Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151
Under the New South Wales Building and Construction Industry Security of Payment Act 1999, an adjudicator who rejected a head contractor's liquidated damages set-off by inferentially applying the prevention principle did not deny it procedural fairness, where it had itself put an extension of time in issue and the subcontractor had raised acts of prevention.
What the court decided
Probuild Constructions (Aust) Pty Ltd, head contractor for a Sydney hotel renovation, subcontracted plasterboard work to DDI Group Pty Ltd [21]. The subcontract allowed Probuild, by clause 41.9, to extend time for any reason, even where DDI was not entitled to, or had not claimed, an extension [30].
Probuild's payment schedule reduced DDI's payment claim to nil by set-offs, chiefly liquidated damages at $15,000 a day, and asserted that DDI had been granted no extension of time and had no entitlement to one [37], [39]. In its adjudication application, DDI claimed an extension of time and said that Probuild had restricted its access, required it to depart from the program and made an unreasonable claim [41], [44].
The adjudicator noted that, on DDI's submissions, variations were still being directed by Probuild, and submitted by DDI for approval, in June 2015 [51]. He found it unreasonable that Probuild had not granted additional time, rejected the set-off and determined that Probuild owed DDI $475,716.20 plus interest [51], [52]. The primary judge, Meagher JA, dismissed Probuild's summons for certiorari, holding that the adjudicator had dealt with its argument as made [53], [62], [63].
The Court of Appeal dismissed Probuild's appeal with costs [1], [145], [146]. McColl JA gave the only substantive reasons [1], [2], [146]. Beazley ACJ agreed with her reasons and proposed order, and Macfarlan JA agreed with McColl JA [1], [146].
Probuild argued that the adjudicator had applied the prevention principle without giving notice of it [67], [68]. Drawing on earlier authority, McColl JA said that the content of procedural fairness turned on the scheme of the Act, informed by its short time limit and the interim character of a determination [101], [107]. She noted that an adjudicator was not obliged to call for further submissions under section 21(4), although at least one intended function of that power was to require notice where the adjudicator was minded to decide on a ground neither party had put [108].
Contrary to Probuild's submissions, she held that Probuild was obliged to exercise the clause 41.9 power honestly and fairly, either having regard to the rationale of the prevention principle or, if necessary, because of an implied duty of good faith [128].
She held that the application of the principle was squarely in issue, and its inferential application "could not, or should not, have come as a surprise to Probuild" [131]. In her Honour's view, Probuild's submissions from the outset raised DDI's entitlement to an extension and reflected a recognition that its late directions were capable of being acts of prevention [132], [133]. DDI responded by seeking an extension and by asserting, in lay language, conduct that invoked the principle's underlying rationale [134], [135]. Probuild was on notice of DDI's claim of prevention and of a discretionary extension power that DDI had, or arguably had, invoked [137]. A South Australian decision on which Probuild relied was distinguishable, because there the claimant had neither sought an extension nor relied on the principle before its application [83], [138].
Her Honour inferred that the adjudicator most probably concluded that Probuild, acting honestly and fairly under clause 41.9, ought to have extended time [139]. He had therefore dealt with Probuild's argument as made [140]. As the issues were "on the table", there was no denial of procedural fairness [144].
Why it matters
On this reasoning, where a respondent's payment schedule itself puts the claimant's entitlement to an extension of time in issue, and the claimant seeks an extension and asserts acts of prevention, even in lay terms, the respondent may find it hard to complain of surprise if the adjudicator rejects a liquidated damages set-off because a discretionary power to extend time ought to have been exercised.
The outcome turned on the particular adjudication documents, and the Court distinguished a case in which no extension had been sought and the principle had not been raised before the adjudication application.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.