The answer to these problems is perhaps provided by the second element of the court’s logic. That is, that the discretion is to be exercised having regard to the ‘underlying rationale’ of the prevention principle. The underlying rationale is that a party cannot rely on a breach of contract that it has caused. The unilateral extension of time power allows the delay caused by the owner to be separated out from the overall delay to completion, so all that remains is delay that the owner has not caused. Therefore, because of the extension of time, the breach has not been caused by the owner and the prevention principle does not apply.
If the obligation to act in good faith aligns with the ‘underlying rationale’ of the prevention principle, the owner’s obligation is only to allow for the delaying effect of its own conduct, and no more. In this way, the implied duty of good faith is not open ended but harmonises with the purpose of the unilateral extension of time power. Together, they produce an interpretation of the obligations in the contract consistent with one another and long-standing principles. There remains one difficult question: what happens if there is no unilateral extension of time power or the discretion is limited so that it cannot be exercised to remove the delay caused by the owner? On one reading of Probuild v DDI, the owner is better off without there being any discretion at all. On the other hand, that would be a return to the very situation which gave rise to the existence of the unilateral extension of time power: to avoid the risk of ‘all or nothing’ on delay liability. This is not the place to analyse this complex topic in detail. What is clear, however, is that where there is an available unilateral extension of time power, an owner is usually obliged to grant extensions of time for delays it has caused in order to preserve liquidated damages for delay. The prudent course, in ‘normal’ risk allocations, would usually be to make a fair and independent assessment of the delay caused by the owner. That may include, it is suggested, taking into account any causative effect of the failure to make a timely claim by the contractor. The content of an implied duty of good faith must not be inconsistent with the express terms of the contract. It is suggested that Probuild v DDI should not lead to a different risk allocation.
About the Author
Dado Hrustanpasic Senior Associate
Dado is a senior associate in Corrs Chambers Westgarth, Melbourne. Corrs Chambers Westgarth is Australia’s leading independent law firm, recognised for its innovation, quality advice and client-driven approach. Corrs was voted as the number one law firm in both Australia and the APAC in the 2016 Legal 500 Client Intelligence Report, with the in-house legal community scoring the firm highly across all three of the key performance indicators, including client relationship skills, technical legal ability, and project management.