Fairness In Construction Contracts: Understanding The Prevention Principle After CIMIC Morningstar Investments Ltd. v. Chandos Construction Ltd.

I. Understanding the prevention principle

Broadly, the prevention principle is a contractual doctrine that bars a party from enforcing an obligation where that party's own conduct brought about the other side's failure to perform. The doctrine is rooted in notions of fairness and mutual cooperation, and it discourages behaviour that obstructs a counterparty's ability to fulfill its contractual commitments.

Canadian courts have articulated the principle in three related ways: (1) a negative duty¹ not to prevent or hinder a counterparty’s performance, (2) a positive duty to cooperate² and (3) a moral principle³ that no party should be allowed to profit from their own wrongdoing. While it remains unsettled whether these are distinct doctrines or expressions of a single principle, they reflect the same fundamental concept.

II. Modern application in Canadian construction law

In contemporary Canadian law, the prevention principle is widely regarded as a general principle of contract law.⁴ It applies to contracts regardless of the contract’s specific terms and functions primarily as a defense, allowing a hindered party to be excused from non-performance or delay.⁵

Although typically characterized as a “shield rather than a sword,” it remains an open question whether the prevention principle can ground affirmative claims for damages or whether it operates only defensively.

This has particular significance in construction disputes. Specifically, in circumstances where an owner’s conduct may have impeded a contractor’s ability to perform, the prevention principle can be invoked as a defense by the contractor to excuse its non-performance or delay and limit an owner’s ability to claim liquidated damages or terminate for delay.

This was the case in the recent British Columbia Court of Appeal decision in CIMIC Morningstar Investments Ltd. v. Chandos Construction Ltd., ⁶ where the Court was required to determine whether an owner was entitled to withhold payment under the liquidated damages clause in the contract. In that case, the Court held that the prevention principle applies where the owner’s actions have a “real and material impact” on the contractor’s performance such that timely completion becomes impossible. ⁷

The Court also addressed circumstances in which the prevention principle may not apply, particularly in construction contracts that include provisions allowing for extensions of time due to owner-caused delay. The contract at issue contained a notice provision that, in the appellant’s view, was designed to oust the prevention principle. The Court rejected this position, clarifying that where a contractor fails to meet the relevant notice requirements or where an owner properly grants an extension of time that removes the effect of its own delay, the prevention principle may be ousted to preserve the owner’s right to seek liquidated damages for contractor delay.⁸

However, this is not an absolute right and depends on the interpretation of the particular extension clause and the tribunal’s findings of fact as to the nature of the delays and the conduct of the parties.⁹ The Court ultimately upheld the arbitrator’s finding that the contractor complied with the notice requirements and was entitled to an extension, yet, despite having caused the delay, the owner failed to use the extension clause to adjust the completion date and account for its own delay. As such, the owner-caused delay provision was not properly relied on, leaving the prevention principle to govern.

III. Why constructors and owners should be mindful of the prevention principle

There are several reasons why both constructors and owners should keep the prevention principle front of mind throughout the lifecycle of a construction project – from initial contract negotiations through to project completion.

From the owner's perspective, it is essential to recognize that its own conduct on a project can erode its contractual entitlements, even where the contract is silent on the matter, and may expose the owner to a damages claim by the contractor through breach of implied terms.¹⁰ Owners should therefore carefully consider the prevention principle before taking steps that could hinder a contractor’s performance, including decisions around the timing of site access, the delivery of design drawings and any interference with the contractor’s planned sequencing of the work. Even well-drafted extension provisions will not protect an owner who causes delay and then fails to properly grant extensions.

For contractors, the prevention principle offers a significant line of defence. A contractor facing claims for delay, liquidated damages or termination should assess whether the owner’s own conduct caused or contributed to the contractor’s inability to meet the relevant obligations, even in the absence of a breach of an express contractual term by the owner.¹¹ In doing so, contractors must ensure they document delays carefully to preserve the protection of the prevention principle.

For both parties, the prevention principle reinforces the need for thoughtful negotiation, contract drafting and rigorous project administration.¹² At the drafting stage, parties should consider how express terms allocate responsibility for potential causes of delay and disruption, bearing in mind that implied obligations and the prevention principle may supplement or even override gaps in the written agreement. During project execution, diligent record-keeping, timely communication and taking a cooperative approach are essential — because at its core, the prevention principle exists to ensure that neither party gains an advantage from conduct that frustrates the other’s ability to perform.

If you have any questions about the prevention principle or require any assistance with preparing, negotiating or enforcing construction contracts, please do not hesitate to reach out to Aljosa Zenicanin, Karen Groulx and Dragana Cerovina or any members of the Dentons’ Construction and Infrastructure and PPP groups.

Special thanks to Ali Ebenhardt, Articling Student in Dentons’ Toronto office.

Footnotes

1. Barque Quilpe Ltd. v. Brown, [1904] 2 K.B. 264 at 274. ↩

2. Mackay v. Dick (1881) 6 A.C. 251 at 263. ↩

3. Roberts v. Bury Commissioners (1870) L.R. 5 C.P. 310 at 326. ↩

4. See Stephens v. Sowiak, 2024 ABKB 583 [Stephens]; Canadian courts have also developed a parallel body of law around implied terms in construction contracts. Implied terms are terms that are not included in a contract but due to (1) custom or usage in the industry, (2) presumed intention of the parties and (3) the legal incident of a particular class of contract, may be read as if they form part of the contract. Implied terms are closely related to the prevention principle and warrant its own analysis regarding its application in Canadian Construction Law. ↩

5. Stephens at paras 15–18. ↩

6. 2026 BCCA 2 [CIMIC Morningstar]. ↩

7. CIMIC Morningstar at paras 41, 42, where the arbitrator relied on the test as articulated in Perini Pacific Ltd. v. Greater Vancouver Sewerage and Drainage District, 1966 BCCA 457. ↩

8. CIMIC Morningstar at para 69. ↩

9. Ibid. ↩

10. Canadian Pacific Hotels Ltd. v. Bank of Montreal, 1987 SCC 55 at para 51. ↩

11. See Mee Hoi Bros. Company Ltd. v Borving Investments (Canada) Ltd., 2017 BCSC 1910. ↩

12. Benfield Corporate Risk Canada Limited v. Beaufort International Insurance Inc., 2013 ABCA 200 at para 113, citing Duke of Westminster v. Guild [1985] QB 688, 699-700 (CA). ↩