The content of an implied duty of good faith must not be inconsistent with the express terms of the contract.
Probuild sought to quash the adjudication on the basis that the adjudicator had not allowed procedural fairness, by deciding the matter on a basis which had not been argued. While that was a relatively narrow issue before the court, the court’s reasoning on the prevention principle is more widely applicable. The court’s reasoning McColl JA (with whom Beazley JA and Macfarlan JA agreed) examined the line of cases dealing with the prevention principle. The court explained it by reference to McLure P’s observation (in Spiers Earthworks)[4] that the prevention principle may be a manifestation of the obligation to cooperate implied as a matter of law in all contracts. The court went on to affirm that the reasoning in Peninsula Balmain applied to this case. That is, in order to claim liquidated damages, Probuild was obliged to extend time for delays it had caused. Importantly, though, the contract in this case did not have a superintendent or some other independent certifier. Rather, it was Probuild itself which held the power to unilaterally extend time. There was (it seems) no express obligation on Probuild to act honestly and fairly. The court held that the obligation to extend time arose ‘having regard to the underlying rationale of the prevention principle or, if necessary, because there is an implied duty of good faith in exercising the discretion’ conferred by the unilateral power. Ultimately, the court found the adjudicator’s decision and the material before the adjudicator encompassed that underlying rationale, and so Probuild had not been denied natural justice. Probuild had not made a case about what would have been an appropriate extension of time. The court cautioned that Probuild’s ultimate entitlement to liquidated damages depended, of course, on the proper construction of the subcontract in the events that occurred. Probuild v DDI: the wider implications The court’s decision in Probuild v DDI is aligned with the logic of Peninsula Balmain. There are, however, two important matters resulting from the decision of which parties to construction contracts should be aware. Firstly, the court suggested that a party to a construction contract may be obliged to exercise its discretion to extend time because of an implied duty of good faith. The court did not, however, elaborate on the extent of the duty or its content. One can image that an open ended duty would give rise to practical problems. For example, a superintendent is obliged to make a decision based on his or her independent knowledge of the project and whatever material is put forth by the parties. But a party to the contract is not independent and has its own commercial interests. So, is a party to the contract acting in good faith obliged to make a decision based upon its own knowledge rather than only the claim of the contractor? Is it obliged to inform the contractor of the basis of its good faith decision? If the obligation to exercise the unilateral power in good faith arises where the contractor has failed to make a timely claim, what other conditions precedent should, in good faith, be disregarded, and is there a spectrum? What if the contractor is claiming delay costs rather than the owner claiming liquidated damages?