In a recent High Court decision (G Mullany v TJ Brown & Another), the court had to consider the meaning of PC sum. This was, in fact, an appeal from a District Court decision.
The facts of this case were as follows:
The house owner (Mullany) and the project manager (Brown) entered into a construction contract for the completion of a house at 212 Schnapper Rock Road, Albany, North Shore.
The contract contained specifications and materials, and also detailed work to be undertaken, together with a breakdown of the contract costs.
There was a project management fee of $18,000 plus GST.
It was a maximum cost contract, being $333,750, based upon the approved drawings, the construction cost breakdown and specifications annexed to the contract. It included a PC sum of $49,000 for kitchen, bathroom fittings, electrical, tiling and excavation.
Should the client upgrade the specification or increase quantities then the maximum figure of $333,750 was to be increased.
There was a specific clause to the effect that should the costs of the contract exceed the maximum cost where no written variations had been issued, then these costs over and above the $333,750 would need to be met by the project manager.
There was an oral agreement between the parties that the owner was to purchase the items stated in the construction cost breakdown as “PC sums”, allocated as follows:
Laundry Included in bathroom
Tiling Allowed for in other items
Total $50,000 (I note this is $1000 higher than the figure set out above).
The house owner entered into an agreement for sale and purchase of the house prior to completion.
He then advised the project manager of a number of items he had agreed to supply in the house, to the purchaser. The purchaser visited the site and specified specific colours and changes to the interior.
The house was completed around 4 May 2006. The CCC was issued on 12 May 2006 and the agreement for sale and purchase settled on 17 May 2006.
The project manager brought a claim in the District Court seeking recovery of his project management fees and reimbursement for money paid on behalf of the owner, as well as seeking compensation for his time.
The project manager was successful in the District Court but the owner appealed to the High Court.
The District Court ruled that the PC sum clause in the contract was not subject to the clause that said the owner was only liable to pay costs over and above the maximum contract prices, where written variations had been issued.
At paragraph 79 of the District Court’s judgment, the judge stated:
“ The variation clause is clearly designed to protect the interest of the first plaintiff. It would be absurd and unjust for Mr Mullaney to be able to vary the terms of the project as he pleased when he admitted to having no project management experience in evidence, notwithstanding the wording of the agreement, while expecting Mr Brown to accept all risks relating to costs overrun when he had no effective control of the matters now in Mr Mullaney’s hands. The defendant cannot therefore now rely on the wording of the agreement to shift the responsibility for the increase in costs for PC items to Mr Brown.”
The critical issue on appeal concerns the meaning given to the term “PC sum”.
Justice Stevens held that both parties understood PC sum to mean sums which were estimates only, for items that could not be determined at the time of the contract being entered into.
He said this meaning of PC sum could be implied into the contract through custom as it met the 5-stage test.
He concluded that the maximum price payable under the contract was $333,750 including GST, plus any amounts above the estimated PC sums.
The owner, by his actions, caused the maximum price payable to increase by requiring the items to be supplied to be at a greater cost than the PC sums.
No doubt the demands of the purchaser impacted upon this, but the end result was that the cost of such items in excess of the PC sums could be recovered from the owner.
It was also ruled by the High Court judge that the requirement for all variations to be in writing had been waived by the owner.