80 The duality in the role of superintendent is well recognised. In a typical case, the superintendent has a relationship with the principal which requires the superintendent to promote the principal's interests. At the same time, the contract envisages that the superintendent will, as part of his or her retainer by the principal, perform certain functions which define the respective rights and obligations of the principal and the contractor. There is a clear expectation on both sides that those functions will be performed fairly and with a due measure of impartiality in order to give proper effect to the contract. This tension is examined and discussed by Mr J.B. Dorter in his article "The Superintendent", (1985) BCL 230. The position was described by Lord Morris of Borth-y-Gest in Sutcliffe v Thackrah [1974] AC 727 as follows:
"Being employed by and paid by the owner he unquestionably has in diverse ways to look after the interests of the owner. In doing so he must be fair and he must be honest. He is not employed by the owner to be unfair to the contractor. If work to a certain specification is to be done under the contract there is neither unfairness nor partisanship in ensuring that the work is properly carried out. It would be unfair to the owner to permit work that is inferior to the contract terms: it would be unfair to a contractor to require work that is superior to the contract terms."
81 As the passage from the Perini case shows, the superintendent may be an employee of the principal. Mr Rudge SC made the point that, in that common situation, the superintendent, as an employee, will always be the agent of the principal. But it is, to my mind, important to remember two things: first, that an employee, while no doubt having some authority as the employer's agent, is virtually never constituted the employer's agent in any fully comprehensive way; and, second, that employees are often charged, as an incident of the employment, with duties which involve their exercising some skill or function in an independent way and not as the employer's agent. Typical examples are employees who act as internal auditors and internal lawyers for corporations. Such employees are valued by their employers for the independence of thought and action they bring to bear upon the tasks they perform in the course of the employment. The position of solicitor employees in this State is the subject of specific treatment in rule 4 of the Revised Professional Conduct and Practice Rules made under s. 57B of the Legal Profession Act 1987:
"A practitioner, who is employed by a corporation (not being a solicitor corporation) or by any other person who is not a practitioner, must not, despite any contrary direction from the practitioner's employer, act as a practitioner in the performance of any legal work in breach of any of the provisions of the Legal Profession Act 1987 or these Rules."
82 The same is even more clearly so, it seems to me, in the case of architects in private practice who are retained by clients to perform the dual function of designing buildings and otherwise providing professional services solely in those clients' interests and then exercising a superintendency function at the construction stage when the clients' interests are still being furthered but, in some areas, by the application of professional judgment and skill in an independent way. Such an architect may be an agent of his or her client to some extent but will also, virtually by definition, bring to bear a professional skill a hallmark of which is independence of action and independence of judgment.
83 In the present case, the superintendent did not possess any professional or other personal characteristic of the kind that might be possessed by an internal auditor, an employed lawyer or a practising architect. It is a corporation the only skills of which are the product of the skills of the individuals whose services it obtains through having those individuals as its directors, servants and contractors. While, within any corporation, some such individuals may have attributes of the kind discussed in relation to auditors, lawyers and architects, it is not really possible for the corporation itself to be viewed in that way.
84 Any argument as to whether, in the abstract, the superintendent may or may not (or should or should not) be an agent of the principal and, if so, what the parameters of the agency may properly be is an arid argument. The key consideration, to my mind, is one identified by Starke J in Dixon v South Australian Railways Commissioner (1923) 34 CLR 71. After referring to the role played by the engineer in relation to a particular contract - a twofold role as on officer of the principal "bound, as a matter of duty, to supervise the execution of the contract in the interests of the Commissioner" and as "a certifier, or 'preventer of disputes'" - Starke J made this telling point:
"Both the parties contract on this basis, and rely on the engineer's 'professional honour, his position, his intelligence' … [and] they rely also upon the fact that he is a distinguished officer in the Public service of the State of South Australia, and therefore by no means so dependent upon the railways Commissioner for his position and pay as is the engineer usually employed by the ordinary building contractor."
85 Starke J continued:
"In this case, much turns, in my opinion, upon the fact, that (to use the words of Collins MR in Cross v Leeds Corporation (1902) 2 Huds.B.C. (4th ed.) at p.341) 'the parties have not agreed - that is the plain English of it - for an impartial' certifier or 'arbitrator, because the person whom they have agreed upon as' certifier or 'arbitrator is one who it may be presupposed may have formed … an adverse opinion'".
86 These extracts emphasise the vital significance of the basis on which the parties contract. In the process of contract formation, each of the principal and the contractor forms an opinion as to the suitability and acceptability, from its own selfish viewpoint, of the person proposed to be the superintendent. The parties contract on the basis of some common understanding of the quality of that person. More accurately, perhaps, the principal makes a choice to suit its own needs and, in effect, proposes the chosen person to the contractor which then makes its own assessment of the suitability and acceptability of that person as part of its decision whether or not to take on the assignment.
87 In the present case, the context in which Abigroup made its decision to contract was one in which Peninsula knew, but Abigroup did not, that the party proposed as superintendent was, by contract, constituted the agent of Peninsula in all matters related to the project. Abigroup had investigated other links between Peninsula and the proposed agent. Indeed, it had done so "quite extensively". It had no knowledge of the agency link the nature of which will be mentioned in greater detail presently.
88 This leads to the question of the extent to which silence on a particular matter may be misleading and deceptive conduct within s.52. A useful starting point is the following observation by Black CJ in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31:
"To speak of 'mere silence' or of a duty of disclosure can divert attention from that primary question. Although 'mere silence' is a convenient way of describing some fact situations, there is in truth no such as 'mere silence' because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed."
89 As Davies and Einfeld JJ noted in General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164, the statement by Black CJ reflects the words of Higginbotham CJ in Curwen v Yan Yean Land Co Ltd (1891) 17 VLR 745:
"… concealment of a fact may cause the true representation of another fact to be misleading, and may thus become a substantive misrepresentation."
90 As is recognised in these and other judicial statements (see, for example, those of Hill J in Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 and those of Handley JA, with whom Sheller and Stein JJA agreed, in Australian Development Corporation Pty Ltd v White Constructions Ltd [2001] NSWCA 9), the thing which makes silence unacceptable is the existence of surrounding circumstances giving rise to a rational expectation that information of some kind will be volunteered. The cases make it plain that the relevant notion is not one of a legal duty to warn; also that ordinary commercial negotiation and the driving of hard bargains are not qualified by some overriding duty to be solicitous of the welfare of one's counterparty: Lam v Austinel Investments Pty Ltd (1990) 97 FLR 458. The quality and effect of silence are to be judged wholly by reference to the nature of the surrounding circumstances. The relationship between the parties, actual or potential, will be a relevant circumstance. This was confirmed by Black CJ and von Doussa and Cooper JJ in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 where the fact that persons disseminating information were directors of a company and that the recipients were the company's members coloured significantly expectations as to what they should say.
91 In the present case, there did not exist between Peninsula and Abigroup any relationship of reliance or of a fiduciary nature of the kind involved in Fraser v NRMA. But neither, I suggest, did the principal enjoy complete freedom of action in what it said and did not say about the proposed superintendent when the contract was in the process of negotiation and formation. The contract, as it developed, envisaged particular roles for the superintendent. In line with common practice, those roles involved some independence and objectivity in the making of assessments and judgments. Implicit in the role was, of necessity, an assumption that the superintendent, although retained and paid by the principal, would be allowed by the principal the degree of freedom necessary to allow it to bring to bear the contemplated degree of independence and objectivity. It follows, as I see it, that the existence of any circumstance cutting across that assumption and known only to the principal should have been the subject of an expectation of disclosure to the contractor.
92 Silence in circumstances where an expectation of statement exists cannot be caught by s.52 unless the expected statement has some relevant quality of materiality. This is confirmed by the following passage in the joint judgment in Fraser v NRMA Holdings (above):
"Whilst s.52 does not by its terms impose an independent duty of disclosure which would require a corporation or its directors to give any particular information to members asked to consider a motion in general meeting, where information for that purpose is promulgated, unless the information given constitutes a full and fair disclosure of all facts which are material to enable the members to make a properly informed decision, the combination of what is said and what is left unsaid may, depending on the full circumstances, be likely to mislead or deceive the membership."
93 The applicable concept of materiality is, in my view, the one which has long been applied in relation to positive disclosure requirements. The position was stated thus by Farwell J (with whom the Court of Appeal agreed) in Cackett v Keswick [1902] 2 Ch 456:
"The test must be, Is the omission material? And if the Court sees that the fact omitted is of such a nature that it might reasonably deter, or tend to deter, the ordinary investor from entering into the contract, that is sufficient."
94 The capacity of the undisclosed matter to affect conduct is therefore the distinguishing feature. The reference by Farwell J to "the ordinary investor" should be taken, in the present context, as a reference to the "ordinary" contractor - that is, a reasonable contractor acting rationally. This makes it necessary to look at the quality of the undisclosed matter in this case.
95 When Abigroup entered into the contract, it was unaware of the terms of an agreement dated 28 May 1997 between Peninsula (then named Waterview Properties Pty Ltd) and East Asia which became the superintendent. The agreement is entitled "Agreement for the Provision of Project Management Services". This is the agreement referred to in item 5 of Abigroup's submissions to the referee as the "Undisclosed Agency Agreement". In particular, Abigroup was unaware of the existence of clause 2.2:
"The Principal ['Abigroup'] authorises the Project Manager [i.e. East Asia] to act as the Principal's Agent in all matters relating to the design and construction of the Project."