What happens when a principal fails to nominate a superintendent as required by the contract?
After consideration of an amended AS4902-2000, the QCA found that the Principal’s failure to properly nominate a Superintendent in accordance with the relevant construction contract is a breach of contract by the Principal; that such a breach may give rise to damages and termination by the Contractor; and that (subject to the express terms of the contract), the role of the Superintendent will not default to the Principal if a nomination is not properly made.
SHA Premier Constructions Pty Ltd (SHA Premier) entered an amended AS 4902-2000 design and construct contract with Niclin Constructions Pty Ltd (Niclin) for the construction of several petrol stations (Contract). A dispute arose between the parties over unpaid progress claims by Niclin.
Niclin proceeded to adjudication under the Building and Construction Industry Payments Act 2004 (Qld) in respect of various payment claims issued by Niclin to SHA Premier as the Superintendent. Item 5 of Annexure Part A of the Contract had “S.H.A. Premier Constructions Pty Ltd nominated person … ACN 056 077 318 ABN 62 031 586 582” as the Superintendent. Niclin received an adjudication award in its favour for $399,894.06.
SHA Premier disputed the validity of the payment claims. It said that SHA Premier was not nominated by the Principal as the Superintendent under the Contract. As the payment claims hinged on the validity of SHA Premier’s appointment as Superintendent under the Contract, SHA Premier contended that the payment claims in question were void given that SHA Premier was not properly nominated as the Superintendent under the Contract.
The primary judge held that SHA Premier was permitted to act as the Superintendent, notwithstanding it did not have an express nomination under the Contract. A judgment was accordingly issued in favour of Niclin, and the payment claims in question were found to be valid. SHA Premier appealed this decision.
On appeal, Morrison JA, with Sofronoff P and Flanagan J, found in favour of SHA Premier, and the payment claims in question were deemed void. This was predicated on two key findings:
- The contextual provisions of the Contract meant the roles of the Superintendent and Principal were intended to be separate parties.
- The definition of the Superintendent under the Contract was construed to require the Principal’s nomination of the Superintendent, which had never occurred.
Accordingly, the Court ultimately found that SHA Premier’s improper nomination of a Superintendent, under the Contract, amounted to a breach of Contract, by which Niclin was entitled to make a claim for damages.
Contextual landscape of the Contract
The Court considered the contextual provisions in the Contract, and whether the roles of the Superintendent and Principal were commercially intended to have been combined. It found that the Contract clearly distinguished between the roles of the Principal, Superintendent and Contractor, imposing several obligations which “required the Superintendent to act as a form of adjudicator as between the Contractor and the Principal”. For example, the separate references to the parties in the Formal Instrument of Agreement and the corresponding definitions in clause 1, clauses 34.4 and 34.5 (which give the Superintendent a contractual obligation to assess extensions of time, a function where the interests of the Contractor and the Principal may conflict), and numerous other clauses (e.g., 3, 11.2, 12, 25.2, 26.3, 33, 34.3, 34.9, 37.1, 37.4 and 41.3) that required the Superintendent to assess the cost of work or costs incurred by the Contractor, and whether it can be recovered against the Principal. By the very nature of these clauses, the interests of the Superintendent and the Principal could conflict.
Accordingly, the Contract was found to be “replete with clauses that proceed on the basis that the Superintendent will be an entity distinct from either the Principal or the Contractor“.
The Court also noted that in other contexts, and other construction contracts, it may theoretically be possible for the Principal to act in some capacity as a Superintendent, however this Contract “clearly contemplated that the Superintendent will be a separate entity from the Principal as it is required to deal with issues where the interests and rights of the Contractor and Principal may be in conflict“.
Definition of Superintendent
The Court then specifically considered the definition of Superintendent in Item 5 of Annexure Part A. It referred to the Superintendent as “S.H.A. Premier Constructions Pty Ltd nominated person”. In the context of the contractual provisions, the Court considered that the construction of this phrase should be read as: “S.H.A. Premier Constructions Pty Ltd’s nominated person”.
To construe the term as if the Principal was intended to act as both the Principal and Superintendent would be to give weight to the highly unlikely intention of the two commercial parties, considering the context of the entire agreement. Per Morrison JA: “Given the difficult obligations of a Superintendent in those respects where it stands between the competing interests of the Principal and the Contractor, and the need for it to perform those duties “honestly and fairly”, it is in my respectful view, fanciful to conclude that the parties intended for the Principal to act as Superintendent.”
Does improper nomination of a Superintendent default to the Principal?
A further question arose as to whether a term might be implied into the Contract, that where the Principal has not nominated a Superintendent, the Principal itself must perform the role of the Superintendent under the Contract.
Morrison JA determined that the circumstances did not meet the requirements of an implied term as set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, in particular the requirement that an implied term must not contradict the express terms of the Contract.
The Court found that because clause 20 of the Contract expressed the obligation for the Principal to ensure there is a Superintendent nominated under the Contract at all time, clause 20 must also be read to have the reciprocal expression that a failure of the Principal to ensure there is a Superintendent nominated under the Contract is a breach of Contract. Therefore, to imply the suggested term that the role of the Superintendent would default to the Principal upon the Principal’s breach of clause 20, would result in the contradiction of the express terms of the Contract.
Accordingly, whilst SHA Premier succeeded in its appeal, Niclin could pursue SHA Premier for damages for breach of contract.
What does this mean for you?
This case is a timely reminder for contracting parties to understand the various roles and functions under a contract, and in particular where there are competing commercial interests.
It also demonstrates the risk to contractors where (through not fault on their part) a superintendent is not properly nominated. The consequence could be that payment claims are deemed void. Notwithstanding that this would give rise to a claim in damages against a principal, the appointment and role of the superintendent should be set up properly from the start, and administered properly going forward, to avoid the cost, inconvenience and risk of litigation.
This article was written by Theo Kalyvas, Partner and Ariadne Paras, Solicitor.