Introduction

Wunda Projects Pty Ltd v Kyren Pty Ltd1 discusses the difficulties created for a principal employing a Superintendent who is also involved in the management of the project.

In most commercial and some larger value residential building contracts the parties agree to appoint a Superintendent who is required to act impartially when making assessments under the contract. The assessments to be made include assessing claims for payment by the builder, claims for extensions of time, the quality of materials and workmanship and claims for extra payments, whether for variations or for other site related issues. Invariably, the Superintendent is chosen by the owner and paid by the owner. Builders have often been heard to comment that the Superintendent is unlikely to make decisions that are unfavourable to the hand that feeds it.

Background

In 2006 Kyren was building a multistorey apartment building in Adelaide. In June, Kyren entered into a contract with Wunda to carry out the internal finishing works. The Palais Apartment Buildings were to house university students and Kyren’s plan was to have all the apartments completed in time for the 2007 academic year. The contract construction program nominated 31 January 2007 as the date for practical completion. The job did not proceed smoothly and was soon well behind schedule. Kyren blamed Wunda for the delays but Wunda said that Kyren had caused the delays. Kyren issued Notices to Show Cause and ultimately terminated the Contract in January 2007. It then employed other contractors to complete the work.

Each party’s claim

Wunda contended, among other things, that Kyren had unlawfully terminated the contract. Wunda said that it accepted this as a repudiation of the contract when it commenced proceedings seeking damages for breach of contract. Wunda claimed from Kyren the outstanding progress claims, the value of unpaid variation claims, its loss of profit arising from Kyren’s repudiation and interest under the contract.

Kyren denied any breach of the contract and alleged that Wunda failed to carry out the works in a timely manner and in accordance with the relevant construction schedule. Kyren contended that Wunda had failed to show cause why the contract should not be terminated, entitling Kyren to validly withdraw the works. Kyren said that Wunda was not entitled to extensions of time because it had not claimed them nor complied with the provisions in the contract relating to contractual notices. Kyren claimed a credit for the extra costs it incurred in having other contractors complete the work and pursued a counterclaim against Wunda for liquidated damages.

Contract

The contract was based on AS2124. AS2124 requires the Superintendent to act as an independent certifier and to act honestly and fairly. Clause 23 required Kyren to ensure that the Superintendent at all times, in exercising his role as Superintendent, acted honestly and fairly within the times prescribed under the contract (or within a reasonable time) and arrived at a reasonable measure or value of work, quantities or time. In Peninsula Balmain v Abigroup Contractors 2 the Court said that a Superintendent “is obliged to act honestly and impartially in deciding whether to exercise … power”.

The findings

This Update does not discuss the full range of findings, but focuses instead on the role and duty of the Superintendent. Judge Herriman found that Kyren mismanaged aspects of the works and in particular noted that the Project Manager/Superintendent had mismanaged or poorly managed trade sequencing and coordination problems on site. His Honour said that Kyren failed to ensure the timely provision of required plant and materials and failed to deal with the works required on the ground floor in any satisfactory way.

Judge Herriman was also critical of Wunda’s failure to properly manage its subcontractor’s performance of part of the works and of Wunda’s failure to record or document the many disruptions to the works and to claim extensions of time under the contract.

Superintendent

The Superintendent and Project Manager on the project, Mr Corolis, was a recent employee of Kyren. Mr Samaras, Kyren’s principal, was ultimately responsible for decision making; he was not heavily involved in the project. Judge Herriman described as a “single extraordinary revelation” the fact that Mr Samaras was not aware that Mr Corolis was the Superintendent of the project at the same time as he was its Project Manager. His Honour also noted that Mr Samaras was not familiar with the extent of a Superintendent’s duty on site. Judge Herriman found that in fulfilling his role as Superintendent on the one hand, and Kyren’s Project Manager and principal party dealing with all contractual disputes (including in the proceedings) on the other, Corolis’ independence was “hopelessly compromised”. Corolis saw his duty to Kyren as completely overriding any obligation he had as Superintendent to act independently, honestly and fairly.

While Kyren was obliged under the Contract to ensure that Corolis acted honestly and fairly as Superintendent, the only Kyren representative able to perform that duty for Kyren and ensure compliance, was Corolis himself. The Court said that Corolis saw himself as beholden to Kyren and reported directly to Samaras. Corolis purported to represent Kyren’s position in matters of significant contention and hence this role deprived him of any capacity to act independently, honestly or fairly – which he was clearly obliged to do under the contract.

The result of the Superintendent’s conflict of interest manifested itself in the tension between the competing claims for extensions of time. On the one hand he was himself responsible for seeing that Kyren did not delay the works. On the other, he was asked to impartially decide whether it was his management, or that of Wunda, that had caused the delay.

As to the merits of the dispute, the Court found that Wunda was entitled to accept Kyren’s purported termination as a repudiation. It awarded Wunda $583,481, being the amount due for unpaid invoices and variations plus interest together with its loss of profit caused by the early termination of the contract.

Conclusion

Unless the contract expressly provides otherwise, there is an obligation on the Superintendent to act impartially, fairly and honestly in the exercise of discretion under the contract. AS2124 includes terms expressly requiring the Superintendent to act in this manner, and imposes an obligation on the owner to ensure that the Superintendent does so. Where the Superintendent is required to also manage the project, it is impossible to adequately discharge these obligations.

Contributors

Tom Grace
Alison Jennings

 

1 [2010] SADC 96

2 [2002] NSWCA 211