Australia: Granting extensions of time in construction contracts: A duty of good faith may apply

The NSW Court of Appeal's recent decision in Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151 (Probuild v DDI) considers the prevention principle and finds that a duty of good faith may be applied to the discretion to extend time in construction contracts.

It is a common scenario in the Australian construction industry...

The contractual date for completion between a head contractor and a subcontractor comes and goes, without complaint or an extension of time claim.

Later, the head contractor orders variations, which are carried out. The subcontractor claims for the variations. For one reason or another, the parties find themselves in a different commercial position and the head contractor seeks to set off liquidated damages for delay.

Arguments then ensue about whether an extension of time should have been granted.

So then what?

The New South Wales Court of Appeal has recently affirmed in Probuild v DDI that in this situation, generally speaking, the head contractor is not entitled to levy liquidated damages in respect of periods of delay it has caused. The head contractor was obliged to grant an extension of time for delays it had caused, despite the subcontractor not having made a timely claim.

In doing so, it is the latest court to consider how the prevention principle applies in typical construction contracts. In a new development, however, the court said the obligation to extend time could be based on an implied duty of good faith.

The application of extension of time clauses continues to be one of the main sources of uncertainty in the industry. It is common for contracts to place restrictive conditions on the entitlement to claim extensions of time. Most construction contracts do nevertheless provide a power to unilaterally grant an extension of time.

The case of Probuild v DDI continues a line of cases requiring this unilateral power be exercised to extend time for delay caused by the owner (or head contractor, as they case may be), where the owner seeks to impose liquidated damages. It is suggested, though, the reference to good faith should not lead to a fundamental change to the contractual risk allocation.


Almost all standard form contracts (and sophisticated bespoke contracts) include a clause allowing the contractor an extension of time as of right for certain causes of delay, including but often not limited to delay caused by the owner (or head contractor, as the case may be).

These usually have a requirement to give notice of the claim within a certain period of time and are often a trigger for a claim for delay costs. Most contracts also include a clause allowing the owner's representative or an independent certifier to extend time for completion unilaterally at their discretion. The latter clause is not there as some sort of codified waiver. It exists to account for the prevention principle.

The prevention principle says that a party cannot rely on a breach of contract where its own actions have caused the breach. Therefore if the reason, or one of the reasons, a contractor has failed to reach completion by the date specified is it was prevented from doing so by the owner, the owner cannot levy liquidated damages from that date. The prevention principle has been recorded in the common law for centuries, in both a construction context and more generally in all commercial contracts.

One of the functions of extension of time clauses is to provide a contractual mechanism to avoid the operation of the prevention principle and so preserve the owner's right to liquidated damages. That is, if the delay caused by the owner can be separated out from the overall delay which has occurred, the owner can still hold the contractor responsible for the remaining delay, without offending the prevention principle.

So, in the typical contract being considered, if prevention occurs, a contractor may claim an extension of time. That may also give the contractor a right to claim delay costs. But if the contractor does not validly claim an extension of time, the unilateral extension of time power nevertheless allows the owner to grant an extension of time for delay caused by prevention, in order to separate out that delay. The owner can then insist upon completion by the new, extended date. If the contractor fails to complete by the extended date for completion, that is no fault of the owner. The owner can levy liquidated damages without offending the prevention principle.

In Peninsula Balmain, [1] followed by 620 Collins Street, [2] the courts held that, where the contractor failed to make a valid claim for an extension of time, the independent certifier (in those cases, the superintendent) was obliged to exercise the unilateral extension of time power [3] for the period of delay caused by the owner. This was because of an express contractual obligation for the independent certifier to act honestly and fairly in the administration of the contract.


The matter before the court

DDI was a plasterboard subcontractor on a hotel redevelopment for which Probuild was head contractor.

DDI completed 144 days after the date for completion. It made a significant Security of Payment claim for costs on account of variations (around $2.2 million on an original contract value of around $3.4 million). DDI had not made claims for extensions of time, nor complied with strict notification procedures for variations. Probuild responded to the claim by setting off liquidated damages. DDI argued the contractual mechanisms had been abandoned. The parties' submissions pointed to a range of potential causes of delay.

The adjudicator decided that in circumstances where variations had been directed after the date for completion had passed, it was 'unreasonable' for Probuild to not have granted an extension of time.

Even if some delays had been caused by DDI, this meant Probuild had not established its claim for liquidated damages. The adjudicator decided Probuild was liable for around $0.5 million.

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.


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?

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.


1 Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211.

2 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2) [2006] VSC 491.

3 Readers of these cases will note that the terms 'unilateral', 'discretionary' and 'reserve' tend to be used interchangeably to describe the relevant contractual power.

4 Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) [2012] WASCA 53.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.