Role of the Superintendent In ContractAdministration
ACLN - Issue #70
Anthony HoranPartner, Phillips Fox LawyersMelbourne
INTRODUCTION
T HE SUPERINTENDENT IS an unusual creature. It is paid by itsmaster, must do its master's bid-
ding, and yet, at other times, is required toact independently of its master, and, possibly, contrary to its master's wishes. Yes, thetraditional role of the superintendent canrequire the superintendent to bite the handthat feeds it.
There is a wealth of articles written onthe role of the superintendent. The aim ofthis paper is to provide a brief synopsis ofthe current state of the law in relation to thesuperintendent, whilst considering somenew or growing risks, and to express someideas about future responsibilities and thechanging face of the superintendent's role.
In doing so, the paper examines some ofthe more recent standard form building contracts available, including AS 4000-1997general conditions of contract, CIC-l construction industry contract, PC-l 1998 project contract and C21 construction contractconditions.
Defining the Role
2.1 Dual roles
Traditionally, the principal and the contractor will enter a construction contractwhere they agree that the principal will engage a superintendent:~ to issue directions to the contractor on
behalf of the principal, as its agent, aspermitted under the head constructioncontract
~ to carry out the tasks of certification, assessment and valuation under the construction contract independent of theprincipal and the contractor.The superintendent is not a party to the
construction contract. The consultancyagreement between the superintendent andthe principal will specify that the superintendent has agreed to administer the con-
struction contract. The construction contractitself will define the parameters of the superintendent's role in administering thatcontract.
The duty of both principal and contractor is 'to do all co-operative acts necessaryto bring about the contractual result', andthat includes not interfering with the superintendent's role as certifier, assessor andvaluer (refer Perini Corporation v Commonwealth of Australia [1969] 2 NSWLR530 at 545).
2.2 Standard forms - AS 4000and CIC-1
Recent standard form building contractshave moved away from the 'punch list' approach in the JCC standard form contracts,where the certification role and the role asagent are separately dealt with in exhaustivelists of administrative tasks (clauses 5.02.01and 5.02.02).
Clause 20 of AS 4000 imposes upon theprincipal a specific obligation to ensure thatthe superintendent fulfils all aspects of itsrole and functions 'reasonably and in goodfaith'. This is not dissimilar to its predecessor, AS 2124, which required the superintendent to act 'honestly and fairly' (clause23).
Accordingly, AS 4000 would require thesuperintendent to act reasonably and ingood faith, even when acting as the principal's agent. This would seem to harness theprincipal's ability to issue directionsthrough its agent, the superintendent. Theprincipal could be in breach of the construction contract if the principal required thesuperintendent to issue a direction to thecontractor which was not reasonable ormade in good faith.
CIC-l (now in its second edition) ismore explicit. Clause A3 provides that thesuperintendent (referred to as the,architect'):
ACLN - Issue#70
'There is a wealth of
articles written on
the role of the
superintendent.
toparties
Conflicts of interest
C21 simply require the'cooperate' with each other.
This paper looks at the traditional position where the superintendent acts as agent,except when required to act independentlyas assessor, valuer or certifier. The term'certifier' is used to refer to the second role.
As alluded to earlier, the superintendentsuffers from a number of conflicts of interest. It is an old adage that justice must notonly be done, but must be seen to be done.The superintendent has a difficult job, par-
ticularly where relations between principal and contractorhave soured, to show the necessary professionalism required inorder to maintain the confidenceof both parties when carryingout its role as certifier.
2.4
Traditionally, the superintendent's role has been undertakenby those involved in the designprocess - the architect, engineeror quantity surveyor. Needlessto say, when assessing the contractor's work, the superintendent can be faced with the dilemma of determining whetherthe superintendent's own design-related work may havecontained inconsistencies, ambiguities or real errors, or mayhave been delivered in such anuntimely manner as to have affected the contractor's ability toachieve practical completionwithin the contractual time
frame. Naturally, the superintendent mayfind it difficult to carry out an objectivescrutiny of the superintendent's own work.
Irrespective of whether the superintendent is also the designer, the fact that thesuperintendent is paid by the principal maycreate pressure upon the superintendentwhen trying to act independently of theprincipal and the contractor. Naturally, thesuperintendent does not want to offend itsclient. The superintendent's promise of future work will no doubt come from pleasingthe client/principal. Offence may be inevitable when issuing, say, a final certificate inthe face of continuing complaints of defectsmade by the principal.
The relationship is even closer where thesuperintendent is actually an employee of
The aim of this paper
is to provide a brief
synopsis
of the current state
of the law, whilst
considering some
new or growing risks,
and to express
some ideas
about future
responsibilities'.
Standard forms - PC-1 and C21
~is the owner's agent for giving instructions to the contractor
~ is required to act independently and 'notas the agent of the owner' when acting asassessor, valuer or certifier.
2.3
By sharp contrast, underboth PC-l and C21 the superintendent (the 'Contract Administrator' under PC-I, andthe 'Principal's Representative' under C21) acts exclusively as agent of the principal.Clause 3.1 of PC-l and clause3.4 of C21 specifically statethat the superintendent doesnot act as an independent certifier, assessor or valuer, but asan agent of the principal. Evenso, C21 does provide for a'Valuer', jointly engaged bythe principal and contractor, toresolve valuation of variationswhere the parties cannot agree(Clauses 41 and 71).
PC-I and C21, issued bythe Property Council of Australia and the New South WalesGovernment respectively, indicate a move away from stan-dard form contracts developedby consensus of industry groups. In an article on PC-I, the Property Council stated:
CIC-l imposes upon the principal anobligation to ensure that, in assessing, valuing or certifying, the superintendent 'actsfairly and impartially, having regard to theinterests of both the owner and the contractor'. It is a breach of the contract for theowner to compromise such independence.
Unashamedly, the Project Contract hasa client focus and is intended to producegreater project efficiency and more predictable outcomes than existing standard forms.It is based on the proposition that those initiating and paying for building and construction projects are entitled to set theagenda, commercially determine risk allocation and control certain risks (refer'Property Council of Australia Project Contract' , Issue 59 Australian Construction LawNewsletter April/May 1998, p23-26 at 23).
There is no provision in these two contracts requiring the principal or the superintendent to act fairly, reasonably or in goodfaith. Clause 3.3 of PC-l and clause 4.1 of
'It is an old adage that Justice must not only be done, but must be seen
to be done.
The superintendent has adifficult Job, particularly where relations
between principal and contractor have soured, to show the necessary
professionalism to maintain the confidence of both parties'.
ACLN - Issue #70
the principal. For example, in governmentprojects, the superintendent is likely to bean employee of the relevant governmentdepartment.
The fact that the superintendent is employed by the principal and not the contractor may render the superintendent anxiousto the threat of suit by the principal. UnderICC, such threat of action by the contractoris not a worry (refer John Holland Construction & Engi-neering Pty Ltd vMajorca ProjectsPty Ltd and BruceHenderson Pty Ltd(1996) 13 BCL235).
Contractorswill often see therelationship be-tween principal and superintendent as tooclose; that the superintendent appears to beconspiring with the principal to thwart thecontractor's legitimate claims for payment.Paradoxically, principals can be drawn to abelief that, in granting variation claims andawarding delay costs, the superintendentmay be conspiring with the contractor, especially where the superintendent's remuneration is a percentage of the contract sum.
Of course, potential conflicts of interestconfront all professionals; for example,where the superintendent might have a financial interest in either the principal or thecontractor. If the superintendent is a member of a professional body, or a registeredbuilding practitioner under the Building Act1993 (Vic), then he or she may be subject todisciplinary action. Those superintendentswho fall outside those bounds, such as project managers, do not face such controls.
Scope of Duties
3.1 Engagement of thesuperintendent
In the past, superintendents were oftenengaged through simple letters of engagement or standard form industry agreements,such as the RAIA Client!Architect Agreement, or the ACEA Terms of Agreement forClient and Consulting Engineer.
More recently, particularly in majorcommercial and infrastructure work, verydetailed consultancy agreements are beingsubmitted to superintendents which effectively codify the services to be provided.
Consistency between consultancyagreement and construction contract
It is often said that a contractor must ensure that the terms of the head building contract are mirrored in the terms of all subcontracts for the project. Otherwise, the contractor faces the risk of failing to pass theobligations it owes to the principal onto theappropriate parties who are ultimately responsible and should accept that risk.
With the trend for principals to imposedetailed prescriptive consultancy agreements upon superintendents, similar attention should be paid by superintendents toensuring that the services which they arerequired to provide are consistent with theterms and conditions of the constructioncontract which they are engaged to administer.
There is a risk of confusion and uncertainty where the responsibilities of the superintendent under the construction contractdiffer from the obligations specified underthe consultancy agreement by which thesuperintendent is engaged. For example, thesuperintendent may agree to act at all timesas agent of the principal. This would be inconsistent with most standard form construction contracts which require that thesuperintendent not act as agent when actingas certifier. A safeguard would be, in theconsultancy agreement, to give precedenceto the obligation to administer the construction contract over any other obligation, tothe extent of any inconsistency.
Prior to engagement, the superintendentshould determine whether it has sufficientresources to provide the level of contractadministration services specified in the consultancy agreement. An example of thiswould be where, under a design and construct contract, the superintendent is obligedto certify that work has achieved a certainstandard. Differing levels and types of resources will be required depending uponwhether the standard is set, for example, byreference to a similar building or buildings
ACLN - Issue # 70
Most demanding would be the standard of world's
bestpractice.
'Differing levels and types of resources will be required depending upon
whether the standard of work set out in the contract Is by reference to a
similar building nearby, Interstate or overseas.
The manner in which the superintendentexercises its dual functions as agent and independent certifier can, of course, be capable of causing financial loss (without causing physical injury) to the principal, thecontractor and, possibly, others. This is described as 'pure' or 'mere' economic loss.
Common law duties of care
In Australia, the courts will allow recovery of pure economic loss caused by negligence in specific and discrete circumstances: Caltex Oil (Aust) Pty Ltd v TheDredge 'Willemstad' ([1976] 136 CLR
529). To avoid potentialliability for 'an indeterminate amount to an indeterminate class', thecourts have limited liability by, effectively,creating certain categories of cases which areexceptions to the basicrule that pure economicloss is not recoverable in
negligence (refer Cardozo J. in UltramaresCorporation v Touche (1922) 253 NY 170).
Pure economic loss includes situationswhere there may be physical damage to abuilding and the principal incurs the financial burden of rectifying the damage or, alternatively, facing the diminution in valueof that property (refer Sutherland ShireCouncil v Heyman (1985) 157 CLR 424 at503-505). The superintendent's conductmay, conceivably, have precluded the principal from a right of recovery against thecontractor who had been directly responsible for such damage.
Until recently, Australian courts havelimited liability by holding that not onlymust it have been reasonably foreseeablethat the plaintiff might suffer damage as aresult of the defendant's conduct, but tha1there must also exist a relationship of proximity between plaintiff and defendant in
Fundamentally, the superintendent owesthe principal those obligations laid down inthe superintendent's terms of engagement.They can range from implied obligations toact professionally, with due care, skill, anddiligence expected of a reasonably competent superintendent in administering theconstruction contract, through to the detailed, sophisticated agreements which arebecoming increasingly prevalent (refer Voliv Inglewood Shire Council (1963) 110 CLR74 at 84).
3.2
Pty Ltd v Mayo (1965) 113 CLR 588).
In general terms, the superintendent isexpected to check that the contractors'workmanship and materials comply with theconstruction contract. It would not be required to inspect every aspect of the works,but would be required to scrutinise crucialpoints in construction, such as the laying offootings; and would not be required to instruct the contractor on the means and methods of construction (refer Florida Hotels
These days, superintendents are expected to carry, or have access to, sufficienttechnical support in order to carry out theirrole in administering the construction contract. Access to such technical support, onthe principal's side, may be absent in a design and construct contract where the designteam is novated to the contractor. In thesecases, the superintendent must ensure eitherthat the head construction contract providesthe superintendent with sufficient access tothe contractor's design team and the team'sdocuments, or, alternatively, the superintendent must make an allowance, in being engaged, for the cost of accessing such technical support itself either in-house or throughseparate engagement. It appears to be increasingly common, especially on majorinfrastructure projects, for the superintendent to be a team of specialists, rather thanan individual.
The superintendent has a general duty toprotect the financial interests of the principal (but not the principal's tenants) by warning of defective works. The superintendentalso has a general duty to the public to warnof defective works which give rise to athreat to health and safety.
situated nearby, interstate, or overseas. Mostdemanding would be where (for example, inconstructing a pharmaceutical factory) thestandard required is world's best practice.
General obligations
Design and construct contracts
ACLN - Issue #70
order to found a duty of care. The usualcomponents are 'some element of knownreliance (or dependence) or the assumptionof responsibility or a combination of thetwo' (refer Bryan v Maloney (1995) 182CLR 609 at 618-19).
owed to the contractor.
Accordingly, whether acting as certifieror as principal's agent, the superintendentowes a duty to take care to the appropriatestandard.
In Perre & Ors v Apand Pty Ltd [1999]HCA 36 a majority of the High Court ofAustralia took the view that proximity is nota useful criterion in determining whether aduty of care is owed in claims for pure economic loss (applied in Bailey v Redebi PtyLtd t/as PR Design Co [1999] NSWSC919). The courts must now address two policy issues: the need to avoid indeterminableliability, referred to above, and the need toavoid interfering with legitimate commercial activity. Furthermore, having held thatthe damage suffered was foreseeable, thecourt must engage in a balancing exercisebetween a number of 'salient features':
Where the superintendent promises tocarry out supervision, this would include acontinuing duty, from commencement tocompletion of the works, to inspect certainaspects of the works, such as footings, tocheck that they have been constructed inaccordance with the design (refer FloridaHotels Pty Ltd v Mayo (1965) 113 CLR 588and Sheldon v McBeath (1993) ATR 81209; in both these cases the architect didundertake to 'supervise' as distinct fromundertaking 'contract administration').
3.4 Duty to the contractor whenacting as certifier
conduct,butthere
must also exist a
relationship of
proximity between
plaintiff and
defendant.
'Not only must it have
been reasonably
foreseeable that the
plaintiff might suffer
damage as a result of
the defendant's
components are
'some elementof
known reliance (or
dependence) orthe
assumption of
responsibilityora
combination ofthe
In coming to his decision, Mr
The leading Victorian case in determining this issue is John HollandConstruction & EngineeringPty Ltd v Majorca Projects PtyLtd and Bruce Henderson PtyLtd (1997) 13 BCL 235 at 240('Majorca ') in which Mr JusticeByrne considered, among others, the English decision of Pacific Associates v Baxter [1990]1 QB 993, in determining thatthe architect, Henderson, didnot owe a duty of care to thecontractor, John Holland, in relation to the certification of progress claims under the JCCform of construction contract.His Honour stated that it wasnot appropriate for him:'to seek to engraft upon the contractual background [betweenprincipal and contractor] a tortious obligation . . . There is inthis case no room for any dutyof care owed by the Architect tothe Builder the relevant contentof which was to act fairly andimpartially in carrying out itsfunctions [as specified in theconstruction contract)' (Majorca at 247).
A common question in disputes iswhether a contractor has a right of actionagainst the superintendent in negligence.The issue is particularly important wherethe principal is insolvent.
The usual
Duty to the principalwhen acting ascertifier
~the defendant's knowledge of the magnitude of the risk of causing loss;
~ the degree of control over the circumstances exercised by the defendant;
~ the vulnerability of the plaintiff;~ the reliance by the plaintiff on the defen
dant;~ any assumption of responsi
bility by the defendant.
3.3
Until Sutcliffe v Thackrah[1974] AC 727, superintendentswere considered to be carryingout a quasi-judicial role whenacting as certifier. Accordingly,they enjoyed immunity fromliability in negligence. In Sutcliffe, the House of Lords rejected that notion, finding that,when acting as certifier, thearchitect owes a duty to exercise care and skill, and reach itsdecisions in a fair and unbiasedway. As such, the superintendent could be held liable to theprincipal in negligence. Thesuperintendent is simply actingas a professional, and is notcarrying out a judicial function(refer also Perini Corporationv Commonwealth of Australia[1969] 2 NSWR 530). In Sutcliffe, the court specificallychose not to consider whethersuch a duty of care was also
ACLN - Issue#70
would execute such a document, absent of some extra remuneration or other ulterior reason. The execution of such a'Certifier's Deed' would probably constitute a material changein the superintendent's risk ofliability. As such, the superintendent would be prudent toadvise its professional indemnity insurer before signing.
3.5 Negligent misstatement
In considering duties of carewhich may be owed by a superintendent, one must always bemindful that the superintendent,like any other professional, canassume duties of care whichwould otherwise not have existed, by making statementsupon which another party mightreasonably rely to its detriment.There is a long line of case lawon this point since HedleyByrne & Co Ltd v Heller &Partners Ltd [1964] AC 465was decided. Irrespective ofwhether the superintendentmight otherwise owe a duty ofcare to a contractor, if the su-
perintendent gives advice to the contractorwithin the province of its expertise, and thecontractor reasonably acts in reliance uponthat advice, the superintendent may be exposed to liability.
'The primary
risk to a
superintendent
would probably be in
respect of claims of
misleading and
deceptive conduct
while engaged in
trade or
commerce under
s.52 and, possibly,
unconscionable
conduct
under s.51AC
of the Trade
PracticesAct:
Justice Byrne considered theHigh Court of Australia's decision in Bryan v Maloney (1995)182 CLR 609 which providesthat, where there is no clearprecedent, the court's task indetermining whether there exists the necessary relationshipof proximity in negligenceclaims for pure economic lossis to consider such factors as:the circumstances surroundingthe relationship between theparties; elements of known reliance; elements of assumptionof responsibility; and policyconsiderations. These factorsare similar to the 'salient features' referred to by the HighCourt in Perre v Apand as relevant in establishing whether aduty of care is owed.
Fundamentally, Mr JusticeByrne did not hold that, in general, superintendents owe noduty of care to contractors. HisHonour stated that, in order toestablish whether the certifier'sduty to act fairly and impar-tially gives rise to a duty innegligence, one must addresswhether the contractor reliedupon the superintendent, or the superintendent assumed a legal responsibility to thecontractor. To do this, an examinatior:. of theconstruction contract in question is necessary.
In the Majorca case, both contractor andprincipal were entitled to review the superintendent's decision through arbitration; thearchitect acted as the principal's agent except when acting as certifier; and the principal was liable to the contractor for acts ofthe superintendent. The construction contract was found to have taken into accountand dealt with circumstances where the superintendent might cause the contractor tosuffer loss. The court felt it inappropriate toincorporate rights in negligence by the contractor against the superintendent, in a casewhere the principal and contractor had dealtwith the issue in their contract.
In the face of the decision in Majorca,some contractors have tried to establish aright of action directly against the superintendent by requiring it to enter into a deedwhich confirms that, as certifier, the superintendent owes a duty to the contractor. Itwould be surprising if a superintendent
Recently, the High Court in Esanda Finance Corporation Limited v Peat MarwickHungeifords (Reg) (1997) 188 CLR 241reiterated the limited circumstances where aduty may be owed in the context of pureeconomic loss caused by negligent misstatement:~ in response to a particular request for in
formation~ where the defendant knew or ought rea
sonably to have known that the advicewould be passed on to the plaintiff(individually or as a member of a class)and used for a particular purpose
~where there is an assumption of responsibility to the plaintiff for the information
~where there is an intention to induce theplaintiff (or a class to which the plaintiffbelongs) to act or rely on the information.
These High Court decisions clarify theextent to which a superintendent might beexposed to claims in negligence from third
ACLN - Issue #70
parties (depending upon the nature of theconstruction contract, this could include thehead contractor) in relation to reports andother similar documents produced by thesuperintendent for the project. Superintendents may be exposed to liability, for instance, to financiers, where reports are produced by the superintendent and the abovecriteria are satisfied.
3.6 Misleading and deceptiveconduct and unconscionableconduct - Trade Practices Act
In Western Mail Securities Pty Ltd vForrest Plaza Developments Pty Ltd (1987)ATPR 40-765, French J held that the issueof a certificate of practical completion,which certified the premises fit for use andoccupation, could be considered to be conduct which might be in breach of s.52 of theTrade Practices Act 1974 (Cth). In thatcase, His Honour 'glossed over the difficulties that arise where sec. 52 conduct is saidto be constituted by what is evaluative judgment on facts which are plain for all tosee' (at 48,283).
'In the light of Bryan ...Maloney,
one must question whether
the Scottish case
StrathfordEastKilbride ltd ...HlM
Design ltdmight have been
decided differently in Australia,
at least if the case had
involved a home rather
than commercial
premises'.
Of these provisions, the primary risk to asuperintendent would probably be in respectof claims of misleading and deceptive conduct while engaged in trade or commerceunder s.52 and, possibly, unconscionableconduct under s.51AC.
In Bond Corporation Pty Ltd v ThiessContractors Pty Ltd (1987) 14 FCR 215,French J held that, where a professionalprovides services for reward, that wouldconstitute conduct which is 'in trade andcommerce'.
What His Honour wasreferring to was that thecourts will not characterise a professional'sopinion, as such, asconstituting conductwhich could mislead ordeceive (refer GlobalSportsman Pty Ltd vMirror Newspapers PtyLtd (1984) 2 FCR 82).Where an expression ofan opinion implies certain facts, and thosefacts are misleading ordeceptive, then the professional may be exposed to liability; forexample, where a superintendent indicatesthat its opinion is basedupon substantive research, when that is not,in fact, the case.
Section 51AC of the Trade Practices Act1974 (Cth) prohibits unconscionable conduct 'in trade and commerce' in the supplyof goods and services, where the price was$lmillion or less. In a similar vein to the
As happened in Western Mail Securities PtyLtd v Forrest Plaza De-
velopments, a plaintiff will often face difficulties in proving that such misleading conduct caused the plaintiff to suffer the lossclaimed. In the context of a constructioncontract, where the contractor might claimto have suffered loss arising from certification by the superintendent, it may, in fact,be the case that such loss resulted from thefailure by the contractor to review such certification through arbitration, expert determination or other dispute resolution procedures as agreed upon between the partiesand specified in the construction contract.
and tortious
Relevant to superintendents would bethose provisions relating to: unconscionableconduct; misleadingand deceptive conduct; false and misleading representations; misleading conduct in relation to services; and false representations or othermisleading or offensive conduct in relationto land (sections 51AC, 52, 53, 53A and55A). Implied warranties under s.74(1) thatservices will be rendered with due care andskill will also apply to superintendents.
In addition to contractualliability, constructionprofessionals, includ-ing superintendents,can also be liable un-der the Trade Prac-tices Act 1974 (Cth)(which applies to superintendents carryingon business as a corporation) and its stateequivalents, includingthe Fair Trading Act1999 (Vic), (whichincludes individuals aswell).
ACLN - Issue # 70
The courts have broad powers to dealwith unconscionable conduct, includingawarding damages, restraining such conduct, or striking out or varying contracts(ss.80 and 87 of the Trade Practices Act1974 (Cth)).
In that case, the court held that the special circumstances which gave rise to a relationship of proximity between contractorand subsequent purchaser, necessary inclaims for pure economic loss, were that:~ the house itself was the connecting factorbetween builder and subsequent purchaser
High Court's focus on vulnerability andcontrol in Perre v Apand, the Federal Parliament introduced s.51AC in 1998 in order toprevent parties in a dominant bargainingposition from taking advantage of weakerparties (refer P. Merity, 'The Return ofConscience: Section 51AC of the TradePractices Act 1974' (1999) 15 BCL 304).
~ the house was a permanent structureto be used indefinitely, and was one of themost, if not the most, significant investments made by the subsequent purchaser
~ there was no intervening negligenceor other interruption to the causal connection between the builder's conduct and theplaintiff's loss. (This is to be compared withthe New South Wales Court of Appeal decision in Woollahra Municipal Council v Sved(1996) 40 NSWLR 101 in which the courtapplied Bryan v Maloney in holding that theassurance by the local council that it wouldcertify that the subject house complied withrelevant building regulations and with the
approved plans andspecifications constituted intervening negligence, which militatedagainst a finding ofproximity betweenbuilder and subsequentpurchaser. The Courtquestioned the HighCourt's logic in Bryan vMaloney in holding thatthe liability of a buildermight depend uponwhether someone elsemight also be liable forcausing that loss.)~ the policy consid
eration - to avoid liability of 'an indetenninateamount to an indetenninate class' - had beenassuaged because foreseeable economic losscaused by the builderwas limited to the initialand subsequent ownersof the property. (Onewonders whether ten
ants, occupiers, and others who have an interest in the property, particularly those whomight treat the property as their home,might also have rights.)
~ the relationship between the builderand the subsequent purchaser is the same asthat between the architect and injured plaintiff in Voli v Inglewood Shire Council(1963) 110 CLR 74, a case dealing with personal injury sustained when a stage collapsed
~ this was a particular kind of pure economic loss - the diminution in value of ahouse because of the discovery of latent defects - where the distinction between sucheconomic loss and physical damage to theproperty was essentially technical. TheCourt could see no distinction between abuilder's liability for physical loss if the
under
Perre & Drs YApandPtyltd.'
'The High Court
of
Australia appears
now to have supplanted
the concept of
proximity
with a balancing exercise of
'salient features'
When acting asagent for a principal,it is conceivable thata superintendentcould expose a principal to liability arisingfrom the superintendent's treatment of acontractor.
Similarly, superintendents may haverights against principals who use theirstronger bargainingposition to gain anunfair advantage innegotiating the superintendent's retainer.
3.7 Duty to subsequent purchasers and others
The High Court'sdecision in Bryan vMaloney has probablyraised more questions than it has answeredin relation to liability in negligence for latent defects. In that case, a builder was heldto owe a duty of care to a subsequent purchaser of a home in relation to latent defectswhich had caused economic loss to the subsequent purchaser; namely, the diminutionin value of her property. One question iswhether Bryan v Maloney applies not onlyto contractors, but also to superintendentsand design professionals.
ACLN - Issue #70
house had collapsed, and economic loss being the cost of rectifying defects and avoiding such damage.
Given that the High Court specificallyfound no distinction, in practical terms, between a claim against an architect for personal injury (in Voli v Inglewood ShireCouncil), and a claim against a builder foreconomic loss (in Bryan v Maloney), eachrelating to defects in a building, there appears to be no reason why design professionals or superintendents might not besimilarly exposed to claims by subsequentpurchasers of properties, provided that theabove criteria, laid down by the High Court,are satisfied. (For discussion of perceivedproblems with Bryan v Maloney refer Woollahra Municipal Council v Sved (referred toabove) and Zumpagno v Montagnese [1997]2 VR 525).
In a recent Scottish case, it was held thatan architect did not owe a duty of care totenants of the architect's client (referStrathford East Kilbride Ltd v HLM DesignLtd [1997] SCLR 877). The plaintiffs hadleased a Ford dealership. Structural defectshad become apparent after they had takenpossession. They claimed damages arisingfrom disruption and restrictions to theirbusiness during rectifications. The plaintiffsalleged that the architect owed them a dutyof care as they were persons for whom thedealership was constructed and, secondly,they had a direct interest in the property asoperators or as tenants. They argued thatScots law was not bound by English law,and they could rely instead upon Commonwealth law such as Bryan v Maloney.
Lord MacLean held that Scots law andEnglish law were aligned in this field. Heheld that no duty was owed by the architectto the tenant, in part on the basis that theplaintiffs were strangers to the contract bywhich the architect was engaged, and bywhich the architect's duties were founded;the plaintiffs were 'in a similar position legally to a derivative acquirer, successor orpossessor' who would only be entitled tosue where there was physical injury or damage.
In light of Bryan v Maloney, one mustquestion whether the Scottish case mighthave been decided differently in Australia,at least if the case had involved a homerather than commercial premises.
Bryan v Maloney based its decision onthe notion that a relationship of proximity,
together with reasonable foreseeability,gives rise to a duty of care. Although theHigh Court of Australia appears now tohave supplanted the concept of proximitywith a balancing exercise of 'salient features' under Perre v Apand, it seemsunlikely that the findings of the Court inBryan v Maloney would be different if heardtoday.
3.8 Concurrent liability in contractand in tort
Courts have found concurrent liability toexist for architects (Voli v Inglewood ShireCouncil), and engineers (Brickhill v Cooke[1984] 3 NSWLR 396; and Pullen v Gutteridge Haskins & Davey [1993] 1 VR 27).
In Bryan v Maloney, the High Court heldthat the existence of a contract between parties can either constitute a factor which supports the view that there exists a relationshipof proximity between them, or can militateagainst a finding of proximity (Bryan v Maloney at 621). Rights in negligence will notbe available when the relevant contract hasspecifically excluded liability for the conduct which is the subject of the claim.
In general, and subject to the terms ofagreement between them, a principal wouldbe entitled to claim damages against its negligent superintendent both for breach ofcontract and in negligence (refer P. Mead,'The Impact of Contract upon Tortious Liability of Construction Professionals', TheArbitrator, May 1998, p.5).
This year, in a radical change of direction, the High Court in Astley v Austrust Ltd[1999] HCA 6 held that a defendant cannotclaim contributory negligence in an actionfor breach of contract. Therefore, a plaintiffcan sue a superintendent in contract forbreach of retainer and in negligence, andavoid a reduction in the judgment amountby reason of contributory negligence byelecting at hearing to pursue the breach ofcontract claim.
This means that a superintendent maywear 100% liability to the principal for negligent contract administration even though(especially in respect of an informed experienced principal) the principal contributed tothe problems.
Where the limitation period has expiredfor suing the superintendent for breach ofcontract, but the principal remains entitledto sue the superintendent in negligence, a
ACLN - Issue # 70
'A superintendent
may wear
100% liability
to theprincipal for negligent
contract administration
It would be expected that such knowl-
Similarly, common law duties do notextend to guaranteeing, or 'ensuring' thatoutcomes are achieved in a construction
project, only to apply due careand skill in trying to achievethose outcomes. Accordingly,by committing itself to warranties, and providing indemnities, in its terms of engagement, the superintendent maybe committing itself to obligations which, because they extend beyond the common lawstandard of care owed to theprincipal, will not be coveredby professional indemnitycover.
standard' or apply the 'utmost skill'. If thatis the commitment in the consultancy agreement made by the superintendent, then thesuperintendent will be liable in contract forfalling below that standard. It is unclearwhether (unless the insurer is specificallyadvised at the policy inception) liability under the consultancy agreement for failing toprovide its service at the highest level willbe covered under the superintendent's professional indemnity policy, which will normally only cover the superintendent to thecommon law standard of care.
When considering the standardof care owed by a superintendent, the obvious question is towhat extent a superintendentshould be cognisant of legalconcepts, given that it is administering a legal agreementbetween principal and contractor. In West Faulkner & Associates v The London Borough
of Newham (1993) 61 BLR 81, the courtapproved the following commentary fromKeating on Building Contracts:
An architect must have sufficient knowledge of those principles of law relevant tohis professional practice in order reasonably to protect his client from damage andloss. This may mean that in particular caseshe should advise his client that he knowslittle or nothing of the relevant law and thatthe client should obtain legal advice . . .The architect should . . . have a generalknowledge of the law as applied to the moreimportant clauses, at least, of standardforms of building contracts, particularly ifhe is to act as architect under such a contract.
problems'.
even though (especially
in respect of an
informed,
experienced
principal) the
principal contributed
to the
Standard of care
defence of contributory negligence will beavailable.
3.9
There appear to be two methods ofavoiding the effect ofAstley's case:
~ by including in the superintendent'sretainer a provision which allows the superintendent to limit liability for breach of theretainer to the extent that the principalcaused or contributed to the loss. Suchclauses are yet to be tested by the courts.
~ by issuing a counterclaim against theprincipal for breach of contract, allegingthat the principal breached its implied dutyto 'do all cooperative acts necessary tobring about the contractual result' (referPerini Corporation v Commonwealth ofAustralia at 545). In otherwords, the success of the con-tract relied on the superinten-dent's care, skill and diligence, but also the timely andaccurate provision of instructions by the principal. Accordingly, the superintendent mayseek to set off its liability tothe principal to the extent thatthe principal also breached theretainer. This approach is yetto be tested by the courts.
As a professional, the superintendentwould owe such a standard of care.
It is not uncommon in a range of consultancy agreements for the principal (and itslawyers) to impose upon the superintendenta higher standard, requiring the superintendent to exercise the skill of the 'highest
It appears to be settled lawthat the standard of care imposed upon professionals is:
, ... to exercise due care,skill and diligence. [The professional] is not required tohave an extraordinary degreeof skill or the highest professional attainment. But he mustbring to the task he undertakes the competence and skill that is usual among[professionals] practising in their profession' (refer Voli v Inglewood Shire Councilat 83 per Windeyer J).
, ... the standard ofcare to be observedby a person with some special skill or competence is that ofthe ordinary skilled personexercising and professing to have that special skill' (refer Rogers v Whitaker (1992)175 CLR 479 at 487).
ACLN - Issue #70
Reduced fees are irrelevant in determining the scope of a retainer.As Kennedy J said in Roberts v JHampson & Co [1990] 1 WLR 94at 101:
superintendent to provide in thecontract of engagement a clearoutline of the scope of service tobe provided. It is not uncommonfor the primary defence of construction professionals alleged tohave failed to identify defects tobe that they were only engaged toprovide partial services. Often,when one looks at the letter of engagement or consultancy agreement, the scope of services is effectively the same as what is normally expected of a superintendent, save that the fees are lowerthan what would normally havebeen charged.
In Sheldon v McBeath the defendant architect argued that his dutyto supervise, as expressed in histerms of engagement, was limitedto contract administration. TheNew South Wales Court of Appealupheld the trial judge's decisionthat the terms of engagement['supervision of the constructionfrom commencement to completionand handover. Contract administration i.e. certifying payments,approving variations '] exposedthe architect to a continuing obligation to inspect the site up topractical completion. The courtheld that such obligations to inspect remained even though thebuilding contract which the architect was engaged to enforce was
'It is inherent in any standard feework that some cases will colloquially be 'winners' and others
'losers' from the professional man's pointof view. The fact that in an individual caseyou may need to spend two to three times as
long as you would have expected,or as the fee structure would havecontemplated, is something hemust accept. His duty to take reasonable care in providing [thatparticular serviceJ remains theroot of his obligations' (refer alsoCollins v ACT Building Consultants and Managers Pty Ltd [1996]ANZConvR 88 (ACT SupremeCourt, Gallop J).
skill of the
'highest
standard'or
'utmostskill:'
care, requiring
the
superintendent
to exercise
'It is not
uncommon in a
range of
consultancy
agreements for
the principal to
impose upon
the
superintendent
ahigher
standard of
judgment
that the court
held in
Majorca
that a
professional
may make a
mistake, but
not necessarily
beheld
liable in
negligence'•
'It Is of comfort
to all
professionals
many of whom
are cynical
about whether
the courts
expect them to
be perfect in
their
The rule of thumb is for the
Partial services
The superintendent should tryto be transparent in carrying outits functions as certifier. In a recent case, the superintending architect was criticised by the courtfor discussing his proposed assessment of an extension of time claimwith the principal, giving the principal the opportunity to comment,without affording the same opportunity to the contractor (refer JohnBarker Construction Ltd v LondonPortman Hotel Ltd (1996) UK).
It is of comfort to all professionals - many of whom are cynical about whether the courts, infact, expect them to be perfect intheir judgment - that in Majorcathe court effectively held that aprofessional may make a mistake,but not necessarily be held liablein negligence.
In finding that the architect didnot breach any duty of care, HisHonour addressed a number ofmatters relevant to specific clausesof the JCC standard form contractin question. In doing so, he heldthat, although His Honour disagreed with the architect's interpretation of the contract(regarding identification of dates for assessing liquidated damages) this did not meanthat the architect had been negligent, thearchitect having established that ithad acted reasonably and compe-tently in coming to an albeit incorrect conclusion.
Of some comfort to superintendents is the finding by Mr Justice Byrne in Majorca. Althoughthe case was decided on the basisthat no duty of care was owed bythe superintending architect to thebuilder when acting as certifier,His Honour then consideredwhether, in any event, Hendersonhad breached any duty of care ifsuch a duty existed.
edge would extend not only to afamiliarity with building regulations and codes, but also to occupational health and safety and disability discrimination legislation.
ACLN - Issue # 70
unenforceable at law (under s.45 BuildersLicensing Act 1971 (NSW)). The scope ofthe architect's duty was not to be limitedbecause the building contract was unenforceable.
the tenders, thereby creating a binding contract. Unless and until the tender is accepted, the prevailing view was that therewas no binding contract.
With the growing sophistication of project delivery techniques, and rapid development of the law, superintendents must:
a term should be implied as a matter oflaw into a tender process contract with apublic body (such as this was) that thatbody will deal fairly with a tenderer in thepeiformance of its contract.
This is illustrative of the fact that superintendents continue to be vulnerable tochanges in the law, whether that be the common law (as in Hughes), or in legislation,such as changes in disability discriminationlegislation.
'Superintendents arebeing required to accept far moredetailed and onerous consultancyagreements, and to execute otherdocuments, often with other parties such as financiers, the contractor, or prospective tenants.
To carry out the role ofsuperintendent today, especially onlarger projects, often requires ateam of specialists. Near enoughis no longer good enough '.
~keep up to date. To a growing extent,a superintendent must depend upon its professional body to disseminate the latest information,
~ be vigilant in maintaining effectiverisk management strategies in its organisation, and
~ rely upon its insurance brokers to ensure that, when all else fails, it is covered byadequate professional indemnity insurance.
•
In Hughes Aircraft Systems International v Air Services Australia (1997) 146ALR 1, Finn J held that there can exist a'pre-award' or 'process' contract by whichthe principal promises to adhere to the tender criteria and procedures, in considerationfor which the contractor agrees to submit atender. In Hughes, the court held that, byfailing to evaluate the tenders in accordancewith the procedures it had laid down in thetender documents, the principal breachedthe pre-award contract between it and theplaintiff, an unsuccessful tenderer. Finn Jadded to this finding, by stating:
•
So, what are the issues which will confront superintendents in the future?
WHERE TO FROM HERE?
The introduction of PC-l by the Property Council of Australia, and C2l by theNew South Wales Government, in whichsuperintendents act exclusively as the principal's agent, might lead one to think thatthe days of the impartial, independent certifier may be numbered. However, this is notnecessarily so. While the conflicts of interest that a superintendent faces when tryingto act both as the principal's agent and as anindependent certifier under a traditionalconstruction contract do raise questionsabout whether there might be a better way,the elimination of the independent role doesnot seem to be the answer.
As mentioned earlier, a major development in this area has been the increasinglysophisticated contract documentation usedin projects today. Superintendents are beingrequired to accept far more detailed and onerous consultancy agreements, and to execute other documents, often with other parties such as financiers, the contractor, orprospective tenants. To carry out the role ofsuperintendent today, especially on largerprojects, often requires a team of specialists.Near enough is no longer good enough.
An example of this growing sophistication is evidenced in the way the law nowtreats the tender process.
Instead, it is likely that, in projectswhere there is no independent certifier, thecontractor will be more suspicious of theassessment process and more likely to havesuch assessments reviewed. This appearslikely to lead to more disputes.
At times when the economy is booming,and contractors can be more selective aboutthe contracts they accept, no doubt the proposal that certification will be by the principal's agent, upon instruction by the principal, will probably fall out of favour.
Traditionally, a tender for a constructionproject was simply an invitation for interested contractors to offer to carry out theworks. The principal could accept one of
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