13 October 2017

Can you be awarded an extension of time without claiming one?

A recent case in NSW shows that a superintendent can be required to grant an EOT even where the contractor is barred from claiming one. Whether this is the case for you will depend on the terms of your contract.


Unilateral EOTs

Most construction contracts contain strict procedures that a contractor must follow in order to claim an EOT.

In addition, they will often contain a clause that permits the superintendent or principal to grant an EOT, even where none has been claimed or the contractor is not entitled to one. The main purpose of this type of clause is to ensure the liquidated damages regime can continue to operate despite a delay caused by the principal.

The NSW Supreme Court was faced with such a clause in the case of Probuild v DDIThe contract in this case was an amended AS4303-1995. The clause read as follows:

Notwithstanding that the subcontractor is not entitled to or has not claimed an extension of time, the head contractor may at any time and from time to time before the issue of the Final Certificate...extend the time for Practical Completion for any reason

The issue arose because Probuild sought to apply liquidated damages against a subcontractor in relation to a delay that Probuild had caused.

The subcontractor did not claim an EOT within the time required by the contract, and so had become barred from making a claim.

To avoid liquidated damages, the subcontractor argued that, based on the clause above, Probuild was obliged to grant an EOT. The Court agreed.

The key principles

In the Probuild case, the Court found that the principal had an implied obligation to exercise the unilateral EOT power reasonably and in good faith.

In effect, the Court considered that Probuild should not be permitted to enforce a liquidated damages claim that arose from its own conduct. It observed:

Probuild was obliged to exercise the reserve power to grant extensions conferred by cl 41.9 honestly and fairly having regard to the underlying rationale of the prevention principle...or...becuase there is an implied duty of good faith in exercising the discretion cl 41.9 conferred.
Distinguishing features of the case

There are two important points about the Probuild case.

First, the Court's decision was based on the words of the contract. In many amended contracts, the unilateral EOT clause contains a qualification to the effect that the superintendent (or principal) is not required to exercise its power to grant a unilateral EOT either reasonably or for the benefit of the contractor.

Had Probuild's contract contained such a clause, the outcome of the case might have been different.

Second, Probuild was found to have been the cause of the relevant delay. Had the cause of the delay been a neutral event, such as a latent condition or inclement weather, the Court may have been less inclined to have found in favour of the subcontractor. This is because it may not have been unreasonable for Probuild to not grant an EOT for a neutral event, particularly if the subcontractor could have claimed an EOT but did not.

Takeaways for contractors

There are two important lessons for contractors.

The first is that, if you find yourself unable to make an EOT claim due to a time bar, a unilateral EOT clause may be a way to relief - depending on the way it is drafted, and the circumstances of the delay.

The second lesson is more important. Even though the subcontractor ultimately won in the Probuild case, this was only after an adjudication application under the security of payment legislation and litigation in the NSW Supreme Court. Had the subcontractor followed the procedure in the contract for claiming an EOT in the first place, the dispute is less likely to arisen.New call-to-action

Takeaways for principals and head contractors

There are also two important lessons for principals and head contractors.

The first is to take care when drafting unilateral EOT clauses. They are a worthwhile inclusion in your contract, provided care is taken in their drafting.

The second, more critical lesson is a simpler one. That is, if you delay your contractor (or subcontractor), you should not expect to be able to recover liquidated damages. Although there will be times that you may be able to do this, the courts will work hard to avoid such a result.

About the Author

Andrew Hernandez | Lawyer

During his time with Turtons, Andrew has been involved in a range of contentious and non-contentious work (particularly in the construction space).


andrew.hernandez@turtons.com | (02) 9229 2918

About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in privately owned construction and technology businesses.

Andrew Hernandez | Lawyer

Author

Andrew Hernandez | Lawyer

andrew.hernandez@turtons.com

During his time with Turtons, Andrew has been involved in a range of contentious and non-contentious work (particularly in the construction space).


andrew.hernandez@turtons.com | (02) 9229 2918

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