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Liability----------------+

Liability Of The Superintendent ForWrongfully Certifying

- Patrick Mead, Partner,Carter Newell, Brisbane.

"... the contractor has pledged himselfto submitthis very dispute to the person with whom hevirtually is wagering it ... the engineer, on suchoccasion, must be the judge, so to speak, in his ownquarrel."1

Stripped to its basic elements, a construction contractis an exchange of promises to produce a project for a pricewithin a period2•

Given the reciprocal rights and obligations betweenthe principal and contractor, a mechanism is usuallyrequired to make those mutual promises work. Thismechanism is usually found in the appointment by theprincipal of the contract administrator or superintendent.

Dorter and Sharkey describes the contractadministrator's role as being an invidious and almostimpossible one:

"Apart from ... duties to both principal andcontractor, he or she has a duty to the achievementofthe contractual aim. Although the principal andthe contractor are supposed to be cooperating inthat achievement, in practice they are very soonevidencing their competing commercial concerns.Yet he [or sheJis required to try to hold the balancebetween those contenders. "3

The superintendent generally has a dual role as agentof the principal and as certifier under the contract. Thesuperintendent is not a party to the construction contractbetween the principal and contractor (although in itsagreement with the principal to act as contractadministrator, it will agree to bind itself to the obligationscast upon it under that contract) and cannot be held liableto the contractor for breach of contract.

As agent of the principal, however, its actions mayexpose the principal to a suit by the contractor for breachof its obligations. The modern trend, however, is for thecontractor to look beyond the strict contractual remediesand seek further redress against the superintendent directlyin tort or pursuant to the Trade Practices Act 1974 (Cth)("TPA"). Similarly, although the superintendent may beliable to the principal for breach of its agreement to act assuperintendent, principals have also sought redress outsideof the contractual relationship.

This article will examine the scope for the impositionof a co-extensive tortious duty between principal andsuperintendent arising out of the superintendent'scertifying functions. It will thereafter consider thecircumstances in which a tortious duty may be owed to acontractor, as a third party. The article will finally considerthe relatively novel remedy of the TPA as a further basisof"attack" upon the superintendent's determinations, fromthe point of view of both principal and contractor.

It will be demonstrated that not only is the role ofthe superintendent an "invidious and almost impossibleone", it is also one which now lends itself to a dual attackby both principal and contractor, even though the likelysuccess of that attack, in many instances, remainsuncertain.

PART 1 -THE ROLE OFTHE SUPERINTENTDENTAS CERTIFIER

An engineer or architect appointed as superintendentmay have a number of roles additional to that of certifier.It remains the agent of the principal and in administeringthe contract it will inevitably have as its primary objective,the achievement of the principal's objectives. Aside fromits duty to superintend or supervise the works, thesuperintendent is also often involved in the design of theworks, with varying degrees of responsibility.

It is trite to say that a superintendent's certifyingfunction cannot be viewed in isolation and whether or notcertain conduct may "offend" against the principles underdiscussion is only capable of ascertainment by referenceto the overall context in which the contract is beingadministered.

It is in its role as certifier, however, that thesuperintendent faces its greatest potential exposure to bothclient and contractor. Its determinations will haveimmediate economic consequences for both parties4 andit is the nature of this loss, being purely economic, whichmakes discussion of liability in this area even more topical.

While it is beyond the scope of this article toconsider the general role of the superintendent and theduties (contractual or otherwise) which it may owe in theperformance of its other functions, decisions in those areaswill be referred to by way ofexample or analogy to indicatethe likely attitude of the courts to a claim in respect of thesuperintendent's certifying function.

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Certifier or arbitrator?In Australia, the case of Perini Corporation v

Commonwealth ofAustralia5 ("Perini's" case) establishedbeyond doubt, that the superintendent has a dual role asagent or employee of the Principal and is also vested withduties which oblige him or her to act fairly and justly andwith skill to both parties to the contract. Additionally, inthat case it was made clear that the superintendent's rolewas one of certifier not arbitrator.

The classification of the superintendent's role ascertifier is important in the overall context ofsuperintendents' liability.

Prior to the decision of the House of Lords inSutcliffe v Thackrah6, it had been thought that the architect,when acting as certifier, at least insofar as it was requiredto exercise professional knowledge, skill and judgment,was exercising arbitral functions and was thereforeimmune from suit. This was based on the principle that:

"where a thirdparty undertakes the role ofdecidingas between two other parties a question, thedetermination ofwhich requires the third party tohold the scalesfairly between the opposing interestsof the two parties, the third party is immune froman actionfor negligence in respect ofanything donein that role."7

In Sutcliffe v Thackrah 8, the House of Lords

considered a claim by an employer against the architectswho, during the course of the works, issued interimcertificates to the builders. The builders failed to completethe work satisfactorily and were removed from site andanother builder completed the work at a higher cost. Theoriginal builder went into liquidation and the employerbrought an action against the architects in negligence andfor breach of duty.

The official referee upheld the proprietor's claimfor negligent over certification and the House of Lords(reversing the decision of the Court of Appeal), held thatthe architect was not immune from liability for thatnegligence.

Lord Morris of Borth-y-Gest expressed the positionthus:

"... The duties involved that the architect wouldact fairly ... in ensuring that the provisions of thebuilding contract were faithfully carried out. Hewas to exercise his care and skill in so ensuring.But his function differed from that ofone who hadto decide disputes between a building owner and acontractor ... The circumstance that an architect invaluing work must act fairly and impartially doesnot constitute him either an arbitrator or a quasi­arbitrator. "9

Their Lordships did not specifically consider thequestion of whether the action against the architect lay incontract or tort or both, confining their attention to thequestion of the classification of the architect's role andthe immunity from suit (or lack thereof) which flowedfrom this classification.

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The classification of the architect's role by the Houseof Lords reflects the Australian position. 10 As was pointedout, however, by Ipp J in Forsayth Inc v Australasian GoldMines NL (No 1)11, where a contract commits thedetermination of some question to a third person, it is amatter of construction whether that person is to act as anarbitrator. This is not the position with respect to thesuperintendent's functions under any of the standardcontracts currently in use in this country.

How must the Superintendent act?Perini's case 12 considered the duties of the

superintendent as certifier. The court pointed out that theparticular duties of the certifier are to be found in theinstrument which gives it its authority.

The court found that what is required, for instancein certifying an extension of time, is that the superintendentmake its own personal decision on the point, havingensured that it is in possession of all the facts andcircumstances which could affect that decision.

Although always subject to the express terms of thecontract, in its role as certifier, the superintendent generallyhas an obligation to act ''fairly and impartially" .13

This principle is usually given effect to by theexpress terms of the contract between the principal andcontractor. For example, pursuant to clause 42.1 ofAS2124, the superintendent has a responsibility by virtueof clause 23 to arrive "honestly andfairly" at a reasonablevalue of work, quantities or time in formulating itscertificate.14

In imposing on the superintendent a requirement toact honestly and fairly in its role both as agent for theprincipal and certifier under the contract, clause 23 affordsthe superintendent protection, as it is the principal who isliable to the contractor in respect of the performance ofthe superintendent's obligations.

This factor was considered important in decidingagainst allowing recovery by the contractor against thesuperintendent in the English decision of PacificAssociates Inc v Baxterl5

, to be considered more fully laterin this article.

The successor to AS2124, AS4000 (only recentlyissued by Standards Australia), changes the role of thesuperintendent. The superintendent is now required tofulfil all aspects of the role "reasonably and in goodfaith".16

John Pilley suggests that this makes thesuperintendent independent and requires the principal toensure that the superintendent acts reasonably, rather thanhonestly and fairly. Mr Pilley suggests that this is likelyto extend the protection the superintendent will receiveunder this contract, at least in respect to the exercise ofthe power to issue directions under the contract. 17

The obligations cast on the superintendent either atgeneral law or by the express terms of the contract, willgovern the exercise of the superintendent's certifyingfunctions which commonly include:

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to value the increase or decrease in value tothe principal of a variation directed in lieu ofthe contractor rectifying defective work ormaterials;to value the resulting decrease or increase invalue to the principal of acceptance ofdefective work or materials;to determine extensions of time;to estimate liquidated damages;to value extra costs of delay payable to thecontractor;to value the work done and materials suppliedby the contractor and to issue a paymentcertificate;to correct any payment certificates;to issue a certificate of practical completion;to issue a final certificate;to certify the costs of the principal completingwork taken out of the hands of the contractor;andto give a decision on a dispute.

PART II - CONCURRENT LIABILITYThe question of whether an architect, exercising its

functions pursuant to its terms of engagement with aprincipal, may be liable to the principal in both tort andcontract, now appears settled in this country. In Bryan vMaloney18, the majority of the High Court approved thestatement of the contract/tort position by Le Dain J in theunanimous judgment of the Supreme Court of Canada inCentral Trust Co v Rafuse19, expressed as follows:

"1. The common law duty ofcare that is createdby a relationship of sufficient proximity ... isnot confined to relationships that arise apartfrom contract ...

2. What is undertaken by the contract will indicatethe nature ofthe relationship that gives rise tothe common law duty of care, but the natureand scope of the duty of care that is assertedas the foundation ofthe tortious liability mustnot depend on specific obligations or dutiescreated by the express terms ofthe contract ...

3. A concurrent or alternative duty in tort willnot be admitted if its effect would be to permitthe plaintiff to circumvent or escape acontractual exclusion or limitation ofliabilityfor the act or omission that would constitutethe tort ..."20

This reflects the position which already existed inthis country with respect to a client and its architect/engineer.

For instance, in Brickhill v Cooke21 , the New SouthWales Court ofAppeal held that an engineer may be suedin tort as well as in contract.

Similarly, in Pullen v Gutteridge Haskins & DaveyPty Ltd22, the Appeal Division of the Supreme Court ofVictoria noted that since the decision in Voli v Inglewood

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Shire Counci[23, it had been clear that an architect orengineer could be held liable to its client in tort as well asin contract. The Court then referred with approval to theVictorian decision in MacPherson v Kevin J Prunty &Associates24

, where it said that the view was no longertenable that concurrent liability in tort exists only wheresome physical injury or damage is likely to result.

It is clear, however, that the terms of the contractbetween the client and architect (either express or implied)can modify or even exclude liability in certaincircumstances. This is because the "tort duty ... must yieldto the parties' superior right to arrange their rights andduties in a different way. "25 Similarly, a defendant'sdisclaimers may have a powerful effect in negativing aHedley Byrne liability or even a proximity base testfounded on assumption of risk and reasonable reliance.

Absent a contractual modification, the duty whichwill be owed is that laid down by Windeyer J in Voli vInglewood Shire Council26

, where it was said of thearchitect:

"He is bound to exercise due care, skill and

diligence. He is not required to have anextraordinary degree of skill or the highestprofessional attainments. But he must bring to thetask he undertakes the competence and skill that isusual among architects practising their

profession ."27

Recently in Collins v ACT Building Consultants &Managers Pty Ltd28 and also in John Holland Construction& Engineering Pty Ltd v Majorca Projects Pty Ltd andBruce Henderson Pty Ltd29 (John Holland's Constructioncase), it was confirmed that the appropriate standard ofcare was not to be determined solely by reference topractices followed or supported by a responsible body ofopinion in the relevant profession or trade.

The Courts in both cases relied on the decision ofthe High Court in Rogers v Whitaker30 where it was heldthat the duty to supply information and advice takes itsprecise content from the nature and detail of theinformation to be provided from the needs, concerns andcircumstances of the recipients of the advice.

It was pointed out by Kirby J (as he then was) inWaimond Pty Ltd v Byrne31 :

"Although the contractual retainer will be animportant indicium ofthe nature ofthe relationshipwhich gives rise to the common law duty of care ...it will not chart exclusively the parameters of thatduty."32

For example, it was argued by the architect inMcBeath v Sheldon33 that the extent of its duties ofsupervision was limited by correspondence passingbetween itself and the client. While the Court seemed toaccept that it was open to the architect to have contractedon a more limited basis, on the facts of the case, thecontention failed and economic loss was held to berecoverable in tort. 34

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Interestingly, in England where it had been thoughtthat inconsistency between the contractual and the tortiousduty was sufficient to exclude the wider tortious duty35,this may no longer be the case in view of the decision ofthe Court of Appeal in David Holt and Bernard Holt vPayne Skillington and de Groot Collis36 in which it wassaid:

"In such circumstances ... [where the same partiesenter into a contractual relationship involving morelimited obligations than those imposed by the dutyof care in tort]... the duty of care in tort and theduties imposed by the contract will be concurrentand not co-extensive. .The difference in scopebetween the two will reflect the more limitedfactualbasis which gave rise to the contract and theabsence of any term in that contract whichprecludes or restricts the wider duty of care intort. "37

Cole J was faced with these considerations whencalled on to consider the impact of an architect's limitedretainer on the duty of care in tort in Jiawan Holdings PtyLtd v Design Collaborative Pty Ltd.38 In that case, HisHonour accepted as correct, the proposition that one hadto look at the circumstances to see if the relationshipbetween the architect and the plaintiff (arising from alimited contract of engagement), imposed an obligationto take steps "beyond the specifically agreed professionaltask or function" to avoid real and foreseeable risks ofloss by the plaintiff.39 On the facts of that case (involvinga limited commission to the architect to issue certificatesto permit the recovery of sums from the financier), it washeld it did not.40

Aside from pleading a tortious duty to create a"wider duty" than that owed under contract, the issue canalso be relevant from a limitation of actions perspective.In actions for breach of contract, the cause of action isusually complete and the limitation will thereforecommence upon breach, whereas in negligence, the causeof action will not arise until damage is suffered.41

The relevance of the distinction in this context canbe illustrated by reference to the facts of McBeath vSheldon42

, and in particular Giles J's separation of the twoduties owed by the architect, that of approving thefoundations for payment by the proprietor to the builderand that of providing a general duty of supervision overthe works. The proprietor did not sue upon the first duty,which would have been breached upon payment by theproprietor to the builder for the foundations. Rather, theproprietor sued upon the broader duties of "supervision ofthe construction from commencement to completion andhandover", which was held to have continued at least untilpractical completion of the building work.

Liability as certifierMost recently in the United Kingdom, the liability

of the superintendent to the principal in its role as certifierwas considered in the case of Wessex Regional HealthAuthority v HLM Design Ltd. 43 In that case, the principalissued a writ against the superintendent claiming breachof contract and/or for breach of its common law duty of

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care owed to it, in either granting extensions of time whereno extension should have been granted or in over-certifyingextensions of time due to the contractor. The damagealleged by the principal was the direct loss and/or expensepaid to the contractor and the loss of liquidated damageswhich would otherwise have been paid by it.

His Lordship Judge James Fox-Andrews QC, havingconsidered the decision of the House of Lords in PirelliGeneral Cable Works Ltd v Oscar Faber & Partners44 andCaparo PLC v Dickman45 stated:

"I am satisfied that where there is a contractualrelationship between a person and someoneprofessing special skills for which professionalqualifications are necessary and the contract relatesto the exercise of those skills and the case fallswithin the principles ofHedley Byrne as explainedin Caparo and Murphy there may be a concurrentduty to take reasonable care to prevent or avoideconomic loss so long as it is fair and reasonable... I see nothing unfair or unreasonable in thearchitects and the engineers being liable foreconomic loss over a longer period than they wouldbe under their contracts where the damage givingrise to the cause ofaction occurs at a later date. "46

His Lordship also made it clear that the architectscertifying function should not be viewed in isolation,saying it was" ... artificial to select certain aspects ofanarchitect's work such as written certificates and regardthose aspects alone as matters on which the client placedreliance". 47 The learned Judge considered that if theprinciple were to be narrowly confined, the client mighthave a cause of action in tort if the certificate wasnegligently mis-stated but would have no such cause ofaction if through prolonged delay in giving instructions tothe contractor, the client suffered major loss.48

His Lordship also noted that the reason a personseeks to establish the existence of a concurrent duty intort, is usually because of actual or perceived limitationproblems if the claims are advanced solely in contract.49

This same observation was made by Byrne J in JohnHolland Construction & Engineering Pty Ltd v KvaernerR J Brown Pty Ltd & Ano,.so in which His Honour expressedsurprise that a tortious claim had been pleaded noting thatnone of the traditional "reasons" for preferring tortappeared to be present.51

In relation to the claim pleaded in that case, hisHonour stated:

"It is well established that a person may owe toanother a duty to exercise reasonable care in theperformance of an obligation arising from acontract between them. In the case ofa professionalperson that duty may be expressedas one to performthe professional task with due skill and care: Voli vInglewood Shire Council (1963) 110 CLR 74. Inaccordance with this authority and those followingit, the concurrent nature of the tortious andcontractual duties arises from the readiness of theCourt to import into certain contracts a termrequiring the contractor to perform its contractualtasks with due skill and care. To that extent, this

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obligation is concurrent with the tortious dutyarising from the relationship ofproximity betweenthem to act with due care. What the presentStatement of Claim shows is that the pleaders aremoving in the opposite direction. They allege aduty of care to perform the contract. In everyrespect it is a duty which is contractual indescription: its terms, its breaches and theconsequent loss, as pleaded, are indistinguishablefrom contract-based obligations, breaches and loss.It is nonetheless given a tortious tag by the openingassertion that the defendant owed to the plaintiffaduty of care to perform those obligations. Whatthe law of negligence in this context imposes is,not that the defendant owes a duty ofcare to peiforma contract, but that it owes a duty to perform acontract with due care: Macpherson & Kelley vPrunty (1983) 1 VR 573 ... The contractual dutieshere are expressed as obligations to perform workto achieve a particular objective; the concurrentduties in tort, if they exist, must be to peiform thesame work with due skill, care and diligence."52

Accordingly, it would appear to be open to aprincipal in the United Kingdom53, Canada54 and Australia55,to plead an action in negligence against its architect orengineer, acting as agent for the principal and in its role ascertifier. In such circumstances, absent limiting provisions,it is arguable that there exists a wider duty in tort than thatowed pursuant to the express terms of the contract.

It is also open to assert that a co-extensive tortiousduty can be founded on no more than a breach ofcontractual obligations (either express or implied), thuscircumventing the contractual limitation period on the basisof the "discoverability" test for economic loss.56 It seemsclear however, in view of Byrne J's pronouncements inJohn Holland Construction & Engineering Pty Ltd vKvaerner RJ Brown Pty Ltd & Anor57 that such a breachmust be pleaded in terms of a duty to perform the contractwith due care.58

PART III - LIABILITY OF THE SUPERINTENDENTTO THE CONTRACTOR FOR WRONGFULLYCERTIFYING

This section of the article will consider two areas ofpotential tortious liability for a superintendent to acontractor. The first relates to an action in negligence forwrongful certification. The second considers whether acause of action for actionable interference with a contractmight be available to an aggrieved contractor.

There are only a handful of decisions in both theUnited Kingdom and Australia which involve a claim bya contractor against the superintendent in respect of itscertifying functions. Prior to considering these, we shouldbriefly turn to the general principles which are likely togovern recoverability.

The writer has previously considered in some detailthe respective positions taken by the Courts in Australia,Canada and the United Kingdom, with respect to therecoverability of economic loss.59

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To summarise: In England, recovery of pureeconomic loss (i.e. loss which is not consequent uponphysical damage to either person or property) will not bepermitted unless the plaintiff can bring itself within theHedley Byrne60 criteria, i.e. assumption of responsibilityby the defendant and (reasonable) reliance by the plaintiff.61While this liability was originally based on expressrepresentations acted on by the plaintiff to its detriment, ithas more recently been extended to an affirmative duty ofcare in tort owed by the defendant, thus extending tonegligent omissions.62 Recently the Canadian SupremeCourt has also seen fit to allow recovery based on a HedleyByrne criteria to create an affirmative duty of care in aprofessional contractual relationship.63

In Australia, it was thought to be well establishedthat where the plaintiff's claim is for pure economic loss,the categories of case in which the requisite relationshipof proximity are to be found were to be seen as "special",in that they will be categorised by some additional elementor elements which will commonly (but not necessarily)consist ofknown reliance (or dependence), the assumptionof responsibility or a combination of the twO.64

Most recently, there appears to have been a retreatby the High Court in the use of proximity as a unifyingrationale for the category of cases in which recovery willbe allowed.65 Rather, the establishment ofproximity withina particular category of case may now be seen to place alimitation on the recoverability of loss which is reasonablyforeseeable. 66

The factors which will be relevant to theestablishment of the necessary proximity to found a dutyof care are likely to be a combination of policyconsiderations (e.g. the "flood gates" argument and theprinciple of "competitive advantage")67 and the existenceor otherwise of an assumption of responsibility andreliance.68

These dual notions of assumption of responsibilityand reliance would appear to be a particularly relevantconsideration when considering the scope for recovery bya contractor against a superintendent. For example, in RW Miller v Krupp (Aust) Pty Ltd,69 Giles J refused to findnegligence as against the supervising engineer, in partbecause the contractor had not relied upon the engineer,but had held itself out as an expert in the particular field.

Accordingly, as will become apparent from thefollowing examination of the UK and Australianauthorities, not only express disclaimers and exclusionsbut also the contract structure or setting may militateagainst a finding of proximity in this country or negativethe Hedley Byrne pre-requisites in Canada and the UnitedKingdom.

The UK positionTurning firstly to the decision of the English Court

ofAppeal in Lubenham Fidelities and Investments Co Ltdv South Pembrokeshire District Council.70

In that case, the plaintiff was a bondsman who hadelected to complete certain building contracts in place ofthe original contractors. Disputes arose between the parties

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relating to the issue of interim certificates by the architect.The interim certificates were not correctly calculated inaccordance with the contract, although the architecthonestly believed that they were. After the dispute hadarisen in relation to the certificates but prior to itsresolution, both parties purported to determine the contract.Both principal and contractor made claims against thesuperintendent on the basis that its negligence was thecause of the losses suffered.

The claims of both parties failed because thesuperintendent's breach of duty in issuing the incorrectlycalculated interim certificates was held not to be the causeof the losses. They were caused by the contractor's breachof contract in suspending the works without reasonablecause and persisting with the suspension notwithstandingthe service of the relevant notice. 71 The judgmentconfirmed that the issue of the certificate was a conditionprecedent to the right to receive interim payment and thatany error or calculation had to be corrected by the issuingof another certificate or by the award of an arbitrator. TheCourt considered relevant the presence in the contract ofa very wide arbitration clause which expressly permittedarbitration upon interim certificates during the currencyof the contract and before practical completion.72

The potential for the superintendent to be liable tothe contractor was next considered on the determinationof a preliminary demurrer point in Michael Salliss & CoLtd v Calil.73 In that case the official referee concluded:

"If the architect unfairly promotes the buildingemployer's interests by low certification or merelyfails properly to exercise reasonable care andskill in his certification, it is reasonable that thecontractor should not only have the right asagainst the owner to have the certificate reviewedin arbitration but also should have the right to

recover damages against the unfair architect."74

The issue next arose before the Courts in Englandin the case of Pacific Associates Inc v Baxter.75 This casearose from a contract between the plaintiff contractor,Pacific Associates Inc and the ruler of Dubai as proprietorof the dredging and reclamation work to a lagoon in thePersian Gulf. The defendant was the engineeradministering the contract. Pacific Associates Inc madeclaims for extensions of time and additional expenses whenthe work was delayed when it encountered hard materialswhich were said to have been unforeseen. These claimswere rejected by the engineer. The contract contained atwo-tier arbitration clause. Disputes were in the firstinstance to be submitted or re-submitted by either party tothe engineer for decision. If the proprietor or the contractorwas aggrieved with this decision, it was entitled within 90days to refer the dispute to arbitration.

Pacific Associates Inc went through these steps andin due course settled its disputes with the proprietor byaccepting the equivalent of £10 million in full settlementof its claims against it. Pacific Associates Inc then suedthe engineer for a further sum alleging that, in rejecting

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the claims for hard materials upon first submission andupon re-submission under the arbitration clause, itcommitted a breach of its duty to act with the care, skill,fairness and impartiality to be expected of engineers oftheir high standing and repute and that, as a result, thebuilder suffered loss and damage. The case came beforethe Court of Appeal in which each of the three Justicesdelivered separate judgments dismissing the appeal andholding that no duty of care existed.

All of the Judges emphasised the relevance of theexistence of an arbitration clause and also the role of acontractual disclaimer when considering the question ofwhether or not the architect could be said to havevoluntarily assumed responsibility for its actions to thecontractor.

Purchas LJ posed the question thus:"Does the engineer owe a duty to the contractorin tort to exercise reasonable skill and care?" ...this question can only be answered in the contextof the factual matrix including especially thecontractual structure against which such duty issaid to arise... The central question which ariseshere is: against the contractual structure of thecontract into which the contractor was preparedto enter with the employer, can it be said that itlooked to the engineer by way ofreliance for theproper execution of the latter's duties under thecontract in extension of the rights which wouldaccrue to it under the contract against theemployer? ... It may be argued that it would notbe just and reasonable to impose on the engineerby way of liability in tort rights in favour of thecontractor in excess of those rights which thecontractor was content to acquire against the

employer under the contract. "76

The Lord Justice thought that it was not, noting thatnot only did the terms of the contract provide a three stageprocess under which the contractor could obtain paymentfor its work but the third stage of which included areference to one or more independent arbitrators who weregiven the power "to open up, review and revise anydecision, opinion, direction, certificate or valuation oftheengineer".77 Further, Purchas LJ thought that the presenceof the exclusion clause (which purported to exculpate theengineer for personal liability for its acts or obligationsunder the contract) whilst not being directly bindingbetween the parties, could not be excluded from a generalconsideration of the contractual structure against whichthe contractor demonstrates reliance on and the engineeraccepts responsibility for a duty in tort, if any, arising outof the proximity established between them by the existenceof the very contract.78

Accordingly, there was no justification for super­imposing on the contractual structure an additional liabilityin tort as between the engineer and contractor.79

Ralph Gibson LJ similarly put great weight in thepresence of the arbitration clause, saying:

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"It is, I acknowledge, foreseeable that a contractorunder such an arrangement may suffer loss by beingdeprived ofprompt payment as a result ofnegligentunder-certification or negligent failure to certify bythe engineer but arbitration should secure intereston the unpaid sums ... The contractual duty of theengineer, owed to the employer, to act fairly andimpartially is a duty in the performance of whichthe employer has a real interest. If the engineershould act unfairly to the detriment ofthe contractorclaims will be made by the contractor to get thewrong decisions put right. Ifarbitration proceedingsare necessary the employer will be exposed to therisk ofcosts in addition to being ordered to pay thesums which the engineer should have allowed. Ifthe decisions and advice of the engineer, whichcaused the arbitration proceedings to be taken wereshown by the employer to have been made and givenby the engineer in breach of the engineer'scontractual duty to the employer, the employer wouldrecover his losses from the engineer. There is,therefore, not only an interest on the part of theemployer in the due performance by the engineer ofthe duty to act fairly and impartially but also asanction which would operate, in addition to theengineer's sense ofprofessional obligation, to deterthe engineer from the careless making of unfair orunsustainable decisions adverse to the contractor."80

Similarly, Russell LJ said:"The engineer presented the contractor with the

contract documents, and the contractorfreely choseto enter into the contract with the employer. Thecontractor was aware that the engineer were not(sic) a party to the contract ... Given the contractualstructure between the contractor and the employer,can it be fairly said that it was ever within thecontemplation of the contractor that, outside thecontract, it could pursue a remedy against theengineer? ... the contractor in reality had its rightsadequately protected by the terms of its bilateralcontract with the employer. If the contractor hadthought not, then it was at liberty to insist upon atripartite contract before embarking on the work."81

This, with respect, fails to give due accord to thecommercial reality that a contractor would very rarely beable to demand let alone negotiate such added protection,nor would the additional exposure be willingly acceptedby the superintendent's professional indemnity insurer.

In any event, Russell LJ thought that the conditionpurporting to exclude liability in the engineer destroyed theduty of the engineer, if ever there was a duty. At page 1038:

"I would hold that, the parties having sought toregulate their relationships the one with the otherby a contractual process, the law should be verycautious indeed before grafting on to thecontractual relationships what might be termed aparasitic duty, unnecessaryfor the protection oftheinterests of the parties and, ... contrary to theexpress declarations of the engineer"82

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In the Australian case of RW Miller & Co Pty Ltd vKrupp (Australia) Pty LttJ83

, Giles J, when referring to the

judgment in Pacific Associates Inc v Baxter, 84 pointed out:"In each of the judgments it was stressed that the

decision turned on the particular circumstances,but important amongst the circumstances was the"contractualframework" (per Purchas LJ at 1022)from which it appeared that the plaintiff was notrelying on the defendants performing their dutiesin supervising the execution of the works in "thesame quality ofproximity required to establish aduty of care."85

Pacific Associates Inc v Baxter6 was subsequentlyfollowed by Bokhary J in the High Court of Hong Kongin the case of Leon Engineering & Construction Co Ltd vK A Duk Investment Co Ltd. 87

In that case, the plaintiffs were building contractorswho had contracted to construct the basement of a hotelfor the defendants. Having commenced proceedings, theyapplied to join the architects named in the buildingcontract, as second defendants, on the grounds that theyowed a duty of care to give proper, timely and impartialconsideration to the plaintiffs' claims and to issue allcertificates in strict accordance with the terms of thecontract. It was alleged that they had been negligent andhad failed to perform that duty.

It was held by Bokhary J, dismissing the summons,that where there is adequate machinery under the contractbetween the employer and the contractor to enforce thecontractor's rights and there is no good reason at tenderstage to suppose that such rights of machinery would nottogether provide the contractor with an adequate remedy,then, in general, a certifying architect or engineer doesnot owe to the contractor a duty in tort co-terminus, withthe obligation in contract owed to the contractor by theemployer. 88

The Australian positionPrior to the recent decision of Byrne J in the John

Holland case89, the issue of the contractor's ability to sue

a superintendent in respect of its certifying function hadbeen brought before the Courts in this country only twice,in both cases the Courts refusing to strike out thecontractor's claim for damages for economic loss basedon alleged negligent certification.

The first was the case of P & E Phontos Pty Ltd vMcConnell Smith & Johnson Pty Ltd.90

In that case, Cole J stated:"There may well be significant policy

considerations affecting a court's decision whetherin the usual case and absent any special factualcircumstances the law should impose upon asuperintendent engaged by a proprietor to act onhis behalfin the supervision ofthe works, and alsoto perform independent certifying functions witheconomic consequences bothfor the proprietor andthe building contractor, where the decisions of thesuperintendent are open to review through an

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agreed arbiter mechanism, a duty of care to thebuilding contractor. Problems may arise inreconciling any such duty with the obligation ofthesuperintendent to act in the interests ofhis employerin supervising construction in accordance with thecontract. Should such a duty of care besuperimposed on the contractual structure existingbetween the proprietor and the building contractorin circumstances where the superintendent'sdecisions are subject to arbitral review? "91

His Honour considered that any applicable policyconsiderations could not be adequately weighed on anapplication to strike out the summons, and granted theplaintiff leave to file an amended statement of claim.92

The issue arose a short time later in Christiani &Nielsen Pty Ltd v Goliath Portland Cement Co Ltd93 wherethe Full Court of the Tasmanian Supreme Court consideredCole J's approach to be correct, and similarly declined tostrike out the contractor's counterclaim.

The issue most recently came for full determinationbefore Byrne J in John Holland's case.94

In that case, the principal entered into an architect/client agreement with the architect to provide design andcontract administration services in relation to a majorredevelopment in the Melbourne CBD. It subsequentlyentered into a construction contract with John Hollandpursuant to which the architect was named assuperintendent.

Questions regarding the entitlements of thecontractor under the contract were referred to a referee.Before the referee had completed his review, the principalwent into liquidation.

The contractor's claim in negligence against thearchitect was based principally upon the ground that thearchitect was in breach of a duty to act fairly andimpartially in carrying out its functions as certifier underthe building contract and that, as a consequence, the buildersuffered loss and damage. As pleaded, this loss anddamage was the amount owing by the proprietor to thebuilder.95

The duty of care pleaded was expressed to be "aduty of care, the relevant content ofwhich was a duty toact fairly and impartially in carrying out [the architect's]functions under JCC B".96 Argument was presented onthe basis that the duty applied only to those functions whichhad traditionally been referred to as requiring the contractadministrator to act independently of its employer andparticularly those under which the architect is authorisedto act as assessor, valuer or certifier in respect of specifiedmatters. As to these functions, there was no issue that thearchitect had an obligation to perform them fairly andimpartially.

It was put by the contractor that the obligation toact fairly and impartially was a particular manifestationof the common law duty of care.

The existence of this duty of care was said to bebased upon the principles laid down by the High Courtwith respect to claims in negligence for pure economic

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loss. These establish that the duty only arises where thereexists between the parties a relationship with sufficientproximity that the common law recognises the existenceof the duty to take reasonable care to avoid a reasonablyforeseeable risk of injury to the claimant.97

Byrne J considered that the judgment of the majorityin the case of Bryan v Maloney98 made it clear that theexistence of the relationship of proximity had to bedetermined in the given case with respect to the relevantclass or act or omission and the relevant kind of damage.Furthermore, his Honour considered that in a case wherethe relationship was not settled by authority, the task ofthe Court was to analyse the factors alleged to give rise tothe relationship of proximity, including the circumstancessurrounding the relationship between the parties, havingregard to policy considerations.99

His Honour found that the circumstancessurrounding the relationship between the parties wereessentially to be found in the terms of the building contract.The builder alleged three factors existing at the time ofentering into the building contract from which the duty ofcare was said to arise. The first was the obligation of thebuilder to abide by the decisions of the architect. 100 Thesecond was that, by the terms of the building contract, thebuilder was necessarily dependent on the architect to carryout its functions impartially.lOi The third factor was thatthe builder relied upon the architect to exercise its functionsunder clause 5.02.02 impartially and that it would not haveentered into the building contract unless there existed inthe architect an obligation to exercise its functions fairlyand impartially. 102

Having considered the various English authorities,His Honour concluded that the case before him requiredhim to consider the decision of the Court of Appeal inEngland in Pacific Associates Inc v BaxterI03 and itsapplication in Australia on the facts of the case beforehim. 104

Having so asserted, his Honour went on to say:"It would not be profitable for me to embark upon

an analysis of this important decision; it dependsvery much upon the contractual situation in whichthe certifier was working and, more importantly,upon the substantive law ofnegligence in Englandwhich differs in this area from that in Australia ...My task ... is to apply the law as it stands in thiscountry but, at the same time, with an eye tooverseas experience which may serve as a pointerto policy aspects. "105

Byrne J concluded that it was reasonably foreseeablethat the decisions of a certifying architect might cause lossto a contractor in a conventional building project if madenegligently. Whatever that loss might be would dependupon the nature of the decision in question, but it was inany event pure economic loss. 106

His Honour was not troubled by either of theexamples of policy considerations referred to in Bryan vMaloney 107 , considering that the builder was clearly anidentifiable member of the limited class of two persons

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who must have been in contemplation of the architect asbeing directly affected by its decisions. !Os Nor was it anaffront to the standards expected of a professional personthat he or she should exercise the onerous responsibilitiesof certifier with due care and without partiality orunfairness. 109

At page 246 his Honour stated:"The solution to the presentproblem must befoundin the answer to the questions whether, in thecontractual framework in which the parties to thisproject operated, it is established that the Builderrelied on or depended upon the careful andimpartial performance by the architect of itscertifying functions as here alleged and whetherthe Architect, for its part, assumed a legalresponsibility to the Contractor so to peiform them.... To adopt the expression ofKelly J in F W Nielsenv PDC Constructions (ACT) Pty Ltd (1987) 71ACTR 1 at 8, have the Architect and the Builderdeliberately distanced themselves from each otherso that no relationship of proximity wascontemplated. ... In my opinion, it is clearfrom thesethat the question of the rights and remedies of theBuilderfor acts and decisions ofthe Architect wereconsidered by the Builder and the Proprietor, andin many cases, dealt with by making the Builderresponsible in some cases for loss suffered as aconsequence of those decisions, and by giving tothe Proprietor the responsibility ofsupporting themupon review before the Court or before an arbitratorif it so choose, and at its own riskfor an order forcosts. ... The Builder is a well-known andexperienced building contractor. ... Against thisbackground, and given the state of the law ofnegligence as it then stood, and given the wellestablished common law entitlements ofthe builderin the case offraud, corruption or collusion betweenthe certifying Architect and the Proprietor, it is, inmy opinion, not appropriate for me to seek toengraft upon the contractual background a tortiousobligation ofthe kind contendedfor by the Builder.There is in this case no room for a duty of careowed by the Architect to the Builder the relevantcontent of which was a duty to act fairly andimpartially in carrying out its functions referred toin cl 5.02.02."110

The relevance of the Arbitration ClauseHis Honour's judgment also addressed a question

which had arisen in some of the English cases, particularlyPacific Associates Inc v Baxterll I, being whether theexistence of an arbitration clause would preclude a dutyarising or impact upon a contractor's entitlement to recoverfrom a causation point of view.

In Pacific Associates Inc v Baxter,112 Purchas LJconsidered there to be "considerable force" in thesubmission that a settlement occurring in the context ofan arbitration pursuant to the contract constituted a novusactus interveniens and would prevent the recovery of any

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loss occurring to the contractor as a result of a settlementon the arbitration. II3 Ralph Gibson LJ was of the sameview, stating:

"Nothing suggests that the alleged negligence ofthe engineer was a cause ofthe contractor choosingto settle its claim as it did. If the engineer were notto blame for the circumstances which caused thecontractor to choose to settle the claimfor afractionofwhat was properly due to the contractor, and ifsuch an outcome was not aforeseeable consequenceof any negligence on the part of the engineer indealing with the contractor's claims - and it is notalleged that it was - the negligence ofthe engineerin rejecting the contractor's claims could beregarded as relegated to no more than part of thehistory and circumstances in which the contractor'sdecision was made to settle those arbitrationproceedings."114

On the other hand, Russell LJ entertained somereservations, considering that the non-certification orunder-certification by an engineer might lead, in anindividual case, to such financial embarrassment for thecontractors that withdrawal from the contract mightbecome necessary. In such a situation, the fact thatsubsequently the contractor would be able to recoup itsloss via arbitration (weeks, months or years ahead) wouldbe cold comfort. 115 The writer agrees with that approach.It does, however, address a different issue to thatconsidered by Ralph Gibson LJ.

In the John Holland case, Byrne J took a similarapproach, stating:

"To my mind it is reasonably foreseeable that thedecisions ofa certifying architect might cause lossto a contractor in a conventional building projectif made negligently. Whatever that loss might bewill depend upon the nature of the decision inquestion; it is in any eventpure economic loss. Thisforeseeability is not removed by a right to reviewthe decision by arbitration. Insofar as anentitlement to payment is concerned, a contractorwho is successful upon arbitration must necessarilyincur the cost of that arbitration and may suffer adeferment ofpayment, perhaps without a right tointerestpending payment: Farrans (Construction)Ltd v Dunfermline District Court (1988) SLT466."116

Similarly, in Wessex Regional Health Authority vHLM Design Ltd & Ors l17, His Lordship Judge James Fox­Andrews QC said:

"For there to be a duty there must of course bedamage. Since I have heard no evidence it is ofcourse not open to me to hold whether or not therewas damage in the light ofthe arbitration clause inrespect ofat least some ofthe claims. But I do findifthe matters complained ofas regards the breachesof duty are established it is reasonably arguablethat Wessex would be able to show that they have

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suffered damage ... an employer who had to go toarbitration for a review ofcertificates and like andwho succeeds in that review is likely neverthelessto be financially worse off in respect ofirrecoverable costs and the like than ifthe certificatehad been properly given in the first place."118

This would appear to be correct. The mere existenceof the arbitration clause should not be determinative ofthe issue. Aside from the obvious damages which flow toa party forced to pursue a remedy by way of arbitration,the existence of an arbitration clause will not avail a partyif, in the meantime, one of the other parties goes intoliquidation. The issue of the effect of a settlement pursuantto the arbitration is one which is, however, currentlyunresolved.

Summary of the position in the relevantjurisdictions

Although there are ostensibly different principlesunderpinning the decisions of the Courts in the UnitedKingdom and Australia with respect to the recovery ofeconomic loss, there is a marked similarity in the approachtaken and the factors considered relevant in arriving at theCourts determination.

The learned author of Hudson's Building andEngineering Contracts, Ian Duncan Wallace QC, suggeststhat there are "poweiful" factors against allowing recoveryby a contractor against a superintendent who has, forexample, negligently under-certified. 119 Included amongstthese factors are:

The architect is employed (to the knowledgeof the contractor) to protect the owner'sinterests, not to provide a safeguard to thecontractor.The imposition of a duty not accepted by theprincipal under its construction contract andin circumstances where a remedy against theprincipal is available under that contract, isoutside the "contractual setting" or "contractstructure".A liability in the superintendent to be "shot atby both sides" would be created, which wouldincrease the cost through insurance ofemploying superintendents and wouldintroduce a clear conflict of interest impedinga wholehearted protection by thesuperintendent of its client's interests.Where the contractor is free, under the termsof the contract, to arbitrate or litigate againstthe owner if dissatisfied with the architect'sdetermination, the contractor may be affordeda second bite of the cherry, by re-litigatingagainst the superintendent if dissatisfied withthe determination at first instance.120

While all of these factors are no doubt influential,the cases in both the United Kingdom and Australia suggestto the writer that the possibility of a successful claim beingmounted by a contractor against a superintendent cannotbe entirely discounted.

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Critical to the success of such a claim will be the"contractualframework" and whether it would be ''fair andjust" to impose on the superintendent by way of liability intort, rights in favour of the contractor in excess of thoserights which the contractor was content to acquire againstthe principal under the contract. 121

Relevant to this determination will be whether aremedy is available against the principal under that contractand whether it could be said that the architect, for its part,assumed a legal responsibility to the contractor in theperformance of its certifying functions. The existence ofexpress disclaimers in the contract may be a relevant factorin this regard. 122

It seems clear that in formulating a view as to whetherthe "... architect and builder deliberately distancedthemselves from each other so that no relationship ofproximity was contemplated ...", it will be necessary to lookat the circumstances in existence at the time prior to, andcontemporaneous with, entering into the building contract.123

It is this "contractual framework" (which is, of necessityconcluded prior to the performance of the partiesobligations), that is likely to be determinative ofthe questionofwhether a duty ofcare is owed, rather than any subsequentconduct (unless the superintendent gives the contractorgratuitous advice during the performance of the works).

While the existence of comprehensive disputeresolution procedures within the contract has beenconsidered a relevant factor, the presence of such clauseswill not remove the ''foreseeability'' of loss124 and will not,of itself, break the chain of causation.125 The effect of acontractor's decision to compromise a claim in an arbitrationand subsequently proceed against the Superintendent forthe "balance", remains unsettled. 126

Although the judiciary in Canada appear to haverecently gone further than any other Commonwealthjurisdiction in holding that construction owners andarchitects/engineers owe duties of care in tort to safeguardcontractors against incurring economic loss, Ian DuncanWallace QC submits that in principle no affirmative duty ofcare is owed by a professional to a contractor to guard itselfagainst loss of this nature. He suggests that it is only apositive unqualified intervention or representation, madeor given in circumstances where the professional could besaid to accept responsibility for its efficacy and accuracy,that will lead to the creation of such a duty. 127

There is little point in attempting to review the UnitedStates law on this subject, as the cases there are nominallybased on "thirdparty beneficiary" theories, which have notfound favour with courts in Commonwealth jurisdictionsin this context. 128

Actionable interference with a contractIn a number of the cases already discussed, the

builders raised as a secondary cause of action that thearchitect was liable in damages to the builder for procuringbreaches of or interfering with the execution of the buildingcontracts.

In Lubenham's v South Pembrokeshire DistrictCouncil129, the Court rejected the contractor's argument

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that the architect ought to be held liable for damages for"inteifering with" the performance of the building contracton the simple and straightforward basis that an architectwho was seeking to further its performance (albeit in amisguided manner) could not be regarded as someone whointended to "interfere" with it. 130 The Court was, however,prepared to contemplate the possibility of the architectbeing held liable in this way if it deliberately misappliedthe contractual provisions with the intention of deprivingthe contractor of sums to which it was properly entitled. 131

It was this allegation which arose for considerationbefore Judge John Lloyd QC in John Mowlem & Co Plc vEagle Star Insurance Co Ltd & Ors. 132 In that case, it wasalleged by the contractor that the architect failed to actindependently of the principal, in that it failed to exerciseany proper or independent judgment and deliberatelymisapplied the contract with the intention of depriving thecontractor of the sums to which it was entitled. It wasalleged that the architect was liable in tort for havingwrongfully interfered with the performance of themanagement contract and having knowingly andwrongfully procured or facilitated a breach of themanagement contract, by the principal, by acceding to theprincipal's wishes for the certificates of deduction to beissued. 133 The contractor further contended that since thearchitect was of the opinion that the contractor was entitledto certain extensions of time, by failing to grant thoseextensions the architect had interfered with theperformance of the management contract and hadconspired with the second defendants to injure thecontractor by unlawful means, namely by interfering withthe performance of the contract by withholding extensionsof time. 134

Noting that the elements of the tort of actionableinterference were:

1. knowledge of the existence of the contract;2. intention to interfere with the performance of

it;3. the doing of unlawful acts with such

knowledge and intention; and4. causing a breach of the contract or the non­

performance of a primary obligation inconsequence,

Judge John Lloyd QC held that it was certainlyarguable that the architect, in issuing the certificates ofdeduction, deliberately misapplied the provisions of thecontract and thereby directly caused the principal's non­performance of the contract in relation to payment of theinterim certificates. 135 Interestingly, his Lordship did notconsider the arbitration provisions contained in themanagement contract to in any way affect the wrongfulinterference which was pleaded.136

This cause of action was also relied upon by thebuilder against the superintendent in the John Hollandcase. 137

In noting the availability of the tort, Byrne J heldthat a bona fide belief, reasonably entertained by thearchitect, that its conduct would not have the consequence

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(i.e. of depriving the builder of the payments to which itwas entitled), was fatal to this cause of action. 138

Accordingly, it seems clear that while this cause ofaction is open to an aggrieved contractor, it is usuallypleaded as a secondary cause of action and is one whichseems inevitably doomed to failure unless the Contractorcan demonstrate something akin to bad faith on the partof the superintendent. 139

PART IV - TRADE PRACTICES ACT 1974 (CTH)

Overview of the relevant TPA provisionsIn recent years there has been a dramatic increase

in the number of claims brought pursuant to the TradePractices Act 1974 (Cth) ("TPA"). The most commonlyrelied upon prohibition in the TPA is Section 52. Itprovides:

"A corporation shall not, in trade or commerce,engage in conduct which is misleading or deceptiveor is likely to mislead or deceive. "

Section 52 principally relates to corporations140 andfor the Section to have operation, the "conduct" must bein "trade or commerce".

In Concrete Constructions (NSW) Pty Ltd vNelson,141 the High Court said:

"It is plain that Section 52 is not intended to extendto all conduct, regardless of its nature, in which acorporation might engage in the course of, or forthe purposes of, its overall trading or commercialbusiness ... "142

Accordingly, the reference to conduct "in trade orcommerce" in Section 52 can be construed as referringonly to conduct which is, itself, an aspect or element ofactivities or transactions which, of their nature, bear atrading or commercial character.

Section 4(2) of the TPA defines "engaging inconduct" as a "reference to doing or refusing to do anyact, including the making of, or the giving effect to aprovision of, a contract or arrangement, the arriving at,or giving effect to a provision of, an understanding".

The central feature of the Section is its prohibitionof "misleading or deceptive" conduct or conduct that is"likely" to mislead or deceive. Since Section 52 imposesa statutory code of conduct by prohibiting conduct whichis misleading or deceptive, it is independent of anycontractual nexus between the parties. 143

Even silence may be relied upon to show a breachof Section 52 when the circumstances give rise to anobligation to disclose relevant facts. 144

It was once considered that Section 52 wasspecifically limited to claims brought by "consumers".This was the rationale behind the decision in WesthamDredging Company Pty Ltd v Woodside PetroleumDevelopment Pty Ltd and Ors145, where St John J held thatSection 52 was concerned with consumer protection asdistinct from a construction contract negotiated as a "oneoff' event.

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Subsequent decisions however, such as that of thefull Federal Court in Bebanere Pty Ltd v Lubidineuse andOrs146 and Bond Corporation Pty Ltd v Thiess ContractorsPty Ltd and Ors147 (in which it was held that the provisionof services by a member of a profession was capable ofbeing characterised as conduct in "trade or commerce"for the purposes of Section 52), suggest that it will be safeto proceed on the basis that there are no limitations uponSection 52, other than those arising from the language ofthe Section itself and that it is not necessary to limit itsoperation in light of the heading of Part V, "ConsumerProtection".

Under Section 74 of the Act, certain warranties areimplied into contracts for supply by a corporation, ofservices to a consumer, including that services will berendered with due care and skill. However, this impliedwarranty does not apply to services provided by anarchitect or engineer, due to the exclusion "other thanservices ofa professional nature provided by a qualifiedarchitect or engineer" .148

DamagesSection 82(1) of the TPA provides that a person who

suffers loss or damage as a consequence of the conductof another person that was done in contravention of aprovision of Part IV or V may recover the amount of theloss or damage by action against that other person oragainst any person involved in the contravention. It hasbeen held by the Full Federal Court that the measure ofdamages for deceit is a useful guide for assessing damagesunder Section 82 of the TPA.149

Unlike actions in negligence for negligentmisrepresentation, in an action under Section 52, it is notnecessary to establish that a relationship ofproximity existssufficient to give rise to a duty ofcare nor that the defendantknew or ought to have known that the plaintiff would acton the representation. Nor does it require that there beany intent to mislead or deceive. 150

While conduct might by itself constitute a breach ofSection 52 of the TPA, to recover damages the applicantmust prove that the loss or damage claimed to have beensuffered was "by" the conduct in breach of the TPA.151

Accordingly, it is necessary to produce evidence ofa causal relationship between the conduct complained ofand the loss suffered, to plead successfully a cause of actionunder Section 52 that will give rise to damages pursuantto Section 80(2).152

The case lawThe first reported decision in which the architect's

role as certifier has been challenged pursuant to Section52 of the TPA founding a right to damages under Section82 of that Act is the case of Western Mail Securities PtyLtd v Forest Plaza Developments Pty Ltd andAnor 153 Thiswas simply an interlocutory application but concernedwhether the issue of an architect's certificate of practicalcompletion could constitute conduct in contravention ofSection 52 of the TPA. In that instance French J stated:

35

"One can assume for the sake of argument thatin some sense the issue of the certificate by thesecond respondent [the architect] can becharacterised as conduct in contravention ofs.52ofthe Trade Practices Act. Indeed, there may bea serious question in that regard. ... Theseassumptions, ofcourse, gloss over the difficultiesthat arise where s.52 conduct is said to beconstituted by what is an evaluative judgment onfacts which are plain for all to see. ... But evenmaking those assumptions, there is on thematerials presently before me no evidence ofthekind ofcausal relationship between the conductcomplained of and the exercise of the optionnecessary to establish a cause of action and anentitlement to reliefunder ss.82 or 87 ofthe TradePractices Act."154

This requirement to have a causal nexus wasemphasised in the decision of the Federal Court of SouthAustralia in Kaze Constructions Pty Ltd and Cain &Zechevich Pty Ltd v Housing Indemnity Australia Pty Ltdand Neil Francis McPeake (Kaze Constructions case).155That case did not involve a superintendent or architect butrather looked at the conduct of the HIA under Section 52of the TPA and the causal link between the agency and theagent's conduct and the applicant's loss and damage.

At page 75 it was said:"... there are wrapped up in the language of s.82

concepts which the common law would describeby the terms "causation ", "remoteness", and"measure of damages". In the first instance it isnecessary to consider the requirement ofcausationwhich is incorporated by the expression "by": thesuffering of loss and damage must be "by conductof another person that was done in contraventionofa provision ofPart IV or V". The section requiresthereby that there be a sufficient causal link betweena respondent's conduct and the applicant's loss anddamage. Where damages are claimed for acontravention ofs.52 the applicant must establishreliance upon the conduct complained of assupplying a sufficient causal connection: Pappasv Soulac Pty Ltd (1983) 50ALR 231".

We will return to these considerations whenexamining whether or not the superintendent's "wrongful"certification could be said to have "caused" the loss of thecontractor or whether it is the principal's reliance on thecertificate which is the true cause of the loss.

In Multiplex Constructions Pty Ltd v Amdel Ltd156,

the defendant was retained by an architect to prepare areport showing the asbestos content in some buildings tobe demolished. The architects report containedrepresentations concerning asbestos in the building whichwere false and misleading and was held to have breachedSection 52 of the TPA. At page 139 it was said:

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"I accept that the defendant's reports containedrepresentations. ... I also accept that ... the conductof the defendant in publishing the reports wasmisleading and deceptive, that the plaintiff reliedupon the reports, and that the plaintiffsuffered loss"by" that conduct, within the meaning of s.82 ofthe Act".

In that instance, the defendant submitted that Section52 deals with cases of "persuasion", as distinct from"information". In this regard the Court examined thedecision of the full Federal Court in Global SportsmanPty Ltd v Mirror Newspapers Ltd. 157 In that case it washeld that it is possible to conclude that the publication ofincorrect information may constitute conduct which ismisleading or deceptive within the meaning of Section 52of the Act but will only do so if the conduct contains orconveys a misrepresentation.

In the present case, the court held that the reports inrelation to the asbestos did contain information but thatthey also recorded an opinion, or a series of opinions, asto the presence of asbestos and asbestos related productsin the buildings in question. The court also held that, asidefrom containing opinions (which were not based uponadequate foundation), the report also containedrecommendations. In both regards the reports offendedagainst Section 52.

These factors may also be relevant in characterisingthe nature of the architect's role as certifier and exactlywhat it is that the certificate records.

In Jiawan Holdings Pty Ltd v Design CollaborativePty Ltd (Jiawan Holdings)158, the proprietor appointed anarchitect pursuant to a special agreement, to issue progresscertificates for delivery to the proprietor's financier toenable the proprietor to recoup monies which had beenpaid on an uncertified basis to the builder under two lumpsum fixed price contracts. The architect was not retainedto act as supervising architect and was not asked to checkthe accuracy of the builder's lump sum prices.

The proprietor continued to make payments to thebuilder unrelated to the amount certified by the architectas being the value of work carried out. The architectadvised the proprietor of the different methods ofcertification possible. The architect then proposed aproportional method of certification and advised of thedangers of this method, which was ultimately acceptedby the proprietor. The fixed prices were exceeded, suchexcess being paid to the builder as loans. The builder'ssubsequent liquidation rendered the loans irrecoverable.

The proprietor contended that, by certifying, thearchitect warranted outstanding costs. It argued that thearchitect was obliged, before issuing any certificate, tocheck independently the builder's lump sum prices andadvise the proprietor if they were wrong or unachievable.One of the questions submitted by the proprietor was, inthe absence of a contractual or tortious duty, was theconduct of the architect in failing to warn the proprietorthat it had given no consideration to real figures whenassessing the builder's break up and budget or issuing itscertificates, conduct that was misleading or deceptive orlikely to do so?

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The court held that it was not for a number ofreasons.

Firstly, the court doubted if it could be misleadingor deceptive conduct or conduct likely to mislead ordeceive to perform a contractual obligation in the preciseterms in which it was agreed that obligation would beperformed. 159

Secondly, the plaintiffs were not misled or deceivedinto making payments to the builder by the certificates;they made payments in advance of certificates andirrespective of them. The court held the plaintiffs had inmind the fixed price which they were to pay to the builderand, once they exceeded that sum (the finance companyhaving required by requisition that there be a fixed pricecontract), they made no further payments under thecontract but merely advanced monies to the builder byway of loan.

Thirdly, there was no reliance by the plaintiff onthe certificates. The certificates were issued forpresentation to the lender to recover proportions of thelump sum building price. Payments to the builder wereunrelated to the certificates.

Fourthly, the loss suffered by the plaintiff flowedfrom the irrecoverability of the loans made to the builder.The fact that the builder's receivership or liquidationrendered the monies irrecoverable did not mean that theloss, suffered by the plaintiffs because of the builder's costsoverruns, flowed from any act or omission of the architectin circumstances where it was denied the position ofsupervising architect and was not asked to and did notcertify progress payments to the builder or check theaccuracy of the builders lump sum price or ask to estimatethe cost to complete the works. 160

Can the Superintendent be liable for wrongfullycertifying pursuant to the Trade Practices Act1974?

As there is no Australian authority determinative ofthe issue, it is necessary to apply the principles discussedto assess the likely success of such a claim.

The authorities suggest that it will be easier for aparty to invoke the relevant provisions of the TPA inrelation to an architect's or engineer's pre-contractualfunctions or representations, rather than when a contractis "on foot", particularly when the contract containscomprehensive dispute resolution procedures. An exampleof recovery in the former instance arose in the case ofBrian James Coleman v Gordon M Jenkins & Associates& Anorl6 1, where an architect's pre-contractual costestimate, which was wildly inaccurate, was held toconstitute misleading and deceptive conduct and a falserepresentation within the meaning of Sections 52 and 53of the TPA.

Often the superintendent engaged on a project hasbeen responsible for the design of the works and assistedthe principal in the award of the tender. The writer wasrecently involved in a matter where at the time of tender,the superintendent allegedly represented that the designof the works was complete and that the quantum of work

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was adequately represented in the documentation andprovisional quantities allowed. The reality was that thedesign drawings did not reflect the work actually requiredand there was an extremely high level of variation, whichin tum led to considerable disruption of the contractor'sperformance and led to substantial cost overruns.

In the absence of an ability to claim these additionalamounts under its contract, it would seem that thecontractor may have a basis to proceed with a claimpursuant to Section 52.

Once a contract is "on foot", there are obviouslycertain situations where both a principal or contractor mayconsider that they have suffered loss or damage due to asuperintendent wrongfully certifying. However, in termsof successfully bringing an action to recover such costspursuant to the TPA, there are a number of obstacles whichwould have to be overcome.

The first is whether, in acting in the role of certifier,the superintendent could be said to be engaging in conduct"in trade or commerce"?

While it was held, in Bond Corporation v ThiessContractors Pty Ltd & Ors162

, that the provision of servicesby a member of a profession was capable of beingcharacterised as conduct in trade or commerce for thepurposes of Section 52, it has been held that the relevantparticular conduct must itselfhave a trading or commercialcharacter. 163

Can it really be said that the act of certifying (withduties to act with fairness to both parties) satisfies thisrequirement?

In Presta v Aknar164, Saxton J held that a particular

professional activity need not be for profit or reward, if,in its context, it retains a commercial character.

In Yates Property Corporation Pty Ltd v Boland165,

Branson J left open the question of whether Section 42 ofthe Fair Trading Act applied to all "professional" activity(on the part of a barrister in that case) or only onprofessional activity bearing a trading or commercialcharacter.

In the recent case of Fasold & Anor v Roberts &Anor166

, Sackville J held that assuming a lecture series wasorganised by an institution engaged in business, statementsmade by the lecturer were not in trade or commerce, sincethe object was not to promote the institution's commercialinterests but rather to promote his own ideas: the lecturer'sactivities might have had a relationship to trade orcommerce but they were not in trade or commerce.

Given that the superintendent's only "stake" on theproject arises from its pursuit of its business interest inbeing paid for the role, it might be thought that itsindividual acts pursuant to that role could be similarlycategorised to those of the lecturer above.

The claimant's answer to this contention may be torely upon arguments considered in Meadow Gem Pty Ltdv ANZ Executor & Trustee Co Ltd & Ors167

, in which itwas suggested by Counsel (though not finally decided bythe court) that it is sufficient that the conduct in questionis engaged in for the purpose of promoting the business ofanother - there is no requirement that it be to promote themaker's business. 168

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The superintendent is clearly engaged by theprincipal to "look after" and protect the principal's interests(while acting fairly between the parties!) and arguably itsadministration of the contract could be categorised as beingin trade or commerce on this basis.

It should also be appreciated that thesuperintendent's certifying function does not occur inisolation but rather arises out of a sequence of events (oftenclaims) under the contract which it is administering.

It is in the surrounding conduct and possibly thesuperintendent's failure to certify, where the greatest scopefor impugning its conduct arises.

For example, the superintendent may repeatedlyreassure the contractor that all valid extension of timeclaims will be approved but that this will have to wait, asthe principal requires the job to be completed urgently. Itmay subsequently advise the contractor (after thecontractor has performed the work) that it is reluctant tocertify any extensions of time, because to do so would beto expose the principal to acceleration or prolongationclaims.

Such conduct could clearly be said to have beenengaged in for the purpose of promoting "the business ofanother" - the principal's (and arguably theSuperintendent's own interests) and as such provides agood example of circumstances where "... the relevantparticular conduct [has a] ... trading or commercialcharacter" .

In a similar vein, it has already been noted thatsilence may (if certain pre-conditions are satisfied)constitute misleading and deceptive conduct. Mostrecently in Yates Property Corporation Pty Ltd vBoland169

,

Branson J ruled that the significance of silence as possiblemisleading and deceptive conduct depended on the"context, which mayor may not include facts giving riseto a reasonable expectation, in the circumstances of thecase, that if particular matters existed they will bedisclosed" .170

In the context of a construction project, suchreasonable expectation may arise by nature of theconstruction project itself or may be given express forceby the terms of the contract between contractor andprincipal or the project management agreement betweenprincipal and consultant.

For example, if there is an express obligation on thesuperintendent to advise the contractor "promptly" of anychange in the character of the works, or of the revision ofdrawings etc and it fails to do so, remaining silent whilethe contractor continues to perform its work under thecontract may constitute misleading conduct and mayultimately afford the contractor a right of recovery, if it isotherwise not entitled to recover these additional costsunder the contract.

The next caveat is what was said in the JiawanHoldings case17l

, to the effect that it was doubtful whetherit could be misleading or deceptive conduct to perform acontractual obligation in the precise terms in which it wasagreed that obligation would be performed. In the writer'sview, however, that statement, while no doubt correct in

ACLN - Issue #65

the context of the facts for consideration before his Honour,should not, with respect, be adopted as a statement ofgeneral principle, as each circumstance must be viewedin its own factual matrix.

This does raise the important question, however, ofwhether the issue of the certificate by the superintendentin reality has the potential to mislead or deceive.

This issue recently arose in another context in thecase of Yates v Property Corporation Pty Limited v Boland& Orsl72

, in which the Federal Court made it clear that aclaim for misleading or deceptive conduct (in that caseunder Section 42 of the Fair Trading Act 1987 (NSW)),was not an automatic statutory alternative to everycommon law claim alleging professional negligence. Inthat case, a developer brought proceedings against its legalrepresentatives for allegedly failing to provide properadvice in a proceeding for compensation, following theresumption of land.

The Federal Court found that negligence had notbeen established against the legal representatives, whoseviews on the law were reasonably open to them. Thisfinding resulted in a conclusion that the applicant failedto establish that the conduct had any potential to misleador deceive. 173 The Court further commented that, even ifits views concerning negligence were otherwise, theauthorities do not support the argument that professionalnegligence necessarily involves conduct that is misleadingor deceptive, particularly where the conduct is inadvertentand constituted by the negligent failure to act or advise incertain ways.174 These same principles may be sought tobe relied upon by the superintendent in resisting a TPAclaim arising out of negligent certification.

It will be recalled that in the Western Mail Securitiescasel75, French J considered that there could be a seriousquestion as to whether the issue of a certificate by thearchitect would be characterised as conduct incontravention of Section 52 of the TPA and that furtherdifficulties arise where the Section 52 conduct is said tobe constituted by what is an evaluative judgment on factswhich are plain for all to see. The writer has sought todemonstrate possible circumstances where the conductcould be so categorised but the second point raised by HisHonour is worthy of further consideration.

The reality is that in most instances where asuperintendent certifies a claim, the parties affected by itsdecision will no doubt have carried out their owncalculations and will have formed their own view as totheir correct entitlement.

If in fact the superintendent errs in its calculation ofdays, time, money, etc, it may be difficult for either thecontractor or the principal to allege that it was misled.After all, the superintendent is making an "evaluativejudgment" which the parties are free to disagree with. 176

However, this may not be a complete answer. InAustralian Development Corporation Pty Ltd v WhiteConstructions (ACF) Pty Ltd & Orsl77 , it was said ofSection 52:

38

"What is proscribed is conduct, and it is theconduct constituted by making the representationwhich must be considered. Unquestioningacceptance of the truth of a representation is notnecessary in order that conduct constituted by themaking of the representation be misleading ordeceptive, still less that it be likely to mislead ordeceive. It may be enough that the representee iscaused to act by the making of the representationalthough without positive beliefin the truth thereof

"178

These principles may apply to the case of acontractor who, though unsure of the correctness of thesuperintendent's determination, nonetheless, is compelledto act in response to the certificate, either by invoking thedispute resolution procedures or otherwise complying withthe certificate to its detriment.

Assuming all of these obstacles can be overcome,the parties may still face a problem in terms of causation.Cases such as Kaze Constructions179 may have relevancein relation to a potential TPA claim, by a contractor, whichalleges that it has suffered monetary loss as a result of asuperintendent's certification. This is because it may beargued that its loss flows from the principal's reliance onthe architect's certification rather than the contractor's ownreliance. Once again, this will depend on the terms of thecontract. 180

Finally, mention should be made of a recent overseasdecision in the case of Balfour Beaty Civil EngineeringLtd v Docklands Light Railways Ltd. 181

In that case the parties entered into a standard formconstruction contract but omitted the clause dealing withthe settlement of disputes and the requirement for recourseto arbitration.

The Court held that it did not have a general powerto open up, review and revise decisions of the employerand that there were no special circumstances justifyinginterference.

The Court said that only where a breach of theemployer's duty to act honestly, fairly and reasonably inarriving at its judgment, would the contractor be entitledto a remedy under the contract.

Ironically, while the case has been criticised in somequarters on the basis that the striking out of the arbitrationclause had the unintended consequence of rendering thejudgments of one party under the contract incapable ofchallenge in any forum, such a scenario would create anappropriate environment for the aggrieved party todemonstrate that the cause of its loss was that party'sdetermination and proceed immediately with a Section 52claim.

Such a claim could itself be brought in arbitralproceedings. In the recent decision of the NSW Court ofAppeal in Francis Travel Marketing Pty Limited v VirginAtlantic Airways Limitedl82

, the Court said that it wasconsistent with the modern policy of encouragement ofvarious forms of alternative dispute resolution, includingarbitration that the Courts should facilitate agreements forthe resolution of all forms of disputes, including disputesinvolving claims under statutes including the TPA.183

ACLN - Issue #65

ConclusionThe writer has summarised the conclusions in

relation to each of the different causes of action consideredin the body of this article.

As a general overview, while the law in the arealends itself to a number of potential claims against thesuperintendent in its role as certifier, in practice, many ofthe factors which would be necessary for a contractor orprincipal to succeed may not exist in the particular case.

Moreover, in the absence of a limitation problem(which seems unlikely to arise in this context), it is difficultto envisage that there would be many instances in whichan employer would feel the need to resort to pleading eithera tortious or TPA claim, when contractual remedies areavailable.

The same could equally be said of a contractor, whowill normally be able to avail itself of its rights against theprincipal or utilise the dispute resolution proceduresapplicable under the contract.

Notwithstanding this, the superintendent would beill-advised to assume that it will be immune from suchaction, particularly in circumstances where one or otherof the parties to the building contract goes into liquidationowing monies to the other. In particular, it is likely thatthere will be an increase in the number of claims broughtagainst the superintendent pursuant to the TPA, given thatthe conduct sought to be impugned will be judged at thetime it occurs, rather than by reference to the antecedentcontractual structure, which may otherwise precluderecovery on a tortious basis.

The prospect of being "shot at by both sides"remains a real possibility. 0

39

Footnotes1. Jackson v Barry Railway Co [1893] 1 Ch 238 at 245,

247 per Bowen LJ.2. See Dorter and Sharkey "Building and Construction

Contracts in Australia" [1990] Vol 1 at p3511.3. Ibid at p3512/1.4. See for e.g. Wessex Regional Health Authority v HLM

Design & Ors (1994) 40 ConLRl. See also Lubenhamv South Pembrokeshire District Council [1986] BLR39.

5. [1969] 2 NSWR 530.6. [1974] AC 727.7. Arenson v Arenson [1973] Ch 346 at 370 per Buckley

LJ.8. [1974] AC 727.9. Ibid at pp744-753.10. See Perini Corporation v Commonwealth ofAustralia

[1969] 2 NSWR 530.11. (1992) 7 WAR 549 at 554.12. [1969] 2 NSWR 530.13. Pacific Associates Inc v Baxter [1990] 1 QB 993 at

1029 per Ralph Gibson LJ.14. In effect, clause 23 codifies the law as decided by

Macfarlan J in Perini Corporation v Commonwealthof Australia in respect of the duties of thesuperintendent in that case.

15. [1990] 1 QB 993.16. Clause 20.17. "Comparative Analysis of AS4000 with AS2124-

1992" (1997) 13 BCL 74.18. (1995) 182 CLR 609.19. (1986) 31 DLR (4th) 481.20. Ibid at pp521-522.21. (1984) 3 NSWLR 397.22. [1993] 1 VR 27.23. (1963) 110 CLR 74.24. [1983] 1 VR 573.25. BG Checo International Ltd v British Colombia Hydro

and Power Authority [1993] ISCR 12.26. (1963) 110 CLR 74.27. Ibid at p84 (see also the dicta of Windeyer J at p603

in Florida Hotels Pty Ltd v Mayo (1965) 113 CLR588, which confirmed this approach).

28. [1996] ANZ CONY R 88.29. (1997) 13 BCL 235.30. (1992) 175 CLR 479.31. (1989) 18 NSWLR 642.32. Ibid at p652.33. (1993) Aust Torts R 62-044, and on appeal Sheldon v

McBeath (1993) Aust Torts R62,069.34. Ibid at pp 62,056 - 62,057.35. See Greater Nottinghamshire Co-Operative Society

Ltd v Cementation Piling and Foundations Ltd[1989] QB 71 at 1069; X (minors) v Bedford-ShoreCC [1995] 2 AC 633 at 739; Henderson v MerretSyndicates Ltd [1994] 3 All ER 506 at 532; Tai HingCotton Mills Ltd v Liu Chong Hing Bank [1986]AC 80 at 107.

36. (1995) 77 BLR 51.37. Ibid at p73.38. (1994) 10 BCL 214.39. Ibid at p230.40. Ibid at p250.41. It seems likely that in Australia, economic loss (hence

damage) will only be sustained when the defect or

ACLN - Issue #65 40

inadequacy for the loss is first known or manifest: e.g. 76. Ibid at p1011.Sutherland Shire Council v Heyman (1985) 157 CLR 77. Ibid at p1020.424 at 505; Bryan v Maloney (1995) 182 CLR 609. 78. Ibid at pp1022-1023.

42. (1993) Aust Torts R 62-044. 79. Ibid at p1023.43. (1994) 40 CON LR 1. 80. Ibid at p1029.44. [1983] 1 All ER 65. 81. Ibid at p1037.45. [1990] 1 All ER 568. 82. Ibid at p1038.46. Wessex Regional Health Authority v HLM Design Ltd 83. (1995) 11 BCL 74.

(1994) 40 CON LR1 at pp33-34. 84. [1990] 1 QB 993.47. Ibid at p33. 85. (1992) 11 BCL 74 at p148. See also the decision of48. Ibid at pp33-34. the Supreme Court of Canada in Edgeworth49. Ibid at pp12-13. Construction Ltd v ND Lea & Associates Ltd (1991)50. (1997) 13 BCL 262. 54 BLR 11, in which Pacific Associates v Baxter was51. Ibid at p272. distinguished, the court holding that an engineer's52. Ibid at pp273-274. drawing was, by virtue of both its presentation and53. Wessex Regional Health Authority v HLM Design publication, sufficient statement to ground a negligent

(1994) 40 Con LR 1. misrepresentation.54. BG Checo International Ltd v British Columbia Hydro 86. [1990] 1 QB 993.

& Power Authority (1993) 1 CSR 12. 87. (1989) 47 BLR 13.55. Bryan v Maloney (1995) 182 CLR 609; John 88. Ibid at p151.

Holland Construction & Engineering Pty Ltd v 89. (1997) 13 BeL 235.Kvaerner RJ Brown Pty Ltd (1997) 13 BCL 262. 90. (1993) 9 BCL 259.

56. Lancashire and Cheshire Association of Baptist 91. Ibid at p263.Churches Inc v Howard & Seddon Partnership (afirm) 92. Ibid at pp263-264.[1993] 3 All ER 567; Pullen v Gutteridge Haskins & 93. [1993] 2 TASR 122.Davey Pty Ltd [1993] 1 VR 27. 94. (1997) 13 BCL 235.

57. (1997) 13 BCL 262. 95. Ibid at p236.58. In this regard, see also William Hill Organisation Ltd 96. Ibid at p240.

v Bernard Sunley & Sons Ltd (1983) 22 BLR 1 at p29. 97. Ibid.59. See P Mead "The Recovery of Economic Loss arising 98. (1995) 182 CLR 609.

from defective structures" (1996) 12 BCL 9. 99. (1997) 13 BCL 235 at p240.60. Hedley Byrne & Co Ltd vHeller & Partners Ltd [1964] 100. Ibid at p241.

AC 465. 101. Ibid at p242.61. Murphy vBrentwoodDistrict Council [1991] 1AC 398. 102. Ibid at p243.62. See Henderson v Merrett Syndicates [1994] 3 All ER 103. [1990] 1 QB 993.

506. 104. (1997) 13 BCL 235 at p244.63. See Edgeworth Construction Ltd v N.D Lea & 105. Ibid at p246.

Associates (1993) 66 BLR 56. 106. Ibid.64. See generally, Sutherland Shire Council v Heyman 107. (1995) 182 CLR 609.

(1985) 157 CLR 424 at 443-449,466-468,501-502; 108. John Holland Construction & Engineering Pty LtdHawkins v Clayton (1988) 164 CLR 539 at 576. See v Majorca Projects Pty Ltd and Bruce Hendersonalso San Sebastian Pty Ltd v Minister Administering Pty Ltd (1997) 13 BCL 235 at p246.the Environmental Planning Act (1986) 162 CLR 340, 109. Ibid at p246.where the High Court identified the difficulty in 110. Ibid.deciding whether a sufficient relationship of proximity 111. [1990] 1 QB 993.exists to enable a plaintiff to recover economic loss in 112. Ibid.situations outside the realm ofnegligent mis-statement 113. Ibid at p1026.where the element of reliance may not be present. 114. Ibid at p1034.

65. See Hill (tlas RF Hill & Associates) v Van Erp (1996- 115. Ibid.97) 142 ALR 687; Northern Sandblasting Pty Ltd v 116. (1997) 13 BCL 235 at p246.Harris (1997) 146 ALR 572. 117. (1994) 40 CON LR 1.

66. See John Holland Construction & Engineering Pty Ltd 118. Ibid at p32.v Majorca Projects Pty Ltd; Bruce Henderson Pty Ltd 119. (1995), London; Sweet & Maxwell at p176.(1997) 13 BCL 235. 120. Ibid at p176.

67. John Holland Construction & Engineering Pty Ltd v 121. Pacific Associates Ltd v Baxter [1990] 1 QB 993.Majorca Projects Pty Ltd; Bruce Henderson Pty Ltd 122. Ibid.(1997) 13 BCL 235. 123. See for example John Holland Construction &

68. Ibid. Engineering Pty Ltd v Majorca Projects (1997) 13 BCL69. (1995) 11 BCL 74. 235.70. (1986) 33 BLR 39. 124. Ibid.71. Ibid at p42. 125. Wessex Regional Health Authority v HLM Design Ltd72. Ibid at p58. & Ors (1994) 40 CON LR 5.73. (1987) 13 CON LR 68. 126. See the differing views of their Lordships in Pacific74. Ibid at p78. Associates v Baxter [1990] 1 QB 993 at pp1026, 103475. [1990] 1 QB 993. and 1036.

ACLN - Issue #65

127. Hudson's Building and Engineering Contracts (1995),London; Sweet & Maxwell at p178.

128. Ibid at p179.129. (1986) 33 BLR 39.130. Ibid at p45.131. Ibid. 160.132. (1992) 62 BLR 126. 161.133. Ibid at p127. 162.134. Ibid. 163.135. Ibid at p142. 164.136. Ibid.137. (1997) 13 BCL 235.138. Ibid. 165.139. For a statutory "equivalent" of such a claim, see White 166.

Industries Ltd v Trammel & Ors (1983) 51 ALR 779, 167.in which the applicant had claimed that the respondent 168.employees of the superintendent had engaged in 169.conduct that hindered or prevented the supply of 170."services" by the proprietor to the builder in 171.contravention of Section 45D(1)(b)(i) of the Trade 172.Practices Act 1974 (Cth). The court in dismissing the 173.strike out application held that although the Section 174.45D claim was made, it manifestly admitted ofreasonable argument and was not so clearly untenablethat it could not possibly succeed.

140. Liability may also be based upon the equivalentsections of the respective States' Fair Trading Acts.

141. (1990) 169 CLR 594.142. Ibid at pp603-4. See also Barto v GPR Management

Services Pty Ltd (1992) ATPR 41-162, where it was 175.held by Wilcox J that conduct which is trading orcommercial in character will fall within Section 52 176.if it is encompassed within the corporation's totalactivities, even though the particular conduct doesnot directly yield income.

143. The Credit Tribunal: exparte GMAC (1977) 137 CLR 177.545. 178.

144. See also Henjo Investments Pty Ltd v Collins 179Marrickville Pty Ltd (1988) 79 ALR 83; Rhone- 180.Poulenc Agrochimre SA v VIM Chemical Services PtyLtd (1986) 68 ALR 77 and most recently YatesCorporation Pty Ltd v Boland (1997) 145 ALR 169;Software Integrators Pty Ltd v Roadrunner CouriersPty Ltd (1997) ATPR (Digest) 46-177.

145. (1983) ATPR 40-338.146. (1985) ATPR 40-565.147. (1987) ATPR 40-771.148. Section 74(2).149. See Kenny & Good Pty Limited & anor v MGICA

Limited (1997) ATPR 41-576.150. See Yorke v Ross Lucas Pty Ltd (1985) 158 CLR 661.151. Section 82. See Wardley Australia Ltd v Western

Australia (1992) ATPR 41-189.152. Western Mail Securities Pty Ltd v Forest Plaza

Developments Pty Ltd and Anor (1987) 3 BCL 360; 181.see also Australian Protective Electronics Pty Ltd 182.v Palsflow Pty Ltd (1996) ATPR 41-524.

153. (1987) 3 BCL 360.154. Ibid at pp365-366. 183.155. (1994) 10 BCL 63.156. (1994) 10 BCL 115.157. (1984) 2 FCR 82.158. (1994) 10 BCL 214.159. Query whether this statement is correct as a general

principle. This would certainly be no answer to a claim

41

by a third party who was misled. Even in respect ofthe party which engaged the architect, the conductcomplained of would surely have to be viewed havingregard to the particular surrounding facts andcircumstances.(1994) 10 BCL 214 at p21.(1993) 9 BCL 292.(1987) ATPR 40-771.See Presta v Aknar [1996] ATPR (Digest) 46-157.(1996) 40 NSWLR 165 at p184 (an application forleave to appeal to the New South Wales Court ofAppeal was dismissed).(1997) 145 ALR 169.(1997) ATPR 41-461.(1994) ATPR (Digest) 46-130.Ibid at p53, 631.(1997) 145 ALR 169.Ibid.(1994) 10 BCL 214.(1997) ATPR (Digest) 46-173.Ibid at p54, 396.Ibid. See also Morling J of the Federal Court ofAustralia in Gloria v Western Australia Chip & PaperPulp Co Pty Ltd (1984) 55 FLR 310, where, at 328,His Honour expressed the view that a professionalopinion will not constitute "misleading or deceptiveconduct" if it is an opinion honestly held on rationalgrounds and after applying the relevant expertise tothe subject matter.Western Mail Securities Pty Ltd v Forest PlazaDevelopments Pty Ltd (1987) 3 BCL 360.Query whether this is the case where a special degreeof expertise is applied by the superintendent such thatthe parties are unlikely themselves to be aware of anyerror.(1996) 12 BCL 317.Ibid at p369.(1990) 6 BCL 53.The point is well illustrated by the case of PacificAssociates v Baxter (1990) 1 QB 993.

Although not concerned with the TPA, this problemof causation was highlighted by the decision inLubenham Fidelities & Investments Co Ltd v SouthPembrokeshire District Council & Anor (1986) 33BLR 46 considered previously.

Similar considerations arose in P. & E. Phontos PtyLtd v McConnel Smith & Johnson Pty Ltd (1993) 9BCL 259. To the extent that reliance is an elementboth in an action in Section 52 under the TradePractices Act and as the basis for founding sufficientproximity to give rise to a duty of care in tort, the caseis instructive.(1996) 78 BLR 42.Unreported decision of Gleeson CJ, Meagher JA,Sheller JA of the Supreme Court of New South WalesCourt of Appeal given on 7 May 1996.See in this regard IBM Australia Ltd v NationalDistribution Services Ltd (1991) 22 NSWLR 466 at475-577 per Kirby P and Allergen Pharmaceutical Incv Bausch & Lomb Inc (1985) ATPR 40-636. 0