Implied duties not to prevent performance and to co-operate
WILD DUCK v SMITH [2017]
In this case it was confirmed that generally terms will be implied into a contract that neither party will prevent or delay the other from carrying out its obligations under it and that the parties will co-operate to make the contract work, although the extent of that duty should not be exaggerated.
Facts:
- Wild Duck (“W”) bought some leases for plots of land from the freehold owners, Mr Smith and his family (“S”), which were to be developed into holiday homes.
- S entered into an agreement with the developer who ran into financial difficulties. The leases had a provision that in such circumstances a management company (“M”), in which each tenant was a shareholder, became liable to complete the outstanding works.
- S asserted that the leases provided that if M failed to perform its obligations, S could perform them and recover the cost from M, ie effectively the tenants, which is what S intended to do.
- W argued that S was subject to implied duties:
- not to prevent M from performing its obligation to complete the necessary work; and
- to co-operate with M in the performance of its contractual obligations to complete the work.
Decision:
- Generally, the Courts are somewhat reluctant to imply terms into a contract – the test in essence being one of necessity in a business sense. However, the Court looked at the two implied terms that W referred to:
- Duty not to prevent performance – it accepted that generally there is an implied term that each party will not prevent the other from performing the contract, which extends to not delaying the other party. This duty is, however, limited to not actively preventing performance. It does not require the contracting party to take positive steps to facilitate performance;
- Duty to co-operate – the Court acknowledged that there may be an implied term that the parties will co-operate in order to make the contract workable. The scope of such a duty should not be exaggerated though – it only applies to the extent that performance of the contract cannot take place without that co-operation. A limited obligation to provide the minimum co-operation necessary will be implied but not anything higher.
- The Court recognised that there is a high degree of overlap between these two implied terms. It suggested that the difference between them is that a duty to co-operate may involve some degree of positive action.
- W was unable to identify any specific positive act of co-operation required in order to make the lease workable in relation to M’s obligation to complete the outstanding works. So in this instance the duty to not prevent performance and the duty to co-operate effectively amounted to one and the same thing.
- Ultimately W could not prove that S had prevented performance and there was therefore no breach of contract even though some of the conduct in question during the course of ongoing negotiations had been, in the judge’s own words, “petulant, stubborn, unreasonable, unpleasant and perverse”. The judge recognised that some delays were, “the natural result of the voluntary process of negotiation”.
Point to note:
- Whilst duties not to prevent performance and to co-operate may be implied in commercial contracts where necessary, the scope of these implied terms is ‘minimalist’ in nature particularly so far as any duty to take some positive action is concerned. It pays to be very specific as to exactly what positive co-operation is required in the written contractual documentation.