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Building & Construction Law, September/October 2010

The Role of a Superintendent Considered

It is well established that a building superintendent must act ‘honestly, fairly and impartially’. Where a Superintendent is related to the Owner or Principal on a job, then  is important that potential confusion of the Superintendent’s duties is avoided to ensure that a Superintendent is not inclined to misuse their powers.

In the case of Kell & Rigby Holdings Pty Ltd[“K&R”]  v Lindsay Bennelong Developments Pty Ltd [“LBD”] [2010] NSWSC 777.  LBD were the Principal and the Superintendent on the job and K&R were the Contractor.

The project comprised a mix of residential and commercial development.  There were 3 stages of works. Only Stage 1 was completed at the time of the dispute and stages 2 and 3 were under construction.  2 years after the Contract date the LBD agreed to advance the sum of $2million from the original contract, the Contractor K&R guaranteed the repayment of this advance  with 2 Bank Guarantees. LBD made this advance to K&R on the condition that if this advance was not repaid to K&R by the date of issue of the certificate of Practical Completion then the amounts would be debts due to LPD.

In June 2010notwithstanding that stages 2 and 3 were not yet completed,  LBD, acting as Superintendent on the Job,  issued:

•  A Notice of variation of works deleting remainder of stage 2 and remaining uncompleted stage 3 works ; and
•  A Certificate of Practical Completion  of stage 3 works

LBD, as principal, then made a demand on the bank for the full payment of the K&R bank guarantees  on the basis of the Certificate of Practical Completion having been issued.

K&R, as Contractor, argued that the Variation and the Certificate  were invalid and unenforceable

The First Issue considered by the Court was whether the Variation Certificate issued was within the power of the Superintendent?

• The Contract specified that the Superintendent may vary works by deletion of any work, however that right was not unlimited even if this power to vary was wide
• The Works were defined as  the whole of the works to be completed under  the Contract, including variations
• Practical completion was defined to mean the stage in the completion of the works under  the contract when only minor omissions and defects had not been completed,  and the building can be reasonably used for its stated purpose
• The “stated purpose”  is an ambulatory  term and variable by the superintendent

The Court found that the Contract was to be construed as at date of entry into the Contract and the understanding of the term “works” was to be  given that meaning. It is not possible to vary a contract such that the “works” were unable to be used for the stated purpose and it was not commercial, sensible or conducive to do so

The Second Issue considered by the Court was did the superintendent act unfairly or unconscionably when issuing the Variation and the certificate of Practical Completion?

         The Contract provided that the Principal will ensure the proper exercise of  the superintendent’ s functions and  the superintendent will act fairly and honestly

• This was an express imposition of duty that would otherwise be implied
• The Superintendent was required to exercise his own independent and impartial judgment, and to make decisions without improper considerations,  and to consider the interests of  the principal and contractor [K&R]
• If superintendent had  acted unfairly, could those instructions would be void, and did the superintendent still have a duty to both principal and contractor despite being attached to the principal?

Court held that LBD’s Superintendent had acted unfairly to the Contractor K&R by:

• Not paying sufficient attention to the contractor’s interests
• Not acting impartially and certainly not to the degree required
• By purporting to bring practical completion before  the end of Stage2 and 3  instead of at the termination of the  works, the Contractor would still bound by its defects liability obligations
• The Omission of works through the purported variation was driven by improper considerations
• The Variation was not discussed with contractor prior to issue
• The progress of the  works was a threat to the Principal and as such the principal LBD issued a Variation as the Principal (but  the Court observed the Variation was issued as Superintendent and as such not valid)
• There was no proof of consideration of the position of the contractor in issue of certificate of practical completion

The Court  ordered that the Certificate of Practical Completion be vitiated [set aside], and no consideration of unconscionability was required.

Where the superintendent is a member of the owner’s team there is potential forconflicts of interest in administration of the contract and as such potential for invalid instructions if not impartial. This dilemma can be prevented or lessened  in careful drafting of a contract, This usually sees administration by the principal and contractor themselves with third parties valuing variations and resolving disputes. The appointment of an external superintendent  may increase costs for the principal  but has significant advantages in distribution of risk throughout the contract.