Feb 2017 Communique

Disputes and Duties in Contract and in Tort Arising out of Contract Administration.

Unhappy Subcontractor (not sub-consultant):

In this little story, the architect had rejected a subcontractor’s work, and the subcontractor laid a claim against the architect in the Disputes Tribunal. The case did not proceed.Section 10 of the Disputes Tribunal Act provides it jurisdiction in a claim based on contract or quasi-contract, or a claim in tort in relation to property.

• Clearly, there was no contract between the subcontractor and the architect.
• Under quasi-contract, an obligation arises where one person has been unduly enriched at the expense of another and is required quasi ex contractu (as if from a contract) to make restitution. That could not be the case here.
• In respect of a claim in tort, the judgement in R M Turton & Co (In Liq.) v Kerslake & Partners (refer November 2016 Communique) established that a consultant would not owe a duty of care to a contractor for loss arising out of an error by the consultant, because it is the contracts that define the rights and obligations.

Who was responsible for inspections?

In December 2016, the Court of Appeal published its decision in Andrews Property Services Limited v Body Corporate 160361.The contractor’s tender for leaky building remediation formed part of the contract documents. That tender was “tagged” so as to require the consultant to inspect and comment on parts of the construction before they were covered up by the contractor. After the work was completed, it failed: this resulted in a dispute between the contractor and the principal.

• Did the consultants adequately discharge their role as sought in the contractors tender tag?
• Was the contractor required to ensure they did so?

The court said:“….it would introduce a significant degree of uncertainty into the performance of construction contracts if a contractor considered that it may be under an obligation to second-guess instructions issued by an architect or engineer because of a concern that the contractor could be liable in negligence for failing to scrutinise the work of the architect or engineer”.The court concluded that the responsibility for the consultants inspection and comment turned on the terms of the consultant’s contract for professional services, and were not part of the contractor’s obligations. This is consistent with R M Turton & Co (In Liq.) v Kerslake & Partners (refer November 2016 Communique) which confirmed that the contracts define the rights and obligations of the respective parties.The judgement has a thorough discussion about the contractor’s “duty to warn”. Its view was that the contractor has a duty to act with the skill and care of a reasonably competent person in that trade, and dependent on all the circumstances; but that there was always a duty to act (or “warn”) as may be required when there is an obvious and significant danger to life, limb or property..Moral 1: This case turned on the specific facts, but a reasonably competent person in trade could be expected to inform other project participants of real or potential problems if they become aware of them. This case does not provide the contractor with an excuse to ignore problems on the basis that they may have been overlooked in the consultant’s design.Moral 2: The consultant’s duties are in relation to their contract with the principal; they are not altered by the terms of the contract between the contractor and the principal unless and until consequential changes to the consultant/principal contract are put in place. At that point, the consultant should be mindful of the changes (if any) to their liabilities and fees.

Could the Construction Contracts Act allow the contractor to claim against the architect?

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 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.”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:

• The parties to a dispute are established by the contract relationships.
• An architect has no duty in tort or contract in respect of a formal decision which is fairly and impartially made in accordance with the contract.
• In every construction contract (which now also includes a contract for design services) the dispute provisions of the CCA are available and (if invoked) inescapable.