Biased contract administrator builds case for constructive acceleration in recent Australian decision. By Brendan Cash, partner, and James France, solicitor, in Dentons Kensington Swan’s Major Projects and Construction team.
A contractor faced with both a denial of its (justified) extension of time claim, and an impending completion date, faces a ‘catch-22’.
Its options are to run late and pay liquidated damages, or to pay the cost of accelerating the works (whether through overtime, or additional labour or plant, etc) to try to finish on time. Some will choose to pay additional costs to accelerate the works, even though there is no express instruction to do so. Can a contractor recover that cost?
It is in this context that commentators have raised the possibility of claims by contractors for ‘constructive acceleration’ with increasing optimism and frequency. While the 2002 Society of Construction Law Delay and Disruption Protocol described constructive acceleration as ‘not currently a recognised concept under English Law’, the 2017 Protocol described the concept as only ‘rarely recognised’, which represents at least some sort of progress. The most promising avenues for contractors are to argue that the denial of the extension of time claim is a breach of contract by the principal, and that the acceleration costs are the result of that breach.
The presence of a third-party contract administrator (like the engineer under NZS 3910) makes this approach more complicated. The engineer fulfils a dual role – on some issues (like the giving of instructions), they are an agent of the principal. But when deciding the result of claims, they are, at least theoretically, acting in an independent capacity. How can the engineer’s independent denial of an extension claim be the principal’s breach? One answer is: when the engineer and principal have improperly colluded to deny the extension of time claims. That is the setting for V601 Developments v Probuild Constructions – a recent decision of the Supreme Court of Victoria which finds the contractor entitled to its acceleration costs.
Probuild, the Contractor, was able to point to no less than 33 counts of failure by the Engineer to act independently. It was able to tie these to the Principal, V601, because V601 had exerted a tight control over the Engineer that only increased as the project progressed and delays compounded. This included frequent meetings between the Engineer, V601, and the latter’s lawyers, to discuss how to best resist the extension claims, and V601’s lawyers reviewing and amending the Engineer’s draft assessments.
As the judge put it: ‘I am also comfortably satisfied that these and numerous other contemporaneous communications between V601, its lawyers …, [delay experts], and the [Engineer] show that the [Engineer] was part of a claims response team assembled by V601 … to develop and implement a strategy and apply tactics to delay and defeat and minimise Probuild’s entitlements to time extensions and associated delay damages. Further, the strategy involved enlisting [the Engineer], to develop and implement that strategy, as well as applying pressure on the [Engineer] to deal with the Contractor’s time extension and delay damages claims in a way that assisted V601 and served its commercial interests.
Further … the degree to which [the Engineer] was drawn into and enmeshed [with V601’s commercial approach] is significantly supported by the fact that [the Engineer], when confronted by Probuild during the Project with allegations that he lacked independence, then immediately sought advice from V601’s own lawyers.
The Court found that V601 had breached implied obligations not to interfere in the independence of the Engineer: “By procuring, encouraging and collaborating with the [Engineer] in respect of the [Engineer’s] … failures to comply with its contractual obligations and duties.”. The acceleration costs claimed by Probuild in effort to complete by the un-extended date were said to be a natural consequence of that breach of contract, and so recoverable as damages.
Similar facts would likely trigger a successful constructive acceleration claim in New Zealand, particularly in light of the manners in which NZS 3910 makes the principal expressly responsible for the actions of the engineer: 6.1.1 requires the principal to ensure the engineer fulfils its role reasonably and in good faith; and 7.1.2(c) and 7.1.3 requires the principal to indemnify the contractor for the acts or omissions of the engineer.
Circumstances as compelling as those confronted by Probuild will, hopefully, be rare. But this recent case reiterates that the engineer’s independence is not an empty intention: the principal and engineer should not become too involved in the functions of the other. The case serves as good warning to both and an illustration of how, in a worst-case scenario, a contractor might recover for the harm done by such actions.
In the vast majority of cases, an unjustifiable rejection of an extension claim will simply be a mistake by the Engineer, as opposed to wrongful collusion. Whatever the basis, good claims rely on good evidence, and so as always, contractors need to: Keep fulsome records; give notice in relation to all delays, acceleration attempts, and added costs – failure to do so may defeat many claims, not least of all a claim of constructive acceleration; and, if in doubt, talk to your legal advisor (but engineers should refrain from consulting the principal’s …).
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