Court held architect's interim certificate admissible as evidence of work done but not conclusive on quality or cost.

[*187] 1976 April 12

(STAVRINAKIS, P.D.C. & ORPHANIDES, S.D.J.)

IN THE DISTRICT COURT OP NICOSIA

Olimpiaki Eteria Ikodomon ke metallikon Kataskevon,

Plaintiffs,

and

Takis Ioannides,

Defendant.

(Action No.611 6/73).

Contract - Building contract - Architect's certificate issued thereunder - Nature and effect - Admissibility in evidence.

Evidence - Building contract - Architect's certificate - Admissibility.

A. Paikkos, for the Plaintiffs.

M. Christophides, for the Defendant.

RULING

The ruling of the Court was delivered by:-

STAVRINAKIS. P.D.C.: This is the ruling of the Court regarding the admissibility of a certificate issued by an architect under the terms of a building contract between the parties in this action.

The plaintiffs are building contractors claiming against the defendant:-

(a) £1606.820 mils representing extra work and increase in the labour cost. [*188]

(b) £720.- representing 2% retention money payable at the final delivery of the building.

It is the allegation of the plaintiffs that this amount was certified by the architect named in the contract and that his certificate is binding and conclusive on the parties.

The defendant (hereinafter to be referred to as the employer), disputes the claim of the plaintiffs and counterclaims for a very large sum of money by way of damages for non-compliance with the terms of the contract.

On the 27th February, 1976, when the case was fixed for hearing, learned counsel for the plaintiffs stated that a certificate issued by the architect, covering the sum claimed in the action, is binding and conclusive and that the other side is precluded from proving the issues raised in his defence and counterclaim. The defendant’s counsel expressed the view that the certificate is inadmissible. For want of time, and because the counsel needed some time to prepare their arguments regarding the admissibility of this important document, the case was adjourned to the 23rd March, 1976. On that day, both counsel addressed the Court on this issue.

Grounds of objection:

The objections taken against the production of this certificate which, for purposes of identification, was produced and marked A., are in substance two: The first [*189] ground is that the certifying architect was dismissed by the employer before he issued the certificate and the second ground relates to the effect and conclusiveness of the certificate.

Ground No.1: Whether the architect had authority to issue the certificate:

In Hudson’s Building and Engineering Contracts, 9th ed., at p. 360, the following passage is of guiding importance:-

"In most building contracts, the certifier is named in the contract. Whether or not the employer has power to dismiss the certifier or appoint another, will depend upon the contractual provisions. Where he has no power, he will be bound by the certifier's certificates even after dismissal. Where the power does exist, the new architect will, as a necessary implication, take over (except in so far as they may have been discharged) the certifying powers of his predecessor and it is submitted that if the contract contemplates the issue of certificates as a condition of payment, then the contractor could require an employer who had taken no steps to do so to appoint a successor upon the death, dismissal or withdrawal of the architect".

At p. 362:-

"But where the contract identifies the certifier by description - as for instance 'the engineer ’for the time being of the employer’ or ’the engineer [*190] in charge of the work’ - or where the certifier is referred to by name, hut some such words are added as 'or other the engineer of the employer', the person answering the descritpion at the material time is the proper person to certify. What the material time is may occasionally give rise to difficulty, though in most cases it will be the time when the certificate is required to be issued by the contract."

Regarding the obligation of the employer to appoint an architect, going back at p. 230 et seq., we read the following:-

"Where work is to be done under the direction or to the satisfaction of a skilled person to be appointed by the employer, the appointment of that person is usually a condition precedent, unless waived, to the contractor's obligation to carry out the work …”

"In most modern contracts, the architect or engineer is often expressly defined in the contract documents as X or such other person as may be nominated by the employer or the employer's architect or engineer appointed from time to time. In such cases and where the architect or engineer is by its terms an essential part of the administrative machinery of the contract - as for instance in issuing certificates for interim payment or as to completion of the work to his satisfaction - it is submitted that if [*191] the architect or engineer dies or becomes seriously ill or is dismissed during the progress of the works, the employer is impliedly bound to appoint another within a reasonable time and a refusal to do so, unless waived, would be a breach going to the root of the contract, since the contract is unworkable in the absence of an architect or engineer. Where there is no such express term however an architect who has been dismissed may remain the only effective certifier under the contract".

From the above, it is clear that the contract has to be examined with a view to ascertaining the following:-

(a) Whether the employer had a duty to appoint an architect in the first place.

(b) Whether the employer had power to dismiss the architect.

(c) Whether upon dismissal of the architect the employer had a duty to appoint a successor.

(d) The powers of the successor and of the dismissed architect.

The contract consists of three documents, the agreement itself exhibit No.5, the specifications exhibit No. 6 and the terms of the contract exhibit No.7.

According to exhibit No.5, the building contracted to be built would have been under the supervision of a named [*192] architect, to wit Evgenios Avraam who prepared the plans and the specifications.

The term architect, as defined in exhibit No.7 (Article 1), "signifies the named architect or in case he ceases to be the architect under the contract, any other person appointed for the purpose ....... provided that no person so appointed to perform the duties of an architect by virtue of the present contract shall have the right to modify or cancel any decision or approval or direction made or expressed during the office of the originally appointed architect".

From the above, and in the absence of any express provision in the contract as to the powers of the employer to dismiss the architect, it may be safely inferred that the employer has no such power. It is to be noted that in cases where the office of the architect becomes vacant by reason of death or cessation of his services, the architect to be appointed in place of the outgoing one must have the approval of the contractor. This bears out the view that the employer cannot at will terminate the services of the architect who plays an important role in the execution of the contracted work and whose name is specifically mentioned in the contract.

The words "may have ceased to act" in the definition of the term "architect" cannot be construed as including dismissal by the employer. In our opinion, the way the term should be construed, regard being had to the contract as a [*193] whole, is that this part of the definition refers to withdrawal of the architect for reasons other than death or disolution of the company acting as architects and it certainly does not include unilateral dismissal by the employer.

The net result is that an architect was necessary, he could not he dismissed and if his office was vacated, it should have been filled up by the employer in the manner set out in Article 1 of exhibit No.7, within reasonable time. Consequently, the certificate issued by the architect for work and supervision carried out before his dismissal was issued with authority and even if the employer had the right to dismiss the architect, the latter would still be the appropriate person to issue certificates covering the material time and a new architect could not even modify or cancel any decision, approval or direction of the architect who ceases to act as such.

The question now is whether the certificate covers work done before his dismissal. The said certificate was, according to the date it bears, issued on the 7th October, 1972. The defendants, by their advocates' letter dated 22nd September, 1972, addressed to the architect with notification to the plaintiffs, exhibit No.3, terminated their legal relations with the architect on the ground of alleged breaches by the contractors contributed to by the architect himself.

However, the certificate was issued in response to a letter dated 4th October, 1972, exhibit No.8, sent to the

architect by the plaintiffs regarding work done well before [*194] the termination of the architect's services. In view of this, we

find that the architect had the right to issue the certificate regarding work performed at a time when he was the architect under the contract, even if the certificate was actually issued after the termination of his services.

Ground No.2: Effect and conclusiveness of certificate:

The primary consideration in determining the effect of the certificate is its nature. According to the certificate in question, the architect certified that the sum of £1,606.820 mils could be paid to the contractor regarding extra work done and labour expenses.

At the end, there is a note to the effect that there is a balance of £720.- representing 2% retention money until the final delivery takes place. Regarding this last mentioned item, the plaintiffs, by their letter dated 7th February, 1973, exhibit No.4, called upon the architect to issue a final certificate so, there can be no doubt that at least the certificate issued does not purport to be a final certification for this amount and this is made doubly clear from the architect's own letter dated 18th July, 1973, exhibit No.10 sent to the plaintiffs in reply to the latters' letter dated 7th February, 1973, wherein the architect stated that he cannot issue a final certificate by reason of breaches committed by the plaintiffs in the construction of the building.

With regard to the first amount in the certificate, the position is not so clear and in order to determine the effect of this part of the certificate, we must look into the [*195] legal position pertaining to the nature and effect of the various certificates issued under a building contract and ascertain the class into which that part of the certificate falls.

The certificates issued under building and engineering contracts are of various kinds. In Hudson (supra), the following three kinds are listed as the commonest (at p. 355):-

(a) Interim or progress certificates upon which periodical payments or advances to the contractor on account are made.

(b) Pinal certificates which usually are certificates both of satisfaction with the work and of the sum due to the contractor upon his final discharge of his obligations under the contract.

(c) Various other certificates (e.g. of completion, upon which the provisions as to payment of retention moneys, maintenance of the works or liquidated damages for delay may depend; or that the contractor is not duly proceeding with the work, upon which a special contractual right of determination by the employer may depend).

Regarding interim certificates, we read from Hudson's (supra) the following (page 367):-

"Provisions for interim or progress certificates are often inserted in building contracts for the [*196] benefit of the builder, to enable him to obtain payments on account during the progress of the work. As a rule, the payments contemplated by such provisions only represent the approximate value (or a proportion of it) of the work done or materials delivered at the date of payment, and, in the absence of express provision they are not conclusive or binding on either party, whether as an expression of satisfaction with the quality of the work or materials, or as a determination of its quantity or price. Such certificates, therefore, are subject to readjustment upon final certificate though they may be given binding effect as to the value of the work until the time for issue of the final certificate has arrived".

And at p. 368: -

"In the absence of an overriding arbitration clause, interim certificates will, generally, therefore, be a condition precedent to the builder's right to sue for payment during the currency of the work while, as already indicated, in no way evidencing satisfaction or approval of the work. But in modern contracts, provision is frequently made for disputes arising on such certificates to be referred to arbitration". [*197]

And at p. 369:-

"Once granted, an interim certificate creates a debt due and the contractor is entitled to immediate payment, subject to any right of the employer to set off or counterclaim, for example, for liquidated damages".

In Halsburys Laws of England, 4th ed. , Vol. 4, p. 615 para. 1207 under the heading "Payment of interim certificates", it is stated:-

"The terms of the contract will determine the time when the employer shall make payment on an interim certificate. In most cases an unliquidated crossclaim for defective work or delay arising out of the performance of a contract will provide an employer with a defence by way of equitable set off to a claim by a contractor. But as a matter of construction, the possibility of a defence by way of equitable set off may be excluded when the contractor is entitled to be paid on certificates. In such a case the employer has no defence and can only deduct sums permitted by the contract. It is now established, however, that the employer can raise mliquidated damages for delay or defective work as a defence to an Action brought on an interim certificate issued under the standard form of building contract". [*198]

In support of the last proposition, the case of Gilbert - Ash (Northern Ltd) v. Modern Engineering (Bristol Ltd.),

(1973) 3 All E.R.195 H.L. is given, where Dawnays Ltd. v. F. G. Minter Ltd. , (1971) 2 All E. R. 1389 was overruled. Viscount Dilhorne, in Gilbert's case (supra) at p. 205 had this to say:-

"prior to 1971 and the decision of the Court of Appeal in Dawnays Ltd. v. F,G. Minter Ltd. , it appears to have been generally thought that an employer was entitled to set off or counterclaim against the amount certified. In Halsbury's Laws of England, it is said:- “

"’ the contractor is entitled to immediate payment thereof (the amount certified) subject to the terms of the contract and any right of the employer to any set-off or counterclaim (for example, for liquidated damages)’”.

"Indeed, no scintilla of authority prior to the decision in the Dawnays' case can be found for the proposition that the amount certified by the architect in an interim certificate and the value of work done and consequently payable to the contractor is in a special position in that the employer cannot lawfully counterclaim and set off against the liability amounts due to him from the contractor”. [*199]

According to exhibit No.7 Article 13(θ), the only certificate which is binding and conclusive is the final one and such certificate is binding and conclusive not only regarding the quality of the work and of the materials, but also of their cost.

Regarding interim certificates, it is stated in para.(###) of Article

13 that no architect's certificate should in itself be evidence that any work or materials to which it refers are in compliance with the contract, except when upon the application of the contractor, the architect certifies that up to a certain date the work executed and the materials used are satisfactory.

Having considered the above terms of the contract in the light of the legal background as hereinabove set out, there is no doubt that the matters certified in the contract are not conclusively proved, precluding thus the defendant from counterclaiming for defective work or for damages. It is simply a certification that this amount is due by the defendant to the plaintiff but it is not a certification that the work was executed satisfactorily.

In the result, we rule that the document, although not conclusively proving that the work was done satisfactorily, yet it is admissible at least to show that work up to the amount certified therein was done. It might probably have other uses but we would not like, at this stage, to make any more comments as to its usefulness or weight before hearing the case as a whole.

Order accordingly.