Implied duty not to prevent performance

There was an implied duty in a lease that the lessor would not prevent a management company from performing its obligations, but not one that it had to positively cooperate with the company (Wild Duck v Smith [2017] EWHC 1252 (Ch)).

The dispute related to the development of holiday homes in the Cotswolds by the Smith family. Wild Duck bought some leases "off-plan". The developer, Lake Ten, ran into financial difficulties and the management company, in which each lessee was a shareholder, became liable to complete the outstanding works. The leases provided that if the management company failed to perform its obligations the lessor could perform them and recover the cost from the management company. Among many claims, Wild Duck said that the Smiths had breached an implied duty not to prevent the management company from performing its obligation and that there was an implied duty to cooperate with the management company.

The court referred to Marks & Spencer v BNP Paribas. The test for an implied term is one of necessity. This means necessary in the business sense; not that there is an absolute necessity. The test is, is the term required to ensure "commercial or practical coherence"?

The parties and the judge quoted Lewison on the Interpretation of Contracts which has useful guidance on terms about prevention of performance and terms about cooperation. We have written before on this blog about the difficulties of implying terms in contracts. A rare exception is that in general a term will be necessarily implied into a contract that neither party will prevent the other from performing it. The judge had no difficulty in finding that there was an implied term not to prevent performance (applying Stirling v Maitland (1864)) and that this extended to not causing delay (Barque Quilpue Ltd v Brown [1904]).

As to the duty to cooperate, the position was different. Wild Duck was unable to identify any specific act of cooperation required in order to make the lease workable in relation to the management company's obligation to complete the outstanding works.

Update June 2018: Wild Duck's appeal was dismissed.