In L3 Architects Sdn Bhd v PCP Construction Sdn Bhd and another appeal [2019] MLJU 972, the High Court considered the issue as to whether an architect owes a duty of care to the main contractor to ensure that payment certificates issued are accurate and valid.

In the said case, PCP Construction Sdn Bhd [Contractor] was the main contractor for a commercial building project. The employer of the project was Leap Modulation Sdn Bhd [Employer]. L3 Architects Sdn Bhd [Architect] was the appointed consultant architect.

The project adopted the PAM Form 1998 (With Quantities) [PAM Form].

The issue revolved around Interim Certificate No 19 [PC 19]. In PC 19, the Architect allowed a back-charge of RM750,000.00 being costs of rectification works without any supporting documentation. The sum of RM750,000.00 was assessed by the quantity surveyor of the project. Such allowance led to no payment being due under PC 19. The Contractor’s attempt to claim from the Employer vide adjudication proceedings failed by reason of such set-off.

The Contractor sued the Architect for allowing such a backcharge. The Sessions Court allowed the Contractor’s claim, resulting in the appeal to the High Court.

At the High Court, it was contended on behalf of the Architect as follows:

• The Architect did not owe a duty of care to the Contractor.
• The Contractor has not pursued its claim in a final dispute resolution forum (i.e. by arbitration), therefore any loss suffered by reason of adjudication proceedings would have been of temporary finality only. As at the present moment, the Contractor has not suffered an actual loss.
• In any event, PC 19 was interim in nature and therefore is always subject to a final account.

 

Whether the Architect owes a duty of care to the Contractor

The learned Aliza Sulaiman, JC (as she then was) firstly reviewed a plethora of cases on the subject of duty of care of the Architect. She then focused on the provisions of the PAM Form, and concluded that as PC 19 was merely “an estimation of the value of works done” as at a certain date, subject to adjustments at final account stage, it therefore “can never be considered as a final determination of such value of works”.

The fact is that under-certifications can ultimately be disputed by way of arbitration.

Therefore, the learned JC concluded that “architects…ought not to be liable for claims for pure economic loss in negligence where a contractual matrix exists between the Employer and the [Contractor] by way of the PAM Contract which has clearly defined the rights and liabilities of the parties concerned.”

In any event, no actual loss suffered

In any event, in the view of the learned JC, the Contractor has not suffered actual loss because the backcharge certified by the Architect has not yet been determined by way of final dispute resolution processes. Hence, any setback suffered by the Contractor would be temporary at worst.

Commentary

The Architect is entrusted with the obligation to certify due payments to the Contractor. The Contractor very much depends on the Architect’s certification to ensure its financial viability to complete the project. The existence of a negative certification is a severe setback to the Contractor in terms of pursuing payment vide a favourable adjudication decision. The fact that the Contractor has a final remedy in arbitration is not in fact helpful as the PAM Form does not permit arbitration until after practical completion of the project, and the arbitration process itself is extremely costly and time-consuming.

Nevertheless, until L3 Architects Sdn Bhd is overturned, it would appear that the Contractor should focus its payment recovery efforts solely on the Employer and leave the Architect well alone.

Query: Whilst L3 Architects Sdn Bhd had determined that the Architect does not owe a duty of care to the Contractor to ensure the accuracy of its certificates, could there at least be a duty of care not to act in bad faith? It would of course mean holding the Architect to a much lower standard than is expected of a professional, but at the very least there ought to be some form of potential liability to be imposed on the Architect to ensure, if not fairness, at the very least a measure of honesty.

Author: Chan Kheng Hoe ([email protected])