Articles

Introduction

It is not uncommon for Principals in Australian Standard building contracts to seek to use a Superintendent to administer the Contract who is either closely associated with them or that is a related business entity.

This in turn begs the question of how the Superintendent can have any real independence in terms of acting “honestly and fairly”, which implies an impartial role as assessor, valuer, and certifier during the Works. In brief, impartiality requires actual independence of the contract administrator.

The Dual Role of the Superintendent in Australian Standard Contracts

As is well known, there is effectively a dual role for the Superintendent in administering Australian Standard Contracts, such as the AS 2124 or AS 4000 forms of agreement.

On the one hand, the Superintendent (often but not always an architect) is an agent of the Principal in terms of giving instructions to the Contractor (for instance, to effect variations to the works, or to rectify defects).

However, there is also the function of assessor, valuer, and certifier of claims by the Contractor (e.g., progress payment claims, extension of time requests, and variation notices). In this second role, the Superintendent is expected to act independently of the Principal and exercise a neutral judgment. It is generally a contractual condition that the Principal must ensure that there is a suitably qualified Superintendent who will carry out this function honestly and fairly.

Potential Breach of Contract and Legal Implications

Apart from considerations of unfairness to the Contractor/Builder if the Superintendent acts in a certifier function in a partisan and biased way, favouring the Principal, it is suggested that this could in turn equate to a breach of contract by the Principal and give legal ammunition to the Contractor if matters in dispute are later litigated.

In this article, I argue that given the clearly defined dual functions for the Certifier as described in these forms of Contract, the notion of acting honestly and fairly requires a real degree of independence. It further connotes standards of reasonableness and impartiality when the Superintendent conducts the assessor, valuer, and certifier service.

Case Law Precedents Supporting Superintendent Independence

Kane Constructions v Sopov [2005] VSC 237

This case concerned an Australian Standard contract used for renovation and extension of an industrial building, that (as is conventional) had a Superintendent administering the agreement.

Clause 23 of the Contract provided that “the Principal shall ensure that the Superintendent…(a) acts honestly and fairly; (b) acts within the time prescribed under the contract…”

After a dispute developed over time and delay and discrepancies in contract documents, the Contractor (Kane) argued that:

(i) The Superintendent was effectively “rubber stamping” the Principal’s position (the Principal being Sopov); and

(ii) The Principal was in fundamental breach of its contractual obligations which were required to be discharged via an appropriate, competent, honest, and fair Superintendent.

Finding: The Court considered that the relationship between Sopov and the Superintendent was “undesirably close” and found that the Superintendent failed to properly understand the obligations of his role.

The Superintendent had also postponed making decisions he ought to have more promptly made as Superintendent, in all likelihood because of Sopov’s interference.

The Court held that the Superintendent did not understand the need to not only be seen to be independent but actually to be independent. The Court held that the Superintendent did not act competently, or independently, in his role as Superintendent.

Peninsular Balmain Pty Ltd v Abi Group Contractors Pty Ltd [2002] NSWCA 211

This case also concerned an AS 2124 building contract where there was a Superintendent, that had a separate agency agreement with the Principal (external to the construction contract).

The Contractor had taken issue with an alleged misrepresentation, premised on the fact that the existence of the agency agreement had not been disclosed, and the allegation that the Superintendent was not independent and had favoured the Principal, causing loss and damage to the Contractor.

The Superintendent and the Principal were however distinct and separate commercial entities.

Finding: The decision confirmed that a Superintendent appointed under Clause 23 of an AS2124 contract is an agent of the Principal in some senses, but not in every sense. Part of the finding in the Court of Appeal decision was:

(i) When the Superintendent is exercising certifying powers (as assessor, valuer, and certifier) it is NOT acting as an agent of the Principal.

(ii) If the agency agreement between the Superintendent and the Principal had purported to restrict the Superintendent’s power to certify, then such an agreement could be evidence of misleading or deceptive conduct.

(iii) This misleading or deceptive conduct would be in breach of the Trade Practices Act or a breach of Clause 23 of the AS2124 contract.

Conclusion: Ensuring Superintendent Independence in Australian Standard Construction Contracts

These case decisions highlight the importance of ensuring that Superintendents under Australian Standard construction contracts are fully independent of the Principal. This is so that they can act fairly, honestly, and reasonably when carrying out the assessor, valuer, and certifier contractual function.

It is suggested also that Contractors, when considering whether or not to enter into such contracts, should be vigilant to ensure that the named Superintendent is not a related entity to the Principal and has the appropriate level of independence.

This article is not intended to be legal advice and is intended as a general summary of the legal position only. For more advice and assistance in relation to your rights and responsibilities under building contracts and other construction law matters, please do not hesitate to seek specific advice from legal experts in the field.

By Justin Cotton, Director of Lovegrove & Cotton Pty Ltd

Disclaimer

This article is not legal advice rather a discussion of the topic in only general terms.