International Construction Law Review
THE PREVENTION PRINCIPLE – A FURTHER AUSTRALIAN CHAPTER
Gordon Smith
Barrister & Solicitor*
Chartered Arbitrator and Adjudicator
I. INTRODUCTION
The New South Wales Court of Appeal, in Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (“Probuild v DDI”),1 dismissed an appeal by Probuild Constructions (Aust) Pty Ltd (“Probuild”) against a first instance decision dismissing an application to quash an adjudicator’s determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“Act”). The court rejected Probuild’s contention that underpinning the adjudicator’s rejection of its liquidated damages claim was the application of the prevention principle, and that since the adjudicator had not notified either party of his intention to apply that principle, there had been a breach of natural justice.
The court, in assessing the issue of natural justice, held that Probuild itself was obliged to exercise the contractual discretionary power to grant extensions of time (“Reserve Power”) honestly and fairly having regard to the underlying rationale of the “prevention principle” or, if necessary, because there was an implied duty of good faith in exercising the Reserve Power. The court’s decision represents a further chapter in the development of the law in Australia on the interaction among the prevention principle, notice provisions expressed as conditions precedent to an extension of time, and operation of the Reserve Power in two respects:
- (1) first, equating a third-party certifier’s obligation to exercise the Reserve Power with a contracting party’s obligation to do so; and
- (2) secondly, in the alternative, imposing an implied obligation of good faith on a contracting party itself, as distinct from a third-party certifier, to exercise the Reserve Power.
The author discusses in this article the court’s decision on these two issues, and respectfully concludes that neither basis is clearly supported by authority.
LLB (Hons), BE (Civil), MBA, FCIArb, CArb, FSIArb, AIAMA, FIEAust, CPEng (Ret).
1 (NSWCA) [2017] NSWCA 151.
Pt 2] The Prevention Principle
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