PHHH Investments v United Commercial Projects Pty Ltd [2023] VCC 516

Nikki Miller   |  Michael Lo  |  Millie Lewis

Key takeout

• It is well established that in the administration of a construction contract an architect (or superintendent) has two separate and distinct roles: to act as an agent for the principal, and to act as an independent assessor and certifier. 
• The mere fact of private communications, or strongly worded representations from the principal to the architect, or evidence of a pre-existing, or broader relationship is not necessarily evidence of a lack of independence.
• As to the assessment of damages for defects, the sale of an asset can be evidence of a lack of intention to carry out the works, which in turn can inform the question of unreasonableness.  However, a sale by itself does not prove unreasonableness.

Facts

PHHH Investments No 2 Pty Ltd (principal) engaged United Commercial Projects Pty Ltd (contractor) under a build only ABIC SW-2008 Simple Works Contract to construct a childcare centre in Brunswick, Victoria (property).  In August 2017, the architect issued a progress certificate certifying monies were due from the contractor to the principal.

The contractor did not pay the amount certified and the key issue before the court was what was the final adjusted contract price, which turned on a number of issues, including:

• whether the architect’s decisions as to variation claims and claim for extension of time were valid, or
• whether the architect had failed to act fairly and impartially in the administration of the contract; and
• whether the principal’s entitlement to damages for defects was reduced due to the sale of the property.

Decision

Improper influence over the architect

The court held that the architect did not fail to act fairly and impartially (or otherwise failed to act independently) in carrying out its obligations as an independent certifier in the administration of the contract. This was even though there were aspects of the conduct of both the principal and the architect that raised legitimate questions about the architect’s independence. 

The architect’s assessments and certifications were not directed, overborne or otherwise improperly influenced by the principal.  In doing so, the court held that:

• unilateral discussions or communications about claims between the principal and architect alone do not constitute a lack of impartiality or independence – the mere fact of private communications will not result in actionable breach;
• it is usual and proper for both parties to make representations, however strongly worded, to the certifier upon any matter or dispute which the contract requires the certifier to certify; and
• evidence of a pre-exiting or broader relationship beyond the project is not proof of a lack of independence.

Opportunity to rectify defects

The court found that the defects regime in the contract required the contractor to be given an opportunity to rectify the defects before the principal was entitled to engage a third party and recover the costs.

Assessment of damages for defects

The court dismissed an argument by the contractor that the principal was not entitled to damages for the costs to rectify defects that it did not incur as a result of the sale of the property.

While the sale of the property can be evidence of a lack of intention to carry out the works, which may turn upon the unreasonableness of the damages, the sale by itself does not prove unreasonableness.