When is the variations power restricted?



Even if the contract provides the principal with a variations power, the common law imposes restrictions on the principal's exercise of that power. These include the following:

Restriction No.1 - Principals cannot fundamentally alter the scope of the works



Although a principal may have the contractual power to vary the scope of works, use of the power which would result in a fundamental change to the works or their value is not a proper exercise of that power.

CASE STUDY



Chadmax Plastics Pty Limited v Hansen and Yuncken (SA) Pty Ltd

(1984) 1 BCL 52



Facts


  • Hansen & Yuncken's head contract with the principal required many of the wall surfaces of the office tower to be finished with a preparation known as 'Wallflex'.
  • Hansen & Yuncken engaged Chadmax as specialist subcontractor to apply the Wallflex finishes.
  • The principal decided that it no longer wanted Wallflex, and directed Hansen & Yuncken to change the finish.
  • Although this was a relatively minor change to the head contract works, it meant that Hansen & Yuncken deleted 98% of the works from the Chadmax subcontract.

Result


  • The court awarded Chadmax damages for breach of the subcontract, as the extent of the variation directed under the subcontract amounted to a virtual cancellation of the subcontract and amounted to a repudiation.
  • The contract gave power to the principal to vary the sub-contract works, but not the power to virtually cancel them.


Restriction No. 2 – Principals cannot delete works and engage another person to perform those works



Although a principal may have the contractual power to vary the scope of works, any use of the power to have another contractor perform those works is not a proper exercise of that power. In order to perform or have another contractor perform the deleted works, the contract must clearly empower the principal to do so.

This restriction has been applied very strictly by the courts and is not subject to either:


  • a 'degree test' – it is irrelevant whether the principal deletes only a small portion of the contractor's work and has another contractor perform, or performs the work itself; or
  • a 'temporal test' – a principal will breach the restriction if it deletes the work with the intention of engaging another contractor or performing the work itself at some point in the future.

The High Court applied this principle in Carr v JA Berriman Pty Ltd (1953) 89 CLR 327, which has been applied consistently by later cases.

CASE STUDY



Carr v JA Berriman Pty Ltd

(1953) 89 CLR 327



Facts


  • Carr engaged Berriman to construct a building on Carr's property.
  • The contract contained a variation clause which allowed the architect to use his absolute discretion to issue written directions in regard to the omission of any work.
  • During the course of the project, the principal deleted the steelwork from Berriman's scope, and made an arrangement with a third party to fabricate and supply the steel.

Result


  • The court held that despite the power given to the architect to direct that particular items of work not be carried out, the architect was not authorised to delete the works so that they could then be carried out by another contractor.
  • The court stated that such a power would be unreasonable and could only be conferred with very clear words.

This restriction on the power to vary works is further confirmed in Commissioner for Main Roads v Reed & Stuart Pty Ltd (1974) 131 CLR 378. In Commissioner for Main Roads v Reed & Stuart Pty Ltd a contract provided that a superintendent could request a contractor to apply additional topsoil to a site. The superintendent's decision to use a different contractor to bring in the additional topsoil was a breach of contract.

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