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CONTROLLING CONTRACTUAL DISCRETIONS: THE LIMITS PLACED ON DISCRETIONARY POWERS IN CONSTRUCTION CONTRACTS
PAUL TAMBURRO *
Solicitor, King & Wood Mallesons
It is well established in English law that discretionary powers in contracts cannot be exercised at a party’s “uninhibited whim”, 1 but are limited either expressly or by a term implied by the common law. This implied term varies depending on the nature and the context of the discretion, but at a minimum requires that parties do not exercise discretions arbitrarily, capriciously or irrationally.
This paper considers contractual discretions in the construction context. It considers the types of discretions conferred on the principal or contractor and how they might be constrained by express or implied terms. It examines this in light of the Supreme Court’s leading decision in Braganza v BP Shipping Ltd , 2 which, first, provides guidance on how the scope of the implied duty varies according to the terms and context of the Contract, and second, draws an analogy between contractual discretions and the administrative law review of statutory powers. Finally, this paper concludes by arguing that imposing “good faith” restrictions on contractual powers is likely to promote fair contracting within the construction industry, without adding unmanageable uncertainty.
II DISCRETIONS IN CONSTRUCTION CONTRACTS
Contractual discretions refer to powers that are granted to one party in the Contract to make decisions that affect the interests of both parties. 3 Such terms, in which one party is given the power to exercise a discretion,
* LLB (Hons) (Monash); Solicitor at King & Wood Mallesons (Melbourne, Australia). This paper was awarded a high commendation in the UK Society of Construction Law’s Hudson Prize in 2019.
1 Abu Dhabi National Tanker Co v Product Star Shipping Ltd (The “Product Star”) (No 2) (CA)  1 Lloyd’s Rep 397 , 404 (Leggat LJ).
2 (SC)  UKSC 17;  2 Lloyd’s Rep 240 ;  1 WLR 1661;  4 All ER 639 (“ Braganza ”).
3 They are therefore distinct from fiduciary powers, which are granted to one party to act in the interests of the other.
Pt 4] Controlling Contractual Discretions
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