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Introduction
Many construction contracts provide for a discretionary power in the superintendent to grant an extension whether or not a contractor is entitled to it or has brought a claim for an extension of time (discretionary extension of time). On the face of it, such clauses appear to operate for the benefit of the principal.

Peninsula Balmain – impact on principals
The case of Peninsula Balmain v Abigroup Contractors Pty Ltd [2002] NSWCA 211 (Peninsula Balmain), however, stands for the proposition that where the contract provides for a discretionary extension of time and there is an express obligation on the superintendent to act honestly and fairly in the exercise of his functions, then the superintendent is obliged to exercise his discretion to grant extensions of time for the benefit of both the principal and the contractor. In that case, the court found that the superintendent should have exercised his discretion and granted extensions of time.

Three years later, Kane Constructions Pty Ltd v Sopov [2005] VSC 237 followed Peninsula Balmain. In that case, the court held that the superintendent was obliged to certify an extension of time ‘where it may be fair and reasonable to do so, notwithstanding a plaintiff’s failure to make a claim or non-compliance with the relevant timing requirements for an extension of time claim’ (at [660]).

The result is that, under some contracts, notwithstanding that a contractor may not have complied with notice requirements in relation to extension of time claims, superintendents may nonetheless be obliged to grant extensions of time where it is fair and reasonable to do so.

Where does it leave principals?
For principals, it is imperative that Peninsula Balmain be borne in mind when considering whether to include a clause giving the superintendent power to grant discretionary extensions of time. The key questions for principals are whether it is possible to draft a contract such that the discretionary power is not subject to an obligation to grant extensions of time for the benefit of both the principal and the contractor and, if it is possible to do so, how might this be achieved.

Lessons from Hervey Bay
The recent case of Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd and Ors [2008] QSC 58 (Hervey Bay), handed down on 14 April 2008, answers the first question in the affirmative. In relation to the second, the case suggests that where the contract clearly states that the intention of the parties is to confer the power on the superintendent without imposing any obligation as to the exercise of that power, the outcome in Peninsula Balmain will be avoided. In Hervey Bay, this was achieved by:

- expressly providing that the superintendent is under no obligation to exercise his discretion to grant an extension of time under the clause, and

- expressly providing that the superintendent’s discretion is ‘absolute’.

Hervey Bay – the facts
Hervey Bay (JV) Pty Ltd (Hervey Bay) contracted Civil Mining and Construction Pty Ltd (Civil) to carry out construction works at Pialba. The dispute concerned the validity of the adjudicator’s decision as to a progress payment. Hervey Bay’s principal argument was that the adjudicator erred in law by misinterpreting the contract and that the adjudicated amount was excessive by some $740,000. The sum of $740,000 related to delay costs in relation to an extension of time which, in the adjudicator’s opinion, should have been granted by the superintendent exercising his power to grant discretionary extensions of time.

The relevant contractual provisions
The contract incorporated the general conditions of contract AS 2124-1992 but with several amendments. Clause 35.5 of the standard conditions entitled the contractor to extensions of time under certain circumstances and on certain conditions and included a requirement that the contractor provide notification of delays and claims for extensions of time within prescribed periods. Clause 35.5 of the standard conditions also included a provision that the superintendent may, at any time before the issue of the final certificate, extend the time for practical completion, notwithstanding that the contractor is not entitled to an extension of time. This was deleted and replaced with the following:

- '35.5A Other extension by superintendent. Notwithstanding that the contractor is not entitled to or has not claimed an extension of time, the superintendent may at any time and from time to time before the issue of the final certificate by notice in writing to the contractor extend the time for practical completion for any reason in the superintendent’s absolute discretion and without being under any obligation to do so.

- 35.5B Conditions precedent to extension of time claims. Despite clause 35.5 the contractor shall not be entitled to an extension of time to the date for practical completion or any other claim unless it has: complied strictly with clause 35.5 (including without limitation) given all the notices required by clause 35.5 in the forms and within the time periods specified in clause 35.5, and
demonstrated to the satisfaction of the superintendent that the delay has affected the contractor’s critical path for work under the contract (including without limitation demonstrating that the critical path of the latest approved construction program is affected).'

Clause 23 provided, inter alia, that the principal shall endeavour to ensure that, in the exercise of the functions of the superintendent, the superintendent act honestly and fairly. Clause 23A was inserted into the general conditions as follows:

- 'The contractor agrees that except to the extent expressly provided in the contract: the principal and superintendent may exercise those discretions and rights given to them under the contract in whatever way the principal or superintendent decide in their absolute discretion, and, the principal or superintendent may grant, refuse or grant subject to reasonable conditions any consent required from the principal or superintendent in their absolute discretion.'

It appears to be undisputed that civil had not given the notices required under clause 35.5 (at [21]). The adjudicator applied the reasoning from Peninsula Balmain and decided that clause 35.5A imposed an obligation on the superintendent.

The decision
Justice McMurdo found that the adjudicator had erred in law and stated:

- ‘Accepting the correctness of Peninsula Balmain and the cases which have followed it, in this contract however the parties have substituted different terms and the expressed intention was to confer a power on the superintendent without imposing any obligation as to the exercise of that power. Indeed the deletion of the relevant paragraph in cl 35.5 and the addition of cl 35.5A and cl 35.5B appear to have been drafted with Peninsula Balmain in mind. In my view there is no tenable construction of cl 35.5A by which the superintendent could be said to be under any obligation and in particular an obligation to extend time if it would be fair to do so. Absent such an obligation there was no entitlement in any sense to an extension of time, if there had not been compliance with cl 35.5’ (at [40]).

Conclusion
The case of Hervey Bay shows, not surprisingly, that parties may by agreement confer a power on the superintendent to grant a discretionary extension of time without imposing any obligation as to the exercise of that power. In that case, the contract expressly provided that the superintendent is under no obligation to exercise his discretion to grant a discretionary extension of time and expressly provided that the superintendent’s discretion is ‘absolute’.

This article was written by Caroline Woo, Senior Associate, of the Perth Litigation team.

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