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