Arconstruct PL v Karalis - [2007] SADC 34

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
ARCONSTRUCT PL v KARALIS & ORS
[2007] SADC 34
Judgment of His Honour Judge Kitchen
30 March 2007
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS
ARCONSTRUCT PL v KARALIS & ORS
[2007] SADC 34

The plaintiff is a builder. In this action it sues the defendants to recover the sum of $247,776, plus damages in the amount of $2,760, allegedly due to it pursuant to a written contract (Exhibit B35) signed by Raymond John Carn (“Mr Carn”) for the plaintiff and by the defendants. Mr Carn is an Architect. He is a director of and effectively controls the plaintiff, and also Carn Byrne & Associates Pty Ltd which conducts the business of an Architect.
The contract is in the standard form (printed in February 1977) of a “cost-plus contract for building works” jointly issued by the Royal Australian Institute of Architects and Master Builders Federation of Australia Incorporated. By the terms of the contract, which is dated 30 August 1999, the plaintiff agreed to construct a residence for the defendants on land at 19 Morland Avenue, Stonyfell, in accordance with the drawings and specifications prepared by, and to the reasonable satisfaction of, Carn Byrne & Associates Pty Ltd, for a price equal to the actual cost (as defined) of constructing the residence plus a fee of 5% of that cost to “cover overheads and commission”. The contract provided a procedure for the plaintiff to obtain progress payments during the course of construction.
The plaintiff’s claim is that construction of the residence commenced in about August 1999, and progressed to lock-up stage in the month of December 1999 by which time the defendants had paid three progress claims totalling $164,057.00 submitted by the plaintiff, but the defendants then allegedly failed or refused to pay the fourth and fifth progress claims totalling $192,859 which the plaintiff had submitted on 30 November 1999 and 14 December 1999, whereupon the plaintiff made demand by notice pursuant to the Workers Liens Act 1893. The demand was not met, the plaintiff registered a lien over the Certificate of Title for the land and commenced these proceedings. Subsequently the plaintiff submitted a sixth and seventh progress claim on 29 March 2000 and 25 May 2000, respectively for $34,267 and $20,650. Those were not paid by the defendants and now form part of the plaintiff’s claim. The plaintiff also claims that on about 29 March 2000 the defendants changed the locks of the partially completed residence, thereby barring the plaintiff’s access to the residence and thus preventing the plaintiff from carrying out any further work on the residence; the plaintiff claims that those actions by the defendants were in breach of and a repudiation of the contract.
By way of defence the defendants allege that the procedure, pursuant to the contract, for the plaintiff’s entitlement to progress claims during the construction of the works required the Architect (Carn Byrne & Associates Pty Ltd) to determine what amount the builder was entitled to by way of a progress payment and issue a certificate accordingly, upon presentation of which to the defendants the plaintiff became entitled to payment of the amount certified within ten days.
The defendants’ case is that not only was the contractual procedure concerning certification of progress claims not followed, and therefore the plaintiff’s contractual claim cannot succeed, but also (and by way of counterclaim) because Mr Carn effectively controlled both the builder and Carn Byrne & Associates Pty Ltd and the defendants relied upon various representations allegedly made to them by Mr Carn concerning the efficacy, and appropriateness, for the defendants’ purposes of the form of the contract, the plaintiff, Carn Byrne & Associates Pty Ltd and Mr Carn engaged in misleading and deceptive conduct, or alternatively unconscionable conduct, in contravention of the Trade Practices Act and therefore the defendants are entitled to an order that the contract be set aside or avoided, that any contract with Carn Byrne & Associates Pty Ltd also be set aside or avoided, or that the defendants are entitled to an assessment of damages either at common law or pursuant to the Trade Practices Act. It is to advance those claims that the defendants joined Carn Byrne & Associates Pty Ltd and Mr Carn to their counterclaim against the plaintiff, in which they also seek damages for omissions from, or defects in, the works carried out by the plaintiff (identified in some fifty pages of a Scott Schedule), and allege a failure by Carn Byrne & Associates Pty Ltd (in breach of contract or a duty of care) to design a residence reasonably capable of being constructed for no more than $370,000 and to properly supervise the work. For its part Carn Byrne & Associates Pty Ltd claims from the defendants fees due to it for its services in the design and variations to the design of and specification for, the defendants’ residence.
This is but a summary of some of the issues between the parties.
These proceedings first came on for trial before His Honour Judge Bright commencing on 8 November 2004. One of the substantial claims by the defendants against the plaintiff concerned the plaintiff’s alleged failure, contrary to the specification, to incorporate damp-proofing in what is referred to as the sub-floor brick work.
The land on which the residence is constructed slopes to the west from the roadway. To accommodate the slope the footing construction is stepped. The residence is of two storeys, the ground floor of which is formed by a concrete platform supported on Bondek sheeting which spans between brick walls built on the concrete footings. The specification called for the bricks of the sub-floor walls to be set in mortar containing an additive to prevent salt damp rising into the brick work. The brick work mortar used in construction did not contain the additive, with the result the brick work is at risk of attack by salt damp with potentially serious consequences to the structural integrity of the building. That is the issue which became the focus of the trial once it was under way before Judge Bright.
On the eighth day of the trial before Judge Bright the plaintiff and the defendants reached a compromise of the dispute concerning the lack of damp-proofing. His Honour had heard evidence concerning two possible remedial means of damp-proofing the walls; the first required a viscourse damp-proof membrane to be set beneath the first layer of bricks and the top of the concrete footing; the second means required the injection of a liquid containing silicone into the mortar at intervals. The first is very labour-intensive, the second less so and for that reason cheaper.
His Honour, on 17 November 2004, made the following orders:
1.The (owners) are to have judgment against the (builder) for the reasonable cost of inserting a viscourse damp-proof membrane at the appropriate level into all walls and dwarf walls supporting the floor slab.
2.All other aspects of the claim by all parties against each other are adjourned to a date to be fixed, including the question of the reasonableness, or otherwise, of the costs referred to in paragraph 1.
3.The parties have liberty to apply in the event of there being a dispute as to the implementation of paragraph 1, or the lifting of the lien.
4.His Honour reserved the question of costs of the time spent in court during the last eight days.
5.Trial adjourned to a date to be fixed, with the parties having liberty to apply to have the matter brought back on before some other judge, or if the list works out that way, before Judge Bright.
His Honour retired on 30 June 2005.
When the trial resumed before me on 7 August 2006 the parties agreed that the evidence heard by His Honour, and the exhibits he received, be evidence before me.
Throughout the previous trial, and the present trial, the plaintiff and the Architect were represented by different counsel. Before me, counsel for the Architect stressed that his client was not a party to the compromise reached between the plaintiff and the defendants before Judge Bright, and that it is still a live issue between the Architect and the other parties whether the Architect is liable to the defendants for the omitted damp-proofing, and, if so, whether any and if so what, remedial work is necessary.
There were two other issues concerning the under-floor structure of the residence. The defendants claim that the plaintiff and the Architect are liable to them in damages for the cost to them of
(a)inserting a means to remedy the alleged omission of a slip joint at the bearing point of the Bondek sheeting on the supporting brick walls;
(b)a means of ventilating the under floor area of the structure made necessary by the alleged omission of an appropriate number of vents in the external walls of the under-floor area.
Neither of these issues was resolved by his Honour’s order.
I have earlier mentioned the Scott Schedule. The parties are agreed that the existence of, and the cost of remedying, the defects alleged in the list (other than what I will call the damp-proof course, the allegedly omitted slip joint and the claimed lack of sufficient under-floor ventilation) should be referred to an assessor and they join in an application to the court for such an order.
The plaintiff (to which I will sometimes refer as “Archonstruct” or “the builder”) is licensed as a builder for the purposes of the Building Work Contractors Act 1995 (“the BWCA”). It was incorporated in 1974. As I have said, the builder is effectively controlled by Mr Carn. As I understand, its business is, or is substantially, to carry out building work to construct or make additions to commercial premises (petrol service stations, shopping centres and the like) according to plans and specifications prepared by Carn Byrne & Associates Pty Ltd (which I will sometimes refer to as “the Architect”); for that purpose, and before its involvement with the defendants, it had entered into arrangements with building owners, or prospective building owners, by which individual trades or suppliers were progressively engaged from a relatively small number of tradesmen, or providers/suppliers, selected by Archonstruct (after consultation with the building owner) to tender for the particular segment of the work for which working drawings and specifications were progressively produced. This is in contrast to the more usual course of complete working drawings and specifications being prepared and put out either to general tender, or to selected builders, for a price with respect to the whole of the works. Mr Carn’s evidence is that the former process is conducive to the owner having greater control over the cost of the project, it more easily permits changes in design or specification to be made, work can commence and proceed before complete working drawings and full specifications are prepared and therefore speedier completion times between design and finished construction can be achieved. It is this system of work (called the construction management system) which Mr Carn described to the defendants and was accepted by them.
Mr Carn described his occupation to be Architect and building manager. He qualified as an Architect in 1964. In 1965 he was engaged by Woolworths Ltd in the position of architect and property manager. In 1973 Woolworths Ltd set Mr Carn up in private practice as an architect and in the same year he brought in Mr Byrne, also an architect, in a venture to form Carn Byrne & Associates Pty Ltd; in 1974 the two men incorporated Archonstruct to construct or alter petrol service stations and shopping centres according to Carn Byrne & Associates’ design. In the years prior to 1999 Archonstruct was also involved as builder in some ten to twenty residential projects designed by Carn Byrne & Associates. As I understand, Mr Byrne ceased to have an interest in either Archonstruct or the Architect some years before any of the events the subject of these proceedings occurred. As I have said, Mr Carn effectively controls the Architect.
Mr Karalis completed his schooling to matriculation level and then worked in a roadhouse business conducted by his parents in Blanchetown where he was “groomed to be a partner and owner”. Mrs Karalis also matriculated, and then qualified as a dental nurse. Upon their marriage in 1990 Mr and Mrs Karalis took over the running of the Blanchetown Roadhouse. By the date of trial they had acquired another roadhouse at Port Wakefield, a house near that business to accommodate a manager and also purchased land near to the site of the Blanchetown business to prevent any competitive business being established on that land.
In 1997 Mr and Mrs Karalis appointed Mr Karalis’ brother to manage the Blanchetown business, and they moved to reside in Adelaide where after living with Mr Karalis’ parents for a short time, they purchased a house in Allendale Grove, Stonyfell as a home for them and their two young children. In February 1999, Mr and Mrs Karalis purchased premises at 19 Morland Avenue, Stonyfell; the completion of the contract for that purchase was conditional upon Mr and Mrs Karalis obtaining within two weeks (as I understand) planning approval to demolish the house which was on the land, and to remove a number of trees, to make way for the construction of a new house. A land agent involved in the transaction concerning the Morland Avenue property referred Mr and Mrs Karalis to Mr Carn as an Architect for advice and assistance about obtaining planning approval.
Mr and Mrs Karalis and Mr Carn first met on about 17 February 1999; there were a number of subsequent meetings and the site of the Morland Avenue property was inspected by Mr Carn. By the month of March 1999 Mr Carn had produced several preliminary sketch drawings, negotiated with neighbours and conferred with an officer of the local corporation to secure what was described as “a Council officer’s opinion” as to the likely success of an application for planning approval in respect of the position and the general, and some specific, features of the residence Mr and Mrs Karalis wanted to build. Based upon the indicated approval obtained from the Council Planning Officer, Mr and Mrs Karalis completed the purchase of the Morland Avenue property in March 1999. In April 1999 they sold their house in Allendale Grove and entered into a tenancy agreement to rent the house from the new owners until 30 November 1999 which, effectively allowed the defendants six to seven months to do all that was necessary to bring about the design and construction of their new residence in Morland Avenue. The house which Mr and Mrs Karalis envisaged was in the style of a house depicted in a number of magazines shown by them to Mr Carn, supplemented with their descriptions, which revealed a large two-storey house that Mr Carn categorised as a “quite up-market house” of a type not many of which are found in Adelaide, and which Mr Paddick, a quantity surveyor, described as a house in the “medium to luxury” end of the market.
It is convenient to deal with the evidence of events upon which the parties respectively rely for their alleged claims against another of them, and make findings of fact, in the chronological order in which they occurred.
Most of those events happened six years, or thereabouts, ago. Mr Carn kept a diary, made contemporaneous notes of his meetings and conversations with the defendants and there are letters and other communications he wrote to the defendants during the period to in the month of December 1999 when the relationship between the parties deteriorated. Where there is conflict between the evidence of Mr Carn and the defendants upon substantial issues it is, in my opinion, appropriate to have regard to the contemporaneous records and material.
I conclude, from Mrs Karalis’ evidence that she played little part in the events the subject of this action, although she was active in instructing or liaising with Mr Carn in the selection of various fittings and finishes.
On 23 February 1999 Mr Carn met the defendants and, as I understand, reported to them the conversations he had had with a Council planning officer concerning what would be necessary to obtain that officer’s opinion as to the likely success, or otherwise, of securing planning approval for the house the defendants wanted to build on the Morland Avenue property. On that occasion, as I accept, Mr Carn confirmed with the defendants that his work to prepare preliminary plans and to seek to obtain the planning officer’s opinion would be charged at an hourly rate, in the context of which he explained to the defendants the services the Architect could provide, ranging from full services to partial services, and the fees for those services. On 9 March 1999 Mr Carn met the defendants to obtain their decisions concerning the dimensions of rooms and other features of the proposed house. Mr Carn was still dealing with the Council officer about securing an informal opinion. Mr Karalis wanted the size of some rooms increased in a context where he had told Mr Carn he had information the cost of building the house would be $250,000. Mr Carn’s evidence is that he told Mr Karalis the house the defendants were contemplating “is not a $250,000 house”. During the meeting a person whom Mr Carn understood to be a land agent engaged by Mr Karalis to sell, on the defendants’ behalf, an investment property in Welland volunteered that he thought the house the defendants were looking to construct would cost $1,000 per square metre. Neither defendant remembers the agent making that comment, but I accept Mr Carn’s evidence that it was made.
After the Council planning officer (in early March 1999) gave a favourable indication to the defendants’ plans for a residence on the Morland Avenue land, as interpreted in the preliminary sketches prepared by Mr Carn in discussion with the defendants, the defendants asked Mr Carn what the next steps would be. Mr Karalis told Mr Carn that his brother had had a house built by a builder named Guy, based in the Barossa Valley, which had cost $500 per square metre to construct. Mr Carn’s evidence is that he told Mr Karalis he was extremely doubtful that the house the defendants envisaged could be built at such a cost and told them, as he recorded in a letter to the defendants’ dated 26 March 1999 (Exhibit A76) “that a residence of this nature is likely to cost $750 per square metre (even up to $1,000 per square metre) depending on the complexity of the construction and the detailing you require, and the extent of the materials and the finishes” and “for that reason we recommended the plans, elevations and preliminary schedule of materials/finishes be given to (the Barossa builder) and a Budget Estimate be obtained.” The letter also described in some detail the four stages included in the full services offered by an architect (schematic design, design development, contract documentation (that is working drawings and specifications) and contract administration) and the fees charged. By a previous letter dated 25 March 1999 (Exhibit O92) sent by facsimile to the defendants, Mr Carn had enclosed a “schedule of finishes/specification notes” stating that there being much detail by way of finishes and other items which had not been discussed, he had made some assumptions “for the purpose of a basis for an estimate – however there are some things you will have to discuss with the builder giving the estimate”. In a letter to the defendants dated 29 March 1999 (Exhibit A75) Mr Carn set out the work he had done to date and identified, by sketch number (1-6), the drawings he had prepared.

After preparing a number of preliminary drawings to develop what he understood to be the defendants’ instructions concerning their needs and wishes for their new house, Mr Carn produced in March 1999 the drawing SK1 (Exhibit O2). Excluding areas shown on the sketch as verandahs, porticos and pool, the living areas measured 416 square metres.
Mr Karalis’ evidence is that the house shown in SK1 was generally in accordance with the instructions he had given to Mr Carn. He said that “during” March 1999 he told Mr Carn “basically that Gina and I had around $270,000 to spend on a new house and basically that’s what we were looking to spend” (T505). Mr Carn denies that was said to him. In his evidence Mr Karalis explained that the sum of $270,000 was the total of funds from various sources, including the nett proceeds from the sale of their house in Allendale Grove. That house was sold, he said, at the end of March 1999 with settlement in April 1999.
If Mr Carn had been told the defendants’ were looking to spend about $270,000 for a new house, in my view it is inconceivable he would produce a sketch plan with a floor area which is not less than 416 square metres when, as he told the defendants, it could cost up to $1,000 per square metre to construct, plus, as he records in his letter to the defendants dated 26 March 1999 (Exhibit A76) a further $20,000, approximately for works to accommodate the slope of the site they had bought.
In cross-examination it was put to Mr Carn (at T279) that in the conversation with the defendants “at some stage early on”, they asked him to design a house for them and he asked them how much they wanted to spend, to which the defendants responded “well, our thinking is this Mr Carn; we have just sold our house for $250,000 and that’s the sum that we are hoping to spend on building the house at Morland Avenue”. That is inconsistent with Mr Karalis’ evidence (and Mrs Karalis’ evidence) as to the figure they say they told Mr Carn. Mr Carn denied any such conversation occurred.
I do not accept the defendants’ evidence that they told Mr Carn they had around $270,000 to spend.
Mr Karalis said that when he received a copy of SK1, he told Mr Carn he did not want to spend $416,000. That was not put to Mr Carn in the course of his cross-examination. Mr Carn gave evidence before the defendants. I give no weight to the defendants’ alleged statement.
It is common ground that Mr Karalis did instruct Mr Carn to reduce the floor area of the proposed house and that led to the production, also in March, of drawing SK3 (Exhibit O3) which shows the proposed house area to be 351 square metres, not including verandahs. That sketch after further changes became SK5 (Exhibit O4); it was probably the sketch which was used to obtain, on about 12 March 1999, the Council planners intimation that the Council would likely give planning approval to the construction of the house shown in that drawing.
SK5 is also the sketch which, together with the schedule of finishes/materials, Mr Karalis provided to Mr Paul Guy, the Barossa builder, to obtain an estimate, and, also for the purpose of obtaining an estimate, provided to Mr Andrew Kantzavelos (Mrs Karalis’ nephew) a quantity surveyor who had qualified in 1997 and who in March 1999 was employed with WT Partnership as an assistant quantity surveyor.
Both Mr Guy and Mr Kantzavelos identified to Mr Karalis an error in the area of 351 square metres shown as the main residence gross floor area in SK5. Mr Karalis and Mr Carn met on 9 April 1999. Mr Karalis had prepared for (I infer) the purpose of the meeting, a note (Exhibit B114) of various matters concerning the sketch and other topics. Mr Carn made a note at the meeting of the, or some of the, topics which were discussed. The error in the calculation of gross floor area of the main residence was corrected to 379 square metres. Together with the areas of verandahs and balconies (about 86 square metres) shown in SK5, the gross floor area totalled close to 470 square metres. That is the area which Mr Kantzavelos showed in the report, headed “Full Estimate Summary” (Exhibit O94), he sent to Mr Karalis on 9 April 1999 setting out his estimate of the cost of construction to be $272, 248. Mr Karalis’ evidence is that the builder, Mr Paul Guy, informed him, but not in writing, that he estimated the cost of construction to be, as best Mr Karalis remembered, $285,000 - $287,000.
Mr Kantzavelos’ report calculated the cost of construction to be $579.25 per square metre. He said he prepared the report in his own time, his work was not assessed or checked by anyone and no fee was charged for the report.
Mr Karalis agreed, in cross-examination (T727), that Mr Carn told him “he thought $500 a square metre was unrealistic” and “it was more likely to be $750 up to $1,000 per square metre”.
Mr Sam Paddick, in the evidence he gave before Judge Bright, had an exchange with counsel for the Architect. He was called by the defendants to give evidence as to his assessment in December 1999 of the value of the work completed by the plaintiff in constructing the house, and the cost of completing what remained to be done. In the context, as I infer, of prices for labour and materials in the latter half of 1999
QIs it fair to say this that if you’re down round sort of $500 per square metre for a domestic construction, you’re down to sort of the lower end of the market.
AI don’t think you could actually build anything at that rate.
QNo, okay.
AA shed.
(T352)
Mr Paddick was a member of WT Partnership in 1999 and a quantity surveyor of more than ten years’ experience at that time. Mr Kantzavelos said he deferred to Mr Paddick’s opinion as to what could have been built for $500 per square metre in 1999.
Mr Karalis said of the report by Mr Kantzavelos (Exhibit O94) that the estimate it contained was the defendants’ budget, “it was our guide”, “it was the price we would have liked to build to … we were trying to build a house for $272,000” and it was the document they had regard to, as the defendants’ budget, during the construction of the house. However, inconsistently in my view, when it was put to Mr Karalis that he had ignored what Mr Carn had told him “that $500 per square metre was unrealistic” he answered (T741) “I relied on Mr Carn’s estimate so $750 a square metre to maximum $1,000 a square metre, that was our budget and if we needed to go to our bank to marginally borrow some more money, in my own mind I didn’t think that would be a problem”.
Mr Karalis did not give a copy of Mr Kantzavelos’ report to Mr Carn. He said he showed it to Mr Carn. Mr Carn said he had no memory of the report and said some writing that appears on the right hand margin of the first page of the document was not like his writing. Mr Karalis said that writing was Mr Carn’s.
In Mr Karalis’ notes for the meeting between him and Mr Carn on 9 April 1999 there is a notation “tender to three builders, P Guy, A Sheppard, Archonstruct”, and the word “No” which Mr Carn said he wrote against “Archonstruct”; that note supports Mr Karalis’ memory that the matter of Archonstruct possibly being involved in the construction of the house arose quite early in the planning stage. It was in the context of that meeting, I find, Mr Carn informed Mr Karalis that Archonstruct would not tender for the construction of the house.
It is Mr Carn’s evidence that he was told, by Mr Karalis, Mr Kantzavelos had estimated the cost of construction at $260,000. That is supported by a note to that effect which Mr Carn made on his copy of the letter to the defendants (Exhibit A75) dated 29 March 1999.
In a letter from Mr Carn to the defendants dated 13 April 1999 (Exhibit A78) Mr Carn enclosed a copy of the notes (Exhibit A118) he had made at the meeting with the defendants on 9 April 1999 and (Exhibit O95) a telephone conversation between him and Mr Karalis on 12 April 1999; the meeting is described in the letter to have been “long”. There is no mention of an estimate by Mr Kantzavelos in those notes, although I think it is more likely than not Mr Karalis had received the report before his meeting with Mr Carn; Exhibit O94 was faxed, to the defendants as I infer, on 9 April 1999. If Mr Carn was shown the copy of the report it was more likely at a meeting on 19 June 1999 between Mr Carn and Mr Karalis which Mr Kantzavelos attended, at least for part of the meeting, the occasion when, as Mr Carn said, he thought “we went through that. That was long day on the 19^th. We talked about doing estimates on rates, compared with trade packages and the nephew agreed with me that it would be better to do them on trade packages”.
On 15 April 1999 at a meeting between Mr Carn and Mr Karalis, and in a telephone conversation on the following day, it was agreed that for further work to be done by Mr Carn the Architect’s fees would be at the rate of $95 per hour, providing the Architect did other on-going work for the defendants and was engaged to prepare working drawings and specifications for the proposed residence. At about this time Mr Carn was providing Architectural services to the defendants in relation to their business in Blanchetown. From his notes of the meeting, Mr Carn’s evidence is that Mr Karalis told him that Mr Kantzavelos’ estimate to construct the residence was $270,000.
By early in the month of June 1999, Mr Carn had developed a further sketch of the proposed residence which incorporated changes the defendants had required to SK5, the preceding sketch, to produce SK9 (Exhibit O5). SK9 identifies the ground floor area (including the garage) and the first floor area to be 339 square metres excluding the pool area. Mr Carn’s evidence is that the area of 339 square metres did not include the areas marked as verandah, balcony or porch, totalling approximately 75 square metres; the exclusion of those areas had been noted on the preceding sketches, but not on SK9 because it was prepared for the purpose of applying for planning approval and, as I understand, living areas not totally enclosed are not taken into account in determining whether or not a proposed structure complies with the site planning requirements of the relevant approving authority. Nevertheless, in my opinion, Mr Karalis’ note Exhibit B114 (in which he wrote down the areas of the verandah and balconies in relation to SK5) makes it clear that he fully understood the area of 339 square metres (excluding the pool) in SK9 did not include the verandah, the balconies or the porch so he could not but have known the gross area of the residence as depicted in SK9 was approximately 416 square metres. Exhibit A80 is Mr Carn’s note (prepared for the purposes of the trial) of the areas shown in (inter alia) SK5 and SK9, the accuracy of which I see no reason to reject.
By letter dated 7 June 1999, application (Exhibit A79) was made by the Architect to the Corporation of the City of Burnside seeking approval for the proposed residence shown in SK9, which accompanied the application, requesting that the delegated procedure of the Council be utilised; the latter is a reference to a private certifier engaged for the purposes of the Development Act 1993. In this case Nikias Certification was engaged (Exhibit O96).
Included with the application for planning approval was a form, headed “Development Application Form”, signed by Mr Carn in which he wrote $270,000” against the prompt “Development Cost (do not include any fit out costs): and against the prompt “Builder” wrote “not yet known”.
On 31 March 1999, in a letter to Mr Karalis, the Architect wrote (inter alia):
We understand you are obtaining estimates from both your nephew and the builder of your brother’s house, as we also recommended.
With regard to your nephew we see benefit in discussing the provisions/allowances he made and suggest we discuss his estimate with him.
If you agree (and he is able to do it) could you arrange the discussion.
Mr Kantzavelos is the nephew referred to. By 8 June 1999, Mr Carn said, he had not met Mr Kantzavelos to discuss his estimate, and so to complete the development application form, he spoke to Mr Karalis to ask him what value he wanted inserted in the form – his evidence is that Mr Karalis said $270,000. At this time the defendants were still to decide whether to use Mr Guy as the builder or to go to selective tendering.
Mr Carn’s explanation (in cross-examination) for speaking to Mr Karalis is that there was a fee payable upon the application which was calculated by reference to the cost of the proposed building and “at that stage there were no firm prices. So nobody could verify for 100% what the costs would be, so I sought the client’s instructions, what he wanted me to put on his application form.”
Mr Karalis denied there was any such conversation. The application form is dated 8 June 1999. Mr Carn said he thought his conversation with Mr Karalis was by telephone and was made whilst he was completing the form to attach to the covering letter which he had drafted the day before. In re-examination he identified a note he had made in his diary on 8 June 1999 recording he had spoken to Mr Karalis on that day; other than a reference to “rang Council” appears, the topics of the conversation are not recorded, however against the background of Mr Carn’s caution, in March 1999, that the kind of house the defendants wanted could cost up to $1,000 per square metre to construct, I consider it is more likely than not Mr Carn, as he said, obtained Mr Karalis’ instructions to insert the figure for development cost which appears in the application form. The same figure subsequently appears in the contract, in the proposal for insurance to cover the works and in other documents emanating from Mr Carn. I find that each appearance originated in the instruction given to Mr Carn by Mr Karalis on 8 June 1999.
On 18 June 1999 Mr Carn spoke to Mr Karalis who informed him that information had been sent to Mr Kantzavelos and he was awaiting his response. Mr Carn’s evidence is that his perception was he was being kept “in communicado” concerning advice Mr Karalis was receiving about costs and that he (Mr Carn) told Mr Karalis he needed to talk to Mr Kantzavelos. A meeting was arranged for 19 June 1999.
The meeting on 19 June 1999 was at Mr Karalis’ house and lasted from 10am to 6pm; Mr Carn made notes to prepare for the meeting and made notes at the meeting (Exhibit 098 and 098(1)). Mr Carn’s evidence is that at the meeting, whilst waiting for about an hour or so for Mr Kantzavelos to arrive, he and Mr Karalis spoke about various finishes or features to be incorporated into the proposed house, and then, after Mr Kantzavelos arrived, other matters were taken up including the question of whether the house was to be built by open tender or by selecting the Barossa builder. At that time all that had been prepared by the Architect was a design of the basic framework of the house; the extent, and the detail of, working drawings and specifications to be prepared by the Architect would be reduced, and therefore less expensive, by negotiating with a selected builder to obtain its price rather than the preparation of complete working drawings and specifications necessary were the works to be put out to open tender. Mr Carn said that towards the end of the meeting the conversation turned to the construction management system of building as used by Archonstruct – Mr Carn said the topic was initiated by Mr Karalis asking to be told something about it. Mr Carn’s evidence is that he explained how the system operated, illustrating it for Mr Karalis’ benefit on a page of his notes by reference to an hypothetical budgeted construction cost of $276,000 which Mr Carn said was the estimate Mr Karalis told him had been made by Mr Kantzavelos. Mr Carn’s notes also include a diagram (and I infer he used it in his explanations to Mr Karalis) setting out the fees which would be incurred for architectural services and the costs charged by the selected builder for contract administration.
It is the case I find that the defendants did not wish to incur the cost of obtaining full architectural services which, as had been explained to them in the Architect’s letter dated 26 March 1999, were calculated as a percentage of the cost of the works, the fee being apportioned between four different services – sketch design, detail design, documentation and contract administration. In the case of works costing $276,000 Architect’s fees for full services would be approximately 11% or in excess of $30,000. However, it is also the case as I find that by mid June 1999 if the defendants were to go to general tender, they had minimal prospects of constructing their planned house to be habitable by soon after the expiration of the tenancy agreement for the house they were renting at Allendale Grove. There is no doubt in my mind the defendants were looking for an expeditious way to commence and complete construction, and Mr Carn was anxious to assist them to do that.
A significant feature of the system of project delivery which Archonstruct used involved obtaining what are termed “competitive trade packages from individual trades”. That type of system had been included among the three tender methods briefly referred to by the Architect in its letter to the defendants dated 26 March 1999, in relation to the extent of Architectural documentation required for each tender method; in that context the letter stated:
·Selected competitive trade packages from individual trades where we compile the list of tenderers in association with you to still provide competitive pricing through Archonstruct. Again in this instance the documentation could be reduced thereby reducing the documentation cost.
The meeting on 19 June 1999 was, I find, substantially taken up with questions concerning features and finishings of the house and with the matter of the particular means of bringing about the construction of the house, that is the form the engagement of the builder should take – whether the defendants would negotiate with the so-called Barossa builder for a cost plus arrangement, and so reduce the extent of the necessary working drawings, or seek selected builders to tender upon fully documented drawings, or consider the trade packages system.
I accept Mr Carn’s evidence that towards the end of the meeting Mr Karalis was still considering the options he had before him. By the end of the meeting no decision on that topic had been made by the defendants.
On 20 June 1999 (a Sunday) Mr Karalis telephoned Mr Carn, provided instructions concerning some features of the house and in Mr Carn’s words said “Would you give me a letter urgently tomorrow explaining the advantages of the Archonstruct system?” Mr Carn said he had personal health and professional commitments the next day and told Mr Karalis it would be difficult to provide the letter, but Mr Karalis replied he wanted it so that he could discuss it with Mr Kantzavelos and make a decision.
Exhibit B39 is the letter, on the Architect’s letterhead, dated 21 June 1999, which was sent to the defendants. Mr Carn said that it was adapted by him hurriedly making deletions and additions to a letter he had sent to a previous client.
Mr Carn said that there was another meeting between him and Mr Karalis, which Mr Kantzavelos attended, on 21 June 1999, where as I understand the evidence, Mr Karalis had with him the Architect’s letter of that date. Mr Carn said it was a long meeting. His evidence is that from his and Mr Karalis’ discussions about architectural services, it was clear to him (Mr Carn) that Mr Karalis did not want to pay the fee which would be charged by an architect to carry out the task of contract administration. It was in that context that Mr Karalis asked Mr Carn whether, if the Barossa builder, or some other builder, were selected to build the house, could Mr Carn inspect once a month during the progress of the works and sign off, that is certify, what the builder had done. Mr Carn said he refused, replying he “could not or would not”. Mr Karalis agreed there was such a topic of conversation; he implied it might have been on an earlier occasion than (as Mr Carn thought) the meeting on 21 June 1999, and said he did not agree that Mr Carn refused to occasionally check the selected builder’s work. I have no doubt that Mr Karalis’ question on this topic was with an eye to keeping down Architect’s fees – he was aware that contract administration accounted for some 30% of an Architect’s full service fees.

Mr Carn in his evidence explained why he had refused to carry out such inspection – it was not put that the explanation was given to Mr Karalis, however the explanation is so commonsense (that an Architect may incur a liability wholly disproportionate to token inspection for a nominal fee) it is more likely than not Mr Carn did refuse.
Mr Carn’s note concerning the meeting on 21 June 1999 (Exhibit O99) supports his evidence that part of the meeting was occupied in explaining to Mr Karalis architects’ fees, and the fees a builder would charge, comparing the fees Archonstruct would charge with those of another builder, where each of them used the construction management system. As to Archonstruct, its charges included $65 per hour for Mr Carn’s work as the construction manager and supervisor, engaged by Archonstruct, to among other duties co-ordinate the construction of the house and supervise the trades.
During the meeting Mr Carn left with Mr Karalis a proforma copy of the “cost plus contract” which subsequently, as I shall deal with later in these reasons, became the written contract between the parties.
On 22 June 1999 Mr Karalis spoke to Mr Carn on the telephone and told him, in effect, he wanted to proceed with the construction management system with Archonstruct. To this point I am satisfied that Mr Karalis had understood that were the defendants to have pursued the course of putting the work of constructing the proposed house to a general tender, full working drawings and specifications (together contract documentation) would have been necessary and if they wanted an architect to administer any resulting contract with the successful tenderer then the defendants would incur architectural fees for both contract documentation and contract administration. The alternative options which Mr Carn explained to Mr Karalis both involved a reduction in the extent of contract documentation, and thus the cost, either by negotiating with the selected builder, or by adopting the trade packages system where two or more from each of the trades or suppliers in the groupings set out in the specimen document Mr Carn provided with his letter to the defendants, dated 21 June 1999, are provided with the drawings and specifications relevant to that particular work and invited to tender, the contract for each particular segment of the work being awarded to the tenderer chosen by the defendants, in conjunction with the builder, having regard to the budget or estimate previously made or obtained by the defendants. Construction would then proceed under the management of the chosen construction manager (builder) who would program the order of work, co-ordinate the execution of it and supervise the trades.
Mr Karalis had made it clear that the defendants did not want to incur the cost of architects’ fees for contract administration, and I accept Mr Carn’s evidence that the Architect would not certify the works upon some simple, inexpensive, spasmodic basis and, further as I am prepared to find, Mr Karalis understood albeit perhaps imperfectly that Mr Carn, as Architect, would not be administering the contract or “certifying”. That left the defendants to in effect rely upon the builder, without any involvement of the Architect, for the construction of the proposed house and the making of applications for progress payments during construction. However, were Archonstruct to be the builder, Mr Carn would be occupying the role of construction manager to program the works, co-ordinate and supervise the trades and make applications for progress claims. It is in that context there arises the issue of the defendants’ plea that Mr Carn:
Represented that
He could act for the defendants as Architect, builder and construction manager/supervisor in giving the defendants many benefits and advantages (and that) under such an arrangement, the defendant would be getting an Architect for free. (paras 14.3 and 14.5 of the counterclaim)
Mr Carn agreed that he used words to the effect of “Architect for free” in the context of explaining that he would be performing different roles, that of architect and separately that of builder and construction manager. I accept Mr Carn’s evidence, in that connection, that at the meeting on 19 June 1999 he explained that the roles of architect and construction manager, or builder, had to be distinguished – the Architect’s letter to the defendant dated 21 June 1999, which includes a passage referring to the explanation Mr Kantzavelos offered at that meeting concerning the different roles, supports Mr Carn’s evidence. Further, Mr Karalis in cross-examination accepted that the words to the effect of “get an Architect for nothing” meant that in the role of builder (or as I find construction manager) Mr Carn could not “divorce himself from his Architect’s knowledge”. Mrs Karalis accepted that was the meaning of the expression used by Mr Carn. In accepting the proposition, Mr Karalis went on to qualify it stating it also meant that he would incur no further architectural fees once construction began. However, he agreed he knew working drawings would have to be prepared in order to construct the house and expected that they would be prepared by Mr Carn at the architectural rate of $95 per hour; he said:
My understanding of the working drawings is that they would have been completed when Council gave us approval to build our house. I didn’t envisage any further architectural fees after the plans were approved by Council other than a couple of drawings that were needed that didn’t require Council approval which I asked Mr Carn to do along the way. (T787).
The creation of working drawings and specifications was as I find an ongoing task, extending beyond the obtaining of planning approval, in a detail not required to obtain planning approval but necessary to properly document the defendants’ requirements and to set out the scope of the works the subject of the separate trade packages. In my opinion Mr Karalis’ belief that the production of working drawings ceased at the point planning approval was obtained, was unreasonable and was not justified by what he knew to be the trade packages system and the constraint, imposed by the expiry date of his tenancy agreement, upon the time available to erect the proposed house.
There is no dispute that the Architect was engaged by the defendants in February 1999 to obtain an informal intimation, from the authorities planning officer, to the likely granting of planning approval to the position on the Morland Avenue site and the general size and disposition of the house the defendants wanted, the Architect to be remunerated on an hourly basis charged at $95 per hour.
I find that that intimation having been obtained, on about 12 March 1999, the Architect was then engaged to prepare drawings with sufficient detail to obtain planning approval. That was sought on about 8 June 1999 by which time the defendants upon the recommendation of the Architect had sought and obtained construction cost estimates from a quantity surveyor (Mr Kantzavelos) and a builder (Mr Paul Guy) based upon a drawing and a schedule of finishes and materials prepared by the Architect. That drawing was an earlier version of what subsequently emerged as drawing SK9 which was the drawing ultimately submitted in support of the application for planning approval.
The Architect, I find, had plainly made known to the defendants the view that the house the defendants envisaged was not a $250,000 house but would cost $750 per square metre (and up to $1,000 per square metre) to erect depending upon the complexity of its construction, and the detailing and finishings they required, plus up to $20,000 for works to accommodate the house on a sloping site; that view was expressed in response to the defendants’ conveying to the Architect estimates that they had received in the order of $250,000 to $270,000. Mr Kantzavelos’ estimate was in writing, in the sum of $272,248 and calculated 470 square metres as the area of the proposed house. On the Architect’s multiplier the envisaged structure could cost up to $490,000 including works to accommodate the sloping site. Although the area of the house had been reduced to approximately 416 square metres in the form it was shown in SK9, that indicated a cost of up to $436,000, including accommodating the sloping site. The defendants chose to use Mr Kantzavelos’ estimate as their preferred budget, but even so Mr Karalis admitted that in keeping a record of costs during construction “Basically in my mind I was relying on Mr Carn’s estimate of up to $1,000 a square metre as a maximum and I felt comfortable with that, with quality finishes if it did achieve up to $1,000 a square metre for the construction of the house I felt comfortable in my own mind that I could go to the bank with some assistance of some further finance to meet that figure.” The defendants allegation in their counterclaim that the Architect’s “estimate” equated to a maximum cost of $350,000 is clear unsustainable.
I find that the defendants conveyed to the Architect that their estimate or budget for the proposed house was one they had devised with Mr Kantzavelos, the detail of which the defendants did not provide to Mr Carn, either in his role as Architect or in his role as construction manager. That no such details had been provided was recalled to the defendants in Archonstruct’s letter to them dated 6 September 1999 (Exhibit B44) the letter in which Mr Carn wrote that “… we are not precisely sure of what (the defendants) estimate contain. You have advised that of the competitive quotations we have provided so far it is generally in line with (we understand actually under) the budget estimate”.
I find that the Architect was engaged by the defendants to do the work necessary to obtain planning approval and thereafter to prepare working drawings and specifications at a fee calculated at $95 per hour. I find that the defendants did not engage the Architect and the Architect did not agree to carry out the task of contract administration, the meaning of which had been set out in the Architect’s letter to the defendants dated 26 March 1999 (Exhibit A76) in respect of the defendants’ engagement of the Architect.
The defendants submitted that the Architect implicitly agreed with them to design a house which would cost no more than $350,000 to construct, and, it being the case, that the house constructed to the Architect’s design had cost, even to the stage of construction reached by the date (14 December 1999) of the fourth progress claim, $356,916 with, as the plaintiff claims, further works at a cost of some $109,000 to complete the house, then the Architect is not entitled to any of the fees it claims. The defendants rely on Nemer v Whitford (1982) 31 SASR 475 where Sangster J stated (at page 476) the law to be:
… in order to recover his fees … the architect must have produced the design which, in his opinion, genuinely arrived at by the exercise of proper care and skill, was capable of being constructed within, or approximating, as the case maybe, the named cost.
In my opinion it was not part of the terms of the Architect’s engagement, and it did not agree, to design a house which could be constructed for a cost of no more than $350,000. The Architect (by Mr Carn) expressed to the defendants the view that the house they wanted could cost up to $1,000 per square metre depending on (at the time the view was expressed) the yet to be decided features and finishes of the house, plus approximately $20,000 for works to accommodate the fact the house was to be erected on a sloping site and the defendants’ desire to gain elevation to take advantage of the aspects available from the site. The Architect’s views were not an engagement of the nature of that which could give rise to a contractual obligation upon the Architect, which was found to exist in Nemer’s case, to in effect design to a cost.
The defendants further submit that it was the duty of the Architect to obtain from the defendants their budget (that is the total amount available to them to realise the house they wanted), and then to develop a design and provide a cost estimate to review against the defendants’ budget. The defendants called Mr John Taylor Walters, an architect and, like Mr Carn, a member of the Royal Australian Institute of Architects which he described as an advisory and voluntary Australia-wide body, with each State or Territory having its own chapter, to which a large proportion of Architects belong as members. It has a practice committee which inter alia develops guidelines, recommendations and directions and after consideration by the Institute promulgates those to its members. Such a guideline, in the form of a note, is Exhibit O159, earlier versions of which had been published in 1998. That guide note deals with the architect and client form of agreement (in its shorter version) appended to the note; it is in effect a commentary on the clauses of the agreement. The narration in dealing with clauses 3.2 and 3.3 of the form of agreement writes of the architect assembling the client’s brief and budget prior to beginning the design for the particular project, and preparing a cost estimate on the developed design for review against the client’s budget before the step of applying for planning approval, the client’s approval being sought at each stage.
The defendants point to the contents of the exhibit as evidence of the standard of practice and professionalism a reasonably competent and skilled architect should attain in his or her dealings with clients, a failure to achieve which, it is submitted, is evidence of the particular architect falling short of the duty of care owed to the client.
In my opinion, the defendants’ case on this aspect fails to rise to providing evidence on which a finding as to there being a standard of practice or professionalism observed among architects could be even hesitantly based. Mr Walters was clear in his evidence, and it is apparent from the exhibit, that it is a guide only and more importantly it is concerned only with the architect and client who enter into the appended form of agreement. Further it is clear from Mr Walters’ evidence that it is entirely a matter for the individual architect (and/or his client) to decide whether or not to use the available form of agreement, and it remains appropriate to adopt any other arrangement to provide services to a client. I do not accept that the Architect had a duty to the defendants to either elicit what they were intending to spend on the house they wanted, or to provide to them an estimate of the cost of constructing a design the Architect produced. If, of course, an Architect is asked to provide an estimate, and he does so, then he must possess and apply to that task the standard of skill expected of a competent member of his profession.
Insofar as it should be found, contrary to my view, that the Architect provided an estimate (in the usual use of that term) to the defendants, the cost of completely building the house to the Architect’s design (and the defendants make no complaint about the design) was assessed by Mr Paddick on 9 December 1999 at $409,080; he calculated the gross floor area of the house to be 392 square metres which produces a figure of $1,043 per square metre, but if the area is 416 square metres (as Mr Carn recorded in Exhibit A80), the figure is approximately $983 per square metre. The plaintiff’s case is that the house would have been completed by it at the sum of its progress claims, $411,878 plus the cost of carrying out outstanding works, $55,199, a total of $467,077 which for 416 square metres equals $1,122 per square metre; if Mr Paddick’s area is the correct measure then the cost per square metre would be $1,191.
Mr Paddick’s opinion (at T350 of the trial before Judge Bright) is that in the second half or the last quarter of 1999 there was a volatility in the building construction industry which affected prices.
QAs of about the second half or perhaps the last quarter of 1999, what sort of volatility were you seeing in the market place. Not in numbers, can you describe to his Honour generally what was occurring.
AIt was reasonably busy in comparison to recent history but nothing like what we are experiencing currently.
QWere you finding that trades were scarce or hard to get hold of.
ATrades were reasonably scarce and reasonably hard to get hold of, but again not anywhere near in comparison to what its like today.
QDid that have the effect of trades being more expensive to do work.
ATo a degree, yes.
QBecause you’re saying there, you say “the current conditions within the Adelaide domestic construction market are very volatile”.
AYes, depending on if a builder was busy or not, you’d get a good price or you wouldn’t.
QAnd sometimes if it was urgent and you needed work done then you would have to pay for it.
AThat would make sense, not necessarily at that particular point in time but at any time.
That supported Mr Carn’s evidence to similar effect.
The difference between an assessment of a cost estimate at $1,000 per square metre and an ultimate cost of up to $1,191 is less than a 20% difference which having regard to the volatile state of the building industry at about the time prices for trade packages to construct the defendants’ house were being obtained, and the defendants’ concern to have the house constructed as soon as possible, combine to show in my opinion that Mr Carn’s estimate, if it should be so categorised, has not been proved to have been made without proper care and skill.
I find that the Architect has proved its entitlement to the fees it claims, on the footing that those fees included its services to prepare working drawings and specifications for the construction of the defendants’ house in accordance with its instructions from the defendants. The fees are the subject of accounts dated 9 December 1999 (Exhibit A87) sent to the defendants and a letter from the Architect to the defendants dated 29 November 1999. Mr Carn also identified and there is in evidence as Exhibit A117 timesheets maintained by the Architect. There was no challenge to Mr Carn’s evidence as to the work carried out by the Architect and which is the subject of the rendered accounts. I find that the amount to which the Architect is entitled is $29,403.45.
The plaintiff’s contract with the defendants
The plaintiff in about July 1999 commenced activities preliminary to the construction of the house, which Mr Carn admitted probably amounted to the performing of domestic building work within the meaning of the Building Work Contractors Act 1995. That Act required a contract relating to domestic building work to be in writing and signed by the parties.
Mr Carn said that on about 21 or 22 June 1999 he had given to Mr Karalis a copy of the proforma “cost plus contract” saying words to the effect “This is the contract form we would use if Archonstruct were doing the job” or “This is the form we’d be using, have a look at it”. He denied handing the form to the defendants and asking them to read it, sign it and return it to him.
Mr Carn said that Archonstruct having embarked on preliminary activities relating to the proposed house, he was looking to obtain an executed contract with the defendants and he “ultimately” had a staff member, Helen Bay, type the terms of the agreement between the defendant and Archonstruct onto a cost plus proforma contract and send it to the defendants; he said it was returned signed by the defendant at about the end of August 1999, he signed it, and it appears affixed Archonstruct’s seal, initialled the typewritten words appearing in clause 14(s) and dated it 30 August 1999. It is Exhibit B35. He denied he received from the defendants a blank copy of the cost plus contract, executed by the defendants, had the typewritten parts inserted and then signed and dated it.

There is a facsimile from Archonstruct to Mr Karalis, dated 28 July 1999 (Exhibit B42) in which Mr Carn wrote, inter alia,
I am arranging commencement (of works) and private certification ASAP.
As discussed we really should not start (to comply with consumer legislation) until a contract is signed – but as I mentioned because of your time constraints we will put the work in hand as requested. Could you complete perusing the contract and let me know if it is acceptable (or any queries) – also ASAP.
Mr Karalis’ evidence is that he received from Mr Carn on, he thought, 21 June 1999, a copy of the proforma cost plus contract and that nothing was said as to who would be the parties. He said he remembers wanting to read the blank contract, noticed it had a date 1976 on it, and saw the logos of the RAIA and the MBFA; he tried to understand the provisions in the contract but then thought to inquire of the RAIA whether there was a more recent edition in plain English. He ascertained there was and telephoned Mr Carn who told him that he, Mr Carn, always used the particular form provided to Mr Karalis and he was very familiar with it. Mr Karalis’ evidence is that he had no request that he sign and return the contract to Mr Carn until he received a facsimile asking for its return (the facsimile is Exhibit B42) and seeing the mention of the contract in that facsimile Mr Karalis said he was prompted to sign and return the proforma contract that had been left with him on 21 June 1999; he said on a day when he was attending to his business in Blanchetown he signed the execution page in the presence of a Ms Fahlbosch who signed as a witness, he brought the document back to Adelaide where Mrs Karalis signed it and he sent it to Mr Carn. He identified the document he and Mrs Karalis signed to be Exhibit O100.
A comparison of the signatures of the defendants, and the witness Fahlbosch, as they appear and in the position in which they appear on the execution page (page 20) in Exhibits B35 and O100 (both of which are photostat copies) points in my estimation to the execution page being identical (other of course than the plaintiff’s execution of Exhibit 35). That supports Mr Karalis’ evidence that he and Mrs Karalis executed a copy of the cost plus contract, and made a photostat of it, when none of the identifiable additions had been inserted in the spaces provided for that purpose. That was a most unusual action for the defendants to have taken, although it is consistent with the overall impression I had of Mr Karalis’ evidence that he did not read the document he signed. He and Mrs Karalis were apparently content to leave it to Mr Carn (as Archonstruct I infer) to complete the document.
Mr Carn’s evidence that he drafted the passages to go into a standard form and they were transcribed onto such a form by Ms Bay, then the complete document was sent to the defendants for signature by them, is what is to be expected would likely have occurred. Ms Bay was not called and no reason was advanced for that. I infer that her evidence would not have assisted the plaintiff’s case. However, I will not draw from that any inference adverse to Mr Carn’s credit, particularly where the defendants do not claim that the added provisions appearing on the page headed “Appendix” are different from the agreement made between them and the plaintiff.
By the terms of the contract Exhibit B35 the Architect is given various powers and duties which are overwhelmingly those of contract administration. For the purposes of the contract the expression “the Architect” is defined to mean Carn Byrne & Associates Pty Ltd, or the architect or architects the defendants (as the proprietors named in the contract) employ in connection with the works. The Architect as defined in the contract is not a party to it, so as between the defendants (as the proprietors) and the Architect for the purposes of the contract the extent of the Architects contractual duties or rights must be found in the contract entered into between them. As I have found, the Architect was not engaged by the defendants to provide the service of contract administration which included certificates for progress claims, therefore the Architect had no contractual liability to the defendants to provide those services. So much was confirmed by the Architect in a letter it wrote to the defendants’ bankers, on 14 October 1999, in providing at the defendants’ request a copy of the contract B35, and drawings, in connection with the defendants’ application for a loan, in the sum of $159,000, for the purpose of the continuing construction of the house; the letter (Exhibit A83) contains this passage:
We have prepared the working drawings, details and specifications for the project, but we are not involved in the building process as Architects. A licensed general building company, Archonstruct Pty Ltd (G4598), operated by the directors of Carn Byrne & Associates is constructing the residence with the writer co-ordinating and supervising the trades.
The letter was signed by Mr Carn.
A copy of the letter was sent to Mr Karalis; there was no contrary response from Mr Karalis to that passage. Further, by the date of the letter the defendants had paid two progress claims submitted to them by Archonstruct, neither of which was “certified” by the Architect.
The effect of the defendants not having engaged the Architect, or any architect, to administer the contract and thus there was no Architect to carry out those powers and duties set out in the contract which fall under the heading of contract administration, is that the contract could not be performed as contemplated by its terms unless there should be implied into the contract a term that in the event of the defendants (as the proprietors) failing to appoint an architect, then the defendants would perform that role.
In Devaugh Pty Ltd v Lamac Developments Pty Ltd (1999) WASCA 280; (2000) 16 BCL 378, a main contractor engaged a sub-contractor to carry out part of the works included in the head contract. In the sub-contract an entity called the main contractor’s representative was invested with various rights and powers including directing that variations to the works be made, pricing variations, the receipt, valuation of and certification for payment of progress claims, and the issuing of a final certificate. The main contractor did not appoint a person to the position of main contractor’s representative, but the sub-contracted works proceeded for several years, progress claims being submitted by the sub-contractor to the main contractor which assessed them and made payments according to that assessment. Towards the end of the contract the main contractor and the sub-contractor were in dispute over a number of claims which had not been paid. In defence of an action brought by the sub-contractor for unpaid claims the main contractor contended that there was no entitlement to be paid except after the lapse of a period of 35 days from the date of the claim being received by the main contractor’s representative, and that as no main contractor’s representative had been appointed the sub-contractor had no maintainable claim.
The court concluded that upon the principles governing the implication of a term in a contract, as settled in BP Refining (Westernport) Pty Ltd v The Shire of Hastings (1977) 180 CLR 266, at 283, there should be implied a term that a reference to a main contractor’s representative in the relevant parts of the sub-contract should include a reference to the main contractor when no main contractor’s representative had been appointed.
In the present case, as I have found, there was no agreement between the Architect and the defendants that the Architect would perform the functions of the Architect for the purposes of the contract concerning matters embraced by contract administration; those included the receipt, assessment and certifying of progress claims and the issuing of a final certificate. In my view Archonstruct’s claims for payment should be determined on the basis that there is to be implied into the contract, Exhibit B35, a term that “references in the contract to the Architect include a reference to the proprietors where no Architect has been appointed”.
Upon the findings I have just made, it is not necessary that I deal with the defendants’ claim that the contract between them and Archonstruct was unconscionable and therefore voidable at their suit and should be set aside. However, I will give my views. It is further claimed that the contract with the Architect was entered into in support of the contract with Archonstruct and therefore those contracts constituted a tripartite collateral contract. It is accordingly submitted that if the contract with Archonstruct is avoided on the grounds it was unconscionable, the contract with the Architect is also to be avoided.
The plea is:
·Paragraph 24 of the Defence:
As to paragraph 42 of the Statement of Claim, the defendants deny that the plaintiff was entitled to payment of the claimed amount pursuant to purported progress claims 4, 5, 6 and 7 and the defendants say that the contract constituted an unconscionable bargain because it purported to be a cost plus building contract envisaging claims by the builder and certification by the Architect which contract is premised upon the builder and the Architect being at arm’s length. The contract proposed a builder and an Architect who are not at arm’s length. Additionally, purported progress claims 4, 5, 6 and 7 were not submitted in accordance with the terms of the contract.
·Paragraph 17.1 of the Set Off and Counterclaim:
Due to the conflict of interest between the plaintiff and Architect, the plaintiff and Architect were not at arm’s length as envisaged by the building contract such that there were disadvantages to the defendants and the defendants refer to the particulars set out in paragraph 20.1.
·Paragraph 20.1 of the Set Off and Counterclaim:
The contract constituted an unconscionable bargain because it purported to be a cost plus building contract envisaging claims by builder and certification by Architect which contract is premised upon the builder and Architect being at arm’s length (see contract clauses 1, 2(a), 2(e), 3, 5(b), 8, 10, 12(d)(g), 14(b), (c), (d), (e), (j), (l), (n), (w), (z), 15(d), 16(a), (b), (c), (d), (f), 18(b), (c), 19(a), (c), (x)(3)(4). The contract proposed a builder and an Architect who were not at arm’s length.
In a contract such as the contract in this case, by the terms of which many matters arise for the decision of the Architect named in it, the proprietor and the builder:
… make their contract on the understanding that in all such matters the architect will act in a fair and unbiased manner and it must therefore be implicit in the owner’s contract with the Architect that he shall not only exercise due care and skill but also reach such decisions fairly, holding the balance between his client and the contractor. Sutcliffe v Thackrah (1974) AC 727, at 737 per Lord Reid.
Merely that the architect is an employee, or an office holder, of the party appointing him does not affect his duty to act in a fair and unbiased manner, balancing the interests (having regard only to the terms of the building contract), of the parties to the contract. See Dixon v South Australian Railways Commissioner (1923) 34 CLR 71.
In my opinion if both parties to a building contract in the form of this contract, know that the person to fulfil the position of Architect is an employee, or an officer, of one of them, it is not open to either of them to seek to maintain that the contract is unconscionable, by asserting the Architect is “not at arm’s length” from a party to the contract. If, for example, the Architect made a decision upon a matter committed to him by the terms of the contract but he failed to exercise due care and skill in making the decision, then (aside from decisions made by him in the character of an arbitrator) he would be liable for the loss or damage suffered by a party as a consequence of that decision. Sutcliffe v Thackrah (supra) (for example per Lord Morris of Borth-y-Gest at 744).; and if it is proved that the Architect failed to act fairly for example colluding with one of the parties, then the contractual effect of his decision would be negated: Hickman & Co v Roberts (1913) AC 229.
The plaintiff’s claim
From in the month of July 1999 the plaintiff embarked upon selecting in conjunction with Mr Karalis, appropriate tradesmen who were invited to tender for the particular stage or facet to the building work upon documents prepared by the Architect; this was done successively as the works progressed. In some cases Mr Karalis put forward the name of a person to add to others identified by the plaintiff who were to be approached to provide a tender. In the earlier stages, Mr Karalis and Mr Carn were meeting frequently to examine the tenders, selection would be made by Mr Karalis and a tender accepted by Archonstruct. Mr Karalis accepted that Mr Carn was reporting the tenders to him by facsimile, telephone or in person.
In a letter dated 6 September 1999, (Exhibit B44) the plaintiff reported to the defendants the quotations that had been accepted, tenders that had been called and the work for which tenders were about to be called. That is the letter in which the plaintiff noted it had not received a breakdown of the estimate the defendants had prepared. With the letter was the first progress claim, as to which the plaintiff wrote:
We have prepared the progress claim in a format that you can add in your budget where an accepted quotation has not yet been confirmed. However, care should be taken to ensure there is a comparison of content in each budget item/quotation to ensure comparison is being made with like content.
On 1 October 1999, the plaintiff sent to the defendants the second progress claim, stating:
To enable you to make a comparison with your budget we have split the claim up into as much detail as you might need to compare with (Mr Kantzavelos) figures. If you do not need that detail could you let us know so that we can save time and hence cost.
Mr Carn’s evidence is that an element of the construction management system used by the plaintiff was the use of a sheet headed “Construction Budget/Contract Summary” in which trades for the successive stages of construction are tabulated. Such a form was enclosed with the Architect’s letter dated 21 June 1999 (Exhibit B39) to the defendants. These trades were the trade packages for which tenders would be called. On the form an estimate would be made for each package, the total of all packages being the building owners’ budgeted cost, before adding the builder’s profit margin; as the particular tender is received the profit price can be compared with the estimate and decisions made accordingly. Mr Carn’s evidence which I accept is that he did not prepare for the defendants an estimate for any package. His understanding was the estimates were being prepared by Mr Kantzavelos and were used by Mr Karalis as his budget. That is the estimate or budget mention of which is made in the two letters,ExhibitsB44 and B104. It is the estimate to which Mr Karalis said he referred and used as his budget, when he was keeping track of the costs during construction of the house.
It was however, part of the plaintiff’s task to prepare a summary of the tenders as a record of the tender process. The relevant documents for the tender process were available for the defendants, and were collected for Mr Karalis at the plaintiff’s offices on the occasion when there were meetings to discuss tenders and to select one. The documents are voluminous (they form part of Exhibit B41). The summary reports were contemplated to be provided as the tender process progressed. In the letter to the defendants on 1 October 1999 (Exhibit B104) the topic of the summary of tenders is mentioned:
We have been compiling an extensive summary of the competitive tenders … and had hoped to include it with this claim … We will forward it separately.
It was, I find, in the context of his participation in the process of liaising with Mr Carn concerning tenders, considering them, deciding on which to accept and responding to Mr Carn’s requests for decisions that Mr Karalis, as he described, found the process chaotic, stressful and overwhelming.
Mr Carn’s evidence is that on an occasion Mr Karalis came to his office for the purpose of looking at tenders and documents including summary tender reports, which were laid out on the conference room table, Mr Karalis asked whether it was his task to go through the material, and other material being carried into the room; told by Mr Carn it was, Mr Karalis said he did not want anymore, and that Mr Carn need provide him with only one report at the end of the job. The combined report was assembled and sent to the defendants in December 1999. It is Exhibit B41.
After receipt of the second progress claim, Mr Karalis realised that the house was going to cost a great deal more than Mr Kantzavelos had estimated; he arranged a loan of $159,000 from his bankers in about mid October 1999. He agreed that that sum plus the approximately $270,000 he had previously sourced, brought to nearly $430,000, his own calculation of the likely cost.
The third progress claim from the plaintiff was made on 29 October 1999. On perusing it, Mr Karalis discovered there were errors – allowance for previous claims had been understated and a claim for equipment hire had been charged at a rate per day when the actual rate was calculated per week. These were resolved between Mr Karalis and Mr Carn and the claim was amended and paid but Mr Karalis became, as he described it, suspicious. He approached the RAIA and was referred to a Mr Droegmueller, an Architect, for advice and assistance. He made demands to Mr Carn for original invoices received in relation to the construction of the house. The relationship between him and Mr Carn deteriorated, the fourth and fifth progress claims were not paid, the plaintiff commenced these proceedings and from about 22 December 1999 no further works of any substance were carried out on the site by the plaintiff.
Apart from the defendants’ case (which I have dealt with) that the contract with the plaintiff should be set aside because of its alleged inherent vice (Mr Carn not being at arm’s length from the plaintiff) and so the plaintiff cannot maintain any claim under it, the defendants alternatively assert that by failing to comply with their request to the plaintiff that it deliver up the invoices for all works carried out on, or materials associated with, the project, the plaintiff purported to repudiate the contract which the defendants accepted by their non-response to the plaintiff’s notice of demand pursuant to the Workmen’s Liens Act, and if not by that decision then by their letter to the plaintiff dated 29 March 2000, the day on which the defendants took possession of the building and excluded the plaintiff from it. The defendants had first asked for the originals of invoices (and other documents) on 14 December 1999. The plaintiff refused to hand over original documents maintaining they must be kept for accounting and taxation purposes. Subsequently, the parties each having engaged solicitors, copies were requested but that request was not satisfied until some time after March 2000.
In my opinion, the plaintiff’s refusal to deliver up the demanded original documents, and its subsequent dilatoriness in providing copies, was not a ground for rescinding the contract, and nor were the plaintiff’s actions or inactions in that respect capable of being categorised as repudiatory conduct. At best they may amount to a breach of contract, sounding in damages or going to the issue of interest.
I find that the defendants have failed to prove any grounds entitling them to repudiate the contract with the plaintiff or justifying an order that it be avoided ab initio or from any later time. I further find that the defendants repudiated the contract by excluding the plaintiff from the building on 29 March 2000, a repudiation which the plaintiff tacitly accepted.

The plaintiff adduced evidence, through Mr Carn, to prove its claim to the principal amount it seeks. Mr Carn was cross-examined upon the plaintiff’s documentary evidence including time records. Except for one topic, the defendants’ challenges concerning that evidence upon the quantum of the plaintiff’s claim lead me to be satisfied on the balance of probabilities that the plaintiff has proved its claim in the sum of the progress claims (Exhibit B73), after allowing for the payments made by the defendants. The excepted topic concerns the plaintiff’s claim for “preliminaries” which includes charges for time spent by Mr Carn, and his son Mr Darian Carn, organising, co-ordinating and supervising the progress of the work, and other tasks related to the management of the construction of the house.
The plaintiff and the defendants’ relationship degenerated into disputation shortly before 22 December 1999. Each of them engaged solicitors. The sixth progress claim, dated 29 March 2000, includes:
Additional time due to client breach of contract (including on instructions from Lynch and Meyer to 22.3.00) $2,274.
The seventh progress claim includes:
Construction management time spent providing information to respond to requests from proprietor etc (for the period 28/4/00 to 4/6/00) $2,438
Mr Carn agreed that he on behalf of the plaintiff spent time consulting, assembling materials for and giving instructions to the plaintiff’s legal advisers after the dispute arose, and substantially after proceedings were issued. The defendants submit, and I accept, that these claims are more properly the plaintiff’s costs incurred in the action. The total of the sums is $4,712, to which the plaintiff added 5% for its profit margin, or say $236. I assess the plaintiff’s claim against the defendants for its work as construction manager in the sum of $242,828.
The plaintiff further claims damages equal to 5% of the cost of executing the works which on 29 March 2000 remained to be carried out. The statement of claim alleges that cost would have been $55,193, so the quantum of this, in effect, loss of opportunity to earn a profit is $2,760. I have not been able to find any evidence given in the plaintiff’s case at the trial, of the likely cost at 29 March 2000 to complete the house. There is an assessment made by Mr Paddick on 8 December 1999 (Exhibit O25) of what work remained to be done and the cost of it – he estimated $115,380, but not only did that figure include a builder’s margin of 9.09%, it is more likely than not further works were carried out by the plaintiff after the date of his inspection of the house for the purposes of his report. The claim for $2,760 has not been proved.
The defendants’ set off and counterclaim
As I recorded earlier in these reasons, all alleged omissions or defects except for three matters are to be referred to a referee as to their existence and the cost to remedy them. The three matters are the alleged omitted damp-proofing of the sub-floor walls, the alleged defect constituted by omitting a slip joint to the Bondek decking on which the concrete floor was laid and the alleged insufficient ventilation of the sub-floor area. I will deal with each of them separately, but not in that order.
The alleged omitted slip joint
Mr Dean Iuliano is a construction engineer. At Mr Carn’s suggestion, Mr Iuliano was engaged by the defendants, to whom he rendered his account and which was paid by them, to design the footings, the suspended slab, and steel elements for the upper area of the house at Morland Avenue. The suspended concrete slab was formed on Bondek steel sheeting which spanned between, and was supported on, the brick sub-wall construction.
It is not disputed that the manufacturer of the Bondek sheeting, Lysaght Building Products, in instructions for installation of the sheeting, provided:
Bondek II Profiled steel sheeting must not be installed directly upon the masonry supports. A slip joint must be provided between the surfaces.
Mr Iuliano’s design did not provide for a slip joint – in his opinion it was not necessary in the particular circumstances of the layout, masonry wall height and other features of his design. He was supported in that by three other engineers Messrs Bastick, Bay and Coombe whose opinions are before the court. Messrs Bay and Bastick, and I infer Mr Iuliano, each say that the word “must” in Lysaght’s instruction does not, in the field of engineering, make the particular requirement mandatory. Two engineers, Mr Liney and Mr Goldfinch, are of the opinion that a slip joint was required and should have been provided for in Mr Iuliano’s design.
The Architect was not engaged to personally produce the engineering design for the sub-floor; it was in the field of another’s discipline. The design is that of Mr Iuliano who was directly engaged by the defendants for that purpose. It is not suggested that, in any sense, Mr Iuliano was the Architect’s agent and therefore in some manner the Architect is vicariously liable for any professional error Mr Iuliano might have made within his field of expertise. The plaintiff built the suspended slab on Bondek sheeting, without a slip joint, in accordance with Mr Iuliano’s design.
In the circumstances where, I find, neither the Architect nor the plaintiff can be liable to the defendants for the omission of a slip joint, it is unnecessary for me to conclude whether or not Mr Iuliano’s omission of the joint exposes him to any liability to the defendants, and in my view, it would be inappropriate for me to do so.
The lack of damp-proofing in the underfloor sub-wall
The specification prepared by the Architect (Exhibit A88) provided for the use of hard-burnt bricks, set in waterproof cement mortar, for the construction of the below floor level build-up (clauses 6.4, 6.10.1, 6.19 of the specification). The build-up was below the level of and supported the Bondek steel sheeting on which the concrete slab was laid.
There is no dispute that the specifications in that respect, complied with relevant rules under the Building Code of Australia and the SAHC but tests of the samples of the mortar taken from the below floor level build-up, conducted by Amdel Ltd, showed that the mortar composition used was not as specified and there was no or insufficient waterproofing agent in the mortar (Exhibit O7). The opinion of Mr John Goldfinch, a civil engineer, is that the insufficiently strong mortar composition and the absence or insufficiency of waterproofing agent would permit the occurrence of salt damp to rise into the brick build-up to cause a gradual and progressive deterioration in the durability and the structural integrity of the building (T123-125).
The Architect’s submission is that the defendants having failed to prove that it contracted with them to provide contract administration or supervision concerning the construction of the house, and the Architect’s specification for the brick build-up being appropriate and in compliance with the relevant rules for the task, the Architect is not responsible or liable to the defendants for the defect, its consequence or the remediation of it.
I have considered whether although, as I have found, the Architect was not retained or engaged by the defendants to provide contract administration services for the purposes of the contract between the plaintiff and the defendants, the fact, as I find it to be the fact, that Mr Carn would in effect be wearing three “hats” as an Architect, construction manager/supervisor, his admitted use of the expression that the defendants would have an architect for nothing not only conveyed to Mr Karalis (as counsel for the Architect put to him and he accepted) that Mr Carn could not divorce himself from his architect’s knowledge, but also those words represented that in carrying out his role as construction manager and supervisor, Mr Carn would bring to bear his skills as an architect in the defendants’ interests, and in particular to identify work or material which did not conform with the plans and specifications and constituted significant departures posing a threat to the structural integrity of the building or the later remediation of which (even if possible) would be very expensive.
Mr Goldfinch’s opinion was that the use of inadequate strength mortar in the brick build-up wall was inconsistent with adequate or proper architectural supervision of the work. Although no evidence was called by the defendants from an architect as to what steps a competent architect could or should take to properly acquit a supervisory role, and such evidence could be useful and persuasive “it is not of course decisive of the legal obligation which such a retainer of an architect (to periodically supervise and inspect) imports”. Florida Hotels Pty Ltd v Mayo (1965) 113 CLR 588 per Barwick CJ at 593. However, I have come to the view that there was no representation by Mr Carn which imposed upon him, or the Architect, a contractual or other duty to supervise or inspect the works for any purpose.
I therefore find that the defendants’ claim against the Architect, or Mr Carn as an officer of the Architect, has not been proved.
In case I am in error in finding that the Architect and Mr Carn are not liable for the plaintiff’s defective construction, and should be found to be either in breach of contract or in breach of a duty of care, I will express my opinion upon the issue as to which of the two proposals to remedy the defect in the brick below floor level walls should be found to be reasonably necessary; the Architect accepts that one or other is necessary but submits the chemical injection method proposed is less expensive and no less effective than the undersetting remedy.
The means of remedying the defect was the subject of evidence from a number of witnesses. There are two different proposals; the first is what is termed undersetting which requires the insertion of a damp proof membrane between the footing and the base course of the brick build-up; the second is the injection of a silicone-based product into the mortar below the bottom course of bricks.
The first proposal is that which was the subject of the consent judgment entered against the plaintiff on 17 November 2004 set out earlier in these reasons.
As to the effectiveness of each of the proposed remedies: the undersetting, properly carried out, will be as permanent a barrier as one integrated into the structure at the time it was built, and is (and as I understand was), the preferred method of proofing against rising salt damp. That the relevant membrane in carrying out the remedial work has been laid and positioned in accordance with the design for that purpose, can as I understand, be checked visually. The works are proposed to be effected in a manner which will not, as previously viewed as being necessary, involve removal of floor or other structures or the defendants quitting the house while the work is done. The cost in the price tendered by Mr Langdon Palmer’s firm is $113,287.
The chemical injection proposed method, in the opinion of Mr David Coombe, a consulting engineer, may require the demolition or the removal and then the replacement of some features of the house if the crawl space beneath parts of the house to access the base course bricks provides less than 400mm. The verification that the chemical treatment has been introduced, requires that the engineer engaged to verify, will need to inspect the progress of the work once a day. Depending upon which manufacturer’s product is used, the entity carrying out the work of chemical injection provides a warranty for 20 or 30 years; the implication I draw is that at those intervals the works would have to be inspected to determine if they are still effective and the likelihood that the treatment would have to be repeated. Although there is before the court a quotation by Damp Busters (Australia) Pty Ltd dated 25 November 2003 (Exhibit O21) addressed to the Architect, for $12,853 for the application of their Dryzone product, the author was not called, and Mr Goldfinch expressed the view that the claim in the quotation as to what is said to be BBA Certification may not extend to rising salt damp, but only rising damp simpliciter. There is other information before the court of quotations ranging through $27,236, $39,600 and $80,949.
There is not only, in my view, insufficient evidence of the cost to carry out the chemical injection method, but precisely what method Damp Busters employ has not been explained or forensically tested and the value of any warranty as to the effective life of the particular chemical treatment will be of use only for so long as the warrantor remains a viable business. Clearly the assessment of the defendants’ damages, were the chemical injection proposal to be selected, would have to include as a component an allowance for the probability that the treatment would need to be repeated in the future. There is also an issue of the potential for greater diminution in the value of the defendants’ house if chemical injection is adopted rather than undersetting.
I would determine that the undersetting method is one which the defendants have shown is reasonably necessary to remedy, as much as possible, the defect in the below floor level brick wall. I note that the Architect would have been content to be bound by the determination of the court as to the reasonable cost, if that were to become necessary, having regard to the order made by Judge Bright.
The underfloor ventilation
In the specification the Architect prescribed for the installation of vent bricks in external cavity walling (clause 6.1 “ventilation”). In his report dated 12 July 2001 (Exhibit O14) Mr Goldfinch opined that the specification did not comply with the requirements of SAHC 4.8.2 which described what Mr Goldfinch said was at least three vent bricks evenly apart over a three metre length of wall, whereas the specification “called up only two such bricks”.
Mr John Bay, both in his report dated May 2003 (Exhibit B122) and in his evidence said that if the ventilation design complies with the Building Code of Australia (BCA) then it is deemed to comply with SAHC. By the terms of the BCA part 3.4.1.2, the minimum ventilation in a sub-floor area, such as that in the Architect’s design, is required to provide for 3000 square millimetres per metre where the ground is sealed with an impervious membrane. He calculated that the area of the ventilation in the Architect’s specification was 3300 square millimetres per metre, and he observed that on the ground of the sub-floor area there was an impervious membrane. In his opinion the Architect’s specification as to ventilation complied with the BCA. In his evidence, Mr Richard Liney, an engineer, agreed with that opinion.
I find there is no case against the Architect in respect of its design concerning ventilation.
As I understand the evidence an insufficient number of vent bricks was built into the external walls. Mr Carn said that this occurred because the defendants (as is the fact) proposed to landscape the grounds which included building up soil against external walls, so, Mr Carn said, he intended to install horizontal vent pipes extending from within the sub-floor area through the external walls and under the level of the proposed build-up (when it was determined) to emerge at the limit of the build-up which would provide adequate ventilation into the sub-floor area. He said the remote end of the piping would have been vermin-proofed, installed with a means to prevent the ingress of moisture and would be suitably disguised by some landscaping effect. Mr Carn’s evidence is, and I accept, that the level of the soil build-up had not been determined at the time the plaintiff suspended work on the house, and was subsequently excluded from it. Accordingly the pipe ventilation had not been installed.
Mr Bay agreed that until the level of the soil build-up were known, a ventilation pipe could not be installed. In his opinion the pipe system could “be a solution, provided we ensure that the proper ventilation and the system will work in the conditions applicable”. Mr Coombe was also of the opinion that ventilation by pipes in the manner described by Mr Carn was appropriate and a means which Mr Coombe had commonly used.
Mr Liney proposed a remedial ventilation system involving the use of a device called an ecofan. However I find that the plaintiff’s decision to not install vent bricks on account of the defendants’ intended landscaping was one which was in the interests of the defendants, and but for the defendants’ unjustified termination of the contract the pipe ventilation would have been installed as effective ventilation at the cost of the defendants.
The defendants’ claim against the plaintiff and the Architect in relation to the sub-floor ventilation fails.
I turn to issues arising from that part of the defendants’ claim which has been successful, namely the defective construction of the sub-floor level brick wall. The plaintiff is liable to the defendants pursuant to the order made in November 2004 for the reasonable cost of, in effect, the undersetting of the wall with a viscourse damp-proof membrane.
The defendants claimed general damages in relation to the cost to them of completing the construction of the house. However, I having determined that the defendants, without any contractual or other lawful grounds, terminated the contract with the plaintiff, that cost and any delay, disruption or distress in bringing the house to completion is not to the plaintiff’s account, except insofar as it is attributable to the defective sub-floor walls.
When the work of undersetting or chemical injection was first identified by the engineers whose reports are, or whose evidence is, before the court, removal and reinstatement of floors and other parts of the structure or fabric of the house were judged to be necessary, the extent of which would have necessitated the defendants vacating the house for many weeks. However, the most recent evidence of Mr Langdon Palmer, whose company will carry out the undersetting, is that it will not be necessary for the defendant to vacate the house and his plan for the work, which he estimates to take some six to eight weeks, does not include the removal of floors whether constructed of concrete or timber.
Mrs Karalis gave evidence describing, and identified photographs (Exhibit O156) to illustrate the unfinished state of the house from time to time. Some work has still not been done – tiling one of the bathrooms, tiling in the foyer, porch and upstairs balconies and fitting of skirting boards. Mrs Karalis said that for some time the work required to remedy the damp-proofing of the sub-floor walls potentially involved the removal of floors and that “impacted” upon the defendants’ decision to not complete “certain” of the works. Other factors as I find influenced that decision, including the availability of funds and the continuing dispute as to the liability of the plaintiff for the defect in the sub-floor walls.
I consider it was not unreasonable for the defendants to defer those aspects of fitting out their house which would be brought to naught or considerably damaged by remedial work on the sub-floor walls, but by November 2004 at the latest, the probabilities were that no removal of floors was likely. Precisely which parts of fitting out the house would be affected by the removal of floors, or other activities integral to the under-floor work, is unclear but I am satisfied that some disruption and inconvenience to the defendants in the enjoyment of their house has been caused as a consequence of the defective sub-floor walls.
There will likely be some disruption of and inconvenience to the defendants in the enjoyment of their house because of the remedial works.
Doing the best I can, I assess damages for disruption and inconvenience in the sum of $8,000.00.

The defendants claim damages for diminution in the value of the house. They principally rely upon the evidence of Mr Robert Brooke a valuer.
Mr Brooke inspected the house, including the under-floor area, a few days before he gave evidence on 12 November 2004. In his opinion, were the house to have been completed (at that date it was still not and even in October 2006 it was not completed) in accordance with applicable building codes the house would have had a value in the order of $900-950,000. In his further opinion, and being informed that the extent of the work of undersetting would be apparent by reason of the proposed method resulting in short lengths of viscourse material being visible and the replaced bricks showing a difference in their mortar setting than those above, a likely purchaser of the house would pay 5-10% less than its otherwise market price; and in the case of the chemical injection method the reduction in price he said would be “possibly 20-30%” because of the less generally known remedial method used, the limited length of the warranty as to its continuing efficacy and the prospect of retreatment.
These opinions were based upon an intended purchaser inspecting, or having an expert inspect, before purchasing and in either case likely being prompted to muse what other hidden errors or defects there might be in the house if what Mr Brookes described to be the fundamental error of omitting a damp-proofing means, had occurred. He agreed, when he returned to give evidence almost two years later that he would be better placed to give an opinion as to diminution if he were to inspect the house after the under-floor remediation work had been done.
Mr Brooke’s opinion is by no means founded on a sure basis in fact, but I am prepared to accept the difference in the range of diminution between the undersetting and the chemical injection method, and I did so when I earlier dealt with the reasonableness of the former, as opposed to the latter, as the means of remediation.
The plaintiff submitted that the low end of the range of diminution (5%) which Mr Brooke spoke of in connection with the undersetting method is slightly less than the range of values to which the diminution applied. However in my view the mid point of each range is a reasonable starting point. My assessment must necessarily be in the broad, taking into the account the several imponderables which in my opinion point to any figure greater than $20,000 being unjustified on the evidence before me. That sum is my assessment of this head of loss.
The plaintiff contends that the defendants failed to mitigate their loss by:
(a)carrying out work on the house, after they took possession, which included installing wooden flooring and a porch floor the presence of which increased the cost of undersetting the below floor walls. The plaintiff contends that the defendants carried out this work when they knew of the lack of damp-proofing in the wall, and the probable need for remedial work.
(b)failing to have the remedial works carried out at the earliest reasonable opportunity.
I interpolate that the work the subject of the order made by Judge Bright in November 2004 had not been done when the trial resumed before me and was not expected to be done until early 2007.
The defendants took possession of the uncompleted house on 29 March 2000 and set about carrying out works to make it habitable. They had first consulted Mr Droegmueller in November 1999. On 28 March 2000, Mr Droegmueller reported to Mr Karalis that Amdel was able to test to determine whether mortar had a water-proofing additive, and informed him of the cost of sample testing (Exhibit B144). This report was provided soon after Mr Droegmueller had inspected the house in March 2000. Mr Karalis said he understood that a reason for the proposal to test the water-proof qualities of the mortar was the absence of a damp-proof membrane at the bottom of the sub-floor brickwork.
Amdel’s report on that topic was provided on 12 October 2000. In a report dated 3 October 2000 prepared by Mr Droegmueller, which Mr Karalis agreed he saw, there is a reference to the topic of undersetting. Mr Karalis went to live in the house in about mid May; he denied that before he moved into the house he knew there was a distinct possibility of undersetting work having to be done. Mr Karalis said he first became aware of the concept of “undersetting” as a topic which arose (he thought it was in June or July 2000) after Amdel reported the absence of water-proofing agent in the mortar. The first report from Amdel appears to be that dated 3 August 2000 (Exhibit O7). I accept his evidence and find that any work that Mr Karalis carried out before that time to make the house habitable, and which made access for the purpose of undersetting more difficult and thus more expensive is not evidence of a failure by the defendants to mitigate their loss.
Mr Langdon Palmer first quoted for works on the under-floor wall structures on 13 September 2001. His quotation was for $108,433 to carry out the work described in a report prepared by Mr Paddick (Exhibit O27); that work was different from the undersetting method later proposed, but Mr Palmer did not consider the demolition of concrete floors or the removal of wooden flooring would be necessary in the “burrowing” method he proposed using, although as I infer the absence of flooring would have made the carrying out of the works easier. He said that at the time of his inspection in September 2001 there was no concrete on the front porch and not all the wooden flooring had been laid in the eastern side of the house.
In November 2004 Mr Palmer gave an estimate for work to underset all “dwarf” walls of the house to incorporate a viscourse membrane which as I understand is the work referred to in the order made by Judge Bright. Mr Palmer estimated $78,168 (Exhibit O34). He explained in his evidence before Judge Bright that the figure was an estimate, he would need to inspect the house again to identify what work was to be done and then plan how it would be carried out.
Mr Palmer said he was contacted by Mr Liney to provide a quotation for work on the house described in the specification submitted on 16 June 2005 to the Burnside Corporation for approval (Exhibit O125). Approval was given on 5 August 2005 (Exhibit O126). The works the subject of that approval comprised undersetting, installation of a slip joint and the installation of air vents and an ecofan in the under-floor space.
Mr Palmer agreed that in about September 2005 Mr Liney contacted him seeking a quotation for the work the subject of the approval, but because of his work load and the absence of a member of his firm for several months it was not until in May 2006 that he was able to inspect the house for the purpose of preparing a quotation. His quotation is dated 6 June 2006 (Exhibit A135) for the sum of $113,287.
The delay since June 2006 to the commencement of works is attributable, I find, to a misunderstanding between Mr Palmer and Mr Karalis of what was said between them in August 2006. It is not necessary for me to try to identify precisely who, if either of them, caused the misunderstanding but I accept Mr Karalis’ evidence that he concluded Mr Palmer was unenthusiastic about proceeding with what Mr Palmer described as very difficult work in very cramped conditions. Mr Palmer in his evidence said he is prepared to carry out the works.
I find no sufficient support in the evidence of Mr Karalis or Mr Palmer to conclude that the defendants have failed to mitigate their loss by not earlier proceeding with the works to remedy the defect in the sub-floor walls.
SUMMARY
The plaintiff’s claim.
1.The plaintiff is entitled to recover from the defendants $242,828.00.
The defendants’ set-off and counterclaim.
2.The defendants are entitled to set-off against the plaintiff’s entitlements;
(a)the amount assessed, or agreed, pursuant to paragraph 1 of the order made on 17 November 2004;
(b)the sums of –
$8,000 assessed for disturbance and inconvenience
$20,000 assessed for diminution in the value of the defendants’ house
(c)the amount assessed in the defendants’ favour in relation to the remaining items in the Scott Schedule
3.Subject to the order to be made pursuant to s33 of the District Court Act referring the remaining items in the Scott Schedule for assessment, in all other respects the defendants’ set-off and counterclaim against the plaintiff, the Architect and Mr Carn are dismissed.
The Architect’s counterclaim against the defendants
4.There will be judgment for the Architect against the defendants in the sum of $29,403.45.
I will hear counsel on matters of interest and costs and the form of the order to be made pursuant to s33 of the District Court Act.