Edited and Updated Feb 2017Can a contractor (or subcontractor) make a claim against an architect for a “wrong” design, specification, decision, or direction?Where – for example – there is a dispute about whether an architect’s direction amounts to a Variation or not, the NZIA SCC/SF forms of construction contracts and NZS 3910 have fixed procedures for initiating and resolving a dispute. Alternatively (or as well) a dispute could be initiated under the Construction Contracts Act. The architect is not a party to the construction contract, and thus not a party to that dispute.In respect of errors in the documentation, the current position was set out in 2000 by the NZ Court of Appeal (in R M Turton & Co (In Liq.) v Kerslake & Partners): the engineer who prepared the specification did not owe a duty of care to the contractor for loss arising out of an error in it. The Court found that the contracts define the rights and obligations of the respective parties:“If the loss in question is the cost of work necessary to remedy a defect in the specifications, as between the owner and the engineer, the risk rested with the engineer (subject to the exclusion and limitation provisions). As between the owner and the contractor, it rested with the contractor. As between the contractor and the subcontractor, it rested with the subcontractor. As between the subcontractor and the supplier, it rested (probably) in the supplier.”When an architect issues a decision about whether the contract documents have been complied with, that decision is, in effect, quasi-judicial. Examples might be in relation to whether an extension of time is granted, the certification of payments, or whether the quality of the construction met the required standards. In the above case, the Court adopted the English position that a contract administrator does not owe a duty of care in tort for formal decisions under the construction contract. An architect’s decisions, as contract administrator, are only reviewable where the architect hasn’t followed how decisions are to be made under the contract, or where there has been manifest unfairness.
A recent claim notification arose out of the refusal by a subcontractor to recognize a notice served by the architect on the main contractor rejecting the work done by the subcontractor. The architect’s decision was made in the course of contract administration, as required of the architect. The main contractor rectified the work and recovered costs by way of a deduction from payments to the subcontractor. The subcontractor then proceeded against the architect in the Disputes Tribunal, and this raised several issues which NZACS considered needed a legal review, and it was obtained in collaboration with the NZIA.The issues are as follows:(a) under what circumstances could the decision be challenged in the Disputes Tribunal.(b) under what circumstances could the decision be challenged in court.(c) could the architect’s actions in the course of contract administration give rise to a cause of action by a contractor against the architect(d) could the Construction Contracts Act provide a course of action insteadThese are separately dealt with below:(a) Under what circumstances could the decision be challenged in the Disputes Tribunal?Section 10 of the Disputes Tribunal Act states:Subject to this section and to sections 11 and 12, a Tribunal shall have jurisdiction in respect of—(a) a claim founded on contract or quasi-contract; and(b) a claim for a declaration that a person is not liable to another person in respect of a claim or demand, founded on contract or quasi-contract, made against that person by that other person; and(c) a claim in tort in respect of—(i) the destruction or loss of any property:(ii) any damage or injury to any property:(iii) the recovery of any property.The architect was engaged under standard NZIA terms which included being appointed to administer the construction contract which was also under standard NZIA terms.Accordingly, there was no contract between the architect and the contractor – let alone the subcontractor. Additionally, under R M Turton & Co (In Liq.) v Kerslake & Partners a contract administrator does not owe a duty of care in tort for formal decisions under a construction contract.Hence there was no jurisdiction under S10 of the Disputes Tribunal Act.(b) Under what circumstances could the decision be challenged in court?Clause 17 of NZIA SCC (and clauses 13.3, 13.4 of NZS3910) provides that in the event of a dispute, it first be referred to mediation and failing that, to arbitration. In 2015, the NZ Supreme Court found that unless arbitration provisions were “null and void, inoperative, or incapable of being performed” a court must grant a stay of proceedings in favour of arbitration. A later High Court case adopted that when specifically considering NZS3910.The Arbitration Act provides that “an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.”. This principle has been considered by the UK House of Lords, and applied in the NZ Court of Appeal. Accordingly, the arbitration clauses in NZIA SCC (or NZS3910) will survive the termination of the contract.But there is still a “loose end”: Is the subcontractor bound by the dispute provisions (mediation + arbitration) of the main contract?Both NZIA SCC and NZS3910 have very similar general provisions for subcontracting, but only NZS3910 has terms specifically applicable to Nominated Subcontractors: these include that they be bound to arbitration. Otherwise, subcontract terms might be anything: how the disputes between subcontractor and main contractor are dealt with is up to them, and of (relatively) little concern to the architect.(c) Could the architect’s actions in the course of contract administration give rise to a cause of action by a contractor against the architect?In the absence of a contract between the contractor and the architect, there could be no cause of action in contract.In respect of the concept of the architect owing a duty of care (ie a tortious relationship) with the contract, refer to the text about R M Turton & Co (In Liq.) v Kerslake & Partners at the beginning of this article.The NZIA SCC contract (and similarly NZS3910) is between the main contractor and the principal, and the terms of that contract require the architect (or engineer to the contract) to administer it. The NZ Court of Appeal, when considering the engineer’s role, has stated “the engineer, though not bound to act judicially in the ordinary sense, was bound to act fairly and impartially.”Legal advice obtained by NZACS in late 2016 confirms that whilst the architect is only administering the main contract, there would be no liability in tort to a subcontractor so long as the architect had acted as required:“…a contract administrator does not owe a duty of care in tort for formal decisions under the construction contract. An architect’s decisions, as contract administrator, are only reviewable where the architect hasn’t followed how decisions are to be made under the contract, or where there has been manifest unfairness.”(d) Could the Construction Contracts Act provide a course of action instead?The CCA provides that “Any party to a construction contract—(a) has the right to refer a dispute to adjudication; and (b) may exercise that right even though the dispute is the subject of proceedings between the same parties in a court or tribunal.” Irrespective of contract terms, every subcontract will thus have a route to an independent settlement of disputes outside the court system, for which event the CCA provides that“An adjudicator must terminate the adjudication proceedings on a dispute if, before the adjudicator determines the dispute, that dispute is determined under another dispute resolution procedure.”The CCA neatly sidesteps the issue of whether the dispute provisions survive the termination of the contract as follows: “…this Act applies to every construction contract (whether or not governed by New Zealand law) that—(a) relates to carrying out construction work in New Zealand”; and (b) is …. (i) entered into on or after the date of commencement of this Act; ”Recent amendments provide that architects are now included in the CCA. But that does not change the relationships in contract: the architect’s contract is with the principal, not the contractor (or subcontractor). So if the subcontractor wanted to “get at” the architect via the CCA, the route would have to be: (1) subcontractor v main contractor; (2) main contractor v principal; (3) principal v architect. There is the possibility that the 3 proceedings could be consolidated, but that would require the agreement of all parties.By way of summary: