When dual roles collide | McCullough Robertson Lawyers

The Victorian Supreme Court case of V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2021] VSC 849 (decided on 22 December 2021[1]) (V601 Developments) is a cautionary reminder that principals:

must ensure that superintendents appointed to administer their contracts do so in accordance with such contracts, as a failure to do so will place the principal in breach of contract; and
must avoid influencing a superintendent’s performance of its independent functions, or colluding with the superintendent in relation to those functions – this includes avoiding the appearance of such conduct.

Background

V601 Developments Pty Ltd (V601) and Probuild Constructions (Aust) Pty Ltd (Probuild) were parties to an amended AS4902-2000 contract (Contract) for Probuild to design and construct a mixed commercial and residential project named ‘The Precinct Project’ in Victoria (Project). Probuild was to deliver the Project by way of various separable portions, each with its own date for practical completion.

To administer the Contract, V601 engaged a ‘Project Manager’ (a bespoke term used in the Contract in the place of what would ordinarily be described as the ‘superintendent’). The Project Manager’s role under the Contract was similar to that of a superintendent under several Australian Standards contracts in that, under clause 20, the Project Manager was required to perform certain functions as V601’s agent and other functions independently.

The Project Manager was relevantly required to assess and certify whether Probuild was entitled to extensions of time (EOT), delay damages, or had reached practical completion (among other things). In doing so, the Project Manager was to act independently and in accordance with the requirements of the Contract, and was not to act in the commercial interests of either party.

Throughout the Project, Probuild made various EOT claims for what it claimed were compensable causes of delay entitling it to recover both time and delay damages. Probuild’s EOT claims related to delays caused by latent conditions (including ‘soft spots’ and hydrocarbon contamination) and V601’s failure to obtain town-planning approvals (among other causes of delay). Probuild had also submitted updated construction programs to the Project Manager to demonstrate the alleged impact of the delay events on the critical path that were the subject of Probuild’s various EOT claims.

The Project Manager rejected Probuild’s claims. In parallel, the Project Manager also failed to approve (or respond to) the updated construction programs submitted to it by Probuild.

Probuild did not achieve practical completion of a number of separable portions by the dates for practical completion as certified by the Project Manager, and as a result, in late 2013, the Project Manager certified that liquidated damages of $4.7 million were payable by Probuild to V601.

Probuild disputed the Project Manager’s certification of liquidated damages and submitted that the Project Manager had failed to grant the EOTs that it was entitled to under the Contract. Probuild argued that if the Project Manager had granted the EOTs to which it was entitled, V601 would not be entitled to any liquidated damages and rather, V601 would be required to pay both delay damages and a bonus for early completion to Probuild.

Ultimately, V601 commenced proceedings to recover the liquidated damages certified by the Project Manager from Probuild.

Probuild successfully defended V601’s claim. In addition, Probuild was awarded:

$3.5 million in delay damages;
$2.7 million as a bonus payment for early completion;
$1.3 million in acceleration costs;
$572,000 for a variation; and
$5.6 million for interest from April 2013 to January 2022.

The following diagram summarises the key events in the protracted dispute between V601 and Probuild:

Court’s key findings

The Court made many important findings, some of which are highlighted below:

The Project Manager failed to act independently when assessing Probuild’s time-related claims. The Court found that the Project Manager’s independence was compromised as a result of its collusive conduct with V601. For instance, the Project Manager had conferred with V601 regarding V601’s strategy for responding to Probuild’s time-related claims (which included meeting with V601’s lawyers and experts) and had permitted V601 to review and suggest amendments to the Project Manager’s draft assessments. By engaging with V601 in this manner, the Project Manager failed to act independently and without regard to V601’s commercial interests (as the Contract required).

As a result, the Court held that the Project Manager’s assessments of Probuild’s EOT and delay damages claims were void and made its own findings in their place.

Probuild awarded EOTs, delay damages and an early completion bonus. The Court accepted Probuild’s delay and programming expert evidence, which it preferred to the expert evidence put forward by V601 (finding V601’s expert evidence to be ‘significantly less reliable, probative and persuasive’). Relying on Probuild’s delay expert evidence, the Court applied the EOT mechanisms in the Contract and awarded EOTs totalling hundreds of working days (across the separable portions) in respect of Probuild’s EOT claims.

As a result:

the dates for practical completion for the separable portions were extended such that Probuild was no longer late in reaching practical completion, and consequently, V601 did not have an entitlement to liquidated damages;
Probuild was entitled to delay damages for the EOTs granted for compensable causes of delay (the Court apportioned the maximum delay damages rates to prevent Probuild from recovering the full delay damages rate for each impacted separable portion where more than one was impacted by the same delay event); and
the extended dates for practical completion for the separable portions meant that Probuild had actually achieved practical completion early and was therefore entitled to an early completion bonus payment.

Probuild awarded damages for ‘constructive’ acceleration. The Court was further persuaded by Probuild’s evidence that it had implemented measures to accelerate its works to meet the unextended dates for practical completion assessed by the Project Manager. The Court found that the Project Manager had caused Probuild to incur acceleration costs by depriving Probuild of the EOT relief that it was entitled to under the Contract.

The Court also found that Probuild had taken all reasonable measures to prevent the occurrence of the relevant delay events and mitigate the resulting delay. Probuild was therefore entitled to recover the reasonable costs that it had expended in overcoming and minimising delay to the works in circumstances where it ought to have been granted EOTs by the Project Manager.

To the extent that Probuild’s acceleration costs were distinct from the direct onsite time-related costs that Probuild recovered by way of its delay damages claims, the Court held that Probuild was entitled to recover its acceleration costs in addition to Probuild’s recovery of delay damages under the Contract.

Key take-aways

Superintendents under construction contracts often have dual and potentially conflicting roles. They must usually perform certain functions as the principal’s agent and others independently.

In practice, allegations of partisanship are regularly made against superintendents, with varying degrees of substance and success. V601 Developments illustrates the significant consequences that such claims may have if they are substantiated. It is a cautionary reminder for principals to ensure that the superintendents they appoint discharge their independent functions in an independent manner. In addition to ensuring actual independence, avoiding perceptions of partisanship is equally important. As can be seen from the timeline for this dispute, failing to do so can lead to protracted and costly disputes.

For further information on V601 Developments and how the case may be relevant to the administration of your construction contracts, please contact our team.

[1] It is understood that V601 is seeking to appeal.