Walton was Illawarra’s contractor on a project to refurbish a hotel. Work under the contract was delayed almost from the beginning. Practical completion was not achieved until 9 July 2007 when practical completion should have been achieved on 5 August 2006. The parties disagreed as to the number of days of extensions of time to which Walton was entitled, the extent and value of variations to the works performed by Walton, and as to the amount to be allowed for provisional sums. Walton alleged that the Superintendent had not acted reasonably or fairly in granting it extensions of time as required by clause 35.5 of the contract, that she had not valued the variations using reasonable rates and/or prices in accordance with the requirements of clause 40.5(c), and that Illawarra was in breach of contract because of her actions. Illawarra counterclaimed for damages for delay. There were also issues as to the quantum of damages and Walton’s liability to pay damages for the rectification of defects in the works.
The Superintendent was required to act honestly, fairly and reasonably. Clause 23 of the contract provided guidance as to the way in which the parties expected the Superintendent to carry out her obligations. She was to act honestly and fairly; she was to act within any time prescribed, or otherwise within a reasonable time; and when required to do so, she was to arrive at a reasonable measure or value of work, quantities and time. There were other relevant contractual provisions e.g. in relation to the granting of extensions of time. Even if the Superintendent had acted honestly and reasonably, Walton could not be bound by her determination if that determination did not meet the description “a reasonable extension of time”. The court rejected Illawarra’s argument that it was not entitled to look at the Superintendent’s assessments for extensions of time and valuation of variations to determine whether or not they equated to the contractual standard of reasonableness, and to substitute its own determination of what should reasonably have been allowed if they did not.
The Superintendent had held the dual roles of Superintendent and project architect. Her primary loyalty had been to her client, Illawarra. In her capacity as architect, she had assisted Illawarra to answer at least one payment claim made by Walton under the Building and Construction Industry Security of Payment Act 1999 (NSW). In doing so, she had been required to support a determination of the amount due to Walton that she had made in her capacity as Superintendent. Given the dual nature of her role and the demands made upon her by Illawarra in her capacity as architect, there was a real possibility of conflict and the appearance of bias was a likely result.
Illawarra’s obligations under clause 23 of the contract included an obligation to ensure that, in the exercise of her functions under the contract, the Superintendent arrived at a reasonable measure or value of work, quantities and time. If the Superintendent failed to arrive at a reasonable measure or value of work, quantity or time in any respect, it followed Illawarra had breached that obligation. In respect of variations and provisional sum adjustments, Walton was entitled to damages for breach of clause 23 (c). The measure of those damages was the difference between the total of the amounts paid or allowed to Walton and the total of the amounts that the referee concluded should be allowed, to the extent that they had been adopted by the Court.
Walton v Illawarra, [2011] NSWC 1188
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