan of subdivision. If, despite the best endeavours of both parties, registration is not achieved during the period of extension, then either party may bring the contract to an end, by giving notice in writing to the other. …

But why was an extension of time an appropriate remedy? What is the nature of that remedy? In my view, the best explanation is that the vendors’ conduct gave rise to a cause of action (eg estoppel) entitling Hera to an injunction restraining the vendors from exercising their right of termination under the contract, and the injunction was limited to the minimum period to do equity. In this sense, Bisognin is distinguishable from the building cases where time for compliance was set “at large”, and the rationale for both kinds of case remain sound: in the building cases, the doctrine of waiver with compliance with a time stipulation applies; in the Bisognin-type case, equitable principles and remedies apply.

There has been further litigation in Bisognin, which resulted most notably in Riordan J’s judgment in Hera Project Pty Ltd v Bisognin (No 3) [2017] VSC 268. In that decision, Hera obtained specific performance of the contract of sale despite the plan of subdivision not being registered by the due date (as extended by Sloss J), on the basis that the vendors had acted to prevent that registration being achieved. On 29 August 2017, I appeared in an appeal from that and related decisions. I will report further when the Court of Appeal delivers its judgment.

UPDATE: The Court of Appeal has today dismissed the Bisognins’ appeal against Riordan J’s judgment: Bisognin v Hera Project Pty Ltd [2018] VSCA 93. The analysis of the key ground of appeal commences at [156]. Tata JA, with whom Kyrou and Coghlan JJA agreed, held that Hera was not required, pursuant to its obligation to use its best endeavours to expedite and procure the registration of the plan of subdivision, to pay fees – the liability for which was disputed as between the Bisognins and Hera – that would have progressed the process of the registration of the plan of subdivision. An important part of her Honour’s analysis was that DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 permits a party to a contract in a bona fide dispute about the construction of that contract not to perform it in accordance with the other party’s construction: see [165]. Even though the trial judge’s analysis on this point turned at least in part on an application of the “prevention principle”, there is little discussion on this point in Tate JA’s reasons.

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